DEAR FRIEND:

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP61-00357R000300030001-2
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 477
• Document Creation Date: December 15, 2016
• Document Release Date: January 14, 2004
• Sequence Number: 1
• Publication Date: September 1, 1959
• Content Type: LETTER

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3ooe of 3&eproentatiba, W. *.
Committee on lost office anb Ctbif *erbice
a 0bitrgton,19. C.
September 1, 1959
Pear Friend:
E closed is a copy of the Cmmittee Report on
S. 212 and the hearings on the legislation to provide
a health benefits program for Federal employees which
passed the Rouse today.
As one. of those wo participated in the hearings,
thought you vould like to have your oil: copy.
With best vishee, l am
sincerely yours,rea~
rick C. Been
r1hief Counsel
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HEALTH BENEFITS PROGRAM FOR
FEDERAL EMPLOYEES
HEARINGS
COMMITTEE ON
POST OFFICE AND CIVIL SERVICE
HOUSE OF REPRESENTATIVES
EIGHTY-SIXTH CONGRESS
FIRST SESSION
ON
S. 2162 and similar bills
BILLS TO PROVIDE A HEALTH BENEFIT PROGRAM FOR
GOVERNMENT EMPLOYEES
JULY 21, 23, 28, 30; AUGUST 4, 5, 6, 7, 11, 12, 13, 14, 1959
Printed for the use of the Committee on Post Office and Civil Service
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HEALTH BENEFITS PROGRAM FOR
FEDERAL EMPLOYEES
HEARINGS
COMMITTEE ON
POST OFFICE AND CIVIL SERVICE
HOUSE OF REPRESENTATIVES
EIGHTY-SIXTH CONGRESS
FIRST SESSION
ON
S. 2162 and similar bills
BILLS TO PROVIDE A HEALTH BENEFIT PROGRAM FOR
GOVERNMENT EMPLOYEES
JULY 21, 23, 28, 30; AUGUST 4, 45, 6, 7, 11, 12, 13, 14, 1959
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1959
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COMMITTEE ON POST OFFICE AND CIVIL SERVICE
TOM MURRAY, Tennessee, Chairman
JAMES H. MORRISON, Louisiana EDWARD H. REES, Kansas
JAMES C. DAVIS, Georgia
JOHN LESINSKI, Michigan
CIIET HOLIFIELD, California
KATHRYN E. GRANAHAN, Pennsylvania
CHARLES O. PORTER, Oregon
RALPH J. SCOTT, North Carolina
GEORGE E. SHIPLEY, Illinois
TIIADDEUS J. DULSKI, New York
STANLEY A. PROKOP, Pennsylvania
JOHN R. FOLEY, Maryland
DONALD J. IRWIN, Connecticut
RANDALL S. HARMON, Indiana
DALE ALFORD, Arkansas
JAMES C. OLIVER, Maine
ROBERT, I. CORBETT, Pennsylvania
H. R. GROSS, Iowa
JOEL T. BROYHILL, Virginia
AUGUST E. JOHANSEN, Michigan
GLENN CUNNINGHAM, Nebraska
GEORGE M. WALLHAUSER, New Jersey
ROBERT R. BARRY, New York
KATHARINE ST. GEORGE, Now York
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CONTENTS
Statement of- Page
Babcock, Dr. Joseph M., director, department of national affairs,
American Optometric Association, Portsmouth, Ohio------------- 185
Baldwin, Hon. John F., Jr., a Representative in Congress from the
State of California-------------------------------------------- 14
Beiter, Alfred F., president, National Customs Service Association-__ 188
Blasingame, F. J. L., M.D., executive vice president, the American
Medical Association_________________________________________ 191,
Bremsteller, John D., independent insurance broker, Association
Group Insurance Agency, accompanied by John P. Miller------- 89, 311
Broyhill, Hon. Joel T., of Virginia, a member of the committee------ 23
Buerki, Dr. Robin C., chairman, council on Government relations,
American Hospital Association, and director, Henry Ford Hospital,
Detroit, Mich., accompanied by Kenneth Williamson, associate
director, American Hospital Association----__--_ 256
Bursach, George, national secretary-treasurer, National Association
of Internal Revenue Employees------------------------------- - 247
Campbell, James A., president, American Federation of Government
Employees-------------------------------------------------- 27,45
Garbo, Frank, associate manager, Joseph E. Jones Agency, Washing-
ton, D.C--------------------------------------------------- 300
Cetron, M. J., chairman, legislative committee, New York chapter,
and I. Lutzer, member, National Legislative Committee, National
Association of Naval Technical Supervisors_____________________ 385
Cobb, J. B., president, National Alliance of Postal Employees----__ 189
Cohelan, Hon. Jeffery, a Representative in Congress from the State
of California------------------------------------------------ 20
Colman, vice president, Blue Cross Association_______________ 80,127,477
Corbett, Hon. Robert J., of Pennsylvania, a member of the com-
mittee ------------------------------------------- 12
Curtis, Hon. Thomas B., a Representative in Congress from the State
of Missouri-------------------------------------------------- 391
Davis, Hon. James C., of Georgia, a member of the committee----- 467
Dollinger, Hon. Isidore, a Representative in Congress from the State
of Now York---------------- --------- 22
Eddy, Manton, vice president, Connecticut General Life Insurance
Co., Hartford, Conn., representing the Health Insurance Associa-
tion of America, the Life Insurance Association of America, and the
American Life Convention, accompanied by Lawrence Cathles,
vice president of the Aetna Life Insurance Co. of Hartford, Conn-- 208
Fine, Hon. Paul A., a Representative in Congress from the State of
New York-------------------------------------------------- 124
Fulton, Hon. James G., a Representative in Congress from the State
of Pennsyylvania--------------------------------------------- 115
Granahan, Hon. Kathryn E., of Pennsylvania, a member of the com-
mittee------------------------------------------------------ 43
Hallbeck, E. C., legislative representative, National Federation of
Post Office Clerks------------------------------------------- 27,45
Halpern, Hon. Seymour, a Representative in Congress from the State
of New York------------------------------------------------ 126
Harlow, Arthur H., Jr., president, Group Health Insurance, Inc., of
New York -------------------------------------------------- 181
Harrington, William J., president, U.S. Customs Inspectors' Associa-
tion, port of New York_______________________________________ 194
Hoover, J. Edgar, Director, Federal Bureau of Investigation (letter to
the chairman)----------------------------------------------- 106
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Statement of-Continued Page
Irons, Warren B., Executive Director, Civil Service Commission---- 394,
423,474
Johansen, Hon. August E., of Michigan, a member of the committee--- 41
Jaspan, Dan, legislative representative, National Association of Postal
Supervisors------------------------------------------------- 291
Jones, Joseph E., general insurance agent in the metropolitan area
and underwriter for groups of Government employees who have
health plans------------------------------------------------ 193
Jones, Hon. Roger W., Chairman, Civil Service Commission, accom-
panied by Warren B. Irons, Executive Director, and David F.
Lawton, Assistant Director, Bureau of Departmental Operations_ 394, 423
Karsten, Hon. Frank M., a Representative in Congress from the State
of Missouri------------------------------------------------- 77
Keating, Jerome J., vice president, National Association of Letter
Carriers----------------------------------------------------- 27,45
Lane, Hon. Thomas J., a Representative in Congress from the State
of Massachusetts------------------------------------------ 21
Larson, Charles R., president, National Rural Letter Carriers Asso-
ciation ----------------------------------------------------- 3.50
Lasseter, Dillard, executive officer, Organization of Professional Em-
ployees, Department of Agriculture____________________________ 342
Lesinski, Hon. John, of the committee a member of Michigan ------- 25
Luikhart, Fordyce W., president, Group Health Association, Inc..... _196
MacKay, John, president, National Postal Clerks Union, accompanied
by Philip Seligman, treasurer, from New York ------------------ 329
MoAvoy, Harold, president, National Association of Mail Handlers__ 27,45
Massie, Charles L., president, Federal Postal Hospital Association,
Kansas City, Mo., accompanied by Doyle B. Bonewits, vice presi-
dont ------------------------------------------------------- 226
McCabe, Edward W., chairman, committee on legislation, National
Association of Internal Revenue Employees, Nashville, Tenn----- 247
McElheny, Hon. John D., Acting Governor of the Canal Zone, and
Vice President, Panama Canal Company_______________________ 195
Mead, Dr. Sterling, Washington, D.C---------------------------- 392
Messer, Ross A., legislative representative, National Association of
Post Office & General Services Maintenance Employees---------- 349
Miller, Hon. George, a Representative in Congress from the State of
California----------------------------------------------- -- 13
Moore, Lewis E., chairman, legislative committee, National Associa-
tion of Postmasters__________________________________________ 73
Morrison, Hon. James H., of Louisiana, a member of the committee 11
Nagle, Paul A., president, National Postal Transport Association--- 27, 45
Owen, Vaux, president, National Federation of Federal Employees- _ 319
Polly Hon. Thomas M., a Representative in Congress from the State
ofWashington ---------------------------------------------- 26
Quigley, Hon. James M., a Representative in Congress from the State
of Pennsylvania--------------------------------------------- 353
Rees, Hon. Edward H., of Kansas, ranking minority member of the 10
committee------------------------------------------- ------- 190
Reicher, Miss Frieda, president, Foundation for Community Aid to
Mental Patients----------------
Riddell, James W., counsel for the underwriter of several Government 300
employee plans---------------------------------------------
Riley, George legislative representative, AFL-CIO --------------- 324
Rivers, lion. ii,alph J., a Representative in Congress from the State of 25
Alaska-----------------
Rubin, Dr. Abe. secretary and editor, American Podiatry Association_ 254
Ryan,'William H., president, International Association of Machinists- 27,45
Seligman, Philip, treasurer, Family Hospital Plan of New York Post
Office Clerks -_________ 331
Shelley, E. A., Director of Personnel, Tennessee Valley Authority,
Knoxville, Tenn., accompanied by Rudolph F. Bertran, Chief, Labor
Relations Branch, and Lloyd L. Huntington, Personnel Staff Officer_ 376
Sisk, Hon. B. F., a Representative in Congress from the State of 78
California--------------------------------------------------
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CONTENTS
V
Statement of-Continued
rase
Smith, Hon. Francis R., insurance commissioner, Commonwealth of
Pennsylvania-----------------------------------------------
245
Stans Hon. Maurice H., Director, Bureau of the Budget, accompanied
b
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ve Refer-
ence, and William P. Lehman, Office of Management and Organiza-
tion--------------------------------------------------------
451
Stevenson, Perry, president, commerce branch, National Federation of
Federal Employees------------------------------------------ 343
Stubbs, Dr. Donald, chairman of the board, Blue Shield Medical Care
Plans, accompanied by John W. Castallucci, executive vice presi-
dent, and Edwin R. Werner, manager for national enrollment-- 80, 127, 153
Thomas, Joseph F., president, United National Association of Post
(letter to the chairman) --------------------------------------
289
Weissman, Arthur, director of statistical information, Kaiser Founda-
tion Health Plan,Inc ----------------------------------------
236
Wheeless, Leon L., staff director, Civilian Personnel Policy Division,
Office of the Assistant Secretary of Defense (Manpower, Personnel,
and Reserve) ------------------------------------------------
469
Wier, Hon. Roy W., a Representative in Congress from the State of
Minnesota--------------------------------------------------
251
Williamson, Kenneth, associate director, American Hospital Associa-
tion--------------------------------------------------------
256
Willis, E. S., consultant, employee benefits, General Electric Co.,
New York, N.Y---------------------------------------------
355
Wilson, Frank J., president, National Association of Retired Civil
Employees, accompanied by Joseph L. Spilman, vice president, and
John J. Madigan,secretary -----------------------------------
339
Office Craftsmen--------------------------------------------
348
Tordella, Louis W., Deputy Director, National Security Agency, Fort
George G. Meade, Md---------------------------------------
194
Van Dyke, Prof. Frank, School of Public Health and Administrative
Medicine, Columbia University--------------------------------
198
Walker, Leland M., secretary-treasurer, National Federation of Fed-
eral Employees----------------------------------------------
319
Walters, Thomas G., operations director, Government Employes'
Council -------------------------- -- - 27,45
Warner, John S., legislative counsel, Central Intelligence Agency
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HEALTH BENEFITS PROGRAM FOR FEDERAL
EMPLOYEES
TUESDAY, JULY 21, 1959
HOUSE OF REPRESENTATIVES,
COMMITTEE ON POST OFFICE AND CIVIL SERVICE,
Washington, D.C.
The committee met, pursuant to adjournment, at 10: 15 a.m., room
215, Old House Office Building, Hon. Tom Murray (chairman),
presiding.
The CHAIRMAN. The committee will be in order.
A quorum of the committee is now present.
We are beginning hearings today on what I consider to be one of
the major pieces of legislation before this committee, this Congress.
It is one which proposes to establish a governmentwide hospitali-
zation and medical program for Federal employees. It is not an
easy matter to resolve.
Health insurance legislation has been before our committee re-
curringly since 1954. I do believe that many of the issues that here-
tofore have been controversial have been met in the text of the bill
that passed the Senate and which is presently before our committee
along with a number of bills that have been introduced by Members
of the House. There are, however, some rather important details
that I am sure the committee will want to work out to its satisfaction
before taking action on this bill. We have arranged to hear from the
authors of this legislation other Members of Congress, and then begin
with witnesses of Federal employee organizations today.
Future sessions will include testimony from additional employee
organizations, representatives of the Blue Cross-Blue Shield and
other organizations performing services which would be provided
under the bill, representatives of the insurance companies who will
also be participating under the bill, and other witnesses. It is
planned that the hearings will conclude with testimony from the
administration.
. One of the matters which concerns me and which concerns the ad-
ministration, based upon the reports which have been received cover-
ing legislation of this nature, is the matter of cost. It is estimated
that this program will cost well over $300 million. Under the terms
of the bills we have before us half of this cost will be provided by the
employees themselves, and the remaining half will be provided by the
Federal Government. Only present employees are covered under this
program but the sponsors of several bills already have announced
that they are developing legislation for consideration which would
apply to retired employees as well. It can be seen that the final im-
plications of this bill are :many millions of dollars.
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2 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
I hope that those who will be witnesses before the committee can
give us some rather definite statements concerning cost and the items
which compose this cost. I also want to be sure myself that the
services, outlined in the legislation to be made a part of the contract
for this program, can be furnished within the cost estimates.
I would like to point out to the members that this fringe benefit will
add substantially to the payroll cost of the Federal Government.
Already the cost of fringe benefits is 27 percent of our Federal pay-
roll. Payroll costs are now over $13 billion, and except for Defense
expenditures represent the largest single item of cost for the operation
of our Government.
One of the Senators, when this bill was debated the other day in
the Senate, said:
One point which I hope will be emphasized to the employees is that by the
enactment of the bill we will be extending a benefit far greater than a 10- or 15-
percent pay increase. Although the block buying of this insurance may result in
a lesser cost by a considerable amount than such a pay raise, the net result for
the long time security and happiness of the employees, I think, will exceed any
pay increase we can give them.
I fully agree with this timely observation.
If the Federal employees agree that the enactment of this proposed
legislation will be equal to a pay increase of 10 to 15 percent and will
not press for legislation during the remainder of this Congress for
a pay raise in addition, then I will be more favorably inclined to the
enactment of a hospital and medical program for Federal employees.
I am deeply and seriously concerned with the financial condition of
our Federal Government. The fiscal year just concluded on June 30
produced a deficit of over $12.5 billion. Our total national debt is
presently $287 billion and will rise to $292.5 billion by November 15.
We are paying interest on this debt at the rate of $8.5 billion in the
current fiscal year. I do not see how we can favorably consider both
a health insurance program and pay legislation in this Congress. Both
will add to the national debt and resultant interest charges. If the
employee groups plan to demand pay increase legislation next year in
addition to this major fringe benefit now before us, they should say so
now and this legislation then should be set aside.
While by the terms, these bills would propose to start this program
a year from July-that is, July 1, 1960-certainly the Congress which
will have to appropriate the money to carry on this program will have
to consider this increased payroll cost facing the Federal Government
when other costly employee benefit programs are presented for consid-
eration. It would seem to me that there is a strong reason for wait-
ing until we can see what the budget situation for 1960 is so that we
can then determine whether or not the money is available. Also, the
Federal employees could then make known to us their feeling that if
the Federal Government is going to add over $150 million a year to
its payroll costs by this Government insurance, is this the way they
want that money to be spent.
Of course, I may be more alarmed about the financial condition of
our Government than many others, but I am seriously concerned about
the solvency of our Government and where the money is coming from
to pay these tremendous appropriations authorized by Congress.
(The bill S. 2162 follows:)
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 3
[S. 2162, 86th Cong., 1st less.],
AN ACT To provide it health benefits program for Government employees.
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled, That this Act may be cited as the "Federal
Employees Health Benefits Act of 1959".
Sac. 2. As used in this Act-
(a) The term "employee" means an appointive or elective officer or employee
in or under the executive, judicial, or legislative branch of the United States
Government, including a Government-owned or controlled corporation (but
not including any corporation under the supervision of the Farm Credit Admin-
istration, of which corporation any member of the board of directors is elected
or appointed by private interests), or of the municipal government of the Dis-
trict of Columbia, and includes an Official Reporter of Debates of the Senate
and a person employed by the Official Reporters of Debates of the Senate in
connection with the performance of their official duties, and an employee of
Gallaudet College, but does not include (1) a member of a "uniformed service"
as such term is defined in section 1072 of title 10 of the United States Code,
(2) a noncitizen employee whose permanent-duty station is located outside a
State of the United States or the District of Columbia, or (3) an employee of
the Tennessee Valley Authority.
(b) The term "annuitant" means (1) an employee who on or after the ef-
fective date of the provisions referred to in section 1.6(b) retires on an immedi-
ate annuity, under the Civil Service Retirement Act or other retirement system
for civilian employees of the Government, after twelve or more years of service
or for disability, (2) an employee who on or after the date of enactment of
this Act and prior to such effective date retires on such annuity (1) after
twelve or more years of service upon involuntary separation not by removal
for cause on charges of misconduct or delinquency or (ii) for disability, (3)
a member of a family who receives an immediate annuity as the survivor of
a retired employee described in clause (1) or clause (2), or of an employee
who dies on or after such date of enactment after completing five or more years
of service, (4) an employee who receives monthly compensation under the Fed-
eral Employees Compensation Act as a result of injury sustained or illness
contracted on or after such date of enactment and who is determined by the
Secretary of Labor to be unable to return to duty, and (5) a member of a
family who receives monthly compensation under the Federal Employees Com-
pensation Act as the surviving beneficiary of (i) an employee who dies after
completing five or more years of service as a result of injury sustained or illness
contracted on or after such date of enactment or (ii) a former employee who
is separated after completing five or more years of service and who dies while
receiving monthly compensation under such Act on account of injury sustained
or illness contracted on or after such date of enactment. For the purpose of
this subsection, "service" means service which is creditable for the purposes
of the Civil Service Retirement Act.
(c) The term "member of family" means an employee's or annuitant's spouse,
unmarried child under the age of nineteen years (including (1) an adopted
child, and (2) a stepchild or recognized natural child who lives with and re-
ceives more than one-half his support from the employee or annuitant in a
regular parent-child relationship), or unmarried child regardless of age who
is incapable of self-support because of a mental or physical incapacity that
existed prior to his reaching the age of nineteen years and who is in fact
dependent on the employee or annuitant for over one-half his support.
(d) The term "dependent husband" means a husband who is incapable of
self-support by reason of mental or physical disability, and who receives more
than one-half his support from the employee or annuitant.
(e) The term "health benefits plan" means an insurance policy or contract,
medical or hospital service agreement, membership or subscription contract or
similar arrangement provided by a carrier for the purpose of providing, paying
for or reimbursing expenses for health services.
(f) The term "carrier" means a voluntary association, corporation, or partner-
ship, or other organization (other than an agency or instrumentality of the
Federal Government or of any State or political subdivision thereof) which
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4 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
is lawfully engaged in providing, or paying for or reimbursing the cost of, health
services under insurance policies or contracts, medical or hospital service agree-
ments, membership or subscription contracts, or similar arrangements, in con-
sideration of premiums or other periodic charges payable to the carrier, includ-
ing a health benefits plan duly sponsored or underwritten by a national employee
organization.
(g) The term "Commission" means the Civil Service Commission.
(h) The term "national employee organization" means a bona fide labor or-
ganization, national in scope, which represents only employees of one or more
departments or agencies of the Government.
SEc. 3. (a) This Act shall apply to any employee who, at such time, in
such manner, and under such conditions of eligibility as the Commission may
by regulation prescribe, elects to enroll in a health benefits plan described in
section 4 either for himself alone or for himself and members of his family.
Such regulations may provide for the exclusion of employees on the basis of the
nature and type of employment or conditions pertaining thereto, such as short-
term appointments, seasonal or intermittent employment, and employment of like
nature, but no employee or group of employees shall be excluded solely on the
basis of the hazardous nature of employment.
(b) (1) This Act shall apply to any annuitant who at the time he becomes an
annuitant shall have been enrolled in a health benefits plan under this Act-
(A) for a period not less than (i) five years, or (ii) the period beginning
on the last day of the. first period, as prescribed by regulations of the Com-
mission, in which he is eligible to enroll in such a plan and ending on the
date on which he becomes an annuitant, whichever is shorter, or
(S) as a member of the family of an employee or annuitant.
(2) This Act shall also apply to any annuitant not enrolled in a health bene-
fits plan during the period referred to in paragraph (1) if-
(A) such annuitant is (i) an annuitant described in section 2(b) (2),
(ii) an annuitant described in section 2(b) (4) whose injury was sustained
or whose illness was contracted prior to the effective date of the provisions
referred to in section 16 (b), or (iii) a member of the family of an annuitant
referred to in (i) or (ii) or of an employee or former employee described
in section 2(b) (5) whose injury was sustained or whose illness was con-
tracted prior to such effective date, and
(B) such annuitant elects to enroll in a health benefits plan under this
Act within such period, in such manner, and under such conditions of
eligibility as the Commission may by regulation prescribe.
(c) If an employee has a spouse who is an employee, either (but not both)
may enroll for himself and members of his family, or either spouse may enroll
for himself alone, but no person may be enrolled both as an employee (or an-
nuitant) and as a member of the family.
(d) A change in the coverage of any employee or annuitant, or of any em-
ployee or annuitant and members of his family, enrolled in a health benefits
plan under this Act may be made by the employee or annuitant only upon appli-
cation filed within sixty days after the occurrence of a change in family status
or at such other times and tinder such conditions as may be prescribed by
regulations of the Commission.
(e) A transfer of enrollment from one health benefits plan described in sec-
tion 4 to another such plan shall be made by an employee or annuitant only at
such time or times and under such conditions as may be prescribed by regula-
tions of the Commission.
SEC. 4. The Commission may approve the following health benefits plans :
(1) SERVICE ]BENEFIT PLAN.-One Government-wide service benefit plan under
which in whole or substantial part the physicians, hospitals, or other providers of
covered health services agree, under certain conditions, to accept the payment
provided by the plan as full payment for covered services rendered by them.
(2) INDEDINITY BENEFIT rLAN.-One Government-wide indemnity benefit plan
under which the carrier agrees to pay to the employee or annuitant or member
of his family, who incurs expenses for health services covered under the condi-
tions of the policy, or to the providers of the health service benefits, certain
stipulated sums of money not in excess of the actual expenses incurred.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 5
(3) EMPLOYEE ORGANIZATION PLANs.-Employee organization plans which are
sponsored, contracted for, and administered in whole or substantial part, by
national employee organizations, which are available only to persons who are
or have been members of the sponsoring organization, and which provided bene-
fits for health services to members of the sponsoring organization on July 1,
1959.
(4) GROUP-PRACTICE PREPAYMENT PLANS.-Group-practice prepayment plans
which offer health services in whole or in substantial part on a prepaid basis,
with professional services thereunder provided by physicians practicing as a
group in a common center or centers. Such a group shall include physicians
qualified in at least three major medical specialties and receive all or a sub-
stantial parts of its income from the prepaid funds.
SEC. 5. (a) To the extent possible with the funds available under this Act, the
benefits to be provided under plans described in section 4 shall be the following :
(1) SERVICE BENEFIT PLAN.-
(A) HOSPITAL BENEFITS.-Benefits which the Commission finds to be equiva-
lent to the full cost of hospital care in semiprivate accommodations in a general
or acute special hospital for one hundred and twenty days in any period of
continuous care or for one hundred and twenty days in the aggregate in any
periods of such hospitalization separated by ninety days or less, except that such
continuous or aggregate periods in the case of tuberculosis and nervous and
mental conditions shall be thirty days.
(B) SURGICAL BENEFITS.-Benefits which the Commission finds to be equiva-
lent to the reasonable, necessary, and customary charges for surgical services,
and for care of abnormal deliveries, made to persons with incomes less than
those of the one-quarter of Federal employees earning the highest incomes.
(C) IN-HOSPITAL MEDICAL BENEFITS.-Benefits which the Commission finds to
be equivalent to the reasonable, necessary, and customary charges for medical
services rendered during periods of hospitalization for which benefits are pro-
vided under subparagraph (A) to persons with incomes less than those of the
one-quarter of Federal employees earning the highest incomes.
(D) AMBULATORY PATIENT BENEFITS.---Benefits for services to hospital out-
patients and other ambulatory patients which the Commission finds to be
practicable, reasonable, and desirable with respect to diagnostic and treatment
services, surgical services, and services in cases of accidental injury.
(E) SUPPLEMENTAL BENEFITS.-Benefits equal to (1) 80 per centum of so
much of the additional charges for health services for each individual for each
illness as exceeds $100 but does not exceed $1,500, plus (ii) the amount of any
such additional charges in excess of $1,500 under such conditions and such
maximums as may be determined appropriate by the Commission. For the
purpose of this subparagraph, "additional charges for health services" means
the amount by which the charges for health services for which supplemental
benefits are provided exceed any cash or service benefits provided under sub-
paragraphs (A), (B), (C), and (D). The supplemental benefits provided for
under this subparagraph shall not duplicate or replace the benefits provided for
under subparagraphs (A), (B), (C), and (D).
(F) OBSTETRICAL BENEFITS FOR NORMAL DELIVERIES.-Benefits which shall not
exceed $100 for hospital services and $100 for professional services for normal
delivery, prenatal and post partum care, and which shall be in lieu of all bene-
fits for such services under subparagraphs (A), (B), (C), (D), and (E).
(2) INDEMNITY BENEFIT PLAN.-
(A) Hospital Care.
(B) Surgical Care and Treatment.
(C) Medical Care and Treatment.
(D) Obstetrical Benefits.
(E) Prescribed Drugs, Medicines and Prosthetic Devices.
(F) Other Medical Supplies and Services.
The plan may include deductible and coinsurance provisions applicable to
some or all of the benefits.
(3) EMPLOYEE ORGANIZATION PLANS.-Benefits of the type specified in this
subsection under paragraph (1) or (2).
(4) GROUP-PRACTICE PREPAYMENT PLANS.-Benefits of the type specified in this
subsection under paragraph (1) or (2).
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6 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
(b) The description contained in subsection (a) of the scope and value of
the benefits to be provided under health benefits plans shall not be construed
to preclude the provision of alternative benefits under such plans. The Com-
mission may authorize, in lieu of the benefits described in subsection (a),
alternative benefits which it determines to be equally acceptable under this Act
and which may include deductible and coinsurance provisions applicable to
some or all of the alternative benefits.
SEc. 6. (a) The Commission is authorized, without regard to section 3709 of
the Revised Statutes or any other provision of law requiring competitive bidding,
to enter into, or authorize enrollment under, a contract or contracts with or to
purchase a policy or policies from, qualified carriers offering plans described
in section 4 and providing the benefits described in section 5. Each such con-
tract or policy shall be for a uniform term of at least one year, but may be
made automatically renewable from year to year in the absence of notice of
termination by either party.
(b) Any contract or policy under this Act shall contain a detailed statement
of benefits offered and shall include such maximums, exclusions, and other
definitions of benefits as the Commission may deem necessary and desirable.
