and complex and will require extensive study and consultation with the Advisory Council and interested groups and organizations. There are many possible variables involved, and flexibility and room for experimentation in this program are essential. Mr. Stuart, do you care to comment on the matter?

Mr. STUART. I think the regulations could cover that; not in the bill, but in the regulations.

The problem I think has to do primarily with the individual enrolled person, not in a group, and there are in most cases, I think, these preexisting inclusions now. Many of the organizations waive that after 1 year or after some fixed time, and I think that type of program where there is a waiver of those conditions, again is preferred by the language of the bill and I think would be again preferred in the administration of the act.

The CHAIRMAN. Should policies be reinsured which do not become incontestable after being in force for a specified minimum period?

Mr. PERKINS. I think I answered a question somewhat similar to that, that generally group contracts are now incontestable after being in force for a specific minimum period and again, individually written contracts have in them provisions as to the incontestability.

Again, we would certainly hope that by regulation or otherwise all carriers could be encouraged to write only policies that become incontestable after being in force for a minimum period of time.

And, I do think that certainly that something should be in the regulations along those lines.

The CHAIRMAN. Should policies be reinsured which do not provide for a specific minimum amount of benefits, that is, for each day in a hospital or for each doctor's visit, for example, and a specified minimum length of time during which benefits should continue?

Mr. PERKINS. I think that minimum benefit standards would be desirable. I do not think that it would be feasible to set them in the law itself, however, considering all the variables and imponderables involved. Careful consideration would have to be given in this connection to the various types of plans and carriers we would wish to reinsure, to distinctions between group plans and individual enrollment perhaps, and possibly even to different geographic areas. It seems obvious, therefore, that the matter can be dealt with adequately only by regulation, and that these may have to be changed from time to time in the light of experience and of the development of voluntary health insurance in this country.

To furnish both general policy guidance and flexibility, section 303 (a) (1) of H. R. 8356, as quoted in the Secretary's testimony, stresses the objective of expanding the types, range, amount, and duration of benefits covered by prepayment plans, and section 303 (a) (2) would specifically authorize the Secretary, as a condition of granting reinsurance, to prescribe "minimum ranges of health conditions to be covered by the plan [and] minimum provisions as to the kind, quantity, and duration of health services to be covered or provided under the plan ***." Any regulations developed pursuant to this provision should be designed to assure that prepayment plans provide for adequate benefits as to range, amount, and duration. It would certainly not be promoting the purposes of the act to reinsure plans that did not provide for such adequate benefits.

The CHAIRMAN. Should policies be reinsured which do not contain a provision for waiver of premium in the event of prolonged illness? Mr. PERKINS. Well, certain basic coverage should provide for care during ordinary length of illness. Catastrophic illnesses or major medical care programs should be specifically encouraged under the bill.

The bill is designed to encourage more comprehensive plans which will in themselves protect the families against prolonged illnesses and the economic burden attendant thereon, and waiver of premium in the event of illness should definitely be included as a part of the objectives.

I think that some regulation along that line might be a desirable thing.

The CHAIRMAN. Should policies be reinsured which do not limit additional charges made by hospitals or doctors over and above benefits payable under policies to a specified percentage in excess of benefits payable under policies?

Mr. STUART. It is a very good question, Mr. Chairman. Of course, in the Blue Cross, Blue Shield Service plans, any additional charges made by the hospital are limited by the contract between the processor of service, that is, the hospital and the doctor, and the plan. So that is taken care of in those plans, where you have a complete service program and in the Blue Shield program it is taken care of in those plans that have this special feature up to a minimum amount of family income per year and beyond that the doctor can make an additional charge.

Under that the payment to the doctor is payment in full.

Now, for the other programs, the cash indemnity programs, where the benefits received are in amount of money, why, there could be no limits on the additional charge made by those that provide the services, since there is no privity of contract between the providers of the service and the plan.

Mr. PERKINS. I would like to say there

Mr. STUART. It would seem that if we are in the overall approach to this program, that this bill contemplates, it might not be wise to attempt to limit the amount that could be paid or could be charged by the provider of the service above the indemnity payment provided by the carrier.

Mr. PERKINS. Perhaps it would be well to state that so far as we are concerned, the administration does not favor any attempt on the part of the Government to regulate the practice of medicine or administration of medicine, or the charges of physicians. To the extent that such a regulation might do that we would not be in favor of it.