(c) The Commission shall prescribe regulations fixing reasonable minimum
standards for health benefit plans described in section 4 and for carriers offering
such plans. The Commission shall not approve any plan or enter into a con-
tract with or purchase a policy from any carrier unless such plan or such
carrier, as the case may be, complies with such standards. Approval of such
a plan shall not be withdrawn except after notice and opportunity for hearing
to the carrier or carriers and to the employees concerned.
(d) No contract shall be made, policy purchased, or plan approved, which
excludes employees or annuitants because of race, sex, health status, or, at the
time of the first opportunity to enroll, because of age.
(e) No health benefits plan shall be approved which does not offer to employees
and annuitants, whose enrollment in the plan is terminated, other than by a
cancellation of enrollment, the option to convert, without evidence of good
health, to individual contracts providing health benefits. An employee or an-
nuitant who exercises this option shall pay the full cost of the individual con-
tract, on such terms or conditions as are prescribed by the carrier and approved
by the Commission.
(f) The benefits and coverage made available pursuant to the provisions of
paragraph (e) shall be noncancelable by the carrier as to any individual, except
for fraud, overinsurance, or nonpayment of premiums.
(g) Subscription charges and premiums under health benefits plans described
in section 4 shall reasonably and equitably reflect the cost of the benefits
provided.
SEc. 7. (a) (1) If an employee or annuitant enrolls in a health benefits plan
ender this Act for himself only there shall be withheld from the salary of
such employee, or annuity of such annuitant, as his contribution an amount
not to exceed $1.75 biweekly, and the Government shall contribute a like
amount.
(2) Except as provided in paragraph (3), if an employee or annuitant enrolls
in a health benefits plan under this Act for himself and members of his family
there shall be withheld from the salary of such employee, or the annuity of
such annuitant, as his contribution an amount not to exceed $4.25 biweekly,
and the Government shall contribute a like amount.
(3) If a member of the family of a female employee or annuitant who enrolls
in a health benefits plan under this Act for herself and members of her family
is a husband, other than a dependent husband, there shall be withheld from
the salary of such employee or annuitant as her contribution an amount not to
exceed $6 biweekly, and the Government shall contribute an amount not to
exceed $2.50 biweekly.
(b) An employee enrolled in a health benefits plan under this Act who is
placed in a leave without pay status may be authorized to continue his coverage,
and the coverage of members of his family, under such plan for a period not
to exceed one year in accordance with regulations prescribed by the Commis-
sion. Such regulations may provide for waiving the requirement of contribu-
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 7
tions by the employee and the Government for all or any part of the period of
leave without pay.
(c) The sums authorized to be contributed by the Government with respect
to any employee shall be paid from the respective appropriation or fund which
is used for payment of his salary, wage, or other compensation (or, (1) in the
case of an elected official, from such appropriation or fund as may be available
for payment of other salaries of the same office or establishment, and (2) in the
case of an employee in a leave without pay status, from the appropriation or
fund which would be used for the payment of the salary of such employee if he
were in a pay status). The sums authorized to be contributed by the Govern-
ment with respect to any annuitant shall be paid from annual appropriations
which are hereby authorized to be made for such purpose.
(d) The Commission shall provide by regulation for conversion of rates of
contribution specified in this section in the case of employees paid on other than
a biweekly basis, and for such purpose may provide for adjustment of any such
rate to the nearest cent.
SEC. 8. There is hereby created a Federal Employees Health Benefits Fund,
hereinafter referred to as the "Fund", which is hereby made available without
fiscal year limitation for the payment of all premiums or subscription charges
under policies or contracts purchased or entered into under section 6. The
amounts withheld from the salaries of employees and the annuities of annui-
tants, and the amounts contributed by the Government toward the cost of health
benefits for such employees and annuitants, shall be paid into the Fund. The
income derived from any dividends, premium rate credits or other refunds shall
be credited to and constitute a part of the Fund. There shall be set aside in the
Fund from time to time such amounts, not to exceed 1 per centum of the amounts
paid into the Fund for any fiscal year, as may be necessary to pay administra-
tive expenses for such year. Any amounts remaining In such Fund after all
premium or subscription charges have been paid, and after the amounts referred
to in the preceding sentence have been set aside, shall be retained as a special
reserve for adverse fluctuations in future charges, or may be applied to reduce
the contributions of employees and the Government to, or to increase the bene-
fits provided by, the plan from which such amounts are derived, as the Commis-
sion shall from time to time determine. The Secretary of the Treasury is au-
thorized to invest and reinvest any of the moneys in the Fund in interest-bear-
ing obligations of the United States and to sell such obligations of the United
States for the purposes of the Fund. The interest on and the proceeds from the
sale of any such obligations shall become a part of the Fund.
SEC. 9. (a) There are hereby authorized to be expended from the Employees'
Life Insurance Fund, without regard to limitations on expenditures from that
Fund, for fiscal years 1960 and 1981, such suns as may be necessary to pay ad-
ministrative expenses incurred by the Commission in carrying out the health
benefits provisions of this Act. Reimbursements to the Employees' Life Insur-
ance Fund for sums so expended shall be made from the Federal Employees
Health Benefits Fund.
(b) The Federal Employees Health Benefits Fund is hereby made available,
within such limitations as may be specified annually by the Congress, to pay
such expenses for fiscal year 1901 and subsequent fiscal years.
SEC. 10. (a) The Commission Is authorized to promulgate such regulations
as may be necessary to carry out the provisions of this Act.
(b) Regulations of the Commission shall include regulations with respect to
the beginning and ending dates of coverage of employees and annuitants and
.members of their families under health benefit plans, and for such purpose may
permit such coverage to continue until the end of the pay period in which an
employee is separated from service or until the end of the month in which an
annuitant ceases to be entitled to annuity, and in case of the death of such em-
ployee or annuitant may permit the coverage of the members of his family for
a period not to exceed ninety days.
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8 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
(c) Regulations of the Commission shall provide that any employee enrolled
in a plan under this Act who is removed or suspended without pay and later
reinstated or restored to duty on the ground that such removal or suspension
was unjustified or unwarranted shall not be deprived of coverage or benefits
for the interim but shall have his coverage restored to the same extent and effect
as though such removal or suspension had not taken place, and appropriate ad-
justments shall be made in accordance with such regulations in premiums, sub-
scription charges, contributions, and claims.
(d) Regulations of the Commission shall provide for making available to each
employee and annuitant eligible to enroll in a health benefits plan under this
Act such information as may be necessary to enable such employee or annuitant
to exercise an informed choice among the types of plans referred to in section 4.
,Such regulations shall also provide for the issuance to each employee and an-
nuitant enrolled in such a health benefits plan of an appropriate certificate set-
ting forth the services or benefits to which the employee or annuitant, or the
employee or annuitant and members of his family, are entitled thereunder, the
person or persons to whom monetary benefits shall be payable, the procedure
for submitting claims, and the principal provisions, or summaries thereof, of
the plan affecting the employee or annuitant or members of his family.
Sac. 11. (a) The Commission shall make a continuing study of the operation
and administration of this Act, including surveys and reports on health benefits
plans available to employees and annuitants and on the experience of such plans,
with respect to such matters as gross and net costs, administrative costs, benefits
claimed and provided, utilization of benefits, the extent to which the economic
use of benefits herein provided is assured, and the portion of the actual per-
sonal expenditures of Federal employees and annuitants for health care which
is being met by prepaid benefits.
(b) The Commission shall include provisions in contracts with carriers which
would require carriers to (1) furnish such reasonable reports as the Commis-
sion determines to be necessary for the satisfactory completion of the studies
enumerated in subsection (a) with respect to gross and net costs, administra-
tive costs, benefits claimed and provided, utilization of benefits, and (2) permit
the Commission or its representatives and representatives of the General Ac-
counting Office to examine such records of the carriers as may be necessary for
verification of the information contained in the carrier's reports.
(c) Employing agencies shall keep such records and furnish the Commission
with such information and reports as may be necessary to enable it to carry out
its functions under this Act.
SEc. 12. (a) There is hereby established a Federal Employees Health Benefits
Advisory Council which shall consist of the following :
(1) the Secretary of Labor;
(2) the Director of the Bureau of the Budget;
(3) the Surgeon General of the Public Health Service ;
(4) the Chief of the Bureau of Medicine and Surgery of the Veterans'
Administration ;
(5) one member to be appointed by the President who shall be repre-
sentative of the public;
(6) three members to be appointed by the Presidentfrom among repre-
sentatives of national employee organizations ;
(7) three members to be appointed by the President who shall be repre-
sentative of university schools of medicine, hospital administration, and
public health, respectively.
The Advisory Council shall select a Chairman and a Vice Chairman from among
its members. Each member of the Advisory Council referred to in clauses (1)
to (4), inclusive, may designate an alternate to attend meetings and participate
in activities of the Advisory Council in the place of such member. Members of
the Advisory Council referred to in clauses (5) to (7), inclusive, shall be ap-
pointed for terms of three years.
(b) It shall be the duty of the Advisory Council (1) to make studies from
time to time of the operation and administration of this Act, (2) to receive
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 9
reports and information with respect thereto from the commission, carriers, and
employees and their representatives, (3) to ascertain from time to time the
status of the Federal Employees Health Benefits Fund, including the estab-
lishment and maintenance of any balances or reserves, (4) to consult with and
advise the Commission in regard to the administration of this Act, and (5) to
make recommendations with respect to the amendment of this Act or improve-
ments in its administration. No contracts shall be awarded, renewed, or termi-
nated and no regulation shall be promulgated, for the purpose of carrying out
this Act, unless copies of proposed drafts thereof shall have been furnished to
the Advisory Council. inclusive, who
(c) Members of the Council referred to in clauses (5) to (7),
are not otherwise in the employ of the United States shall be entitled while
attending meetings of the Advisory Council, including travel time, to receive
compensation at a rate to be fixed by the Commission, but not exceeding $50
per diem, and while away from their homes or regular places of business they
may be allowed travel expenses, including per diem in lieu of subsistence, as
authorized by law (5 U.S.C. 73b-2) for persons in the Government service em-
ployed intermittently.
(d) The Advisory Council shall be convened by the Commission within thirty
days after the members referred to in clauses (5) to (7) have been appointed,
and thereafter shall meet not less often than quarterly, on call of the Commis-
sion or on request of any three members of the Advisory Council.
BUREAU OF RETIREMENT AND INSURANCE
SEC. 13. There is hereby established in the Civil Service Commission a Bureau
of Retirement and Insurance, which shall perform such of the functions and
duties of the Commission with respect to retirement, life insurance, and health
benefits programs as the Commission shall prescribe. The Bureau shall be headed
by a Director. Except as provided in the second and third sentences of the
last paragraph of the first section of the Act of January 16, 1883, the Director
shall be responsible only to the Chairman of the Commission with respect to
the matters transferred to the Chairman by the provisions of section 2(a)
(2) to 2(a) (6), inclusive, of Reorganization Plan Numbered 5 of 1949. The
position of Director shall be placed in grade 18 of the General Schedule of
the Classification Act of 1949, as amended. Such position shall be in addition
to the number of positions otherwise authorized by law to be placed in such
grade.
JURISDICTION OF COURTS
SEC. 14. The district courts of the United States shall have original juris-
diction, concurrent with the Court of Claims, of any civil action or claim against
the United States founded upon this Act.
REPORTS TO CONGRESS
SEC. 15. The Commission shall transmit to the Congress annually a report
concerning the operation of this Act.
EFFECTIVE DATE
SEC. 16. (a) The Commission shall transmit to the Committee on Post Office
and Civil Service of the Senate and the Committee on Post Office and Civil
Service of the House of Representatives not later than May 1, 1960, copies
of any contracts proposed to be entered into, policies proposed to be purchased,
and regulations proposed to be promulgated, for the purpose of placing into
operation health benefits plans under this Act.
(b) The provisions of this Act relating to the enrollment of employees and
annuitants in health.benefits plans and the withholding and payment of con-
tributions shall take effect on the first day of the first pay period which begins
on or after July 1, 1960.
Passed the Senate July 16, 1959.
FELTON M. JOHNSTON, Secretary.
The CIrAIRMAN. We will now hear from Mr. Rees, the ranking
minority member of the committee.
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10 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
STATEMENT OF IHON. EDWARD H. REES OF KANSAS, RANKING
MINORITY MEMBER OF THE COMMITTEE
Mr. REES. Mr. Chairman, I want to concur in general with the
statement of the chairman of our committee. I, too, am concerned
about the solvency of our Government.
I have been interested for some years in the establishment of a
program, under Government sponsorship, to insure Federal employees
for expenses incident to illness or injury which they or their families
may suffer. As chairman of this committee in the 83d Congress I
discussed the matter with representatives of the Civil Service Com-
mission and other Government agencies, and authorized staff partici-
pation in the first conferences conducted by the Commission with
representatives of employee organizations and insurers offering serv-
ice or indemnity plans to the general public.
I was, and am, convinced that a sound and workable health insur-
ance program is desirable to round out, with the Government em-
ployees' group life insurance plan, a joint Government-employee
system of life and health insurance that will be very helpful to our
2 million or more Federal employees and their families.
'I sponsored H.R. 10099 in the 83d Congress-the first bill to pro-
vide such a medical insurance plan-and introduced H.R. 7241 and
H.R. 11633 for the purpose in the 84th Congress.
I recall, also, that the chairman and I agreed to request the General
Accounting Office to conduct a special study, after the 84th Congress
adjourned, with respect to the feasibility of a payroll deduction plan
for health insurance. This study was completed and has clarified
one of the major problem areas relating to the administration of a
Government employees' health insurance program.
Although I favor appropriate legislation"
egislation to establish a Govern-
mentwide health insurance plan, I believe that certain factors must
be taken into account in determining the scope and the extent of the
plan and the respective obligations of the Government and the em-
ployees thereunder.
I concur in the very timely and pertinent remarks of our chair-
man concerning the cost of the health insurance bill recently passed
by the other body and the relationship of this cost to the national
budget. Facing, as we do today, domestic and worldwide commit-
ments that already are fixed by congressional policy, any proposed
new program that imposes an additional multimillion-dollar expense
on the Public Treasury ought to require the utmost scrutiny to make
certain that the cost is necessary and is fully justified in the national
interest.
It is well to keep in mind, also, that even the $304 million cost
estimated in the report of the other body is subject to continued
upward revision. There is nothing to indicate that medical, surgical,
and hospital costs will level off in the foreseeable future. Thus,
costs which we estimate. today may be considerably higher after sev-
eral years-at a time when payments of benefits under the proposed
insurance program likewise will be rising.
Although precise advance determination of the costs of providing
benefits of the kind contemplated by the pending legislation may be
lifficult, it is better to be conservative than overliberal in our esti-
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 11.
mates. It has been my experience, where a completely new and un-
tried benefit program of such broad scope and effect as this one is
proposed, that advocates of the program may err, in all honesty and
sincerity on the side of relatively lower cost estimates-rather than
to arrive at higher costs which might be indicated from a conserva-
tive viewpoint. With the range of benefits to be made available
under the pending bills, the cost to be underwritten by the Govern-
ment may be even greater than the approximation of $145 million
presented with the Senate-passed bill. There is no accurate forecast
as to employee participation, plans to be made available for their
choice, numbers of employees and dependents in the several eligible
categories, and many other factors that will directly affect costs. The
initial cost of developing preliminary data and obtaining offers of
insurance options to be available for employees, as well as the con-
tinuing cost of administering the program, alone would seem to me
to require substantial sums of money.
In consideration of the fact that this is a new field of endeavor, and
in view of the expense, the number of employees affected, and the
desirability of sound financing, it is most important that all phases of
the subject matter be carefully considered before arriving at the com-
mittee's recommendation on this legislation.
Thank you, Mr. Chairman.
The CIIAIR.MAN. Thank you, Mr. Rees.
We will next hear from Representative Morrison, who is the author
of H.R. 208, H.R. 7712, and H.R. 8210, all relating to the hospitaliza-
tion program of the Federal employee.
STATEMENT OF HON. JAMES H. MORRISON OF LOUISIANA, A
MEMBER OF THE COMMITTEE
Mr. MoRRIso v. Mr. Chairman and my colleagues on the committee,
I am happy to present my views on the vitally important subject
of health benefits for Government employees. For more than a dozen
years I have consistently supported this type of legislation for postal
workers and other employees of the Federal Government. Only
July 14, 1959, I introduced my most recent bill, H.R. 8210, which
is identical with the successful Johnston-Neuberger measure, S. 2162,
which as you know, passed the Senate on July 16, 1959, by an over-
whelming vote of 81 to 4. It is my fervent hope that H.R. 8210 will
be reported favorably by this committee, with no reduction in the
benefits it provides, at,the earliest possible moment. Any additional
delay will undoubtedly spell doom for this needed legislation in the
now waning days of the 1st session, 86th Congress.
In referring to S. 2162 during the debate on the Senate floor, the
distinguished chairman of the Senate Committee on Post Office and
Civil Service, stated :
* * * The bill is like a finely tooled watch, one part being geared to each
other part * * * The bill is not susceptible to tinkering and tampering without
doing damage to the smooth working of the other provisions * * *
My views coincide completely with those so ably expressed by the
Senator from South Carolina. As an example, my original bill intro-
duced early in this session, provided that the Government should
withstand two-thirds and the employee one-third of the total cost
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12 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
of this legislation. My studies reveal that the plan generally preva-
lent in private industry provides that the costs are equally shared
by employer and employee. Even though I still feel that the Govern-
ment should pay two-thirds of the total cost, I now reluctantly agree
to the 50-50 formula.
Under the provisions of H.R. 8210 and S. 2162, a free choice of
plans is made available to Government employees. These plans are:
service-type plan such as offered by Blue Cross-Blue Shield; indem-
nity type plan offered by the insurance industry ; group practice-type
plan such as offered by Group Health Association here in Washing-
ton and the Kaiser Foundation health plan on the west coast; and
national employee plan offered by national employee unions. More-
over, unlike previous bills in this field, my companion measure to
S. 2162 has been endorsed by the American Medical Association, the
American Hospital Association, Blue Cross-Blue Shield, Federal
employee unions, and group practice plans. H.R. 8210 and S. 2162
provide for withholding by the Government from employees' salaries
and annuity checks, this money to be matched equally by the Gov-
ernment. The individual Government employee or annuitant, under
the terms of the bill, pays $1.75 biweekly, whereas a Government
employee and family would pay $4.25 biweekly. These are maximum
amounts.
While the health coverage provided by the bill does not take effect
.until July 1, 1960, it is essential that this legislation be passed this
year by Congress. My only regret is that neither II.R. 8210 nor S.
2162 cover those faithful former employees presently on the retire-
ment rolls.
The administration has argued that coverage should not be granted
these fine people since this older age group might well cost a pro-
hibitive amount. This group of loyal retirees or annuitants should
not be forgotten and lam now preparing legislation that will give
them the same coverage provided for active employees.
In all fairness, it should be stated that the administration pres-
ently in power did recommend legislation of this type in 1954, 1955,
1956, and 1957. Conflicting positions on the part of the groups pre-
viously mentioned in this statement made it almost impossible to
secure favorable congressional action. Those differences have been
almost completely eliminated and this legislation should be expedited
.in the current congressional session. Any further delay will con-
stitute a travesty on justice. More than 2 million Government em-
ployees affected by this legislation are anxiously awaiting the results
of our deliberations.
The CHAIRMAN. Thank you, Mr. Morrison.
We will next hear from Representative Corbett, a fellow member of
our committee, who is also the author of similar legislation, H.R.
5783.
STATEMENT OF HON. ROBERT J. CORBETT OF PENNSYLVANIA, A
MEMBER OF THE COMMITTEE.
Mr. CoRBETr. I do not have a formal statement. I asked for this
time for two purposes.
One, I want to commend the chairman for bringing this important
legislation before us so promptly after the Senate acted.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 13
Secondly, I just want to say a few words in support of the general
proposition. From my point of view, this is one of the most impor-
tant fringe benefits that we could possibly provide for our Federal
employees. In my own district, which is northern Pittsburgh, I
would say that practically all of the progressive companies have these
programs for their employees and in numerous cases the payments are
made entirely by the employer.
Now I am not wedded to any bill or any provision of any bill. I
think the committee has an enormous job here in initiating a new pro-
gram to get as carefully worked-out a program as possible, fully
recognizing that the test of experience will dictate amendments to
that program over the years. But, I think it is regrettable that we
did not get started on such a program of health insurance for em-
ployees several years ago, because since this first became feasible
literally 'thousands of persons who have suffered catastrophic illness
have been in financial distress. They have no place to turn for aid
if they are not privately covered.
With as large a group as we have to work with, it would be my
hope that we could either have the least costly program or the most
beneficial program of any group of people in the world. And it is
to that. end that the committee should be devoting its efforts. I be-
lieve that we should go at this business with the idea that we are
pioneering-that anything that may be part of this program now
might be changed later, either in reduced cost, increased benefits, or
increased Government participation, whatever may happen. I think
it is highly essential that we get this program on the road to the end
not only that we provide for financial help for distressed persons, but
that we might provide better medical care, longer life, and less pain
and suffering for all of our hundreds of thousands of employees.
So, Mr. Chairman, I again commend you on getting these hearings
started, and I hope that we can diligently press on to the completion
of our work so that at long last hundreds of thousands of people can
face the future with more security and more confidence.
The CHAIRMAN. Thank you, Mr. Corbett.
The committee will next hear from a former valuable member of
our committee whom we wish were sitting here today as a member,
Representative George Miller of California..
STATEMENT OF HON. GEORGE MILLER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. MILL. Mr. Chairman and members of the committee, it is
always a pleasure to return to this room and to greet the members of
this committee, though as I look down the table today I see fewer
and fewer faces that were here when I had the privilege of sitting
next to Mr. Morrison on your left, Mr. Chairman.
I, too, want to commend you for bringing this legislation up so
quickly after the Senate passed it, because, having gotten it through
there I am certain that you realize its importance, as has been dem-
onstrated by your setting the hearings now, and I want to thank you
for it.
This is a fringe benefit that has become the mode in industry. In
this the Government has lagged behind industry in taking care of
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14 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
its employees and I am very happy to know that Ave are now about
to take the first step to bring the Government into line as an optimum
employer, as it should be.
We are all concerned with the solvency and fiscal condition of the
Government, but I for one am much more concerned with the health
and welfare of the people who work for the Government. They can't
wait. You cannot say that because we cannot afford this. Today
when the gross national product of the country is higher than it has
ever been, when the newspapers are telling you that there is more
employment in the country, when they tell you that the economic con-
dition of the country is better off than it has ever been, when railroads
and industry are paying more dividends than they have ever paid, we
cannot wait. You have tuberculosis or you have incurred a dread
disease in the course of your employment but you will have to put
that aside. You cannot arrest it. It is progressive. So time to me
is an element in this situation.
May I point out to you, Mr. Chairman and my colleagues, that over
half of the people who get their sustenance from the Federal Govern-
ment are today being taken care of and receiving free medical atten-
tion, and medical attention that goes with them after their retirement,
and I refer to the members of the armed services and the people in the
State Department.
We know, historically, how that took place, but the conditions that
made this necessary in midcentury and necessary when armies march
shoulder to shoulder in the field have changed a good deal, but we
have still continued it, and I am very happy we have continued it. I
have no desire to take away from members of the uniformed forces
the medical service that we furnished them. But I want to point out
to you that we do furnish them these services and at a cost much
greater than a $150 million a year; as a matter of fact, at a cost five
times that, if I remember rightly.
Chairman, Chairmn, I have read the Senate bill. I have not studied it.
I realize the enormity of the task before you. To come here and to
try and point out the technicalities that should go into such a bill, the
wording of a bill is something that is going to take your combined
effort over the next few weeks, and I would be presumptious to tell
you what to do.
Suffice to say that with all the sincerity and vigor I can muster, I
want to subscribe in principle to the Senate bill or to the Morrison bill
or the Davis bill or whatever bill has been written that has been put
here. I mentioned the Senate bill because that is the one that is
passed and that is the one that I have read, and I subscribe in prin-
ciple to it, and I hope that this committee will report such a bill with
dispatch so that we can ,get, it enacted before Congress goes home.
T want to thank you for the privilege of being here.
The CIIAIi mIAN. Thank you, Mr. Miller.
The committee will hear next from Representative John Baldwin,
of California.
STATEMENT OF HON. JOHN F. BALDWIN, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. BALDWIN. Mr. Chairman, I want to express my appreciation to
you and the members of the committee for the opportunity to appear
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before you this morning and I want likewise to express appreciation
for many of the employees in our district, Mr. Chairman and members
of the committee, who are in favor of S. 2162 and of H.R. 8210 and
other comparable bills.
It seems to me that with the increasing cost of medical and hospital
care, that this field is probably the field where there is now the great-
est worry by people who are Government employees. I noticed just
within the last week an analysis of the different groups of costs as
compared to a year ago and the increase in those various groups of
costs, food, medical care, and all the rest. Of all the five groupings of
costs the one that had increased the largest amount in the last year was
hospitalization and surgical care. That increase was approximately
13 percent just in a 1-year period of time.
Before coming to Congress I served as the attorney for two hospi-
tals, and I became very much aware at that time of the fact that hos-
pitalization was going up at a tremendously rapid rate. It is now
reaching a point where for a person who has some injury or some long
illness, he may have reasonable savings but that one illness or injury
cannot only completely remove all of those savings from him but may
cause him to borrow a considerable sum of money and therefore ro
into the end part of his life with considerable financial worry. it
seems to me that this is a most essential field, and I am glad the com-
mittee is taking action on it.
It seems to me that the Senate bill is a reasonable compromise of
many points of view that were not reconciled up until this year. It
represents one proposal that now has the greatest support of any
single proposal. I think that the proposal that one-half the cost be
he employee and the other half by the Federal Govern-
borne by the,
ment is reasonable in relationship to what is done in industry. It
seems to me that this, once enacted into law, will constitute a most
important added incentive to employees to stay with the Federal
our
Government. We are still facing the probability of some of
great
most skilled employees and most trained employees having a urge to leave the Federal service for other types of work. I think
the enactment of this bill will be a large additional incentive in hold-
ing this type of employee in the Federal service where their skill
is of great benefit to us.
I hope that the committee will see fit to enact S. 2162 or some simi-
lar bill. You may find modification needed, but I hope you will en-
act a bill that involves the principle involved in S. 2162, and I ap-
preciate the opportunity to come and testify before the committee.
The CHAIRMAN. What will it cost the Federal Government?
Mr. BALDWIN. The total cost is estimated to be around $300 mil-
lioThe CHAIRMAN. eI am sure you are concerned lwith the present con-estimated around a $145 dition of the Federal Treasury ?
Mr. BALDWIN. I appreciate that, Mr. Chairman.
The CHAIRMAN. Where is the money coming from, this $150 mil-
lion.
Mr. BALDWIN. I think that every bill of this type has to be con-
sidered in relation to many other things. I voted for an amendment
which struck $100 million out of a mutual security bill. The bill
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16 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
provided $800 million for the Development Loan Fund, and I voted
for the amendment.
The CHAIRMAN. I went further than you did. I voted against the
whole thing.
Mr. BALDWIN. All I would like to say on that point is that each bill
has to he considered on its own merits.
Mr. CORBETT. I think we should not pass this point without allow-
ing Mr. Gross to be associated with these remarks.
The CHAIRMAN. Mr. Gross.
Mr. GROSS. I desire for the record to be associated with the state-
ment the chairman just made.
Mr. PORTER. I support this bill.
I would like to ask the gentleman if he also supports the Forand
bill.
Mr. BALDWIN. The Forand bill is still under consideration by the
House Ways and Means Committee, and I would like to have the op-
portunity of studying the report of the committee when that report
is formulated.
Mr. PORTER. In the Forand bill medical payments or care for catas-
trophic illness would be given to retirees over 65 although they never
paid in on such a basis. That, of course, is going to be the question
that will confront us here, the retirees.
Mr. BALDWIN. You are talking about Federal retirees that are
now retired and therefore would not be covered under this bill?
Mr. PORTER. They would not under the bill, though I understand
there are proposals that they be.
Mr. BALDWIN. It is my general feeling that we have endeavored
in past years to give recognition to the needs of retired employees
as we have given recognition to those who are still employed and that is
the reason we have periodically passed bills to increase the retire-
ment annuities of retired Federal employees. It is my understanding
further that the State of New York has put into effect a plan in-
volving medical care which covers not only active employees but
also retired ones. This is a field that involves a lot of study from a
standpoint of cost. I think something should be done in this field,
and I hope that the committee will give consideration to this problem.
If retirees are going to be brought in they will have to make some
contribution. I do not think it would be proper to cause the now
active employees to pay the full benefits for them. There would
have to be some way worked out for them to make a contribution,
but I hope this committee will give consideration to that problem
either in this bill or some separate bill because I think it is a problem
that needs to be resolved.
Mr. PORTER. Do you believe that we should strive to enact this
legislation in this session or would it be all right
Mr. BALDWIN. I think it should be enacted as soon as possible.
Mr. PORTER. Will you tell me why? The effective date is July 1960.
Mr. BALDWIN. The reason in my opinion is that this requires the
issuance of rather extensive regulations by the Civil Service Com-
mission. It requires-those regulations will have to be worked out
in connection with the various participating groups. That is not
going to be something that can be done overnight. It seems to me
that if this is passed within the next month it will still be a challenge
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 17
for all these regulations to be worked out in detail and put into effect
in time for the effective date of July 1960.
Mr. PORTER. I agree.
The CHAIRMAN. I understand that the administration proposed
modification to the proposed legislation.
Are you in favor of the modification of the administration's pro-
posal?
Mr. BALDWIN. I have read the letters that were submitted to the
Senate committee by the Civil Service Commission, and the Budget
Bureau. As to their recommendations on the advisory council and on
the Bureau of Retirement and Insurance, I do not have any strong
feelings for or against those, and I am sure that the committee will
go into those in detail and come to a conclusion. I am opposed to
the position that they have taken that the cost to the. Government
should be cut in half because I do not think it can be done and.
provide the program that should be provided for the Federal em-
ployees.
The CHAIRMAN. Well, I am hopeful that legislation can be re-
ported out by the committee that will be satisfactory to both the em-.
ployees and the administration. Now, if the views of the adminis-
tration are absolutely ignored by this committee and the bill is not
amended in some form to satisfy the administration, and if the bill
should then be vetoed by the President, I am confident that the veto
will not be overridden, even though some people think to the con-
trary. This committee ought to work out a bill that will be satis-
factory to both the employees and the administration.
Mr. BROYIIILL. Mr. Chairman.
The CHAIRMAN. Mr. Broyhill.
Mr. BROYHILL. You stated that you were general counsel for two.
hospitals prior to coming to Congress?
Mr. BALDWIN. That is correct.
Mr. BROYHILL. Were you familiar with the health insurance
programs of private industry?
Mr. BALDWIN. Generally so, yes.
Mr. BROYFLILL. How would you say that this principal bill before
us, the Senate bill, compares with the hospitalization plans of private
industry?
Mr. BALDWIN. I think that actually in numerous cases private in-
dustry contributions are greater than this. I would say that this is
no more than the standard of private industry. A considerable num-
ber of concerns actually pay the full amount. I think that the enact-
ment of this would only be in line with what has already been done
in many major industrial firms.
Mr. BRoYmHLI.. I feel that the main objection that has been voiced
to this particular compromise is the cost, the $150 million, but that is
not due to the program being overly liberal as much so as the fact
that we have 2,300,000 Federal employees and any particular type of
program we have is going to cost some money.
Mr. BALDWIN. That is right.
Mr. BROYHILL. It costs a lot of money to run a government of this
size, but I appreciate your remark. I think it very important that we
do try to arrange some type of program that is at least competitive
with the type of program that has been established by private indus-
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try. You state that this does not really compare favorably, is that it,
with the general private industry health insurance program?
Mr. BALDWIN. It is no more than the average and would not com-
pare favorably with some of the major industries in the country.
And this is the field in which there is the greatest worry now by peo-
9 le nearing retirement age. This I think is extremely important to
e taken care of.
Mr. GROSS. Mr. Chairman.
The CHAIRMAN. Mr. Gross.
Mr. GROSS. Would some of those industrial firms that you spoke
of-and you, I assume, were the attorney representing hospitals in
California, is that correct?
Mr. BALDWIN. I represented two hospitals in California, yes.
Mr. Gross. Would some of those industrial firms be operating on
a cost-plus-a-fixed-fee contracts?
Mr. BALDWIN. In most cases they were not.
The CHAIRMAN. Mr. Foley.
Mr. FOLEY. The question was asked of you about the cost of this
program. I would like to ask you about the value of the program.
You have indicated your views in support of legislation that would
provide this benefit. From your standpoint, Mr. Baldwin, do you
think that the value of such a medical program, putting aside for just
a brief moment the cost of the program, both the social and economic
value to the Federal Government would justify or not justify the
costs that would be involved?
Mr. BALDWIN. I think the value would justify the cost of the pro-
gram. There are two aspects of this that are of great concern. First
of all this whole field of medical care has now ballooned from the
point of cost. The average daily cost of hospital beds plus the spe-
cial bills people get when they go into hospitals for injections, medi-
cal attention, drugs, et cetera, are such that just a couple of weeks
in a hospital has practically ruined a family with minimum savings.
This has become a steadily increased worry to Federal employees as
to other people.
The very sense of security would increase the morale of Federal
employees, and I am sure therefore mean that we would have a group
of Federal employees with a better attitude toward their work. But
more important than that is that the skilled employees, the people we
need the most, are the ones that are getting offers from private indus-
try that provide individuals many of these things and they are look-
ing with favor toward those offers because they know they will be
covered.
Mr. FOLEY. If I understand you correctly it is your suggestion that
this committee concentrate on exploring the value of the program to
the Federal Government, value from the standpoint of earlier and
better medical care to its employees so they can get back on the job
and provide their valuable skilled services to the Federal Government.
We should not be thinking exclusively of the cost but also of the real
positive value the Federal Government will be getting by dollars
returned for the investment that the Government is going to make in
this program. Is that a fair appraisal?
Mr. BALDWIN. Yes.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 19
The CHAIRMAN. If this legislation should become a law, would you
still favor an increase in pay for Federal employees during this Con-
gress, that is, next year?
Mr. BALDWIN. Mr. Chairman, I have no way of knowing what the
problems are that will be presented to the next session of Congress.
I have no way of knowing whether there will be a depression or reces-
sion, what cost increases will occur throughout the country, and I do
not think it would be proper for me to make a commitment of this
kind.
The CHAIRMAN. Mr. Alford.
Mr. ALroRD. Do you not agree that any plans should permit a
realistic choice on the part of the employee as to the type of plan?
Mr. BALDWIN. I think that is true, and I think the Senate bill and
the comparable bill in the House provide such a choice.
Mr. ALroRD. I am entirely in agreement with that, and I would like
to take your time for just a moment to say to our colleague, Mr.
Porter, that I do not think we should confuse this plan of which we
were speaking today with. K.R. 4700 which is an entirely different
type of proposition.
It is my understanding that we are merely considering a plan that
is of an employer-employee relationship and is comparable to indus-
try and should not be confused with the social security type plan.
Mr. PORTER. Will the gentleman yield?
Mr. AI.roRD. I yield.
Mr. PORTER. I am interested in the parallel between the need for
medical care in the Government as well as retirees' fund under social
security. These proposals always are very similar. I think we are
talking about the same kind of problem. Whether we should include
it in this program is certainly an issue.
Mr. BROY$ILL. Would the gentleman yield?
Mr. PORTER. Yes.
Mr. BRoyi-III.L. Under the Forand bill would the health insurance
features under social security be voluntary?
Mr. PORTER. There would be a choice of doctors.
Mr. BROYHILL. Is that correct, Dr. Alford? Under the Forand
bill, is it not compulsory?
Mr. ALFORD. Yes. This is an entirely different proposition.
The CHAIRMAN. It is indeed. I think it will be a long, long time
before the Forand bill becomes a law.
Mr. ALFORD. I would like to reemphasize, I do not think we should
confuse this hearing with the type of legislation that is being con-
sidered before the Ways and Means Committee. I think it really
unfair to the employees and the employer, the Government, to so
confuse. I do not believe that issue is germane to what we are talking
about here this morning.
The CHAIRMAN. I agree fully with the gentleman about that; there
is no comparison.
Mr. PORTER. Under the Forand bill there is a choice by the retiree
of the physician involved except with respect to surgical matters and
emergency matters. I think they are very similar problems, and I
think as we get into the proposal covering the retirees, we will see
the similarity.
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20 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. CORBETT. Mr. Chairman.
The CHAIRMAN. Mr. Corbett.
Mr. CORBETT. I suggest that some of us know so little about this
bill that there is no use confusing it by talking about the Forand bill
at the same time.
Mr. PORTER. I will go along with that.
The CHAIRMAN. I agree with that.
Any further questions of the witness?
No response.)
The CHAIRMAN. If not, thank you very much, Representative
Baldwin.
The committee will next hear from our colleague;; Representative
Jeffery Cohelan of California.
STATEMENT OF HON. JEFFERY COHELAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. COHELAN. Mr. Chairman, I appreciate the opportunity to ap-
pear today to speak in favor of H.R. 8210, the Federal Employees
Health Benefits Act of 1959 authored by the gentleman from Louis-
iana, Mr. Morrison.
The Seventh Congressional District of California which I repre-
sent is a metropolitan district on the eastern shore of San Francisco
Bay in which are located, in addition to the usual Federal agencies,
such installations as the Oakland Army Base, the Department of
Ariculture's Western Regional Research Laboratory, the U.S.
Forest Service California Forest and Range Experimental
Station Headquarters, a Bureau of Indian Affairs Relocation Center,
and other offices employing large numbers of Federal employees.
In addition, many of the civilian employees at Alameda Naval Air
Station which is located in the adjacent district of my senior col-
league, Congressman George P. Miller, reside in the Seventh Congres-
sional District, as do other employees at Federal installations in San
Francisco and other bay area facilities.
An unusually large number of my constituents, therefore, are very
much interested in the passage of H.R. 8210 which will, for the first
time, enable them to enjoy health benefits comparable to those available
to other large employee groups by authorizing payroll deductions and
equal health benefit contributions by their employer, the Federal
Government.
We are, of course not asking for special consideration, but only
for equal benefits. Over 90 million persons in the United States are
already enrolled in various health insurance programs through the
place they work. The same opportunity is not now offered to Federal
employees.
The example of the Seventh Congressional District of California
also underscores another all-important provision of H.R. 8210; that
is the requirement that employee and Government contributions shall
be on a 50-50 basis.
In opposing this formula the administration urged instead that
the Federal' Government be required to contribute only one-third of
the costs of the program, as it does with the Federal employee's life
insurance. In the San Francisco area such a formula would not
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HEALTH BENEFITS FOR FEDERAL E L
result in equality of benefits at all.. In many private industries in
our area, as elsewhere in the country management contributes 100
percent of the costs of employee health insurance plans. In others,
the basis of contributions varied downward, but as a general rule
health benefit programs are supported 50 percent by management
U,id 50 percent by individual employees.
Mr. Chairman, I believe H.1Z. 8210 is sound, realistic legislation,
and I urge that the committee report the measure favorably. Thank
you.
The CHAIRMAN. Thank you.
Mr. FOLEY. I want to commend the gentleman for the position he
has taken in support of this bill, and I am very happy to see him here.
Mr. CoHELAN. I thank you.
Mr. PORTER. I would like to ask the gentleman if he believes that
the seat of the Government is moving to California.
Mr. CoUELAN. I have no comment, Mr. Porter.
The CHAIRMAN. Thank you very much.
Mr. COHELAN. Thank you, Mr. Chairman.
The CHAIRMAN. Statements from the following Members of the
House will now be inserted in the record : Representative Thomas
J. Lane of Massachusetts, author of the health insurance bill H.R.
178; Hon. Isidore Dollinger, author--of H.R. 2326, a health insurance
bill ; and Hon. Joel Broyhill of our committee, the author of H.R.
726 and H.R. 5386.
Mr. Lesinski also has a statement to place in the record at this time.
Are you the author of a similar bill?
Mr. LESINSKI? Yes, sir.
The CHAIRMAN. All right, sir.
There will also be placed in the record statements of Representa-
tives Rivers, of Alaska, and Pelly, of Washington State.
(The statements referred to above follow : )
STATEMENT OF HON. THOMAS J. LANE, A REPRESENTATIVE IN CONGRESS FROM THE
STATE OF MASSACHUSETTS
Mr. Chairman and members of this committee, the Federal Government has
been backward in providing the wages, and fringe benefits that are accepted as
routine obligations throughout American industry. In fact, some corporations
have voluntarily provided life insurance and health insurance programs for
,their employees because they understand the economic right of workers to these
benefits, and because they know that such consideration for the welfare of their
employees promotes the mutual confidence that inspires better morale and bet-
ter efficiency.
A hospitalization plan for Federal employees has been studied and restudied
for many years. Meanwhile, private industry has been moving forward with
the times. Its prosperity has been paralleled by simultaneous economic and
social progress on the part of its employees. But the turnover among Govern-
ment employees continues at a disturbing rate that is both wasteful and in-
efficient. Why?
As the Government employees compare their lot with those who work for private
industry, they see all too clearly that their relative position is steadily deterio-
rating. They are discontented because they do not believe that the Government
is being fair with them. While the Government marks time on "studies," private
industry is gradually improving the status of its own employees. There are
many companies with lesser programs, but I will simply outline four of the best
ones.
B. F. Goodrich Co. provides 120 days of hospitalization in a semiprivate room,
and with a $250 maximum for surgery : Minnesota Mining & Manufacturing Co.,
,140 days up to $15, full cost of hospital services, with a $300 maximum for sur-
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22 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
gery ; Armstrong Cork Co., 180 days up to $10, with further provisions for addi-
tional care, and a $200 maximum for surgery ; American Sugar Refining Co., 365
days of hospitalization at full cost, with a $300 maximum for surgery.
In each case, the company pays the full cost, not only for the employee, but
for his dependents, and for retired employees and their dependents as well. The
steel industry and the automobile industry have 50-50 contributory programs
for their employees, and this is the formula contained in Senate bill 2162, which
is called the Health Benefits Program for Government Employees.
The Federal Government is the Nation's largest employer. Under the terms
of this bill, more than 2 million Federal employees, plus their dependents, would
become eligible for the protection enjoyed by most of those who are employed
in private industry. The Government will withhold from employees' salaries,..
and annuity checks, sums to be matched equally by the Government. The in-
dividual Government employee or annuitant, would pay $1.75 biweekly. The
Government employee with a family, would pay $4.25 biweekly.
Progress on this type of legislation has been delayed for many years due to
sharp disagreements, but in S. 2162 we have a bill that has united the American
Medical Association, the American Hospital Association, Blue Cross-Blue Shield,.
Federal employee unions, and group practice plans in support of it.
It is unfortunate that the bill as passed by the Senate does not cover presently
retired Federal employees and it is my hope that the House will make provision
for them. We are morally bound to do so because we cannot cast adrift those
who gave the best years of their lives in loyal service to the Government, and
have now reached the age where they have greater need of hospital, medical, and
surgical protection.
Passage of this bill, at this session, will mark another milestone in our efforts..
to make employment with the Federal Government attractive and rewarding.
Health insurance for Federal employees will be one of the most constructive
pieces of legislation to be enacted at this session.
STATEMENT OF HON. ISIDORE DOLLINGER, REPRESENTATIVE IN CONGRESS FROM THE
STATE OF NEW YOR%
Mr. Chairman and members of the committee, your committee is considering
legislation relating to a health and hospitalization program for Federal em-
ployees. Among the bills before you is my H.R. 2326, to provide for Government
contribution toward personal health service benefits for civilian officers and
employees in the U.S. service and their dependents, to authorize payroll deduc-
tions for participants, and for other purposes.
I am pleased that your committee has scheduled action on this long-overdue
program for assistance to our Federal employees. We know that employees in
the Federal service have always been underpaid ; their salaries have never
equalled salaries paid by private employers for comparable work ; the small pay
raises granted Federal workers have never been commensurate with ever-rising
living costs, and at this point, living expenses have reached a new high.
Our Federal workers, with families to support or other dependents for whom
they must provide, find it barely possible to meet their financial obligations ;
high living costs plus high taxes prevent saving for the proverbial rainy day or
the day when a Federal employee or his dependents suffer a serious illness. A
critical illness requiring protracted hospitalization, surgery, costly hospital facili-
ties and medicines, nursing care, doctors' fees, not only wipes out any little sav-
ings a low- or middle-income employee may have accumulated through great
personal sacrifices over a period of years but also throws hint into debt for
years to come. Such a burden becomes intolerable, such worry must lower
the morale and efficiency of any human being. The cost of personal health serv-
ice insurance is prohibitive to the millions of Federal employes in the low- or-
middle-salary brackets, when procured on an individual basis.
The well-being and efficiency of our Federal employees must be considered
and preserved if we wish to keep our Government offices and other installations
operating at the peak of acconiplishment and effectuality. Large private em-
ployers have for many years helped their employees to obtain benefits which
this legislation would now provide for Federal employees. To refuse to give
this assistance to our Federal employees is to withhold reasonable and sound
protection against the high costs of illness. Surely the Federal Government
owes to its employees the same consideration which private industry, on the-
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
whole, has found it possible to extend to its workers. The legislation before
,you provides the needed and necessary protection at a cost which employees
and the Government can afford.
I urge your committee to take favorable action so that our Federal employees
may be accorded this sorely needed assistance.
STATEMENT OF HON. JOEL T. BROYHILL OF VIRGINIA, A MEMBER OF THE COMMITTEE
Mr. Chairman, the subject before this committee-the furnishing of protection
against the costs of hospital and medical care for Federal employees and their
dependents-is an important one in which legislation is long overdue. This
matter has been under consideration by Congress for 5 or 6 years. It is all the
more regretful that nothing has yet been accomplished at a time when everyone
seems to be for these health benefits and no one against them. As one local
columnist commented on the Senate hearings "* * * every single witness who
testified said the Government should provide a health program for its employees.
They disagree only over how it should be done" (Jerry Kluttz, Washington Post,
May 2,1959).
It is obvious then, that both Congress and the administration are willing and
anxious to see an employee health insurance program enacted. The problem
now would seem to be not "whether" but "how." We, are faced with the test
of statesmanship, namely with finding a plan which will serve as a worthy com-
promise acceptable to the many interested groups who hold such strong views for
the various plans that have been put forth. My bill, 11.11.5386, has been de-
signed to meet these conditions and to suggest the kind of compromise needed
to finally bring about agreement among these groups.
As the members of the committee know, I have introduced two bills this ses-
sion providing for Federal employee health benefits. The first bill I introduced,
H.R. 726, is comparable to several other proposals before the committee. My
second bill, 11,R. 5386, is also similar in most of its features to these other pro-
posals. It differs from them, however, in two important details.
First, I:I.R. 5386 would require the Federal employees in each personnel
service area to select, by majority vote, one health plan to cover all participating
personnel in that area. This differs from my first bill under which an employee
could be enrolled under any plan of the four different types mentioned in the
bill. The distinction here is not merely that one type of plan must be selected,
but that the plan of one specific carrier must be chosen. I shall explain in just
a few moments why this will result in simplified administration and in monetary
savings to the Government and to the insured employee.
Before going further, I would like to point out that I have drafted an amend-
ment to this provision of II.R. 5386 which would allow coverage under either
a health insurance plan of a national association of Federal employees or a
group practice prepayment plan, regardless of what carrier holds the group
contract. This amendment is necessary, I believe, because of the characteris-
tics of these two types of plans. They should.both be allowed to continue be-
cause they are well established in certain localities among certain groups of
employees and might be preferred to the plan selected by the majority of em-
ployees in a personnel service area as the bill provides. Moreover, some of the
Federal employee association plans now provide benefits for retired employees.
This protection for retirees, I'm afraid, might be lost in some cases unless these
plans are allowed to continue. As for the group practice prepayment plans :
they seem to be preferred by some employees because they offer certain preventive
medicine benefits, such as checkup visits at a doctor's office, not generally offered
by the other service or indemnity plans. These added benefits should be allowed
to remain available to those employees who wish to obtain them and pay for their
added costs. It is my understanding that some 10,000 Federal employees are
enrolled in a group practice prepayment plan in the Washington, D.C., area, and
that there are around 70,000 such employees on the west coast.
Another major distinction between the two bills I introduced is that the second
bill provides for combined basic health and major medical coverage in the same
plan. This differs from most of the other bills before the committee which pro-
vide for a separate policy or policies to be purchased by the Civil Service Com-
mission to cover major medical expenses for employees enrolled under one of the
basic health plans. The most obvious advantage of this unified policy system is
that there would be no argument between insurers as to whether a claim comes
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24 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
under the basic or major coverage. Both coverages would be in the same policy
and administered by the same company or group of companies. The local insur-
ance carriers that provide only basic health insurance could, of course, form
local combines with insurance companies which provide for major medical
benefits in order to present a unified policy eligible for selection under my bill.
Getting back now to the first distinction between H.R. 5386 and the other
bills, that is, employing the principle of true group underwriting by having one
plan for all employees who wish to participate within a personnel area, the
advantages are these:
Simplicity. This system will eliminate the possibility of a Federal agency
or installation having to deal with a large number of different health insurance
carriers. There are at present nearly 450 different commercial insurance com-
panies or nonprofit group hospitalization organizations which would be eligible
to offer basic group health plans under any of the bills before the committee.
The administration of the health insurance program will be greatly simplified
if the Federal agencies are able to deal with only one carrier rather than an
undetermined number of them, depending upon how many different companies
insure their employees.
One of the objections made by the Civil Service Commission against S. 94,
the prototype of most of the bills before the committee, was that it allowed for
a multiplicity of basic health plans. The Commission pointed out that having
a minimum rather than a multiplicity of plans "would enable the Government
to negotiate a few rather than a large number of contracts ; it would avoid
costly advertisement of competing plans and simplify the employee's choice of
a plan ; and, in general, it would make administration considerably less dif-
ficult and costly."
The second advantage of group selection is that it would allow for adjustment
of local health conditions and medical facilities. Permitting the employees to
select from health plans available in their own localities would prevent their
premiums from being based on national average medical costs and would allow
them to take advantage of local rates, Lower medical costs should result in
lower premiums. Using the group insurance plan, where a group of employees
selects one carrier, allows that carrier to compute more exactly the cost of
furnishing insurance to that group.
The group insurance plan would also allow for coverage of illnesses peculiar
to certain localities which might be excluded under plans directed at covering
employees on a nationwide basis.
Next, competitive bidding among carriers will cause them to submit their
best possible plans at the lowest possible prices. Competitive bidding allows
only the minimum amount to be added on for overhead and profit without
diminishing benefits. These results can only be obtained under a group selection
system. For example, in the Washington area the exact same policy is 20 per-
cent cheaper if the beneficiary is a member of a group plan as compared to the
premium charged him on an individual sale.
No company is given a monopoly under my bill. No company is excluded from
bidding.
Moreover, more competent selection can be made from among the plans offered
in a given area. The employees will be able to form committees to give
thorough and expert study to the various bids that will be made. Employees
dealing individually with company salesmen cannot do this with any degree of
certainty. The provisions of section 7 of the bill which allow for contract
rebidding would serve to give a continuous check on benefits offered and guar-
antee improvement in coverages as the science of medical treatment progresses.
The Comptroller General's report on H.R. 5386 stated :
"We believe that the provisions of this bill providing a minimum number of
basic plans and combining the basic and major medical plans will greatly
simplify the administration of any health insurance program."
Mr. Chairman, in summary I would say that my bill, under which local con-
ditions will govern what health insurance plan is best for the Federal employees
in any particular area through their own free choice, will result in their ob-
taining optimum benefits at minimum costs to themselves and to the Govern-
ment.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 25
STATEMENT OF HON. JOHN LESINSHI OF MICHIGAN, A MEMBER OF THE COMMITTEE.
Mr. Chairman, having for several years been interested in developing and
sponsoring legislation to provide a program of hospitalization and medical bene-
fits for employees of the Federal Government, I am pleased that the committee
is moving to complete action on measures pending before us, one of which is my
bill, H.R. 1141.
My bill was designed to make available to all Federal emeployees and their
dependents, health benefits comparable to those provided employees in private
industry, to be financed through payroll deductions with the Government pro-
viding a substantial contribution to the cost of the benefits.
The Federal Government should be the foremost among employers who pro-
vide progressive and enlightened programs in the field of employee-employer
relations, and enactment of the subject legislation will bring the Government one
step closer to the commonly accepted practices in private industry.
The principles outlined in my bill have generally been accepted, but details
as to the Government's contribution and coverage of major medical expenses
have been the subject of controversy. In the interest of producing from com-
mittee a bill that will be accepted, I will go along basically with Senate-passed
measure.
However, I should like to recommend that the committee give serious con-
sideration to the inclusion of retired Federal employees. We must recognize
the fact that retired employees encounter ever increasing medical needs and
ordinarily cannot obtain adequate health insurance protection except at prohibi-
tive costs which their reduced incomes cannot meet. After serving their Gov-
ernment faithfully and well for years, the retirees, present as well as future,
are deserving of inclusion tinder the program.
I hope that we will be able to complete consideration of these measures
quickly and report out a bill which will be signed into law at the earliest
possible date.
STATEMENT OF LION. RALPH J. RIVERS, A REPRESENTATIVE IN CONGRESS FROM TIIE
STATE OF ALASI{A
Mr. Chairman, I appreciate the opportunity of being heard on the matter of
the various bills before this committee providing for a Federal employees' health
and hospitalization program. I would like to speak in behalf of S. 2162, the
so-called Neuberger bill, which recently passed the Senate by an overwhelming
majority, and its House counterparts, several of which are sponsored by mem-
bers of this committee.
First, I would like to congratulate the members of this committee for the fine
work they have done on this measure. The fact that S. 2162 and related bills
have -the support of the American Medical Association, the American Hospital
Association, the insurance industry, Blue Cross and Blue Shield, group prac-
tice. plans, and the various Federal employee unions certainly speaks for the
quality of the bill. In fact, it might be said that this bill is well worth the
many years it has taken to produce it.
As I view the bill, it is a most significant piece of legislation. If enacted,.
Federal employees would at long last achieve the status already enjoyed by
about 100 million employees of private industry who are now covered by various
prepaid health insurance plans. In short, it will mean that about 2'/2 million
American citizens, plus members of their families, will be able to have low-
cost effective medical insurance.
Alaska, because of its former Territorial status, has long had more than
the usual proportional number of Federal employees, most of whom will remain
in the expanding Federal programs to be carried on in our rapidly growing
new State. These people have been good for Alaska. They helped it grow In
stature to the point that statehood became a reality. I am particularly glad.
that these fine Alaskans and their families-be they employees of the execu-
tive, judicial or legislative branches-would be afforded the opportunity of'
partaking in any one of the three low-cost plans which this legislation provides.
Thank you, Mr. Chairman and members of this committee, for the opportunity
you have afforded me to submit this testimony.
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26 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
STATEMENT OF HON. THOMAS M. PELLY, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF WASHINGTON
Mr. Chairman, I appreciate this opportunity to appear in support of the bill,
S. 2162, passed by the Senate on July 16.
This bill is identical with bills introduced by several members of this com-
mittee and is comparable in purpose to other bills that have been introduced
during this session of the Congress. I speak for S. 2162 only because that
has already passed the Senate and ultimate enactment would be expedited if
the House acts on that bill.
The need for legislation of this character is not seriously in dispute. Presi-
dent Eisenhower has on numerous occasions requested legislation on this subject
and private business has for many years provided benefits of this nature.
Many State, county and municipal governments have adopted hospital and health
programs for their employees and the Federal Government is today probably
the only large employer that has not taken some action in this field.
The costs of medical care are in many instances beyond the ability of Federal
employees to pay out of earnings and savings, particularly in those instances
where they are so unfortunate as to suffer or to have members of their fam-
ilies suffer from the results of polio, cancer, heart ailments, etc. While the
average employee can usually find a way to take care of ordinary illnesses
through his own efforts, some method of spreading the costs of catastrophic
illness must be provided. I consider S. 2162 the best step in this direction I
have seen to date to accomplish that purpose.
I am advised that this legislation has the support, not only of the employee
organizations, who perhaps have the greatest stake in this subject, but also
has the support of the American Medical Association and the American Hos-
pital Association, as well as the support of those who underwrite this form of
protection, which includes, in addition to the insurance companies, the Blue
Cross and Blue Shield groups, as well.