On the other hand, I am by no means sure whether reinsurance of a plan which, unlike the usual commercial policy, provides for paying a scheduled charge to the provider of specified medical services under an agreement with the carrier, yet leaves the provider free to make an additional charge to the subscriber, would promote the purposes of the act. There is nothing in H. R. 8356 which would require that such a plan be necessarily made eligible for reinsurance. The question here would not be how much a physician should charge for given services but rather whether we should reinsure such a plan which does not provide for meeting the physician's entire charge through the prepayment method. Whatever the answer, it would not in my judgment

amount to an attempt on the part of the Government to regulate, directly or indirectly, the practice of medicine or the charges by physicians for medical care.

The CHAIRMAN. Should any distinction be made between medical services rendered in a hospital and medical services rendered outside hospitals insofar as percentage of cost is concerned which the insurer must bear himself; that is, assuming that there would be a limitation of that kind?

Mr. PERKINS. I personally do not have the competency to answer that, whether or not a distinction should be made.

The CHAIRMAN. Do not answer if you do not feel right about it. I do not want to get any thought in the record that we have to come back and explain.

Mr. STUART, From the standpoint of the individual in need of care, there should be no distinction made in the bill.

Dr. KEEFER. I would agree with that.

The CHAIRMAN. Of course-well, I said I would not discuss the points that I had in mind.

Should a coinsurance, that is, an insured bearing a portion of the cost, be required with regard to all insurance policies which may be reinsured under the bill and should maximum and minimum of coinsurance percentage be provided for in the bill?

Mr. PERKINS. I do not think so. Certainly not in the bill. The language of the question as you stated it, I think, included the words "in the bill," which gets back to our basic point. Assuming we are not talking about "in the bill," but are speaking about regulations, I should like, first, to invite attention to section 303 (a) (5) of the bill which authorizes the Secretary, as a condition of reinsurance, to regulate the matter of coinsurance. As I believe I indicated earlier, there would be no purpose, from the point of view of the objectives of the reinsurance program, to require that policies or subscriber contracts provide for a minimum coinsurance percentage. This would narrow rather than extend health protection and work to the disadvantage of many plans which generally now do not have coinsurance provisions. On the other hand, regulations providing for maximum coinsurance percentages, in those cases in which a plan providing for coinsurance is considered eligible, would evidently be the kind of regulation which could be appropriate. Do you have comment, doctor?

Dr. KEEFER. I agree with that statement.

The CHAIRMAN. Should policies have a deductible feature so that benefits are payable only after deductible has been paid by insurer himself?

Mr. PERKINS. I do not think so. Any reinsurance requirement to this effect would run counter to the objectives of a reinsurance program and discriminate against many sound plans. However, within proper limits, coinsurance, for example, in the major-medical-expense type of policy issued by some commercial carriers, may be wholly appropriate. Section 303 (a) (3) of the bill would authorize regulations as to deductible amounts. Under that authority, it would be appropriate to limit the size of deductible amounts, if any, which various kinds of plans may specify and still be eligible for reinsurance. The CHAIRMAN. Should requirements be contained in the bill that individual applications for insurance must be granted; and if so, what limitations should be placed on this requirement?

Mr. PERKINS. If I understand, that would be a requirement in the bill that an individual's application must be granted by the carrier, you mean? Well, I do not think we should have any provision in the bill that would have the tendency of putting the Federal Government in the position of forcing any health carrier to contract against its will, and I am not sure whether that provision might not have that tendency. But this program, I think, would encourage carriers to make the coverage available to individuals-not in groups. In other words, if you tell a carrier in this bill that it has got to insure an individual applicant, then I do think we would be putting the Federal Government in the position of saying to the carrier, "You have got to take this person on," and I think that that would be an undesirable position to get the Federal Government in, but we do hope that the carriers, under the stimulation provided by this bill, are going to want to take all comers.

My friend, Mr. Stuart, here, says he has got a man who is 102 on his rolls, which we think is encouraging.

The CHAIRMAN. Well, I realize that the questions I have asked do require some degree of reflection before you care probably to take a definite position, that would be accepted as a fixed viewpoint.

I am, therefore, going to suggest to you that in these questions that I have asked that I can realize how some of them are rather difficult and yet important enough not to be answered in too brief a manner, and that you shall have the privilege of revising and extending your remarks with reference to these questions and answers.

In other words, so that we will give you an opportunity of giving us as full an answer as you feel would be justified. That would include the reasons that justify you in arriving at your conclusions. Mr. PERKINS. That is very generous, sir. We appreciate that.

I would like to just reemphasize for the record, since we have spent considerable time on standards, that the consultants were unanimous in recommending that there be no fixed standards for two reasons: (a) Because of the need for flexibility in experimentation, which is the essence of the bill and (b) because without an extended period of preparation and consultation, they thought nobody would be wise enough to determine what the standards really ought to be.