I note that the bill as passed by the Senate provides for an equal sharing of
the cost between the employee and the Federal Government, prescribing a maxi-
mum of $1.75 per pay period in the case of individual coverage of an employee
and $4.25 per pay period for the coverage of an employee and his family, matched
by an equal contribution on the part of the Government. Under the bill the
Civil Service Commission would enter into contracts which would give the
employee a choice in the kind of benefits he might select, and I have no doubt
but what the Civil Service Commission will, as it has always done in the past,
look to the interest of the employees and the Federal Government in the
preparation of such contracts.
I note that the estimated total cost of the bill as passed by the Senate is some
$304 million per annum, which would make the Government cost in the neighbor-
hood of $150 million per annum, a sum I do not consider excessive. I believe
rather that measured in terms of what this legislation will accomplish, it is a
wise investment.
I hope this committee will move promptly to report this measure to the House
of Representatives and I want to extend my assurance of support when the
measure reaches the floor.
Meanwhile, I wish to thank the members of the committee for their consid-
eration.
The CHAIRMAN. The committee will next hear from the representa-
tives of employees' organizations, Mr. Jerome J. Keating, vice presi-
dent, National Association of Letter Carriers; Mr. E. C. Hallbeck,
legislative representative, National Federation of Post Office Clerks;
Mr. James A. Campbell, president, American Federation of Govern-
ment Employees; Mr. W. H. Ryan, president, District 44, Interna
tional Associations of Machinists; Mr. Paul Nagle, president, Na-
tional Postal Transport Association; Mr. Harold McAvoy, president,
National Association of Mail Handlers; and Thomas G. Walters,
operations director, Government Employes' Council.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES STATEMENTS OF JEROME J. KEATING, VICE PRESIDENT, NATIONAL
ASSOCIATION OF LETTER CARRIERS; E. C. HALLBECK, LEGISLA-
TIVE REPRESENTATIVE, NATIONAL FEDERATION OF POST
OFFICE CLERKS; JAMES A. CAMPBELL, PRESIDENT, AMERICAN
FEDERATION OF GOVERNMENT EMPLOYEES; W. H. RYAN, PRESI-
DENT, INTERNATIONAL ASSOCIATION OF MACHINISTS; PAUL
NAGLE, PRESIDENT, NATIONAL POSTAL TRANSPORT ASSOCIA-
TION; HAROLD McAVOY, PRESIDENT, NATIONAL ASSOCIATION
OF MAIL HANDLERS; AND THOMAS G. WALTERS, OPERATIONS
DIRECTOR, GOVERNMENT EMPLOYES' COUNCIL
The CHAIRMAN. Who will proceed first?
Mr. HALLBECK. I think I will start it off with your permission, Mr.
Chairman.
Mr. Chairman and members of the committee, we are here reppresent-
ing the 600,000 members of organizations affiliated with the Govern-
ment Employes' Council, AFL-CIO. The names of the organizations
composing the Government Employes' Council are listed for your in-
formation : American Federation of Government Employees; Ameri-
can Federation of State, County, and Municipal Employees i Ameri-
can Federation of Technical Engineers; International Association of
Bridge, Structural and Ornamental Iron Workers; International As-
sociation of Fire Fighters; International Brotherhood of Boiler
Makers, Iron Ship Builders, Blacksmiths, Forgers and Helpers of
America; International Association of Machinists; International
Brotherhood of Bookbinders; International Brotherhood of Electri-
cal Workers; International Plate Printers, Die Stampers, and En-
gravers' Union of North America; International Printing Pressmen
and Assistants Union of North America; International Typographical
Union; International Union of Operating Engineers; Journeymen
Barbers' Hairdressers, Cosmetologists, and Proprietors international
Union of America; Metal Trades Council and Central Labor Union
of the Panama Canal Zone; National Association of Letter Carriers;
National Federation of Post Office Clerks; National Association of
Post Office and Postal Transportation Service Mail Handlers, Watch-
men and Messengers; National Postal Transport Association; Na-
tional Federation of Post Office Motor Vehicle Employees; Office Em-
ployees International Union; The National Association of Special
Delivery Messengers; United Brotherhood of Carpenters and Joiners
of America; and United Association of Journeymen and A prentices
of the Plumbing and Pipe Fitting Industry of the United States and
Canada.
This committee is the hospitalization committee of the Government
Employees' Council, and for the past 5 years we have been engaged
in an intensive and exhaustive study of a hospitalization program
for Government employees. This committee is composed of E. C.
Hallbeck, legislative representative of the National Federation of
Post Office Clerks; Jerome J. Keating, vice president of the National
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28 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Association of Letter Carriers; James A. Campbell, president of the
American Federation of Government Employees; William H. Ryan,
president of District 44 of the International Association of Machin-
ists; Paul A. Nagle, president of the National Postal Transport As-
sociation, and Harold McAvoy, president, National Association of
Post Office and Postal Transportation Service Mail Handlers.
A number of bills have been introduced on this subject, going back
as far as 10 years; hearings have been held; the administration has
proposed legislation; but it was not until this year that any real
progress has been made. This year for the first time, the insurers,
the employee groups, the American Medical Association and the.
American Hospital Association have found it possible to agree on a.
program.
In the past, many of the proposed programs have been inadequate;:
each underwriter proposed his own program and the employee organ-
izations could not fully support any of them. Likewise, the under-
writers could not support the employee plans. This year, for the:
first time, all groups present a united front.
We are here to present evidence supporting S. 2162 as passed by
the Senate. Exact duplicates of that bill have been introduced in
the House by Congressmen Morrison, of Louisiana, H.R. 8210; Davis.
of Georgia, H.R. 8222; and Porter, of Oregon, H.R. 8211.
We want to express our most sincere thanks to the distinguished
members of this committee for introducing these bills. We want to
commend and compliment the able chairman of this committee for
scheduling the hearings on health benefits on the very day the Sen-
ate passed S. 2162.
Many other members of this committee, as well as many other Mem-
bers of the Congress, are due a special vote of thanks for their interest
in hospitalization legislation, as evidenced by the bills they have
introduced. Special mention must be made of Congressmen Corbett,
of Pennsylvania; Broyhill, of Virginia; Lesinski, of Michigan; Foley,
of Maryland; Lane, of Massachusetts; Fulton, of Pennsylvania; Kit-
day, of Texas, and Dollinger, of New York, as well as to the other-
Members of Congress who have worked on behalf of a Government.
contributory hospitalization program over the years.
We also appreciate the statements made by Congressmen Miller,.
Baldwin, and Cohelan.
Mr. Keating is going to take up the testimony at this point, and
the members of the committee will, of course, be glad to answer any
questions, if we can.
The CHAIRMAN. I would like to ask you a question now.
Do you agree with the statement made on the floor of the Senate
last week that the approval of the proposed health bill by the Senate
would equal a 10- to 15-percent pay increase for the Federal em-
ployees?
Mr. HALLBECK. I heard that statement, but do not agree with it..
I think hospitalization legislation is very valuable, but not equal to.
a 10-percent salary increase.
The CHAIRMAN. How much would you say it equals?
Mr. HALLBECK. I would guess perhaps 2.1/2 to 3 percent.
The CHAIRMAN. How much do you estimate as the cost of the pro--
gram to the Federal Government?
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 29
Mr. IIALLBEOK. About $145 million.
The CHAIRMAN. That would only amount to about a 3-percent
increase in pay.
Mr. HALLBECK. Considering 2 million employees, roughly, I think
that is pretty close.
The CHAIRMAN. What do you estimate the fringe benefits already
in the law amount to?
Mr. HALLBECK. I have heard the statement made, and I heard it on
the Senate floor by, I believe, Senator Morton of Kentucky. He stated
it is 23 or 27 percent of payroll.
The CHAIRMAN. Do you agree with that?
Mr. HALLBECK. I think he is going around Robin Hood's barn to
bring up that total. I do not think it quite that high. But for the
sake of the argument, I am willing to admit it is reasonable. I think
it could be figured less.
Mr. CORBETT. Would the gentleman yield?
The CHAIRMAN. Mr. Corbett.
Mr. CORBETT. Figuring just roughly, this bill would cost about $65
per person per year, which Is not even close to a 10-percent increase.
Mr. HALLBECK. No; not all
Mr. BROYHILI.. Would the gentleman yield an that point. I do not
wish to take issue with the chairman, but lie stated that the payroll
costs are now aver $13 billion a year. Well, 10 percent of that would
be $1.3.billion and 1 percent of it would be approximately $130 million.
So it seems, using the figures that the chairman used in his statement,
that the cost of this bill to the Federal Government would be slightly
over 1 percent of the payroll, and, therefore, would be equivalent to
slightly over 1 percent pay increases. That is using the chairman's
figures as made in the statement.
The CHAIRMAN. I am referring to the statement made by a Senator
during the debate on this subject.
1VYr.IILLBECK. Senator Monroney, I think it was.
The CHAIRMAN. That is correct. I did not bring his name in, but
that is correct.
Mr. CORBETT. Mr. Chairman, we frequently have to correct errors
made on the other side.
The CHAIRMAN. Do you have your own health plan for employees,
Mr. Hallbeck ?
Mr. HALLBECK. We da.
The CHAIRMAN. What kind of a health plan is it?
Mr. HALLBECK. Ours is an indemnity plan.
The CHAIRMAN. How does it Operate?
Mr. HALLBECK. The member has his choice of three different plans
providing indemnity benefits in amounts based on the payment the
employee makes. They run from a cost of about $12 a quarter to $30
a quarter. The employee can elect whatever he thinks best suits his
needs.
The CHAIRMAN. What are the three plans?
Mr. HALLBECK. I could submit that for the record, if you wish,
and make it more comprehensive.
The CHAIRMAN. I wish you would.
(For the information referred to, seep. 46.)
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30 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
The CHAIRMAN. How many members of your association belong to
any of these three plans?
Mr. HALLBECK. About 26,000.
The CHAIRMAN. What percentage is that of your total member-
ship Mr. HALLBECK. About 25 percent.
The CHAIRMAN. How long have these plans been in existence?
Mr. HALLBECK. About 7 or 8 years.
The CHAIRMAN. Who is the insurer?
Mr. IIALLBECK. We insure it ourselves. It is self-operating. No
insurance company is in it. We operate at one of the lowest operat-
ing costs anywhere in this field. We have our own reserves that have
been built up through the premiums collected.
The CHAIRMAN. What is the maximum amount paid by an em-
ployee of your organization?
Mr. HALLBECK. For family coverage it is $30 per quarter, which
is $10 a month.
The CHAIRMAN. We will next hear from Mr. Keating.
Mr. KEATING. Referring briefly off the printed statement to the
fringe benefits problem, Senator Morton did make the statement that
the fringe benefits amount to 27 percent. However, the Cordiner
Committee in its study pointed out that the Government employees
contribute a larger percentage of pay for fringe benefits than any
other group of employees. The contribution of Government em-
ployees for total fringe benefits amounts to over 7 percent, so the net
cost to the Government probably is something less than 20 percent.
The total cost is 27 percent.
We feel there is a very strong need for a Government sponsored
health benefits program.
During the past quarter of a century, the people of America and
the people of the world have become increasingly aware of the fact
that the greatest single asset that any nation can possess is a healthy
citizenry. During this same period medical science has made re-
markable progress. With this progress has come the age of speciali-
zation and the development of complicated and expensive diagnostic
techniques. New and expanded surgical procedures have been dis-
covered. The cost of proper medical and surgical care has risen out
of the financial orbit of the average individual, and just as the cor-
porate form of business developed to meet the needs of the machine
age, hospital and medical insurance has developed to spread the
costs and take the burden off individuals who are so unfortunate as
to become the prey of illness and disease.
The original type of hospitalization coverage founded in the de-
pression-ridden thirties has now become outmoded. Insurance cov-
ering medical and surgical costs and catastrophic illness has become
a modern necessity. New and expensive diagnostic techniques and
modern drugs have greatly improved' the science of medical detec-
tion and cure.
Doctors no longer are satisfied to guess; they want to be certain
in their diagnosis-a marvelous development for the health of the
Nation, but a most costly one to the individual. The aspirin tablet,
which still performs wonders at 15 or 25 cents per tin, has been re-
placed to a large degree in modern medicine by miracle drugs-
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 31
miracle drugs that cost from $7 to $12 per treatment. Heparin, an
anticoagulant used in extreme heart cases, costs as high as $17 per
dose.
A proper medical insurance program is no longer within the means
of the average worker. The individual buys what he can, but fie
quently finds his program several thousand dollars short of meeting
the cost of an illness that may beset him or his family.
As a matter of fact, Congress recognized a responsibility in this
area as long ago as 1946. In July of that year, Congress passed the
Railroad Unemployment Act. It provided for temporary disability
benefits arising out of nonoccupational diseases. As of 1958, the con-
tribution rate of the railroads to the plan was 2.5 percent of payroll.
The employees make no financial contribution.
By 1958 four States had recognized the importance, indeed the
validity, of requiring protection for disability arising out of non-
occupational ailments. The first such statute was enacted by Rhode
Island in 1942. California adopted a similar program in May 1946.
New Jersey followed in June 1948. On April 1 this year, a similar
program became operative in New York.
The first two States to adopt this program provided for employee
contributions only; the last two have placed the greater share of the
cost on the employer. This matches the growing trend found in
private industry.
Under the New Jersey plan, the employee pays 0.5 percent of the
first $3,000 of annual earnings. The employer pays between 0.75 per-
cent and 1 percent depending upon the firm's experience rating. If
the workers are covered by a plan equal to, or better than, the State
program, the employer is not required to pay the State contribution.
A most interesting feature of the program is that even where workers
are covered by private plans, the maximum amount they can be
assessed is 0.5 percent of the first $3,000 of annual earnings. Em-
ployers must pay any remaining costs. This is evidence of the fact
that in the better programs the employers pay more than two-thirds
of the cost.
To a great extent, the New York program is similar to the New
Jersey plan. In New York the employees pay 0.5 percent of the first
$60 weekly wages, not to exceed 30 cents per week. Employers pay
any remaining cost.
Private plans existing at the time the New York program was
established may continue during the life of the contract; they may
also be extended by collective bargaining agreements. Needless to
say, such plans will no doubt be more liberal than the State program.
Our neighbors to the north in Canada have been very active in the
field of hospital insurance. Seven Canadian Provinces have compul-
sory Provincial hospital plans that employers having 15 or more em-
ployees must adopt. This program is subsidized by the Dominion and
Provincial Governments.
In this country, many State, county, and municipal governments
have good programs; we will discuss these further in another con-
nection.
In our country, largely through negotiated contracts, 89 million
workers and dependents in private industry are currently covered.
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32 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
The following data, are taken from the Social Security Bulletin for
March 1959:
1. On December 31, 1957, 37.1 million employees were covered for
hospitalization benefits in some type of employee benefit plan. Of
the total, 18.4 million were covered by commercial insurance com-
panies another 16.5 million under Blue Cross, and the remaining
2.2 million in employee plans or prepaid medical programs.
2. Thirty-five million one hundred thousand had surgical coverage.
There were 19 million in commercial plans, 13.6 million in Blue Cross
and Blue Shield, and 2.5 million in employee-sponsored or prepaid
programs.
3. Twenty-five million nine hundred thousand had regular medical
benefits. Of these:, 11.3 million were in commercial companies, 11.
1 million in Blue Cross and Blue Shield plans, and 2.5 million in
employee-sponsored or prepaid programs.
4. Major medical coverage was reported for 5.1 million employees,
although this is the newest type of coverage.
As previously indicated, approximately 89 million workers and
dependents are currently covered under some form of health insur-
ance from the workers' jobs. This in itself is ample evidence that
the health of employees is an important consideration to employers.
If it is a desirable personnel practice for profit-inspired employers,
certainly it should commend itself to the Federal Government.
In all of our research on this subject, it was noted that more and
more industrial employers are paying the total cost of these programs.
A study completed in November 1957 by the Department of Labor
produced some interesting data on health and insurance plans estab-
lished under collective bargaining procedures through 1955. The
study, which included 300 plans covering 4,981,000 employees, de-
veloped the following cost figures :
1. One hundred and sixty-two plans providing benefits for em-
ployees were financed entirely by the employer.
2. One hundred and thirty-eight plans were financed by joint
contributions.
3. One hundred and twenty plans providing benefits for the work-
ers' dependents were underwritten entirely by the employer.
This study points up two significant trends :
1. The employer is more and more assuming the major portion of
costs of health insurance programs.
2. Dependents are more and more being included in coverage.
We submit that the principal motivating factor behind these
trends is the acknowledgment and acceptance by enlightened private
employers that it does no good to have an employee physically present
but mentally absent from his job because he is worried about medical
bills. On that premise, it is difficult for us to conceive of Govern-
ment not being equally anxious to have a similar climate for its
personnel.
In our opinion, there are five requirements for a good Govern-
ment contributory hospital and medical program : (1) The Govern-
ment must contribute enough to be of material aid; (2) the program
must be broad and comprehensive enough to attract employees-if
it is to be of any material value, it must be considerably better than
the programs that the employes now have; (3) the amount paid by
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 00
the individual must be within the means of the lower paid employees;
(4) the plan must be workable on a nationwide basis-it must be
flexible; (5) it must permit the employee to participate in the very
best program available in the community in which he lives.
We believe that the Government should contribute two-thirds of
the cost. However, in the interest of establishing and expediting a
health benefits program, we are now supporting S. 2162, wherein
the Government contributes 50 percent of the cost.
The CHAIRMAN. You would not be opposed to them paying all of
'the cost, would you?
Mr. KnAnNG. No, we would not. We would support that very
cheerfully.
We cannot nor will we support a program wherein the Government
makes a lesser contribution. The maximum benefits provided for
in the present bill will cost the employee $9.21 a month. That is the
maximum the average employee can afford. Fifty percent of the
Federal employees earn less than $4,790 per year. This is the median
pay according to the Civil Service Commission based on figures for
June 30, 1958, in a report released in March of this year.
In a report published by the Department of Research and Service
,of the American Federation of State, County, and Municipal Em-
ployees, under date of July 1, 1959, we garner the following interest-
ing information. Out of 316 State, county, and municipal programs,
the employer pays the following :
Number of plans : by employer
121------------------------------------------------------- 100.
137------------------------------------------------------. 50 to 88-
14 ------------------------------------------------------- Less than 50.
Specified payment percentage could range very high, usually over 50 percent.
Practices prevalent in other plans in both Government and in-
dustry indicate that the minimum amount paid by the Government
should be 50 percent.
There has been a great deal of discusion relative to the need for
major medical or catastrophic coverage. We believe that a good
health benefits plan must include protection for catastrophic illness..
While it is true that the need for this type of coverage is not as ex-
tensive as the need for basic coverage, where it does exist the need
is most acute. U.S. News & World Report in the March 16, 1959,
issue quoted the statistics of one major insurance company as show-
ing that half a million American families had medical bills larger
than their total income for the year.
Dr. Ungerleider, discusing major medical insurance declared:
We knew, as you knew, that a myocardial infarction is just as severe as a sub-
total gastrectomy and the economic factors are not far apart.
We have known-and I am sure that the members of this committee
have known-hundreds of people who have lived their entire life
under the burden of a crushing debt because of a major illness in
their family, and a still greater liability to the Nation is the fact that
thousands of people neglect medical care and attention because they
do not have the money to meet the necessary charges.
It is our carefully considered opinion after a thorough study that
S. 2162 meets the criteria of an adequate program. There are many
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34 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
types and forms of hospital protection; each proponent thinks his
is the best. There are many fine programs that may very well be
the best in a given city or metropolitan area, but S. 2162 is tailored
to meet the many problems of furnishing a program that will give
adequate protection to the employees of the Federal Government
located in 5,0 different States, the possessions of the United States,
and many countries all over the world.
The program is flexible. It does not conform exactly to any pro-
gram that we know of now in existence; it does however, conform
more closely to the plan now operating in New York State for State
employees than to any other now in existence.
The description of the New York plan, as set forth by Agnes W.
Brewster of the Department of Health, Education, and Welfare,
will suffice as a general description of S. 2162. We are taking the
liberty of paraphrasing her explanation only to the extent of sub-
stituting proper descriptive terms.
The law establishes a health insurance function within the Civil Service
Commission, described in general terms the group health insurance benefits
which could be provided (and the types of exclusions), indicated that pro-
posals for insurance contracts were to be invited and indicates some of the
conditions to be observed in the contracts.
The law set the maximum contribution of the Government per employee.
It prescribes the persons eligible for coverage in general terms, authorized
payroll deductions and the deductions from the retirement allowances of retired
employees. It created a health insurance fund and gave the Commission power
to promulgate necessary rules and regulations.
From this brief summary, it can be seen that the law provided only a general
framework, leaving the development of the program to the Civil Service
Commission.
This well describes in a few words the plan of S. 2162.
It is not our intention to discuss the provisions of S. 2162 in detail.
The details of the bill are extremely well described and explained
in the Senate Committee report and we do not wish to consume the
time of the committee by going over this ground again. There are
some provisions, however, that require further discussion.
Each employee will have at least two plans from which to make
a selection; others could well have four, providing that a bona fide
employee plan or a group practice prepayment plan was available to
him. The benefits described in S. 2162 are maximum benefits; the
payments provided in the bill are maximum payments. The method
followed in determining the cost of the legislation and establishing
the cost to the Government at $145.3 million were set forth in the
Senate report as follows :
Aggregate costs : Data on the number of married women working
for the Government, or the number of instances where husband and
wife are both Government employees, do not exist. To arrive at ag-
gregates the cost estimates that follow assume that-
(1) Two million employees will be eligible to participate in
the program.
(2) Ninety percent of them will do so-i.e., 1.8 million em-
plo}y~ees will elect coverage.
The CHAIRMAN. How many will elect coverage? I did not hear
that.
Mr. KEATixa. 90 percent.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 35
(3) Forty percent will enroll as individuals and 60 percent as
families.
(4) One hundred and fifty thousand women with nondependent
husbands, will enroll their families.
(5) All contracts will be at the maximum biweekly contribution
shown. (This assumption results in aggregate costs somewhat above
those anticipated.)
On an annual basis, the assumed. contributions are $91 for single
employees ($45.50 from the Government) and $221 for family cover-
age ($110.50 from Government).
720,000 single employees X $91---------------------------------- $65,520,000
1,080,000 employees with families X $221------------------------ 238, 680, 000
Total---------------------------------------------------- 304,200,000
Government contribution --------------------------------------- 145,300,000
Employee contribution------------------------------------------ 158,900,000
The reason for the difference is the fact that in the case of women
employees who include other members of the family the Government
only pays one-third; they have to pay $6, and the 4overnment pays
$2.50.
Mr. BEES. I don't quite understand that statement. Will you
repeat it?
Mr. KEATING. In the case of female employees, the bill provides
that the employee canpay up to $6 and the Government contributes,
I think it is, $2.50. Women who want to insure their husbands, that
is. They do not come under the strictly benefit plan, and that, of
course, results in the employees actually paying more than the Govern-
ment.
The CHAIRMAN. Mr. Lesinski?
Mr. LEsiNsai. Do you mean like a woman's parents?
Mr. KEATING. Well, if she wants to insure her husband, for example.
Here is the exact language of the provision :
If a member of the family of a female employee or annuitant who enrolls
in a health benefits plan under this act for herself and members of her family
is a husband, other than a dependent husband, there shall be withheld from
the salary of such employee or annuitant as her contribution to amount not to
exceed $6 biweekly, and 'the Government shall contribute an amount not to
exceed $2.50 biweekly.
If she wants to insure her husband she pays better than two-thirds,
and the Government less than one-third and that explains why in
this table here the .amount of contribution made by the employees is
shown as greater than that by the Government.
Mr. RE Es. Would that include her mother or father?
Mr. KEATING. It just says husband, specifically.
The CHAIRMAN. How about children?
Mr. KEATING. They would come under the family plan, if she had
children.
The CHAIRMAN. The same premium would be paid by an employee
of the Government with one child as would be paid by an employee
with five children;. would it not?
Mr. KEATING. That is right. It might be, Mr. Chairman. I will
qualify that to this extent. These are maximum figures. What the
Commission will work out in their contracts with the insurance com-
panies, nobody knows.
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The CHAIRMAN. What does that bill provide as the definition of a
family?
Mr. KEATING. It provides a definition of the family, husband and
wife, or husband and wife with children, and sets a maximum pay-
ment. But if the Commission can buy insurance for less than the
maximum, they will do so. If an insurance company draws up a pro-
gram where they would furnish insurance for a woman and one child
for a lesser amount than a woman with five children, the Commission
undoubtedly would take that contract, and they have the right to do
so. So it is impossible to have exact estimates, and, of course, the
Senate committee in making their estimate used outside figures. You
are going to have a little reference to that later on.
Mr. LESINSKI. Does it mean husband and children, if she so elects?
Mr. KEATING. The family means husband and children.
Mr. LESINSIiI. The immediate family only?
Mr. KEATING. That is right.
The CHAIRMAN. Does the husband have to be a dependent in order
to be covered?
Mr. KEATING. No ; it says other than a dependent husband. The
dependent husband is covered under the regular family plan. If he is
not a dependent husband, the contribution is limited. She gets 75
cents-she is allowed 75 cents a month more than the single employees.
Mr. PORTER. I agree with the gentleman's observation that the cost
could be a good deal less than the maximum. I am wondering if you
have an opinion as to why competitive bidding apparently was not
required for these contracts. .
Mr. KEATING. It is not exactly so stated. There is competitive bid-
ding to this extent : There are four possible types of insurers-
Mr. PORTER. I did not make myself plain. It says in section 6,
"Commissions authorized without regard to section 3709 of the Re-
vised Statutes or any other provision of law requiring competitive
bidding * * *." That is pretty categoric.
Mr. KEATrNG. I think perhaps the reason for that, Mr. Porter, is
that in letting these contracts such as they did in the group life insur-
ance program where you had only one insurer in that case, here you
have several, they have allowed four different plans.
Now, undoubtedly, the indemnity companies will have one company
bid for the business, and then the business will be split up or several
companies will apply-the business will be split up among different
companies. They will each be given a chunk of it, so to speak.
Now, in the service plans, of course, actually only one carrier really
participates in that type of program; that is, the Blue Cross-Blue
Shield.
Mr. PORTER. But why shouldn't there be competition?
Mr. KEATING. I think that is to cover the problem of the indemnity
companies; I think that's the reason for the provision. I haven't dis-
cussed that with the committee, but that is my guess.
Mr. LESINsKI. Would you say that the competitive bidding is there
because the offer says that it shall be the program with the least cost,
so the competition is there.
Mr. KEATING. I would say so.
The foregoing estimates are thought to be conservative. For exam-
ple, substantial reductions in cost could result from eventualities such
as the following :
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 37
1. Should one or more of the carriers offer a lower benefit program
that cost single employees 20 cents less than the biweekly maximum
permitted and cost employees with families 50 cents biweekly less.
than maximum and were this chosen by 50 percent of the participat-
ing employees, the total cost would be reduced by $18 million annually.
2. Should 85 percent of eligible employees elect to participate
(rather than the assumed 90 percent) because of other protection
available through the spouse's place of employment, the total annual.
cost of the program would be reduced by $16.9 million.
The CHAIRMAN. By how much?
Mr. KEATINO. $16.9 million.
Experience of similar programs suggests that participation of more
than 90 percent of employees is highly unlikely.
The maximums-$45.50 annual for single employees, $110.50 for
families, and equal amounts from Government-are consistent with
costs of similar programs in private industry and in the State of New
York. They are also consistent with data developed by the U.S. De-
partment of Health, Education, and Welfare on per capita private ex-
penditures for health services.
The Federal employees health benefits fund. The bill creates a
fund which is a repository for, and keeps separate for the purposes
of this bill, the amounts deducted from employees' salaries and the
Government's contributions. The moneys in the health benefits fund
are to be used for three purposes : (1) To pay the premiums or sub-
scription charges under policies or contracts purchased from or en-
tered into with carriers; (2) to pay necessary expenses incurred by
the Commission in carrying, out the act; and (3) to provide an ade-
quate reserve to assure stability of subscription rates over a reason-
able period.
The bill does not contemplate the accumulation of large reserves in
the health benefits fund. The committee is of the opinion that a re-
serve of not to exceed approximately 3 percent of any 1 year's contri-
butions or in. excess of an accumulative total of approximately 10
percent should be adequate to assure stability of subscription charges
over a, given period of several years. The large variables most likely
to affect costs do not lend themselves to precise long-range actuarial
predictions.
Therefore, the accumulation of reserves in the health benefit fund
is permitted primarily to assure the stability of subscription charges
over a reasonable period of time.
The bill contemplates that administrative expenses incurred by the
Commission should not exceed 1 percent of the amounts paid into
the fund. If the program requires contributions totaling $300 mil-
lion annually, administrative expenses should be less than $300,000
per year.
The Civil Service Commission and the Bureau of the Budget have
advanced two objections to the cost figure-one is that the figure does
not include the cost for retirees. According to the Commission, the
first-year cost will be $2.5 million, and in 10 years it will increase to
$25 million. The Commission also contends that there should be a
larger percentage provided for reserves. Inasmuch as the estimate
of cost by the committee is a maximum estimate, we are convinced
that the estimate is more than ample to take care of the cost for re-
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38 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
tirees. We also believe that the Senate Post Office and Civil Service
Committee plan provides adequate provisions for reserves.
Mr. KEATING. I might point out that actually many insurance com-
panies operating now return better than 90 percent of the premium
dollar to the insured individual, and in some instances it goes as high
as 97 percent. That gives the company only 3 percent to do business
on, which puts them in a rather precarious position.
The CHAIRMAN. What contribution does the employee make after
he retires?
Mr. KEATING. They make the same payment as they do when they
are working.
On this reserve problem, however, the insurance companies that are
operating under the Civil Service Commission will assume a lot of
the cost of the plan because they will investigate and pay the claims
so the Commission will not have that cost saddled on them, and I
think that the reserve and the estimate for the reserve is adequate.
Furthermore, we believe that the committee estimate of cost is on
the high side. We base this conclusion on three facts :
(1) We seriously doubt that in entering into contracts with the
insurers the Commission will make the same premium payments for
benefits covering a man and wife that they will make for benefits
covering a man, wife, and children. In commercial plans the rates
for man and wife are 25 to 40 percent less than for a family. If this
fact is valid, this one factor alone will act to greatly reduce the stated
cost.
(2) There are approximately 500,000 Federal employees who earn
less than $4,000 per year. These employees will have great difficulty
paying $9.21 per month for coverage. In all probability, hospitaliza-
tion programs will be available for them at a lesser figure. This, too,
will reduce the overall costs.
(3) In areas where hospital costs are lower, it is most probable
that some employees will elect coverage that costs less than the maxi-
mum allowed. This, too, will operate to reduce the Government cost.
The CHAIRMAN. The rates of hospital and medical charges already
are increasing.
Mr. KEATING. They vary tremendously for every community, prac-
tically. But there is one thing there that I think we might caution
you on, and that is that unfortunately, as far as the cost is concerned,
the greater part of the Federal employees live in the higher hospital-
cost areas, and I do think that the fact that some of them do not
will operate to reduce the charge and costs on this bill.
We want to make it absolutely clear, however, that the hospital and
medical provisions found in this bill are not excessive. The cover-
age provided should not be reduced. If the Government would pay
two-thirds of the cost, those in the lower pay grades could purchase
the type of program that they need. In our opinion, the Govern-
ment payment of 50 percent is the absolute minimum that should
be provided in a modern hospital-medical benefit bill.
The Civil Service Commission has agreed to the necessity of an
Advisory Council, but contends that the functions of the Council
should be entirely advisory. The Commission objects to the partici-
pation of the Council in an effective way. We believe that the em-
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 39
ployees on the Advisory Council have a right to a large measure of
participation, particularly in the formative stages of the program.
The details of the plans to be adopted are placed almost entirely
in administrative hands. To this we do not object, but we feel very
strongly that the employees who are coequal partners in financing
the plan should have all of the rights set forth for the Advisory
Council in S. 2162. We urge this committee to make no changes in
the functions of the Advisory Council.
We would like to call your attention to one grave defect in the
program. S. 2162 makes no provisions for furnishing hospitalization
to the 311,000 retirees, nor to the 132,000 survivor annuitants now on
the rolls. This is unfortunate inasmuch as no group requires hos-
pital protection to as great a degree. The incidence of illness is
greater among those who have passed the age of 65, and a study made
in 1957 showed that only three out of eight of this group had some
form of hospitalization protection. That percentage of participation
would be somewhat greater now. A number of those interviewed by
the National Research Center of the University of Chicago reported
that they had applied for hospitalization coverage but had been re-
jected. Recently insurers have adopted a more liberal policy toward
insuring those over 65.
One of the reasons given by the committee for not including the
retirees in this legislation was the difficulty of determining the cost
because of lack of information on the ages and marital status of the
annuitants and survivor annuitants.
Senators Johnston and Neuberger, in addressing the Senate, prom-
ised to immediately proceed to prepare a program to cover the re-
tirees. We hope that this committee will do likewise, because the
need in this area is extremely great, and has become a growing source
of grave social responsibility.
The effective date of S. 2162 is July 1, 1960. The legislation will
not increase the budget for the current fiscal year. We believe that
the bill must be passed this year. In order to complete the neces-
sary administrative details for a program of this magnitude, im-
mediate passage is most necessary. The insurance carriers, as well
as the Civil Service Commission, will have many administrative
functions to perform, and we respectfully urge this committee to
take prompt and favorable action on this legislation.
We thank the chairman and members of the committee for giv-
ing us''the opportunity to present our views on this most timely
subject.
The CHAIRMAN. The House will be in session in 5 minutes, and
we will not have an opportunity to ask any questions now, Mr.
Keating. I ask all of you gentlemen to return next Thursday at
10 a.m.
Tomorrow Judge Davis' Subcommittee on Manpower Utilization
is having a hearing which was scheduled some time ago, so that the
committee cannot continue hearings tomorrow but will resume hear-
ings at 10 o'clock Thursday morning.
(Whereupon, at 11: 55 a.m., Tuesday, July 21, 1959, the commit-
tee recessed, to reconvene at 10 a.m., Thursday, July 23, 1959.)
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HEALTH BENEFITS PROGRAM FOR FEDERAL
EMPLOYEES
THURSDAY, JULY 23, 1959
HOUSE OF REPRESENTATIVES,
COMMITTEE ON POST OFFICE AND CIVIL SERVICE,
Washington, D.C.
The committee met at 10 a.m., Hon. Tom Murray (chairman)
presiding.
The CHAIRMAN. The committee will come to order.
The hearings will be resumed on S. 2162, as approved by the Sen-
ate, and on other bills introduced by various Members of the House.
I will ask the Government Employes' Council witnesses to resume
their seats at the table.
Mr. JOHANSEN. Mr. Chairman, with the permission of the Chair,
I would like to make a statement before we proceed.
The CHAIRMAN. Very well.
STATEMENT OF HON. AUGUST E. JOHANSEN OF MICHIGAN, A
MEMBER OF THE COMMITTEE
Mr. JOIIANSEN. Unfortunately, I was not able to be present for the
hearings Tuesday due to another committee meeting, and I would like
to make a brief statement regarding the proposed Federal employees
hospital and medical program.
I intend to appraise the testimony adduced in these hearings as
thoroughly and conscientiously as I know how.
However, at the outset, I,should like to make very clear some of the
competing considerations which are going to be in my mind as I
weigh the pros and cons of this matter.
First of, all, let me say that I have no' interest in attempting to
realize any political benefit so far as the leadership of the employee
unions is concerned. If there is such benefit it comes at a higher
price than I am willing to pay. It requires that I accept and sup-
port the maximum demands not only at the moment but always here-
after as those demands are expanded.
In the second place, I want to repeat what I have said with respect
to other employee legislation. I recognize that the Government of
the United States is among other things, an employer and as such
has certain definite obligations of fairness, justice, and responsibility
with respect to its employees. However, the obligations of the Gov-
ernment are not limited to those of an employer and cannot be gov-
erned solely by the demands of the employees or the employee or-
ganizations leaders.
41
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42 HEALTH BENEFITS FOR FEDERAL EMPLOYEES.
The obligations of the Government relate to the total national inter-
est, including the fiscal situation of the Government itself, the plight
and problems of the American taxpayers and the necessity for re-
taining some right of veto on the employee demands and some meas-
ure of restraint on the pace and rapidity with which these demands
are acquiesced in.
Third, because the Government cannot ignore totally the cost as-
pect of this and related programs I concur completely with the view
of the chairman that action on l is program by the 86th Congress
must be related to the demands and pressures which the same Congress
may be expected to face during its lifetime with respect to further
pay increases.
It seems to me that for the union leadership to reject this promise
is for the union leadership to demand abdication of fiscal responsi-
bility by the Congress.
I recognize the very strong arguments in terms of the example set
by private enterprise, in terms of humanitarian consideration which
can be advanced in support of this legislation. I would hope for
some evidence of an awareness of the fact that the monetary value
of this program to the employees, if adopted, is in fact substantially
greater than the out-of-pocket cost either to the Government or to
the participating employees. I will be very sorry indeed if the spon-
sors of this program persist in a refusal to recognize this important
consideration.
I would be less than frank if I did not say that a flat rejection of
this consideration could have a very decisive bearing on my vote.
Viewing the matter from a different perspective, let me say that
administration objections to cost aspect of this legislation, on the
one hand, lose considerable effectiveness in view of some of the other
spending programs either insisted on or acquiesced in by the adminis-
tration. I refer particularly to the provisions written into the
Mutual Security Act of 1959 and voted by the House yesterday, re-
specting the so-called program of international cooperation in health.
I cannot construe this action as anything other than the first step in
a multimillion, and probably a multibillion, dollar program of inter-
national spending in the field of health, which, however, laudable in
its purposes, takes no account of the enormity of the new financial
burdens which will be placed upon the American taxpayer. I con-
fess that I find it difficult to oppose efforts to take care of our own,
while we undertake to assume the task of taking care of the entire
world.
I have taken this time simply to record some of the conflicting con-
cerns I have with respect to this legislation as the testimony is
developed.
The one thing I do counsel is at least some evidence of reasonable-
ness, moderateness, and restraint on the part of those who appear to
insist on a policy approach of "All this, and Heaven, too."
The CHAIRMAN. Thank you, Mr. Johansen.
Mrs. GRANAHAN. At this point, may I make a statement for the
record ?
The CHAIRMAN. Mrs. Granahan.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 43
STATEMENT OF HON. KATHRYN E. GRANAHAN, OF PENNSYLVANIA,
A MEMBER OF THE COMMITTEE
Mrs. GRANAFIAN. Mr. Chairman and members of the committee,
I. intend to support and work actively in behalf of the legislation
row before us to provide a contributory program under which our
Federal employees can obtain effective insurance against high medi-
cal and hospitalization costs. I am sorry I was not able to be present
earlier this week when the committee began hearings on this legisla-
tion, but as the members know, I have to attend hearings on another
committee on which I serve-particularly since the witnesses that
morning included the mayor of my own city testifying on the prob-
lem of cities generally. I make this statement now for the purpose
of emphasizing that my absence Tuesday was not due to any lack of
interest in the Federal employee health insurance legislation.
At this moment, I do not feel it is necessary for me to take the time
of the committee to go into the technical phases of the health insur-
ance legislation, since we will be considering the details of the bills
in executive session following our hearings.
The near-unanimity with which the ?enate passed this legislation
last week-as I recall, there were only four adverse votes-indicates
the broad support there is throughout the country for providing our
Federal employees with this type of program. Industry has been
pioneering-labor and management joining together-in adopting the
prepayment method of insuring against the huge costs of prolonged
illness on a mass basis, and it is obviously an area of labor-manage-
ment cooperation in which the Federal Government should also be
taking a leading role.
The costs of this program as they have been estimated by the
actuarial experts are certainly not excessive in terms of the value
such a program should provide for the Government as the largest
single employer in the Nation.
We all know that with the present and steadily rising costs of
medical care-chiefly due to the tremendous strides medicine has
made in discovering new methods and new equipment for prolonging
life and battling disease-that many people delay necessary medical
care because of the fear of cost. The general adoption of group
hospitalization insurance and surgical insurance has led to a vast
improvement in the health of our people by encouraging and making
it possible for people to obtain the care or the operations they need.
On the other hand, when it comes to the so-called catastrophic
and terribly expensive drugs and medicines, and the consultation of
numerous physicians and specialists as well as the use of costly equip-
ment, the average family-and most Government employees come
under the heading of average-income earners-is picked clean as far
as resources are concerned and is plunged hopelessly into debt.
Thus we need for them the kind of joint contributory program
called for under this legislation. As employer, the Government
should provide this insurance, and pay, I feel, 50 percent of the cost
of it, in order to make Federal employment desirable enough to
retain our many outstanding career people who, in most cases, do a
wonderful job with patriotism and devotion and skill.
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44 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Government employees, once trained in their specialized work, are
continually being attracted away from Government service into pri-
vate enterprise, partly by offers of higher pay but also by such fringe
benefits as health insurance. We cannot compete with private enter-
prise in executive pay, but for the men and women who have made
Government their career, and who desire to stay in Government
service despite higher offers from private enterprise if it is at all
possible for them to do so without being unfair to their families,
this kind of legislation is a must.
Thank you.
Mr. PORTER. I would like to call to the attention of the committee
the presence here today of a Member of Parliament, Mr. Wedgwood
Benn, sitting down here and listening to our proceedings. He hap-
pens to be married to an American who comes from Cincinnati. His
country has had some experience in this kind of thing that we are
talking about here today, so he does have some interest in it. I just
want to say that I know that he will be welcome to listen to our
proceedings here.
I have one other thing that I would like to say. I understand this
is a complex and important bill and we should have full hearings.
I understand it is the chairman's intention to see that these hearings
go off as soon as possible. I feel that is the wish of the majority of
the committee. I. realize that we cannot very well meet in the after-
noon because of important legislation on the floor, especially next
week, but I repeat my hope that we will be able to finish these hear-
ings and get this matter to the floor this session.
The Ch AIRMAN.. The hearings will be expedited as much as possible.
Mr. M'ORRISON. Will the gentleman yield? I feel the same way as
my distinguished colleague, Mr. Porter. I feel that unless we have
full meetings every day next week, and any afternoon that we do not
have a heavy schedule on the floor of the House, that it will be im-
ppossible to hear all of the witnesses that want to be heard. I would
be the last person on this committee to take the position that we
should not hear any responsible witness that desires to be heard.
However, I think that we are all realists and we all realize that we are
now nearing the end of the session, and if we are going to report
out this, bill we are going to have to start to speed up our procedures
in every. possible way. As I said, not at any time do I want to see
any witnesses cut off, but I reserve my right that at the time it looks
like Congress is going to adjourn before it is possible to pass on this
bill I am going to move that the testimony be stopped and we go into
executive session and report the bill out. I think that every possible
endeavor ought to be made at this late date to hold hearings as long
as possible on any day when there is nothing scheduled in the after-
noon of importance. When a bill is scheduled in the afternoon for
4 hours of general debate there is no reason, in my humble judgment,
why this committee could not meet for those 4 hours while that geeen-
eral debate is going on on the floor of the House. We could certainly
hear a tremendous number of witnesses by that procedure.
Mr. Gxoss. Is the gentleman going to be the judge of what is im-
portant and unimportant on the House floor?
Mr. MORRIsoN. No. Other committees have done that, and I see no
reason why this committee cannot do it.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 40
The CHAIRMAN. I do not propose to do that. I will tell Mr. Mor-
rison that. These hearings will proceed as fast and as expeditiously
as possible, and I trust, Mr. Morrison, that your attendance will be
bettor than it has been in the past at these committee meetings.
Mr. MORRISON. If you want to get into that, I attend when I think
it is important, and I do not attend when I do not think it is im-
portant. You brought the question up, and whether I attend or
whether I do not, frankly, it is none of your business.
The CHAIRMAN. I fully realize when you attend.
Mr. JOHANSEN. I trust that we have the assurance of the gentle-
man from Louisiana that the decision to cut off, or attempt to cut off
these hearings, will not be in advance of the testimony of the Gov-
ernment witnesses?
Mr. MORRISON. I reserve my right to do it at any time. I can make
that motion just like you can make a motion, or anyone on the com-
mittee can make a motion.
Mr. JOHANSEN. I do not ever want to hear any more talk in this
committee from certain sources about the threat of a Presidential
veto. I have never heard such a threat to a committee.
Mr. MORRISON. It is no threat.. I reserve my right to make a mo-
tion. I can make a motion any time I desire, and the motion that
I want to, and whether the rest of the committee passes on it, or
whether they do not, it is up to the committee.
The CHAIRMAN. The committee will be in order. These hearings
will proceed in an orderly manner. We will expedite the hearings
as much as possible. This is major legislation. It should be con-
sidered thoroughly and carefully by this committee, and I propose
to do so. I donot propose to have any "snap judgment" action taken
by this committee with my consent.
Mr. MORRISON. If the gentleman will yield, I certainly do not want
to see these committee hearings dragged out so that it will be impos-
sible to have the full House pass on t1 is legislation.
The CIAIRMAN. We will resume the hearings, if the members are
through with their statements.
Now, Mr. Hallbeck, you were explaining yesterday something about
the health plan that your organization has.
STATEMENTS OF JEROME J. KEATING, VICE PRESIDENT, NATIONAL
ASSOCIATION OF LETTER CARRIERS;; E. 0. HALLBECK,. LEGISLA-
TIVE REPRESENTATIVE, NATIONAL FEDERATION OF POST
OFFICE CLERKS; JAMES A. CAMPBELL, PRESIDENT, AMERICAN
FEDERATION OF GOVERNMENT EMPLOYEES; W. H. RYAN, PRESI-
DENT, INTERNATIONAL ASSOCIATION OF MACHINISTS; PAUL
NAGLE, PRESIDENT, NATIONAL POSTAL TRANSPORT ASSOCIA-
TION; HAROLD McAVOY, PRESIDENT, NATIONAL ASSOCIATION
OF MAIL HANDLERS; AND THOMAS G. WALTERS, OPERATIONS
DIRECTOR, GOVERNMENT EMPLOYES' COUNCIL-Resumed
Mr. IIALLBECK. Yes.
The CHAIRMAN. how many members of your organization are
members. of your health association?
Mr. HALLBECK. About 26,000.
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46 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
The CHAIRMAN. What percentage is that of your entire member-
shi ?
I. r. HALLBECK. About 25 percent of the entire organization.
The CHAIRMAN. 25 percent?
Mr. IIALLBECK. The reason for that is we came into the health field
after a considerably large percentage of our members had already
found some form of protection elsewhere. Actually we came in be-
cause a lot of our members could not find the type of protection they
needed from commercial companies.
The CHAIRMAN. Do you have a maximum contribution? Do you
raise or lower the contribution on the part of the employee?
Mr. HALLBECK. The contribution on the part of the employee is a
matter of our constitution. It requires a three-quarters vote of our
board of directors, a 75 percent vote on the part of our board of direc-
tors, to change the constitution of the hospital plan with respect to
premiums or benefits.
At that point, Mr. Chairman, last Tuesday you asked me some
questions about the costs and the benefits of our various plans. I be-
lieve that I told you that we had three plans and I was answering
from the top of my head and I am afraid my answers were not very
exact, and with your permission I would like to submit in lieu of the
answers that I gave at that time a statement which actually describes
the three plans as to the premium cost and the benefits for each of the
plans.
The CHAIRMAN. Very well.
(The information submitted is as follows:)
Hospital and surgical benefits provided by the hospital plant of the National
Federation of Post Office Clerks
Cost pe. quarter:
Member only.----------- --------------------------------
M
$5.20
$7.00
$8.40
em.ber and spouse-------- --------- -------------------------
10.25
14.50
17
60
Family group ------------------------------ ---..................
12.80
25.00
.
30
00
Beneflts (reimbursement of actual expenses up to):
In hospital:
Daily room and board______________________________________
i 7.00
810.00
.
312
00
Specialservices----
45.00
300.00
.
500
00
HHospital maternity costs____________________________________
40.00
100.00
.
120.00
Surgery schedule (each hospital admission) -----------------
Com
rehensive polio
200.00
200.00
3Q0.00
p
---------------------------------------
Medical (doctor's calls in hospital) _____________________-____
------------
------------
1, 500
00
5, 000. OD
360
OD
Out of-hospital:
Surgery scihedule------------------------------ --------
200.00
_
_
.
First aid after accident_________________________________
10.00
.Diagnostic and laboratory ----------------------------------
Total of
Total of
Operating room and anesthesia_____________________________
$25.
$25.
i Per day for first 30 days plus $4.00 per day for next 30 days.
2 Per day for first 70 days.
2 Per day for first 120 days.
NOTE.--Each individual covered is entitled to receive benefits up to the maxima shown above during any
1 certificate year except as otherwise indicated. No limit to number of admissions.
The CHAIRMAN. What is the financial condition of your plan at the
present time?
Mr. I-IALL BECK. It is completely solvent. We are paying more than
$1.5 million in benefits each year. It is not fully funded, but it has
a very adequate reserve.
The CHAIRMAN. Mr. Keating, I would like to ask you about your
insurance plan.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 47
Mr. KEATING. It has been in operation since 1950. We have well
over 30,000, probably 33 000 or 34,000 members in the plan.
The CHAIRMAN. And what percent of the entire organization are
those?
Mr. KEATING. They represent roughly 30 percent.
Of course, the plan is in competition with other plans where they
have prepaid medical, and many plans were established before we went
into the hospitalization field. There are actually six different types
of programs that our members can subscribe to. They pay accord-
ing to the amount of the benefit. I think one factor that is most im-
portant in the consideration before this committee is the percentage
of people that subscribe according to the various dollar amounts. I
think this indicates what the individuals feel they can pay for hos-
pitalization.
We have plans that range in price, on a family basis, from $7 to
$11.25, and the $11.25 plan provides better benefits.
The CHAIRMAN. Per month?
Mr. KEATING. That is the monthly amount they pay for premiums.
Now, 17.6 percent of our people take the $7 plan; 65.2 percent take
the $7.70 plan; 3.4 percent take the $8.95 plan; 2.3 percent take the
$9.90 plan, and 1.8 percent take the'$10.35 plan, and 9.9 percent take
the $11.25 plan, which is the more liberal plan.
That indicates to me, as a general thing, that the payments that
they would like to make are somewhere around $8. That, I think, is
an important thing in this legislation.
The CHAIRMAN. Mr. Nagle, does your organization have a health
insurance plan?
Mr. NAGLE. We have a plan somewhat different than that described
by either Mr. Keating or Mr. Hallbeck. Ours has been until recently
completely a part of the National Postal Transport Association, in the
section that the national members subscribe. We have a constitutional
division in the sense that our hospitalization plan is situated in Kan-
sas City, Mo., and has a constitutionally separate organization of its
own. Our experience in writing hospitalization benefits roughly is
closer to that presented by Mr. Ilallbeck than by Mr. Keating.
Our plan has been solvent. It has a very excellent record of pay-
ing benefits. The distinct issue I wish to make is we do have a less
formal tie-in than those which exist in the organizations previously
declaring themselves.
The CHAIRMAN. Mr. Ryan, what about your organization?
Mr. RYAN. We do not have a plan in our organization. Most of
our members employed in private industry are covered under either
joint plans of management, or they are covered entirely by manage-
ment contributions.
The CHAIRMAN. I call your attention to the definition of the na-
tional employee organization in section 2(h) of the bill.
Is it your construction that this definition is limited to groups in-
cluding none but Government employees? Refer to section 2(h) of
the Senate-passed bill.
Mr. RYAN. My interpretation of that would be that it would cover
a plan underwritten by a national employees organization.
The CHAIRMAN. Is yours strictly a national employees organiza-
tion? That is what is worrying me.
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48 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. RYAN. The district that I represent, Mr. Chairman, is com-
posed of local unions of the International Association of Machinists
whose membership is composed either in whole or in part of Federal
employees. We do not envision, as a district, taking on any sort of
plan of this nature, and I have no knowledge that our international
at the present time is thinking of taking on any such program.
The CHAIRMAN. Let me ask any of you this question-as I under-
stand it, the bill fixes a maximum contribution upon the part of the
employee; is that correct?
Mr. HALLBECK. That is right.
The CHAIRMAN. In other words, the. amount cannot be raised except
by further congressional action?
Mr. HALLBECK. That is right.
The CHAIRMAN. Now, as you know, there is constant increase in
hospitalization and medical expense. I have here a telegram that I
received this morning from Mr. Michael Jablonki of Pennsylvania,
who says that Blue Cross rates in this area have been increased by 33
percent to 42 percent.
Now I have correspondence here from someone in Maryland'saying
that there has been a sizable increase in these rates, and that a further
increase is being requested.
As I understand it, if these charges become so high that the Govern-
ment contribution is not sufficient to meet them you cannot raise the
rates under this bill but you would have to lessen the benefits; is that
correct?
Mr. KEATING. There is a maximum amount, and you can only get
what those dollars will purchase. In fact, there is a provision in the
bill that points that out.
The CHAIRMAN. I say that under this bill the contributions of the
employees could not be increased without further legislation; is that
true?
Mr. KEATING. That is ri ht, although the employee, if he so
wishes, could purchase supplementary insurance but not as a part
of the withholding program.
Mr. HALLBEea. If I may comment there, that is the very reason
why our organization went into an indemnity type program rather
than a service type program, because in an indemnity type program
the benefits can be expressed in constant dollars. In the service type
of benefits, which covers hospitalization regardless of the cost, you
have a fluctuation due to the increase, or perhaps in some cases de-
crease, in costs. I do not believe that there is any program any-
where so far devised that can guard against increases or decreases in
service type benefits. Certainly, this legislation does not attempt to
do it.
But I think this, that the premium costs are set high enough in the
bill, $4.25 per pay period on the part of the employee and employer,
and it is a very substantial premium that will buy benefits, in my
judgment, far in excess of anything that the Civil Service Commis-
sion is likely to approve at this time. I do not believe that the Maxi-
mum program that the Civil Service Commission is going to approve
will cost as much as $4.25 per pay period for both employer and em-
ployee, and there will naturally be a considerable leeway as a result.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 49
The CHAIRMAN. Let me ask you about the difference, in your opin-
ion, as to medical and hospitalization cost for retired employees as
compared to the cost for those still in active service.
Mr. HALLBECIc. I think statistically the cost would be somewhat
higher depending upon the age of the employee. As we grow older
we tend to come closer to the time when we are going to need hospital
coverage.
The CHAIRMAN. It will be higher?
Mr. HALLBEoK. It would or could be considerably higher, but there
is this to be said : The older we get the less likely we are to have pro-
longed illness. Illnesses 'are more apt to be terminal as we get older.
[Laughter.] That. is a fact; it is no laughing matter. The older
we get the more apt we are to die. 'That figures into the cost of it,
because the cost of a program of this sort depends upon the length of
time that you can draw benefits. Maternity costs are less. That is
The CHAIRMAN. I think that that would be conceded.
Mr. HALLBEcKi. That is not exactly a joke.
There are cases where they do not entdr into it.' For our own plan,
we do charge a higher premium in some instances where a person
joins the plan very late in life. He does pay a higher premium after
age 65- just on that account. When they have been a member of the
plan since its inception, or whenever there is 10 years' coverage, .there
is no increase.
The CHAIRMAN. You gentlemen are much better acquainted with
this legislation than Iz and you have been interested in it from the
time the initial legislation was introduced several years ago.
What are the major differences between S. 94, the original bill in-
troduced in the Senate, and S. 2162, the bill that has been approved
by the Senate and which we are now considering? Briefly, what are
the major differences?
Mr. IIALLBECK. There are several. To my mind the most impor-
tant is that the bill, S. 94, as originally introduced, gave an employee
an absolute free choice of any kind of hospital benefit program that
he wanted to secure. The bill as reported gives him a choice only as
to the types of programs.
For example, I envision one of the types that will be approved by
the Civil Service Commission is going to be an indemnity type of
program, probably underwritten by a single instrumentality, or
agency.
Assume for the sake of argument it is one of the larger insurance
companies. Under the bill S. 94, as introduced, it could be any one
of 100 insurance companies, all offering somewhat different types of
programs calculated to appeal to the people they are selling to. I
think that that is one of the major differences. Another is a change
in the cost structure. The bill as introduced provided for a sharing
of the costs on the basis of one-third of the cost paid by the employee
and two-thirds by the Government.