And I recognize the spirit in which you have asked the questions; that is, not only on the issue of whether or not they should be in the bill; but I think it might be well to have that stated for the record at this point.

The CHAIRMAN. Very well.

Well, I have here a statement that has been submitted by Dr. George Baehr, president and medical director, Health Insurance Plan of Greater New York, in which he supports H. R. 8356.

He raises some questions as to whether it will be practical in some particulars as in others. He seems to think, if I get his reasoning, that the proposal will be helpful in creating interest in organizations such as the Blue Cross and similar organizations, more so than it would in some other types of group insurance, but he also agrees with H. R. 8356, the present bill, and the advantages gained by the adoption of H. R. 7700.

It is his opinion, using his words:

It will aid the establishment and growth of the comprehensive service plans by guaranteeing mortgage loans from private lending institutions for the acquisition of needed facilities and equipment.

And it is for that reason that he couples his favorable opinion of H. R. 7700 with his favorable opinion of H. R. 8356.

His statement will be made a part of the record at this point, in full.

(The statement referred to is as follows:)

STATEMENT SUBMITTED BY GEORGE BAEHR, M. D., PRESIDENT AND MEDICAL DIRECTOR, HEALTH INSURANCE PLAN OF GREATER NEW YORK

I wish to be recorded in support of H. R. 8356, because it may aid commercial insurance companies and Blue Cross plans to eliminate existing gaps in hospital benefit coverage and provide more comprehensive protection against the costs of hospitalization. It may aid commercial insurance companies and Blue Shield plans to provide somewhat more adequate coverage against more of the costs of nonhospital personal health services than they provide at present, but for the following reasons it will not enable them to offer anything like complete protection against the costs of sickness.

The commercial insurance companies and the Blue Shield pians indemnify the insured for the fees charged by doctors for their services. They therefore assume dollar risks. The unpredictable number of services which physicians may choose to render when paid on a fee-for-service basis by insurance carriers for medical services rendered outside of a hospital, therefore, means unpredictability of benefit costs to the carriers. This is the real reason for the wide gaps in benefit coverage characteristic of the medical expense indemnity plans of all commercial and Blue Shield companies. Even with reinsurance, wide gaps in benefit coverage will continue to be characteristic of commercial insurance and Blue Shield plans, because unnecessary physicians' services cannot be controlled in a country of this size when physicians are entitled to payment by insurance carriers for each service they may choose to render. Although I am optimistic about the beneficial effect of reinsurance upon the scope of Blue Cross protection against hospital bills, I do not believe that it can achieve that substantial measure of comprehensive protection against the costs of medical care outside of hospitals which low-income families require. This opinion is supported by the unfortunate experiences of the California Physicians plan and the Michigan medical plan, both of which were obliged to discontinue comprehensive out-ofhospital benefits because of inability to control the mounting number of unnecessary services when physicians are paid a fee for each service by insurance carriers.

In order to control overuse of personal health services, the fee-for-service indemnity plans are also obliged to have deductible provisions, waiting periods, coinsurance by the beneficiaries, and other financial deterrents to utilization, in addition to gaps in benefit coverage. These features place excessive financial burdens upon people of low income at the time of sickness or medical need. Because of the deterrent features and benefit limitations, the fee-for-service indemnity plans also do not provide for preventive services or for the numerous services by physicians, specialists, diagnostic laboratories, and X-ray facilities which today play so important a role in early disease detection and control and in the prevention of chronic disabilities. I favor the enactment of H. R. 8356 primarily, because it will encourage Blue Cross plans to provide more comprehensive protection to people of low income against the costs of needed hospital

care.

At the same time, I should like to emphasize that reinsurance will not significantly help group practice medical service plans like HIP which already provide comprehensive personal health services to insured persons without any essential gaps in benefits. These comprehensive service plans do not use the feefor-service system of payment but remunerate groups of physicians on an annual per capita basis. For this reason they are not confronted with unpredictable or unanticipated benefit costs. Reinsurance will, therefore, have little or no influence in encouraging their growth or their extension to areas where they do not as yet exist.

This is apparently recognized in section 305 (b) of H. R. 8356 (p. 20), which authorizes the Secretary to prescribe special regulations for service plans like health-insurance plan in which personal health services are rendered for the carrier "by a provider of personal health services" (presumably a prepaid group practice organization of physicians) “which is an affiliate of the carrier." The language of paragraph (b) of section 305 is vague, perhaps because the applicability of reinsurance to such plans is doubtful.