As reported out by the committee, the bill provides for an equal
sharing of the cost and it is pretty hard to argue against a 50-50
break. That is ordinarily considered an even break, and I do not
know how you can argue against it. I do think, however, there is a
lot of validity in the original bill for a two-thirds payment on the
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50 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
part of the employer. That is not an uncommon practice in private
industry; however, at this time we are convinced, all of us, that such
a program simply is not going to be enacted.
The CHAIRMAN. In private industry most of the plans are on a 50-
50 basis?
Mr. HALLBECX. There are any number of plans that are paid al-
most entirely by the employer, and, that is particularly true where
you refer to the employee only. The employer in that instance pays
the entire cost. In some of the plans they have variations.
Mr. Keating has some exact figures.
Mr. KEATING. We have a detail of a few plans where the employer
pays the entire amount.
The CHAIRMAN. For major medical coverage as well as ordinary
medical or hospital care?
Mr. KEATING. Hospital and medical. They vary according to the
benefits. Some of them pay for the employee and dependents; some
pay for all the retired employees and their dependents.
I would like to submit this for the record. It gives the name of the
firm, the exact benefits they provide, and' whom the benefits apply to.
Each one of these firms-and there is a substantial list of them-
pays 100 percent of the cost. I think in our testimony yesterday we
pointed out in the city and county employees, out of 386 plans there
are 121 plans where the employer pays 100 percent of the cost.
(The plan referred to follows:)
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 01
American
Sugar Re-
fining Co.
National
Biscuit
Co.
Brewers'
Board of
Trade,
New York,
N.X.
hospitaliza-
tion
365 days.
Full cost.
31 days. Up
to $11 per
day limit.
Ancillary
benefits,
$110.
21 days. 60
percent of
cost of pri-
vate room;
full cost of
specified
benefits.
70 days.
Full cost
$300 maxi-
mum.
$300 maxi-
mum.
$225 maxi-
mum.
Employee
benefits
Employee's
dependents
Retired em-
ployees and
dependents
$3 per home
Company
Company
Company
visit
pays full
pays full
pays full
.
Hospital,
cost.
cost.
cost.
1st day,
$10; $5
thereafter.
$3 each day
Company
Company
Company
of confine-
pays full
pays full
pays full
ment
cost.
cost.
cost, em-
.
ployees
only.
$10 to $2.
Company
Company
Company
Limit
$454
pays full
pays full
pays full
,
per disa-
cost.
costa
cost.
ility.
1st visit;
$10
Company
Company
Company
,
$3 there-
pays full
pays full
pays full
after; $217
cost.
cost.
cost, em-
per disa-
ployees
bility
only.
.
1st visit;
$10
Company
Company
Company
,
$3 there-
pays full
pays full
makes avail-
after; $217
cost.
cost.
able on a
per disa-
contribu-
ility.
------
None
Company
Company
tory basis.
No provi-
___
pays full
pays full
sions.
cost.
cost.
None --------
Company
Company
Company
pays full
pays full
pays full
cost.
cost.
cost.
Company
Company
Company
pays full
pays full
pays full
cost.
cost.
.at.
Company
Company
No provi-
pays full
pays full
sions.
cost.
cost.
Armour &
Co.
Forstmann
Woolen
Co.
Armstrong
Cork Co.
Bigelow-
Sanford
Carpet Co.
Brown-
Bigelow,
St. Paul,
Minn.
Minnesota
Miningg &
Manufac-
turingg Co.
B. F. Good-
rich.
Firestone
Tire &
Rubber.
$300 maxi-
mum.
of specified
services.
70 days. $300 maxi-
Full cost mum.
of specified
services.
20 days. Up $225 maxi-
to $14. Up mum.
to $140
specified
services.
180 days. $200 maxi-
Up to $10. mum.
Up to $75
plus 75 per-
cent of next
$1,200.
31 dayys. Up $225 maxi-
to $12 plus mum.
$120 mis-
cellaneous.
35 days. Up $200 maxi-
to $12. Full mum.
cost of
specified
services.
140 days. $300 maxi-
Up to $15. mum.
Full cost
of services.
120 days. $250 maxi-
semipri- mum.
vate room.
31 days. Up $150 maxi-
to $12. Up mum.
to$180 mis-
cellaneous.
$3 for each
day of con-
finement.
$5 1st 2 days;
$3 there-
after.
None ---------
Company
pays full
cost.
Company
pays full
cost.
Company
pays full
cost.
Company
pays full
cost.
Company
pays full
cost.
Company
pays full
cost.
Company
pays full
cost.
Company
pays full
cost.
Company
pays full
cost.
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52 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. Gross. Will the gentleman cite a half a dozen of the private
industries he has there, the names, the locations, that are paying 100
percent of the cost?
Mr. KEATING. Most are national organizations. They are American
Sugar Refining Co.; National Biscuit Co.; Brewers' Board of Trade,
New York; Armour & Co.; Swift & Co.; Forstmann Woolen Co.;
Armstrong Cork Co.; Bigelow-Sanford Carpet Co.; Brown-Bigelow,
St. Paul, Minn. ; Minnesota Mining & Manufacturing Co.; B. F. Good-
rich ; Firestone Tire & Rubber.
Mr. Gross. They pay 100 percent of the cost?
Mr. KEATING. YeS.
Mr. Gross. How do their plans compare with the proposed plan?
Mr. KEATING. Some are not as good but the American Sugar &
Refining Co. paid 365 days' full cost.
The CHAIRMAN. Does that include family ?
Mr. KEATING. It includes the family and retirees. They pay a maxi-
mum of $300 in surgery. What S. 2162 provides in surgery-we do
not know exactly because the formula is left up to the Commission.
The American Sugar plan pays $3 per home visit. At the hospital on
the first day they pay $10 and $5 thereafter for calls by the doctor.
The CHAIRMAN. They charge as little as $3 for a home visit around
the country now?
Mr. KEATING. That is what they pay. What the doctor charges
is something else again.
Mr. LESINSxr. The doctors around Detroit usually charge $5.
It has come to my attention that when a person is a member of a
medical plan and he transfers to another company that there is the
so-called 12-month limitation which often interferes in the case of
maternity. For instance, if the birth occurs within the 12-month
period between the time of quitting one job and going to another, the
individual is not covered. Does that come into this picture here?
Mr. KEATING. When the individual transfers there is a problem.
That problem in this bill is met by requiring the insurers to give the
individual the opportunity of individual coverage if he leaves the Gov-
ernment.
Mr. LESINSKI. If he leaves the Government lie can continue it?
Mr. KEATING. Ile can carry the same coverage and he pays for it
himself.
Mr. LESINSKI. Therefore, there is no discontinuance of coverage?
Mr. KEATING. That is right.
Mr. LESINSxr. Thank you.
The CHAIRMAN. Are optometrists included in this bill?
Mr. KEATING. I think there is no specific definition on what is in-
cluded.
The CHAIRMAN. How about chiropractors and foot doctors?
Mr. KEATING. I think the essential feature of this bill is this. The
administrative and controversial details-many are controversial, but
many are of such type they have to be settled on the ground-they
are left pretty much to the Commission.
Mr. REES. Would the Commission decide whether foot doctors or
chiropractors are included?
Mr. KEATING. They would have that authority.
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Mr. HALLBECK. It is the contract they would write which would
determine that.
Mr. KEATING. If the insurer has a policy of paying certain groups,
he would include that in his contract. Whenever you run into this
problem in the medical field, you run into a lot of different types of
doctors that the Medical Association does not recognize exactly as
being full-fledged doctors that want coverage. The authority in this
bill is in the hands of the Commission and in the hands of the com-
panies in making their contracts.
The CHAIRMAN. What would be your reaction to removing from the
bill the maximum limitation or amount that the employee can con-
tribute? All the benefits provided for in the bill cannot be provided
under the maximum contribution fixed by the bill. Do you think
there should be some leeway there?
Mr. KEATING. No, I do not think so, Mr. Chairman, because actu-
ally if a Government employee wanted to get additional insurance
over and above what he could purchase, he could go on the outside.
The only liability to doing that would be that he would not be under
the withholding program.
I do think if we declare a policy here of the Government paying
50 percent and the employee paying 50 percent, that to include a
larger amount that the individual could pay would be unfair. I think
that the balance should be kept at 50-50. If costs zoom way out of
line, if the value of the dollar goes down, the medical dollar goes
down, I think Congress should consider increasing the maximum
amount.
Mr. Corbett, I believe it is pretty well established that in this legis-
lation we are not pioneering or extending benefits beyond what has
become pretty general in private business. As a matter of fact, I
think we will find we have not done nearly as well as some of the
better companies.
Secondly, on this point, Mr. Chairman, I am fearful that if this
limitation were not there, we would have a situation where the Com-
mission could arbitrarily increase the amount of the. premiums due.
This just would not be right if it were done without hearings and
without consideration as to whether they want it. It might discour-
age people from getting into the plan.
I feel if we went along with the program as outlined here, if medi-
cal costs went up a great deal, it would be a decision of the committee
and of the Congress as to whether we wanted to increase the amount
of payments. Otherwise we would just be providing compensation
or repayment to the extent the dollars are available and contracted for.
Mr. LESINSKI. I think we have a problem. If Congress does not
act quickly enough, there might be a possibility that the insured might
be jeopardized in getting his full benefits. I believe the chairman
understands that feature of the bill also.
In view of that, I understand the remarks of Mr. Keating to indi-
cate that basically the reason for that is to not allow it to get out of
hand. On the other hand, we, as a committtee, ought to be kept
abreast of this thing, constantly informed, and if the expenses go up
we should act quickly.
Mr. REES. How many members are there in your organization?
Mr. KEATING. We have roughly 117,000 now.
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54 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. REES. About how many are included under your plan?
Mr. KEATING. We have 33,000 or 34,000. The number is increasing
all the time.
Mr. BEES. Are nearly all of your members either under your own
plan or under Blue Cross and Blue Shield?
Mr. KEATING. They are covered by a variety of programs. They
have a Group Health Mutual, for example, in the Twin City area
established by the credit union people. A lot of them belong to that.
In New York City -a lot.of them belong to H.I.P. Out on the coast
there are 70,000 Government employees belonging to Permanente, the
Kaiser plan.
Mr. REES. Almost all are covered by some plan now, are they not?
Mr. KEATING. I would say the majority, the vast majority, of them
are.
Mr. BEES. Under one plan or another?
Mr. KEATING. I do not presume all ever are. As a matter of fact,
we have been very much interested in this field long before Blue Cross
was established, trying to encourage cooperative endeavors.
Mr. BEES. As I understand it, the representatives of Blue Cross and
Blue Shield had considerable to do with the drafting of this legisla-
tion. Are you familiar with that?
Mr. KEATING. That they what?
Mr. REFS. Representatives of Blue Cross and Blue Shield had con-
siderable to do with the draftin of this legislation.
Mr. KEATING. I think everybody had considerable to do with it.
The staff consulted with Blue Cross, they consulted with the insurance
industry, they consulted with the Bureau of the Budget, they con-
sulted with the Civil Service Commission. I think practically every-
body who is interested in the field met with the staff in the drafting of
this legislation.
Mr. RFES. And you were consulted?
Mr. KEATING. Yes, sir, we were consulted. Most of the changes
made in this bill came at the suggestion of the Government represent-
ative, such as reducing the cost and improving the flexibility of the
legislation, and things of that sort.
Mr. REES. A number of these organizations you are talking about
have different plans and different methods of handling this problem.
Is it your opinion, in the event this legislation is enacted into law, that
there be changes again in those organizations with respect to their
requirements and rules and regulations?
Mr. KEATING. I do not think so.
Mr. REES. They will go on as they are now?
Mr. KEATING. I think they can all operate, that the program is
flexible enough that they can move in with their present organiza-
tions.
Mr. REES. In other words, the organizations in your own group
could go on as at present, except the Government would make its
contribution?
Mr. KEATING. Not exactly as at present. I think it will have this
very useful impact. Most of the people have programs that are not
adequate. In fact, it is estimated that only 5 percent of all the people
in the United States have fully paid programs. That is very expen-
sive and this does not provide a fully paid medical program. It is
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 55
difficult to do so, but it provides a very adequate one. Most of the
people now do not have adequate programs, but by virtue of the
fact that the Government will contribute and the employee pays what
he can, then they can have a better program.
Mr. REES. Will any of them change their programs to comply
with this act?
Mr. KEATING. They will have better programs.
Mr. REES. They will continue with their own groups, except they
will change their programs to comply with this law?
Mr. KEATINO. Yes. In fact, we will probably devise a program
that will meet their needs better.
The CHAIRMAN. I am sure you gentlemen are concerned with the
financial condition of our Government today and that you are fully
cognizant of the tremendous national debt and the huge deficit that
occurred during the fiscal year just ended. You are fully cognizant
of that, are you not?
Mr. KEATING. Yes.
The CHAIRMAN. Where do you thing the money is coming from to
pay for this program on the part of the Government? Would it be
through additional taxes or more deficit financing, or how?
Mr. KEATING. That is a matter for Congress to decide; the matter
of Government revenues goes up or down according to the tax in-
come. Sometimes you have money to pay for it and sometimes you
do not. It is entirely possible that with the business boom we have
been reading about in recent months, the income of the Government
may be sufficient so that it can be paid for without either deficit
financing or extra taxes.
The CHAIRMAN. I hope that will be the case, but I doubt it.
Mr. MORRISON. Mr. Chairman.
The CHAIRMAN. Mr. Morrison.
Mr. MoRRISON. I think there are many ways we could cut down
on other expenditures of the Government, particularly foreign aid
and many others, and have ample funds to pay for it.
Mr. HALLBECK. I understand one of the latest estimates made by
the Bureau of the Budget indicates that with the present tax rate
instead of a $12 billion deficit, as we had in the past fiscal year, that
the fiscal year 1960 is actually going to show a very small surplus
without a change in the present tax rate.
The CHAIRMAN. We will hear from officials from the Bureau of
the Budget on that.
Mr. MorRIsoN. That is what I understand that the President said,
that there would definitely be a surplus.
The CHAIRMAN. We will have the Bureau of the Budget on that.
Mr. HALLBECK. I am sure the chairman understands we are not
fiscal experts.
Mr. LEsINSxr. You touched very lightly on the insurance companies
possibly having to change their benefits. What would happen spe-
cifically to the insurance plan you have in your organization!
Mr. KEATING. Our program pays annually about $2 million benefits
to the members, but the programs we furnish them are geared accord-
ing to the amount, the individual can pay. With the additional
money they will be able to get an expanded program. It will be
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56 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
just an expansion of the program they have now. I think that will
happppen with a lot of other companies.
Mr. LESINSKL. You might lose a lot of your insured people.
Mr. KEATING. We might lose some, but those who are with us will
get a better program.
Mr. LESINSKI. How will that come about that they will get a better
program?
Mr. KEATING. At the present time an individual can afford to ]pay
so much, but with the Government contribution and with the limita-
tions described he will be able to put more to his medical program.
So he will be able to get better benefits.
Maybe if he has not had medical benefits, he will be able to get
medical benefits, more time in the hospital, he will have major med-
ical benefits, which very few people have at the present time.
Mr. LEsiNBKI. I appreciate that, but why should he be insured
doubly?
Mr. KEATING. He will not be insured doubly.
Mr. HALLBECK. It will just improve his present program.
Mr. KEATING. It will improve the terms. If he has a policy, he
may exchange it for a new policy with better benefits.
Mr. LESINSKL. I would prefer to have one good policy than two
minor policies.
Mr. KEATING. He will turn in an inadequate one and receive an
adequate one.
Mr. LESINSKI. You will lose some?
Mr. HALL BEOK. No; we will gain. If we pay $12 a day for bed
care, under this program it would be simple to pay $18. We will
give him $6 additional a day. We will not lose anybody. We will
get more.
Mr. LESINSKL The Government will pay part of it and the individ-
ual will pay part?
Mr. HALLBECK. That is right.
Mr. LESINSKi. Meantime you have the insurance program set up
right now. Is the cost going to be divided between the two?
Mr. HALLBECK. Surely, under this legislation.
Mr. LESINSKi. Thank you.
Mr. IALLBECK. I could give an example. Our present average
family protection costs our members $6.88 a month. There is an
income under the bill of $9.21 a month. So that you have practically
a 33-percent increase in premiums and you can readily provide a
33-percent increase in benefits to compensate for that additional
income.
Mr. LESINSKI. You say the individual pays $6-plus per month?
Mr. HALLBECK. Under our plan.
Mr. LESINSKL Suppose the Government also pays $6-plus for the
same plan you have now. No. 1, can they, under this bill ?
Mr. HALLBECK. No; they can only pay up to a maximum of $4.25
per pay period. They could not match that $6.88. Yes, they could,
at that, because that is a monthly charge.
Mr. KEATING. It would improve the program because they would
match it. Actually, there is a limitation on this that is not in the
bill that I think would be a. very effective limitation on the cost. That
is what the individual himself can. pay. Many of the individuals will
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 57
not be able to pay $9.21 a month. There are 500,000 people who work
for the Government who get less than $4,000 a year; $9.21 a month
is pretty stiff.
The CHAIRMAN. This bill provides a maximum of $4.25?
Mr. KEATING. There are 26 pay periods a year. It amounts, on the
average, to $9.21 a month per individual.
Mr. LESINSHI. I am trying the get this clear. You have a health
insurance program of your own to which the individual pays $6 plus
per month. You say the maximum under the bill will be $4.25?
Mr. KEATING. Per pay period.
Mr. IIALLBECK. On the part of the individual and an equal contri-
bution on the part of the Government.
Mr. LESINsKI. That would raise it to roughly $9.50?
Mr. KEATING. $9.21.
Mr. HALLBECK. That would make the total monthly contribution
on the part of both the Government and the employee a total of $18.42
a month.
Mr.LESINSIII. $18.42?
Mr. KEATING. That would be the total contribution of the employee
and the Government. With that you could buy very good benefits.
I think I know your question. Supposing we have someone who
has a policy that pays $10 a day hospitalization and 20 times that for
miscellaneous benefits and a surgical schedule of $200. That is a
totally inadequate program, but it is what the individual can buy.
With this improved program, he can have a policy that will pay
enough, pay considerably more, about what his bed cost would be.
He would have one that would take care of most of the ancillary
benefits. He would have a more liberal surgical schedule. He would
also have medical benefits plus major medical. That would cost con-
siderably more, but a new policy will have to be furnished that in-
dividual which he can exchange without any loss of benefits or any-
thing else. He will get a better policy. There will be more expanded
benefits.
Mr. LESINSKI. I understand that. There are two people, as a mat-
ter of fact four people involved : the individual, the Government, two
insurance companies. You have one now. Another company will be
involved.
Mr. KEATING. If he can go to another company, he can get a better
program. He can go wherever he wants to. He has four choices if
he lives in certain areas.
Mr. LusINSKI. Suppose he is with your insurance company right
now and this bill goes through. What happens?
Mr. KEATING. In our company?
Mr. LESINSKI. Yes.
Mr. KEATING. Ile will take out the new program which will give
him better benefits, or lie can go to Blue Cross or he can go to the
indemnity company that is selected. If lie lives in New York, he can
go to HIP or some other program. He can do whatever he wants
to.
Mr. LESINSKI. He can go to your company, redraft, or get a new
contract?
.Mr. KEATING. With expanded benefits.
Mr. LESINSKI. Your company will pay the.benefits ?
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58 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. KEATING. That is right.
Mr. LESINSKI. All the benefits?
Mr. KEATING. Yes.
The CHAIRMAN. You plan to continue your present medical plan
if this legislation is enacted?
Mr. KEATING. We continue the plans we have now because we have
a lot of retirees covered. We have a responsibility to them.
The CHAIRMAN. Do you charge retirees the same premium as you
charge those in the active service?
Mr. KEATING. They pay a little more.
The CHAIRMAN. How much more?
Mr. KEATING. It amounts to about 24 percent more, I would say.
It is not retirees. It is after they pass age 65. They have to pay
about 24 percent more.
The CHAIRMAN. About how much additional?
Mr. KEATING. It varies, of course, according to the plan they have.
The man with a $7 program pays $8.70 after he reaches 65. The man
with a $7.70 program pays $9.55. This amouts to a 24 percent in-
crease.
The CHAIRMAN. This bill, of course, provides for the same payment
by the retirees as those still in active service, does it not?
Mr. KEATING. Yes.
The CHAIRMAN. Do you think retirees should pay a little more
for coverage due to their advanced age?
Mr. KEATING. When you go to covering retirees, you have quite
a problem. I think you have to study the coverage that is available.
You will have to reevaluate the contribution made by the Govern-
ment, in my opinion. You have an entirely different problem.
The companies providing for people. over 65 have been adopting a
more and more liberal program. More and more companies have
been providing such a program.
The CHAIRMAN. If this legislation is enacted, do you not expect
that the majority of your employees will come under the plan?
Mr. KEATING. Yes, I would say 90 percent would be a good esti-
mate.
The CHAIRMAN. That will affect the membership of those in your
plan at the present time, will it not?
. Mr. KEATING. No; they will stay in our plan, most of them. They
will have a different type of policy. It will improve the operation
of our plan.
Mr. HALLBECK. We think we can offer better benefits.
Mr. KEATING. It will not affect it adversely.
Mr. REES. Some companies will not take you in after 65; is that
right ?
Mr. KEATING. That is ri ht.
Mr. REES. How about Blue Cross?
Mr. KEATING. Blue Cross takes in those over 65 in practically every
place.
Mr. IIALLBECK. There was a tendency before to exclude everybody
when they reached age 65.
Mr. KEATING. A company in Chicago specializes in those over 65.
Here is a statement from the Employe Benefit Plan Review, a publi-
cation having to do with these subjects. It says service plans now
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 59
covering more people over 65. The medical association itself is doing
something on that program.
For example, in California the doctors have agreed that they will
scale their fees down to 60 percent of what the fees are for other
patients. There is quite a tendency on the part of the underwriters
and on the part of the medical association to try to scale down the
costs for those who have passed the age of 65. I think there is a very
wholesome movement along this line. Those are all factors that have
to be carefully considered when you get into the coverage of retirees.
The CHAIRMAN. Is it the intention of all you representatives of the
difrerent organizations to continue your medical and hospitalization
program in addition to the Government program, if approved?
Mr. IIALLBECX. It would become part of the Government program.
Mr. KEATING. It is covered in the bill. Provision is made for our
plans to continue as part of the Government program.
The CHAIRMAN. With the Government contribution?
Mr. KEATING. Yes..
Mr. HALLBECK. We would be in the same position as any competi-
tive organization.
Mr. KEATING. The way the plan operates as far as the Government
is concerned is the person takes out his insurance with either of the two
selected plans and then withholding is made from the salary and
the Government contributes a like amount and it will be transmitted
to the companies.
Mr. GROSS. Mr. Chairman.
The CHAIRMAN. Mr. Gross.
Mr. GROSS. Then the Government would become a partner, in a
manner, in Permanente [Kaiser Foundation] in California; is that
right ?
V. KEATING. To the extent that they would pay the payments
for the Government people who are covered.
Mr. NAGLE. One of the original recommendations in regard to re-
tirees was that there be a prefunding of their coverage and that all
payments cease upon retirement. The Senate in its report
The CHAIRMAN. Where is that provision?
Mr. NAGLE. One of the original recommendations, original possi-
bilities proposed by the Civil Service Commission was that there
might be a prefunding that everybody pay in anticipation of retiree
costs prior to the time of retirement so that at the time of retirement
all further payments would cease.
The CHAIRMAN. That is not in this bill?
Mr. NAGLE. No. When the Senate wrote its report, they antici-
pated the question you asked earlier about the relatively larger cost
for covering retirees and they speculated upon this possibility. They
said because the costs were greater after retirement, it was thought to
be desirable instead of making the sort of recommendation that the
Commission came in with earlier that the benefits should be paid for
by the annuitants from their annuity checks.
Mr. JOHANSEN. Mr. Chairman.
The CHAIRMAN. Mr. Johanson.
Mr. JOHANSEN. I observe that one of the- questions raised in the
additional views in connection with the committee report in the other
body, related to the question of whether there was adequate prefund-
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60 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
ing or provision of adequate reserves to avoid frequent increases in
subscription rates and costs both to the Government and to the cov-
ered employee.
I wonder if any of the witnesses would like to offer any comment,
in the interest of a sound plan, as to whether they feel there is any
validity to that criticism..
Mr. IcEATYNG. In our statement the other day we did touch on that
subject. We stated that in our opinion the reserve that is provided is
adequate. We base that on a number of conclusions.
Number one, there are many companies operating hospitalization
plans that return 90 percent or better of the premium dollar to the
insured person. Many of the Blue Cross plans operate right around
that rate. There are indemnity companies that the record shows have
returned as much as 97 percent. I do not think they can operate sue-
cessfully by returning 97 percent, but they have, actually, and there
area number of others that run up in the nineties.
One additional consideration with respect to the Government oper-
ation and the reserve is the fact that probably the most expensive part
of the hospitalization operation, investigating and paying claims, will
be the responsibility of the insurer and will not be a cost against the
Government.
Mr. JOIIANSEN. It is one of the elements of cost in the total pro-
gram.?
Mr. KEATING. Yes; it is an element of cost but will be paid in
premium to the company and will not be necessary to be covered by
reserves.
Mr. CORBETT. Will the gentleman yield?
Mr. JOIIANSEN. Yes.
Mr. CORBETT. This is simple, as I see it, that every company or
association that sells contracts to an employee will be presently a
going concern with adequate reserves now.
Mr. KEATING. That is right.
Mr. CORBETT. So that the Government does not have to have a re-
serve or any prefund. The companies with which we contract will
already have those.
Mr. KEATING. They have the 3 percent for little fluctuations.
Mr. CORBETT. I think some people have felt that the Government
itself is going to make these hospital payments.
Mr. KEATING. They indicate that when they talk about 15 percent
reserve because the hospitalization companies do not attempt to collect
any such amount.
Mr. CORBETT. The Government will never pay any medical bill
whatsoever. It is going to pay a contract?
Mr. KEATING. That is right.
Mr. JOIIANSEN. Am I correct that Blue Shield and Blue Cross, at
least in some areas, have run into a problem involving higher rates
in recent months? If that is true, would that problem have been
obviated if there had been a more adequate or a higher prefunding?
Mr. KEATING. No, I do not think that would have anything to do
with it because there is a limitation of what you can pay in premium.
The people who have to wrestle with the increase in hospital costs
are the people with the contracts. If they have service benefits and
costs go up, it is their problem. They may come back asking for
more money.
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Mr. JOIIANSEN. The practical matter is that if due to inflationary
factors and higher costs that are evidently uncontrollable, if you get a
squeeze, it is going to be inevitable, certainly-and quite properly-
that you will come in and ask for a liberalization of that ceiling; is
that right?
Mr. KEATING. They still could not spend their reserve for that pur-
pose. The bill holds the Government to a certain specified premium
payment. The reserve could not apply.
Mr. JOHANSEN. In other words, it does not relate to the reserve
but it would relate to a subsequent request, perhaps, for increasing
,the ceiling.
Mr. KEATING. For increased premiums. My personal opinion is
when you set forth a plan such as this, extensive as it is, that the.
premiums set may affect and the influence of the Government in con-
tacting the various hospitals may very well have the effect of keeping
hospital costs from going up rather than accelerating them.
Mr. JOHANSEN. Let me switch to another aspect of the matter, if,
I may.
Do these reserves of which we are speaking relate to the long-range
coverage of subsequently retiring employees or is the financing of
the long-range costs of the employees hereafter retiring and here-
after to be covered a matter involving additional appropriations by
the Congress and additional charges to the covered employees?
Mr. KEATING. No, I do not see where the reserves enter that pic-
ture because when they make a contract with the insurer, he will have
to guarantee, as I see it, have a decent contract, that he will cover that
individual not only during his working life but also after he retires
for a certain specified payment.
If the insurer makes that contract, then I do not see why the
Government would require additional reserves.
Mr. CORBETT. Will the gentleman yield?
Mr. J0HANSEN. Yes.
Mr. CORBETT. I think there is a point we overlook because the his-
tory of these various hospitalization plans has always been toward
increased costs. There is nothing in the world that will prevent some
of these companies from rewriting contracts and decreasing benefits
rather than increasing costs. Where they now permit 30 days of
hospitalization at $18, it could be reduced to 25 under some circum-
stances at $15. .
Mr. JOHANSEN. Does the gentleman think if that occurs that there
is not going to be immediately-I am not quarreling about it-but
immediately a demand that we increase the funds through appropria-
tions?
Mr. CORBETT. I am sure the gentleman and myself are both sincere
in trying to get a program here that is going to be helpful to em-
ployees. We then would have a determination as to whether or not
the individuals and the Government should pay more premiums in
order to hold the present benefits or whether it would be better to cut
benefits. Certianly, there would be a demand from some sources to
increase premiums for the Government participation.
Mr. JOHANSEN. I am certain that having put your hand to the plow
and having set a standard of benefits with regard to active and retired
employees, certainly the gentleman does not expect there is going to
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62 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
be any step backward in terms of those benefits. Certainly, the gen-
tleman knows all the pressure and all the logic of the argument will
be on the side of increased appropriations by the Congress.
Mr. CORBETT. This I would not be as sure of as the gentleman is in
regard to other matters because with the increased cost of medical care
and hospitalization-I serve on the board of Suburban Hospital in
Pittsburgh and we found the greatest decrease in cost has been the
decrease in the period of hospitalization. There has been a definite
tendency to move the patients out.
Mr. JOHANSEN. That is based on medical as well as economic situa-
tions.
Mr. CORBETT. As a member of the board, we like to have the rooms
filled.
Mr. JOHANSEN. I am sure the gentleman does not have too much of
a problem on that score.
Mr. CORBETT. There is no guarantee along the line. While recent
history has shown medical costs mounting, even down to custodial
work in the hospital, there is also a tendency for the costs of expensive
drugs to go down, a tendency for these programs reducing the number
of charity cases we have in the hospital. Our hospital incomes have
been improving somewhat. This is very recent. We are getting more
money in and hence the deficits in our hospital have disappeared.
Mr. JOHANSEN. There is no question that it has helped to stabilize
the income of hospitals, the fact that you have this coverage.
Mr. CoRBETT. Yes.
Mr. JOITANsEN. I want to get clear in my mind whether the estimate
of $145,300,000 annually as the cost of this program, cited in the com-
mittee report of the other body, contemplates within that figure the
cost of the coverage of retired employees.
Mr. KEATING. Yes, to this extent. It does not cover those that are
retired now but it covers those that retire in the future.
Mr. JOHANSEN. I certainly do not question the gentleman's word
or the good faith of the statement for a moment, but I am concerned
over an apparent conflict of allegations on that score.
Mr. KEATING. I think the Commission made the statement that it
would cost, the fact that they have the retirees, $2.5 million extra the
first year because there will not be too many covered. The amount
will increase for 10 years to $25 million a year.
I am of the opinion that under the program as set forth within the
next few years they can take up those costs without increasing that
$145 million.
Mr. JoHANSEN. The statement of the views of two of the members-
again, I am seeking an enlightenment and not argument-is that this
figure of $145,300,000 includes only the Government's contribution for
active employees.
Mr. KEATING. It includes those the first year.
Mr. JOHANSEN. When it reaches the $25 million point-
Mr. KEATING. We are of the opinion that the costs are a little high,
estimated a little high, for a number of reasons. No. 1, the median
pay for Government employees is, according to the Civil Service Com-
mission record here, $4,790. In order to get the full benefit of this pro-
gram, these people would have to pay $9.21 a month. It is our opin-
ion that a great many of these employees are not going to be able to
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HEALTH BENEFITS FO I:
pay $9.21 a month. They will not be able to secure the maximum
benefits.
Mr. JOIIANSEN. In other words, they will settle for something less
than the maximum.
Mr. KEATTNG. Yes, they will settle for, something less. The more
people who do that the less the cost of the program. In our opinion,
it is going to be substantial. In their report the staff pointed out that
they had some figures that showed the reductions that would be made
on various bases. I think they made a very good case for the fact
that their estimates represented maximum participation and maxi-
mum payments.
Mr. JOIIANSEN. I want to be completely fair about it. I recognize
I am asking the gentleman to prophesy. But if, as he testifies, in his
judgment there would be a substantial number of Government em-
ployees who would accept less than the maximum for financial rea-
sons would it be reasonable to expect that sometime thereafter there
woui..d be a strong effort to secure a substantial increase perhaps to
the two-thirds figure I believe the gentleman from Louisiana men-
tioned in his testimony, of the cost to be borne by the Government?
In other words would that lead to an expectation-I am not speak-
ing critically of it at the moment-but an expectation that this would
be recognized as an area of unfilled need which the Government ought
to meet by increasing its share above the 50 percent mark?
Mr. KEATING. I am not an economic prophet, but I know that by
human nature people try to improve their position in life. If they
did not do that, we would not have any progress. I do not know how
long I will be here representing the people of our organization and
what they are going to do next year or the year after or in 10 years.
I could not predict.
Mr. JOTIANSEN. I will say to the gentleman I hope he is here as long
as or longer than the Member from Michigan.
Mr. KEATING. We appreciate that, but by the ordinary progress of
e
human nature, the Government history, it is
looking fortimprovementtiln
employees of
their way of life.
Mr. JOIIANSEN. The only reason I raised the point, I want to make
clear, is that I would like to anticipate as far as reasonably possible
the impact in terms of cost to the Government.
Mr. HALLBECK. I would not foreclose the possibility of seeking im-
provements. I would venture the opinion that it will be many years
if this program is enacted in substantially the same form as it passed
the Senate; I" venture the opinion that it will be many years before
there are any additional benefits sought.
Mr. JOIIANSEN. I am glad to have that in the record.
Mr. BROYIIn L. Mr. Keating, what will happen between the time
it is determined that benefits will have to be reduced or premiums in-
creased and the time when action is taken? Take your own organiza-
tion. In underwriting these benefits you have entered into a con-
tract with the Civil Service Commission. We will say that it is de-
termined that due to inflation or due to a mistake in figuring out the
acuarial factors you have to increase the premiums. What happens
in the meantime'!
Mr. KEATING. Hospitalization is an open-end contract, so referred
to in the insurance industry. It is limited for a period of time, gen-
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64 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
orally for a period of a year. Generally, when an increase is needed
the insurer can tell in advance. If we do not have enough money
now in our program we have to raise the_ cost of the premiums. You
cannot do that overnight any more than you could get an increase
from the Government. It *takes a matter of some months before, ac-
complishing an increase.
Mr. BROYHILL. Is there a possibility of getting into a deadlock as
to whether to decrease benefits or increase premiums?
Mr. KEATING. You would not have any more trouble than
Mr. BROYHILL. At any time during the term of this contract that
it is determined you cannot provide benefits for the premiums in-
volved, you can renegotiate the contract and reduce the benefits. You
cannot come back to Congress in the meantime and obtain more pro-
mium payment but you can by renegotiation reduce the benefits?
Mr. KEATING. Yes.
The CHAIRMAN. This bill fixes the maximum contribution of the
employee, and if those contributions are not sufficient with the Gov-
ernment's contribution, the Civil Service Commission has to reduce
benefits to correspond with the amount of money on hand; is that
right?
Mr. KEATING. That is right.
Mr. JOHANSEN. Mr. Chairman, I think you gentlemen who are
testifying and I will find ourselves in complete agreement on this
point. I do not want to be a party to the setting up of a program
which is going to very shortly thereafter or at any reasonable time
thereafter shrink in terms of the benefits to the employees because
I think such a thing is unfair to them and, however unintentional, is
essentially a fraud on the employee. I do not want to see that happen.
I want to see such safeguards set up as will minimize the possibility
of that. If those safeguards are going to involve additional costs,
I would like to face the fact now insofar as we can anticipate.
Mr. HALLBECK. We are working the same side of the street. We are
interested in providing the same kind of permanent benefits for the
employees. We would not be a party to a fraud.
Mr. BROYIIILL. Then there is no risk involved insofar as the carrier
is concerned?
Mr. KEATING. No, I do not think so. I think they have worked out
a rather ingenious arrangement, but it is the only thing that can be
practical in this field. It is a very flexible arrangement and highly
practical.
Mr. CORBETT. While we cannot predict what is going to happen to
medical costs, the only thing I know to give us any guidance is the
fact that when the life insurance program was under consideration
these same fears were expressed. The fact is regarding the life
insurance program. that we now have a very considerable surplus.
At the time the bill was on the floor I predicted that one of three
things or a combination would happen :
A, that Government participation would be reduced; B, the bene-
fits could be increased ; or, C, premiums reduced.
It is just possible with the total amount of money that will go into
this fund from the Government and from the employees, that if there
is any error in this bill, it is as to the size of the premiums and not
the benefits. I would take the optimistic view that we are going to
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65
find that benefits can be increased, Government participation can be
reduced, or premiums can be reduced after we have had a few years'
experience in this program.
. Mr. JOHANSEN. I certainly hope his optimism is proven by subse-
quent developments, but I wonder if it is not true that the potentially
variable factors of cost with respect to hospital and medical insurance
may be substantially greater than the potential variance in cost based
on experience in life insurance.
Mr. CORBI;TT. Yes, sir. I will readily admit that my example is
open to a pessimistic point of view as well.
Mr. JOHANSEN. I want to say to the gentleman, and I want the rec-
ord very clear, that I am not undertaking to be maliciously pessimis-
tic. I would like to be constructively realistic about the thing. I
address myself in that connection again to the fact that I do not want
to see something started here that is going to shrink in the very near
future and put us in the light of circumstances beyond our control,
being in a sense, if I may use the phrase without violating anyone's
sensitivities or civil rights, of being an "Indian giver" in the matter.
Mr. CORBETT. Finishing off my statement, I think we are dealing
with reasonable people and I think we represent reasonable people.
If the budget situation became such that it was critical, that if the
costs of medicine had gone way up, that while the gentleman is en-
titled to his opinion that he does not want to be an `Indian giver," I
think it is reasonable and realistic both to go back to the employees
and say, "here, this particular benefit has proved to be so expensive
that it is endangering the fund and we will have to withdraw it."
That is strikingly a difference of point of view.
The CkrAIRNrAN. Under this bill they have to withdraw it if they do
not have money to pay for it.
Mr. CORBETT. That is exactly right. I think that approach is sound,
while we are into an experimental period.
The C:IAIRMAN. But not realistic.
Mr. CoianETT. I think it is extremely realistic.
Mr. JOHANSEN. The distinguished chairman, of course, realizes that
there are almost unlimited resources available to pay more by drawing
on the national deficit.
The CHAIRMAN. Yes. Someone referred to the insurance program
proposed by Congress. It was proposed that the private insurance
companies insure the Federal employees and as I recall it would take
$70 million from the insurance companies. It would practically bank-
rupt them.
Mr. PORTER. Mr. Chairman.
The CHAIRMAN. Mr. Porter.
Mr. PORTER. I would like to ask Mr. 1Iallbeck if the organization he
represents here today believes that this bill should be enacted at this
session of Congress.
Mr. ITAr r,Brcu_. Very definitely.
Mr. PORTER. Will you explain the reasons for this?
Mr. IfArrBccK. It will take the Civil Service Commission at least
several months in order to set up the machinery to make a plan like
this effective.
The effective date in the bill is July 1, 1960.
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While I hate to see the effective date so long postponed, my knowl
edge of the subject convinces me that it will probably take a miracle
to make it effective at any sooner date, even if the legislation were
passed tomorrow. There is a tremendous job that the Civil Service
Commission has to do in order to effectuate a program of this sort and
if it isn't passed at this session, I have no hope that it could begin to,
operate as early as July of 1960.
Mr. PORTER. That is the opinion of the others with you?
Mr. HALLBECK. I would say that is an opinion generally shared.
Mr. PORTER. Do you have any information about the loss of services
to the Government from illnesses which have come up because no such
plans like these exist? Have you made a study of the loss on sick
leave?
In other words, could we demonstrate that if this plan were in effect
it would mean that there would be less sick leave taken?
Mr. IDEATING. There are no studies. I think what you state is P.
fact because, very often, I know from my own personal experience,
that people defer surgery because they are not economically able to
pay for it. They do it for several years, when in the long run the
Government has them off work for a much longer period of time than
if the employee had it taken care of when he should have.
Mr. PORTER. But nobody has made a study?
Mr. DATING. No one to the best of my knowledge has ever made
a study
Mr. PORTER. What is the position of your organization with respect
to adding present retirees to this bill or having separate legislation?
What is the position of your organization?
Mr. HALLBECK. Reluctantly, I think we are in agreement that the
subject is so involved that it will require further study.
Mr. PORTER. That is the same position taken by Senator Neuberger
and Senator Johnston?
Mr. HALLBECK. We are in accord with that position.
Mr. REES. Not to include them in this bill.
Mr. HALLBECK. Not at this time.
The CHAIRMAN. That is for the retirees who have retired before
coverage by this legislation ?
Mr. HALLBECK. That is right. There are no valid figures that
would tell us how much the cost would be or how many people are
involved.
Mr. PORTER. I understand that medical costs and hospital costs have
gone up faster than normal inflation would justify.
I believe our figures would show this. One of the reasons ad-
vanced is that doctors and hospitals have increased charges to in-
surance companies. I used to be a complainant's lawyer. I recog-
nize that some people look on insurance companies as bottomless wells.
This is not true.
I was wondering if there is any way we could write stronger lan-
guage in this bill which would keep the costs from accelerating, as the
plan goes on?
Do you have any suggestions ?
Mr. HALLBECK. I To not know of any suggestions for that, but I
think there is a very natural factor that will work against costs ac-
celerating. In our own program, for example, we know that we
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 67
get a much higher percentage of bad risks than we would get if we
could take the whole group, and I am sure that a program of this
sort is going. to take very nearly the whole group is going to get
much higher percentage of good risks as a result, which will tend to
hold costs down. When you are paying only for those people who are
sick or about to enter a hospital you run into costs in a hurry.
Mr. PORTER. That is not the problem I had in mind. There would
be a tendency on the part of doctors and hospitals to raise their rates,
as there has seemed to be such tendency in the past, and get by.
The Government Commission will have to decide on this.
Mr. KEATING. My impression from studying reports on this sub-
ject is that there has been a decisive turn in that direction of con-
trolling costs. The medical associations in various States have set up
boards to investigate doctors that charge excessive fees. The Medical
Association itself is trying to police it.
In addition to that, I think these various cooperative groups that
have been established, such as the plan we have here in Washington,
and IIIP, where the doctors set a definite specified fee, has had its
repercussions and the American Medical Association for the first time
has approved, at their last convention, this type of prepayment medi-
cal practice.
They gave it their blessing, so there is a very decided movement
within the medical profession itself to hold down the fellow that
charges excessive fees.
Mr. PoRTnR. This is what I had in mind. I was wondering whether
we couldn't get some consumer or some representative of the con-
sumers, perhaps your organization, who are in position to look at
books and see whether margins of profits for the doctors and hospitals
are way out of line in connection with charges that are made.
Mr. KEATING. I think that function could be exercised very well by
the Advisory Council and by the Commission and by the Comptroller's
Office.
Mr. PORTER. I was wondering if our language should be a little
stronger.
Mr. KEATING. It is specified in the bill that they can look into the
books.
Mr. PORTER. You think they have enough power as it is ?
Mr. KEATING. I think they have a pretty good measure of power if
it is administratively set up in a proper way.
Mr. PORTER. Then there is the contracting power.
On page 12 it says:
The Commission is authorized, without regard to section 3709 of the revised
statutes or any other provision of law requiring competitive bidding, to enter
into or authorize enrollment under, a contract or contracts with or to purchase a
policy or policies from, qualified carriers offering plans described in section 4
and providing benefit described in section 5.
As I look at it this seems to be very bad because if there are several
different plans I would like to have them compete and have the Com-
mission choose one that has the best aspects to it.
Mr. 'HAL LBECK. I think there is competition right in this bill.
Mr. PORTER. Why do they have this provision in ?
Mr. HALLEECR:. I think there is a natural competition that will tend
to keep prices down.
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Mr. PORTER. There are several here in Washington. I would think
they ought to bid and the lowest bidder ought to be taken.
Mr. KEATING. I think that is for two reasons : No. 1, one of the ob-
jections, the original S. 94 did not have that provision in it but it
made it possible to be in free competition, with the individual having
absolute choice as to whom he purchased his insurance from, but the
Commission felt, and the Government generally felt, and it lot of the
insurers felt that you would have to select one plan for each type of
operation, like one service plan, one indemnity plan. Now when you
come to the indemnity plan, if you select one company to underwrite it
and under the group insurance plan, the other companies to take; a
part of the business, if you have it on an absolutely competitive basis,
you would have a great variety of prices.
Mr. PORTER. I do not understand this variety of prices.
Mr. KEATING. You would have a variety of bids perhaps. On the
basis of the bids perhaps the company that could submit the lowest
bid would not be able to handle the business properly.
Mr. PORTER. They have to. You cannot bid unless you say you are
going to do what the specifications require.
Mr. KEATING. I think this particular clause, the reason it is there,
is to have to do with working out an equitable program for the in-
demnity companies. That is my personal opinion, which may be a
thousand percent wrong.
Mr. PORTER. I am not so concerned about that, but about the group
of plans. Where here are a number of plans, and the Commission
might do this anyway--
Mr. KEATING. Group plans can bid with the individual and under.
the terms of the law there are two groups that have to be recognized.
That is the employee benefit plans and that is the group repayment
Mans. They are all recognized by virtue of the provisions of the bill,
N" the employee wants to choose them.
That provides it large measure of competition, in my opinion.
Mr. PORTER. Thank you very much.
Mr. FOLEY. Mr. Chairman.
The CHAIRMAN. Mr. Foley.
Mr. FOLEY. As I understood your testimony, Mr. Keating, you have
had a program of this nature since 1950?
Mr. KEATING. Yes.
Mr. FOLEY. Do your people like it?
Mr. KEATING. Yes.
Mr. FOLEY. I believe that question could be asked of all the wit-
nesses.
Mr. KEATING. It would be improved, of course.
Mr. FOLEY. The proposal is not what would be called a revolution-
ary program. It has been tested throughout private industry?
Mr. DATING. That is right.
Mr. FOLEY. This bill would seek to extend the benefits, which you
have found in your own organizations to be very helpful and salutary,
to all employees of the Federal Government, regardless of whether
they are members of your organization or not. Is that right?
Mr. KEATING. That is correct.
Mr. FOLEY. These technical questions that have been presented to
you have all been met in the course of experience of administering
your own programs by and large, have they not?
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Mr. KEATING. That is right.
Mr. FOLEY. The subsequent witnesses from the insurance industry
could probably shed a great deal of technical light on these problems?
Mr. KEATING. That is right.,
Mr. FOLEY. What you are really proposing in supporting this bill
is extension of a program you have found in your own organizations
to be accepted, well received, and to have great social and economic
merit?
Mr. KEATING. And a program that is being enjoyed by some 89 mil-
lion people in private industry.
Mr. FOLE Y. Thank you very much, Mr. Chairman.
Mr. GRos. Mr. Chairman.
The CHAIRMAN. Mr. Gross.
Mr. Gross. A while ago, Mr. Keating, my colleague from Michigan,
Mr. Johansen, questioned you concerning the cost to the Govern-
ment of this program. I believe you said that the cost would not be
as high as some indicated it would be, $145,300,000 or something like
that
Mr. KEATING. Yes.
Mr. GRoss. That is because of the fact that some Federal employees
would not take full coverage; is that right?
Mr. KEATING. That is correct.
Mr. GROSS. Did you at any time have or can you give the average
payment on the part of your people today to the programs you have?
What is the average payment?.
Mr. KEATING. 65 percent of our people pay $7.70 a month.
Mr. GRoss. The top payment under this plan would be $9 ?
Mr. KEATING. $9.21.
Mr. GROSS. That would be the difference between the coverage pro-
posed here and the cove-rage they are presently getting, the average
of your people under your plan?
Mr. KEATING. That is right. That would be the maximum the
individual could pay. There is a question in my mind whether our
people would be able to pay $9.21.
Mr. GROSS. It would be a difference of $2 a month approximately?
Mr. KEATING. That is right. A little less; $1.50 approximately.
Mr. JOIIANSEN. If the gentleman will yield, I think the gentleman
has raised a very important and enlightening point. I would like to
pursue it a little further.
This $7-some-odd figure you cite, does that represent the maximum
which your plan permits?
Mr. KEATING. No. The maximum is $11.25.
Mr. JOIIANSEN. Is the remaining percentage above the $7 figure
or in part below it and in part above it?
Mr. KEATING. There is part below it.
Mr. J0IIANSEN. Could you give us a further breakdown?
Mr. KEATING. 17.6 percent only pay $7. That is for the smallest
amount for family benefits. 3.4 percent pay $8.95; 3.2 percent, $9.90;
1.6 percent, $10.25, and 9.9 percent pay $11.25.
Mr. JOIIANSEN. Which is the maximum.
Mr. KEATING. Which is the maximum, but there are 828/10 percent
pay $7.70 and less.
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70 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. Gross. Do I understand you have offered those figures for
inclusion in the record?
Mr. IDEATING. They are included in the record.
The CHAIRMAN. Do you agree with the report of the Senate com-
mittee that under the bill you reserve about 3 percent of 1 year's
contribution and that will be sufficient to hold off rate increases?
Mr. KEATING. I think so, Mr. Chairman.
Mr. HALLBECK. I think that is demonstrated by our own experience
with our own plan.
The CHAIRMAN. How much could you set aside?
Mr. HALLBECK. Approximately 3 percent.
The CHAIRMAN. I presume that all of the employee organizations
represented by you gentlemen would be back here clamoring for
another pay increase next year, is that correct?
Mr. KEATING. That is a question I do not believe we could answer
now, Mr. Chairman, because we do not know whether we are going
to be in a period of great economic activity or whether it will go the
other way.
However, last night the paper carried an interesting item, that the
cost of living had reached a new record high. The Tuesday paper
carried an interesting item that personal income of the United States
had hit the high level of $382 billion a year, the highest in history.
It also carried a very interesting item that the Great Atlantic &
Pacific Tea Co. reported earnings of $14,638,000 and an increase in
shares from 61 cents to 68 cents. National Gypsum Co. reported a
44-percent increase in sales, and Radio Corp. of America, reported
an increase of 44 percent in earnings.
The Du Pont Co. had reported earnings of $4.61 a share in common
stock compared to $3.88 for last year, so certainly if the economy con-
tinues to rise and the elevator goes up, I am sure that the Govern-
ment employees will want to ride.
Mr. Gross. If I may make an observation at that point, I would
like to acid to that the fact that the Department of Agriculture is
predicting an 8 percent net loss in income for farmers this year.
. Mr. HALLBECT[.. I would like to add this, Mr. Chairman. As the
committee is well aware, a portion of the last increase that postal
employees received was on a temporary basis that expires next year
and I will guarantee we are going to be in here looking to make that
permanent.
The CHAIRMAN. Certainly.
You know you won't have trouble with that.
Mr. HALLBECK. I did not want the chairman to be under any illu-
sions.
The CHAIRMAN. There is nothing temporary about pay raises Con-
gress has granted.
Mr. HALLBECK. We understand, Mr. Chairman.
Mr. JOIIANSEN. Mr. Chairman.
The CHAIRMAN. Mr. Johansen.
Mr. JOIIANSEN. I seem to recall that there have been instances in
which municipalities and I think some in my own district, have, in
order to finance a retirement program for example, submitted to the
voters and have voted what in our parlance we refer to as extra mill-
age to finance those programs. Would any of the gentlemen care
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 71
to continent on the possibility or the desirability or the undesirability
of some kind of specific tax legislation addressed to the problem of
financing what I think is basically a very legitimate and very sound
program, but which might at least set forth to the Congress and for
,some of my colleagues in. Congress the example of honestly facing up
to the fact that good things cost money and ought to be honestly
met as a legitimate cost and provided for?
Mr. IIALL nrCK. I would say that I would hesitate to answer your
.question a flat yes or no without giving it some consideration. I am
sure, though, that we all agree that good government is expensive but
good government is also worth what it costs.
The CHAIRMAN. The taxpayers realize that very fully.
Mr. IIALLBEOK. I think they fail to recognize at times, Mr. Chair=
man, that it is worth what it costs.
Mr. JOHANSEN. Mr. iIallbeck, would the gentleman add just one
further proposition, and that is that the interests of good government
and of these good activities of government and of this fiscal integrity
and responsibility would be well served if the American people would
accept the self-discipline of paying for what they provide?
Mr. FOLEY. Will the gentleman yield?
Sir, following the line of inquiry, I am sure you do not mean to
imply that the Government employee should become a sacrificial
lamb.
Mr. JOHANSEN. Of course I do not imply that, but I imply that
somewhere in this Government we have to start facing up to the fact
that we have to pay for what we get. I do not want to make them
sacrificial lambs, but I find on everything we seem to have an in-
,credible capacity to spend more than we are willing to vote to pay for.
Mr. KEATING. Mr. Chairman, in answer to Mr. Johansen's ques-
tion, I think that the Government has a very definite responsibility
to pay the employees a proper wage. I think it has a very definite
responsibility to give them working conditions in keeping with those
in private industry. I do not think that it is the responsibility of
the employees to raise that money any more than any other citizen.
I think they should pay their taxes and contribute.
I wouldn't suggest they be salesmen for a tax program. I don't
think that is a proper request to make to the employees. We, too, are
much concerned about the economic conditions during the last few
months.
The interest rate has gone at an enormous rate. A 1-percent in-
crease in the interest rate means an expenditure of approximately
$2.89 million.
Mr. JOHANSEN. Since the gentleman has raised the matter of in-
terest rates, so far as the marketing of Government bonds is con-
cerned, I confess to not being an economist, but I am not sure the
solution is to pass a law requiring investors to buy it at a specific rate.
Mr. KEATING. I do not know whether that is the solution or not
but I do know there are many other factors in the Government out-
side of hospitalization plans and Government wages that have to do
with the enormous deficit. This year we are spending $40 billion. in
defense.
We are spending over $8 billion in interest. We are spending, if
you put all the security programs together, I imagine another $8
billion there, and that is a total of $56 billion.
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72 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
If the total expenditure is $77 billion, that allows $21 billion for all
other operations of the Government, including veterans' benefits.
There are a lot of programs in this area.
Mr. JOHANSEN. I trust the gentlemen all understand that not for
a minute would I single out provisions involving costs relating to
Government employees for this kind of treatment. I would not do
that for a minute, but I am concerned about it with respect to this
and the other aspects of the cost to Government.
I am concerned with the totality of the expenditures in relation
to the totality of the revenue.
Mr. NAGLE. Mr. Chairman.
The CHAIRMAN. Mr. Naa?le.
Mr. NAGLE. I believe periaps we are assuming that the $145 billion
outlay is a completely out-of-pocket cost. Actually, the U.S. Gov-
ernment has two stakes in the national health : one, the general pattern
of the populace as a group and, secondly, it has a distinct stake in the
N health of the members of its employee family and of their
domestic family, and surely this $145 million outlay would bring
tangible -returns in the form of lower expenditures elsewhere.
The CHAIRMAN. Of course, I am sure you gentlemen would like
the legislation to be approved by the President. In view of the situa-
tion, don't you think that it is a matter of give and take, and that
some consideration should be given to the views of the administra-
tion before a bill is sent to the White House?
Mr. KEATING. We have given a great deal already, Mr. Chairman,
from the original program. Most of the changes have been sug-
gested by the administration and most of their suggestions have been
complied with. It seems to me that if they get 70 percent compliance
with their suggestions and the Congress is satisfied, the administra,
tion ought to be satisfied, too.
The CHAIRMAN. Mrs. Granahan.
Mrs. GRANAHAN. I cannot quite understand how we are sitting
here quibbling about these prices for hospitalization for the Govern-
ment employees. I think they, deserve everything. $5 million was
just sunk. They built a hospital in France and couldn't use it. We
are spending $2 million a day in Vietnam, and many millions in
Bolivia, which is under the Communist regime. I do not think we
are going to break this country by giving the Government employees
these benefits, by any chance whatsoever. There is a great deal of
money that we could save, I agree. I think this is not the proper
place to go into that.
Mr. REES. I agree with the gentlewoman and we ought not waste
money in France or Bolivia or anywhere else.
Mrs. GRANAHAN. I think we could get the return from this money
we are going to spend because I thoroughly agree that these older
people in the Government, who are getting near the age of retirement,
do hesitate to go to the doctor. It is very expensive.
Mr. JOHANSEN. Will you yield?
Mrs. GRANAHAN. I yield.
Mr. JOHANSEN. I share the exact feelings she has- At the risk of
sounding self-righteous, which I do not intend to, I did not vote to ap-
propriate the money that made that waste.
Mrs. GRANAHAN. Thank you, Mr. Johansen.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES //
The CHAIRMAN. How much reserve do you think should be set aside
by the Civil Service Commission each year to take care of future
contingencies regarding increased costs of medical care and hospitali-
zation ?
Mr. KEATING. I think the figure presented in the bill, 3 percent,
would be adequate.
Mr. IIALLBEOK. I think that is reasonable. That is based on our
own experience.
The CHAIRMAN. Any other questions?
Mr. .MORRIsoN. If there are no other questions, Mr. Chairman, I
would like to take this opportunity to commend and express our
appreciation for the very excellent and expert testimony that these
gentlemen have given this committee. I think it has been extremely
helpful and very valuable, and I think they have certainly explained
this bill to the fullest extent as far as their respective organizations
and employees are concerned.
Mr. BROYIiILL. Would the gentleman yield?
The CHAIRMAN. Mr. Broyhill.
Mr. BROYHILL. In line with the observations made by the gentleman
from Louisiana earlier about an effort being made to get this legisla-
tion disposed of before the adjournment of this session of Congress,
without meaning in any way to limit any witness from wanting to
testify, I notice that there are several more employee representatives
who are schedulel to testify. I am wondering if some of these wit-
nesses might want to consider whether or not their prepared testimony
is repetitious and might want to consider merging the testimony or
submitting it for the record. It might help the committee in expe-
diting these hearings, to perhaps assure that the legislation would
be passed before this session of Congress. We do not, want to over-
look any witness but we might avoid as much repetition as possible
and expedite consideration of the legislation.
The CHAIRMAN. How many witnesses scheduled for today are from
out of town?
I see Mr. Moore from Nashville is here. Before we adjourn, would
you like to make a brief statement, Mr. Moore? We do not want to
have you come back from the great State of Tennessee to appear.
STATEMENT OF . LEWIS E. MOORE, CHAIRMAN, LEGISLATIVE
COMMITTEE, NATIONAL ASSOCIATION OF POSTMASTERS
Mr. MooRE. It is an honor to be here this morning to hear the
testimony given. I am the chairman of the legislative committee of
the National Association of Postmasters. Insofar as the testimony
we have heard is concerned, we of the committee agree with the
statements made by Mr. Keating and Mr. Hallbeck. If it is agree-
able with you, Mr. Chairman and your committee, we would like to
file our statement with you as our testimony in this case.
The CHAIRMAN. Very well, sir. That permission will be granted.
Mr. MooRE. There is only one thing I would like to add to it, and
that is the fact that our national president, Mr. Ed Baker, could not
be here today because of a previous commitment, and our national
secretary-treasurer, Mr. Chuck Puskar, could not be here because of
illness in his family. They fully agree with the statements made.
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74 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. HALLBECK. May I express our thanks to the committee on then
part of the Government Employes' Council for the consideration we
have had before your committee.
The CHAIRMAN. The statement of Mr. Lewis E. Moore, postmaster
of Nashville, Tenn., and chairman of the Legislative Committee, Na-
tional Association of Postmasters, will be inserted in the record at
this point.
(The statement of Mr. Moore follows:)
STATEMENT OF Lawis E. MOORE, POSTMASTER OF NASHVILLE, TENN., CHAIRMAN
Or THE LEGISLATIVE COMMITTEE, NATIONAL ASSOCIATION OF POSTMASTERS
Mr. Chairman and members of the committee, my name is Lewis E. Moore,
I am postmaster at Nashville, Tenn., vice president and chairman of the Legis-
lative Committee of the National Association of Postmasters. Our membership
consists of more than 32,000 postmasters, or over 91 percent of the total number
of postmasters in the Nation.
We appreciate the opportunity of appearing before you today in wholehearted
support of our health benefits bills, H.R. 8210, 8211, 8222, and S. 2162 which
passed the Senate by the decisive vote of 81 to 4 on last Thursday, July 16,
1959.
As a further attest of our intense interest in this legislation, my colleagues,
Charles D. Hertzog, manager of the health insurance plan of our association,
and Roy M. North, former postmaster of Washington, D.C., our legislative
representative, personally join with me in the presentation of this testimony..
At the outset, Mr. Chairman, please permit me to express the deepest appre-
ciation of our association for the many fine things that you and members of
your committee have done for us in the past. We are particularly grateful for
the splendid accomplishments and benefits coming our way in 1958. We have
always found you and your outstanding group of legislators friendly and keenly
aware of the needs of postmasters and postal employees.
We feel that we have always been conservative in our appeals to you and
your associates on the committee and in that spirit, we today, without hesi-
tation, endorse the sound proposals and plans for health benefits embodied in
the bills described.
In our opinion, these are the most important legislative measures that have
been presented to Congress in many years. On April 21, 1959, our association
testified in favor of the principles of S. 94 and related bills on health insur-
ance, before the Neuberger subcommittee. That bill provided for the Govern-
ment to assume two-thirds of the cost and the employee one-third. We
recommended, however, that the employee should share equally with the Gov-
ernment in the cost of the program. This new bill now before us, S. 2102-
improved piece of legislation-after many days of hearings, exhaustive confer-
ences and a tremendous amount of study, was reported by the Senate Com-
mittee.
These bills stipulate a 50-50 sharing of the cost, which is in keeping with the
health programs of many large industrial concerns. Certainly, if it does not
see fit to actually lead in this field, the Government should at least do as much
for its employees as that provided by industry.
. S. 2162, as conceded by its sponsors, is. not a perfect measure. It may well'.
be amended from time to time, particularly after experience of operation. It
does not take care of the 400,000 retirees-our senior citizens, who devoted'
many years of their lives unselfishly to dedicated Government service. In.
fact, it seemingly leaves in the lurch, those thousands of former faithful em-
ployees who are at present members of many existing health programs. These
people now enjoy nominal premiums by reason of membership in large groups-
of various ages, which plan, of course, is the very heart and substance of in-
surance business.
We have the assurances of both the chairman of the Senate committee, Sen-
ator Olin D. Johnston, and Senator Richard Neuberger, head of the insurance
subcommittee, on the floor of the Senate, July 16, 1959, that they are cognizant
of the need-study is being continued-and an additional bill will shortly be
introduced providing for health insurance for those already retired.
While we shall not take the time to discuss the many features of these im-
portant measures, we are satisfied that they are a splendid beginning in the
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H ALTH BENEFITS FOR FEDERAL EMPLOYEES 75
field of health benefits and a health insurance program should be enacted
into law. We commend them to you for favorable consideration and passage at
an early date.
Again, Mr. Chairman and members of the committee, thanks for the privilege
of presenting this testimony.
The CIIArtMAN. The House will not be in session tomorrow. A
number of the Members who live within a reasonable distance will
go to their homes over the weekend. For that reason, the hearing
will be continued Tuesday morning at 10 o'clock.
(Whereupon, at 12:05 p.m., the committee adjourned to reconvene
at 10 a.m., Tuesday, July 28, 1959.)
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HEALTH BENEFITS PROGRAM FOR FEDERAL
EMPLOYEES
TUESDAY, JULY 28, 1959
HOUSE OF REPRESENTATIVES,
COMMITTEE ON POST OFFICE AND CIVIL SERVICE,
Washington, D.C.
The committee met at 10, a.m., Hon. Tom, Murray (chairman)
presiding.
The CHAIRMAN. The committee will be in order.
The hearings will be resumed on the various health and hospitaliza-
tion insurance bills now pending before the committee, and especially
on the Senate-passed bill, S. 2162.
At this point in the record I will insert a statement by our colleague
and former member of the committee, Representative Frank M.
Karsten, of Missouri. Also a statement of Representative B. F. Sisk,
of California.
(The statements follow:)
STATEMENT OF HON. FRANK M. KARSTEN, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF MISSOURI
Mr. Chairman, my name is Frank M. Karsten. I am a Representative from
the State of Missouri, and I wish to express my support of legislation to provide
a program of health benefits for Federal and postal employees.
Having served as a Federal employee myself for many years, one of the first
committee assignments I sought after I was elected to Congress was the privilege
to be a member of the Post Office and Civil Service Committee. My service here
was a wonderful experience, and I cherish the associations and friendships I
made as a member of this great committee. Because of this background I nat-
urally have a deep interest in the work of the Committee on Post Office and Civil
Service, and I appreciate the opportunity to appear this morning in support of
legislation to provide a program of health benefits for Federal and postal
employees.
From my own experience as a Government employee, I know there has long
existed a need for a health program. The U.S. Government is the biggest busi-
ness in the world and the biggest employer. Yet, we have not kept pace with
private industry in the field of health insurance for our employees. Private
industry long ago recognized the value of such programs. Studies by the Depart-
ment of Labor disclose that the majority of nongovernmental workers are pres-
ently participating in health insurance programs financed either in whole or in
part by their employers.
In my opinion we should, at this time, take steps to bring the Government
service up to the general standards which are followed by private industry. We
could do this by enacting a program as provided in the recently enacted Senate
bill, S. 2162, which provides medical care under an employer-employee program.
I have received a great many letters from Federal employees in St. Louis, and
they want such a plan. Their salaries are modest and for a great many a plan
such as this one is their best opportunity to secure health protection. While the
employees who participate in such a program will be direct beneficiaries, the
Government itself will also gain immeasurably by improved health of its em-
ployees and improved morale.
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78 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
The Committee on Ways and Means, of which I am a member, recently held
some preliminary hearings on the broad general subject of health insurance.
While the committee has come to no resolution on this matter witnesses who
testified in support of a general program based their arguments on the high
cost of medical treatment. It is undoubtedly true that a great many people
simply live with symptoms of illness or disease instead of having them treated
because of cost factors.
One of the studies brought to the committee's attention was made by the
Michigan State College. It disclosed that 45 percent of the people with income
of less than $1,000 had one or more untreated symptoms; 27 percent of the
people with a $1,000, but less than $2,000; 23 percent of the people with $2,000,
but less than $3,000; and so forth up to the people with $5,000 or more, 10 per-
cent of whom had untreated symptoms.
Expense is perhaps not the only reason why people do not secure treatment
that they need. However, if the Michigan study were to be applied to govern-
mental employees on the basin of income, it would indicate that perhaps about
10 percent of Government workers may presently have untreated symptoms.
Such a high percentage would naturally reflect itself in decerased efficiency
on the part of the individual as well as the department in which he is employed.
I urge the committee to favorably consider a health insurance program for
Federal employees. There is a real need for it, both from the standpoint of the
Government as well as the individual employee. Finally, the enactment of such
a program will bring the Federal service up to the general standards which are
followed in private industry.
STATEMENT OF HON. B. F. SISK, A REPRESENTATIVE IN CONORlOss FROM THE STATE
or CALIFORNIA
Mr. Chairman, I appreciate the opportunity to express to the committee my
vigorous support of an effective, overall hospital and health benefit act cover-
ing ?active and retired Federal employees.
In considering this legislation, I believe we are following in the proven path
of enlightened private industry rather than embarking on an untried course.
The proposal before your committee would achieve prepaid health benefits
through the combined contributions of the employee and the Government on
a sharing basis. In my opinion, this plan is far more modest in its demand
on the public treasury than would be those in many branches of industry which
pay all or the major portion of employee medical and hospital costs at company:
expense.
The Federal employee, and particularly the retired employee, is included in
that great group of citizens who are today denied participation in the advances
of medical science because they cannot afford to pay for adequate care and
are not eligible for free care. The position of the wage earner faced with
illness in his family is desperate today unless he can participate in a sharing.
of costs through some type of group insurance plan. The plans in general
use are limited by the amount the average salaried person can pay in premiums
and do not cover major or long lasting illness-which becomes literally a
tragedy.
In my opinion, the enlightened self-interest of every employer, including the
Federal Government, as well as that of the employee, requires the employer to
sponsor and contribute to health protection for the men and women who keep
the wheels of his factory or office turning. And we certainly also owe con
tinued protection to those who have faithfully served into retirement.
I consider the proposed Federal Employees Health Benefit Act of 1959, with
provisions for equal sharing of costs, an equitable and practical approach to
the solution of one of the most serious problems of Government today, and
I heartily endorse it.
The CHAIRMAN. The first witness this morning is Mr. J. D. Colman,
vice president and secretary, Blue Cross Association. Also, Dr.
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HEALTH 'BENEFITS FOR FEDERAL EMPLOYEES 79
Donald Stubbs, chairman of the board, Blue Shield medical care plan.
.1 will ask you two gentlemen to come to the table.
On July 22, 1959, I sent the following letter to Mr. J. D. Colman
of the Blue Cross Association :
(The letter referred to follows:)
HOUSE OF REPRESENTATIVES, U.S.,
COMMITTEE ON POST OFFICE AND CIVIL SERVICE,
Washington, D.C., July 22, 1959.
Mr. J. D. COLMAN,
Vice President, Blue Cross Association,
.55 Bast 34th Street,
New York, N.Y.
DEAR MR. COLMAN : Further reference is made to my letter to you of July 20
with respect to your testimony at our hearings on S. 2162 and similar House
bills, which began yesterday with testimony by Members of Congress and some
of the members of employee organizations.
It is clear to me at this point that these hearings would be more productive
of necessary information if the committee had available testimony from the
standpoint of a section-by-section analysis of S. 2162 and detailed comments
with respect to the types of services contemplated and the costs allocable thereto.
The committee certainly will want to know, as just one example, the services
contemplated, and the costs allocable to such services, under subparagraph (D)
of section 5(a) (1) of S. 2162.
Since the Senate committee staff has advised that you are the one perhaps
most familiar with the bill's terms, I would appreciate your presenting testi-
mony along that line and at an early point in the hearings. For that reason, I
am setting aside next Tuesday, July 28, for your testimony, along with that of
Dr. Donald Stubbs who has asked to appear representing Blue Shield.
I would appreciate your being prepared to give the committee, in addition to
an analysis of the bill, full and specific information with respect to the costs,
including the costs (projected over the next 20 years) which would be allocable
to annuitants and to employees, assuming that the current level of employment
and rate of annual retirements are continued.
Further, in view of the statements contained In the Senate report and testi-
mony of representatives of employee organizations before this committee, it is
clear that efforts already are afoot to extend the benefits of this legislation to
annuitants ready on the rolls and their survivors-that is, to some 3755,000
present annuitants who are not covered by the Senate-passed bill. I am sure the
committee will desire information with respect to projected services and costs
if the benefits of S. 2162 are extended to this large additional group in the near
future, as has been indicated.
Also, I would like to have you include in your testimony information on the
annual rates of increases in charges for hospital, medical, and surgical services,
for the past 3 years and for a period projected at least several years into the
future. I believe that this necessarily will involve consideration of the effect
of increase in the costs of these services In relation to either future reductions
in benefits or increased premiums under this legislation.
The committee also will desire Information as to the number of Federal em-
ployees presently covered by Blue Cross or Blue Shield plans, or both, including
the numbers of such employees having "major medical" or extended coverage.
If in the preparation of your testimony you find that you require any sta-
tistical or other information available in the Government, please feel free to
call on Mr. Frederick C. Belen, chief counsel of the committee, who will be glad
to cooperate.
Sincerely yours,
Tom MuRRAY, Chairman.
The CHAIRMAN. We will be glad to hear from you now, Mr. Colman.
As I understand it, your organization, Mr. Colman, and also the or-
ganization represented by Dr. Stubbs, were both active in the prepara-
tion of the initial legislation?
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80 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
STATEMENT OF I. D, COLMAN, VICE PRESIDEN'T', BLUE CROSS
ASSOCIATION, ACCOMPANIED BY DR. DONALD STUBBS, CHAIR-
MAN OF THE BOARD, BLUE SHIELD MEDICAL CARE PLAN
Mr. COLMAN. By "initial," you mean S. 94?
The CHAIRMAN. S. 94.
Mr. COLMAN. I had nothing to do with that.
The CHAIRMAN. I understand that after S. 94 was introduced you
then made a very elaborate report pointing out certain changes you
would like to see made in the legislation?
Mr. COLMAN. Yes.
The CHAIRMAN. I wish you would pick up the bill passed by the
Senate and elaborate on the various provisions for the committee.
Mr. COLMAN. Yes. I will be very happy to do so, and I appreciate
the opportunity to be here. If I may, I will skip through a portion
of the prepared paper in order to save time.
The CHAIRMAN. Of course the full statement will be included in
the record. You may elaborate on it as you see fit.
Mr. COLMAN. Mr. Chairman and members of the committee, for the
record, my name is J. Douglas Colman, vice president and secretary
of the Blue Cross Association. I appear on behalf of this association
and of the 78 Blue Cross plans in the United States through which
some 53 million Americans place hospital care in their family budgets.
For more than 25 years Blue Cross plans have pioneered in the
provision of prepaid hospital service to the American people. They
are today the largest single source of this service. For 25 years Blue
Cross plans have pioneered in providing this service to Federal em-
ployees through the difficult means of volunteer group treasurers.
Despite such handicaps, approximately one-half of the Federal em-
ployees in the United States now receive prepaid hospital service
through Blue Cross. This represents some 1 million per ons, and a
total of some 3 million persons, including dependents. This is clear
evidence of the need for a program as contemplated by H.R. 8210 and
similar House hills. Also, it is evidence of the interest and effective-
ness of Blue Cross in providing such service. We therefore speak
with some experience both in the provision of the prepaid hospital
service, and with the problems,of providing this to Federal employees.
DEFINITION AND SCOPE OF BLUE CROSS PLANS
Each Blue Cross plan is a nonprofit community service corporation,
governed by a board on which are represented the public, participating
hospitals, and the medical profession. Members of these governing
boards receive no remuneration and serve in the same manner as
trustees of a hospital, university, or church. The administrative
functions of Blue Cross plans are discharged by salaried employees
under policies determined by the governing board.
The prepaid hospital service offered by these plans is in most in-
stances supplemented by medical and surgical benefits offered through
associated, medically sponsored plans. Typically, the hospital serv-
ice benefits offered include care in semiprivate accommodations for
varying periods depending on the subscription charges paid, and
including the full range of hospital services.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
To earn the right to use the Blue Cross symbol a plan must comply
with the standards of the approval program administered by the
American Hospital Association. These Include bona, fide nonprofit
operation, free choice of hospital, hospital guarantee of service bene-
fits, representation of :bath public and hospital interests on the govern-
et board, and fiscal responsibility adequate to protect the interests
both of subscribers and member hospitals.
In addition, most plans are supervised by some State agency, usually
the State department of insurance and in most States must comply
with statutory requirements specifically applicable to such plans.
Through a series of joint programs, plans bring to all of their sub-
scribers the benefits of their day-to-day working relationship with the
hospitals which actually admit and care for patients. These include
the Interplan Service Benefit Bank,, providing service benefits in one
plan area to Blue Cross subscribers of another area requiring hospital
care away from home. Subscribers moving their residence from one
area to another may transfer their membership under the interplan
transfer agreement.
Attached as table I I. is the most recent report of Blue. Cross enroll-
ment in the various States. Blue Cross is clearly the method of choice
of Federal employees and is the largest single source of prepaid hos-
pital service.
PRINCIPLES AFFECTING THE PROVISION OF IHEALTII SERVICE BENEFITS TO
FEDERAL EMPLOYEES
(a) The Nation's largest employer should aid its employees in
securing needed health services.-The United States is the only large
industrial Nation in which personal health services are not a major
governmental responsibility. This is true largely because workers,
employers, and the providers of health services, through Blue Cross
and Blue Shield, made it possible for the average worker to budget for
large segments of health service costs. Encouragement of this volun-
tary program is in the interest of all employers, especially the Nation's
largest.
.Contribution to the cost of health service benefits is increasingly a
standard part of the benefits offered by private employers with whom
the Federal Government competes for competent personnel.
(b) Federal Government has a responsibility beyond that of other
employers.-Health service is a necessity. To the extent citizens do
not, or cannot provide it for themselves, health costs become a responsi-
bility of tax funds. Defense and other needs already impose sub-
stantial drains on available tax funds. To the extent workers and
their employers meet health costs through their joint efforts, tax funds
are freed for other purposes. Therefore, the Federal Government
should give leadership in fostering the development of voluntary health
insurance.
(e) Reasonable choice.-Federal employees are located in every town
in the land. The use of health service, and its cost, vary widely in
different sections of the country. Employees should be free to choose
the type of program best suited to their needs.
Tables referred to in statement will be found at pp. 108, 109.
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82 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
(d) Government contribution to all authorized programs should be
in equal proportion.-Any other decision would use public funds to
foster or hinder the development of a particular pattern of health
service prepayment.
Mr. JOHANSEN. With regard to item (d), I may be obtuse this
morning but I do not understand the second sentence, the one after
the italic sentence. Would you comment on that for a moment?
Mr. COLMAN. If the employer subsidy to one type of program un-
der a health benefit program is different proportionately than it is
to another type of program it would be in a sense a special employer
dispensation to, and support of, some particular pattern or method
of doing the job.
(e) Health service not cash, should be the objective.-The services
needed by a particular patient vary widely as to type, cost, and fre-
quency. The benefits provided should be broad enough, and flexible
enough to absorb these variations.
(f) Delivery of service at the time of iUness should be prompt and
without procedural barriers or complexities.-Blue Cross is uniquely
qualified to provide subscribers and hospitals with prompt informa-
tion on benefits available while the patient is in the hospital.
(g) Wise use of community health resources should be encouraged.-
The local structure of Blue Cross enables it to work with hospitals to
channel available funds into the areas of patients' greatest health serv
ice' needs, and to discourage the development of services tangential to
the primary needs of patients. Funds available for hospital service are
insufficient to meet all the demands of patients. Such funds as are
.available should first be used to satisfy the essential needs of patients.
(h) Use available funds for benefits, not for needlessly complex
administration.-Administrative costs are incurred in enrolling sub-
scribers, collecting and paying subscription charges, and in providing
service or paying claims. Costs in the first two categories tend to be
centralized and appear large. Administrative costs in the last cate-
gory are dispersed among thousands of hospitals and physicians and
tend to be forgotten. In total they are by far the largest segment of
-administrative cost and inevitably contribute to the total cost of the
program and to the public's total health bill. The benefit pattern of
the program should be simple to administer at the time service is used
under the program if total costs are to be minimized.
HOW AN EMPLOYEE HEALTH BENEFIT PLAN OPERATES
Employes and members of their families need, and usually receive,
health services consistent with the advancing state of medical science.
In 20th century United States, needed health services are usually
available. The problem is the sacrifices entailed in making them avail-
able-personal financial hardship of recipients who pay their health
bills-financial stringency in institutions and their employees when
bills are not paid. But, in general, the service is given and the costs
incurred. The question is, how can these total costs best be met?
The dollar cost of these services, in the aggregate, are influenced by-
(a) the purchasing power of the dollar,
(b) the type of services available=
(o) the frequency of use of services, and
(d) the cost of, or charges for, the services rendered.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 83
A health benefits plan considers the effect of each of these variables
on the set of benefits offered during the time period for which cost
projections are being made. Then the aggregate cost of the benefits
offered, plus administrative costs and contingency reserves are ap-
portioned among the participants. Excluding necessary health serv-
ices from the plan does not reduce the aggregate costs to participants.
The costs of services not covered are simply transferred from the plan
to those of its members who are sick, and imposed upon them when
they are sick.
. Hence, to accomplish its purpose, a health benefits plan must pro-
vide a broad spectrum of benefits, and equalize the costs of these
among its participants. Even brief consideration of the primary
variables mentioned above suggests wide cost variation over long
periods of time. As Members of Congress, you are well aware of
the likelihood and range of fluctuations in purchasing power. Ex
am les of the other three factors mentioned are :
(pb) Type f services available.-Ten years ago open-heart surgery
was undertaken in only a few pioneering teaching centers ; now it is
available in many metropolitan hospitals. Another example is the
variety of radiation sources such as radioactive cobalt that now sup-
plement the more usual deep X-ray therapy. Another is the frequent
and involved laboratory procedures necessary to permit the safe use
of the powerful new chemotherapeutic agents. Another factor has,
been the construction, often with Federal assistance, of hospitals in
areas where none existed previously.
(c) Frequency of use of services.-In the years since a health bene-
fit program for Federal employees was first discussed there has been
a marked increase in the proportion of births occurring in hospitals,
conversely, fewer pneumonia patients are admitted for short stays.
In the same period the length of the hospital stay of surgical patients
has decreased dramatically, despite the increasing complexity of the
procedures undertaken. The composite effect of these and other fac-
tors is shown in table II attached. This shows the admissions per
person per year, the days of hospital care per person per year, and
the annual percent of change in these items during the period 1950
through 1957. Data from all voluntary, short-term general and other
special hospitals are used as being most typical of the type of serv-
ice to be provided under H.R. 8210.
I did not mention table I specifically. That shows simply the en-
rollment in Blue Cross plans by States and the proportion that bears
to the total population in those States.
Table II shows you what has happened to the admissions per per-
son to short-term and other special hospitals in the United States
during the 7-year period, 1950-57, and the annual rate of increase-
or decrease in one instance-of the admissions per person per year
as related to the general population and the days of care per person
per year.
As you will see the admissions have gone up rather substantially
in proportion. The days of care per person have not gone up quite
so much.
The CHAIRMAN. The number of admissions per person is on the
increase and the number of patients has gone up appreciably. What,
about the increase?
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84 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. COLMAN. The first two columns on table II, I think, give that.
The admissions per person per year have gone up from 0.077 to 0.091
in this period, and the annual rate of increase averages 2.4 percent
during those years. It varies considerably. You will see in 1 year
it is as low as 1.2 percent and in another it is as high as 4.7 percent.
In the next column you have the, days of care per person and that
has gone from 0.600 to 0.676, and again at a variable rate. In 1 year
it actually decreased.
The CHAIRMAN. The number of days of care per person from 1950
through 1957 is approximately the same. There is not much
variance.
Mr. COLMAN. There is a total there of about 10 percent.
The CHAIRMAN. From 1950 through 1957 it goes from 6 days to
6.76 days.
Mr. COLMAN. That is right. That deals with the frequency of the
use of service and the changes that have taken place in this period.
Mr. PORTER. What do you see coming out of this? What do the
figures demonstrate to us?
Mr. COLMAN. Trying to make predictions as to what is going to
happen in the amount and kind of health services to be used by large
numbers of people I consider to be a very hazardous occupation. The
dramatic change that took place in the length of stay of surgical
admissions in the 1940's is something that caught most of us by sur-
prise. The whole question of early ambulation came in there, and
had it not we would have had a financial crisis in hospital care of
serious magnitude.
There is another type of thing that can happen. For example
we all hope and trust in the very near future there will be some kind
of a generalized diagnostic test for cancer. Nobody knows what that
is going to involve in terms of procedure and care, but let us suppose
it would involve 1 day of hospital care. Any prediction that you
might have made as far as hospital service in the future is concerned
is going up the flue on one such situation as that.
I think that I would be presuming if I were to lead you to believe
that I could make any valid predictions of what hospital care in
terms of usage is going to be over a 5-year period.
Mr. PORTER. One thing seems certain from these figures-the ad-
missions will be more per person and the days of care will be more
per person. That much at least seems to be obvious.
Mr. COLMAN. It would seem so.
Mr. PORTER. So as far as costs go, because of what you cannot pre-
dict, it would increase the. number of persons to be admitted and the
days of care.
The CHAIRMAN. In other words, hospital costs per patient day have
increased from $16.89 to $26.81 in the period 1950 through 1957.
Mr. COLMAN. I will come to that in my next; paragraph. The one
comment I did want to make in extension of the question that was
just asked by Mr. Porter is that if you had looked at these figures in
1940, or in the 1940's, the days of care per person would have been
going down. It is a question as to which decade you want to look at.
My judgment is that for the immediate foreseeable future something
like these trends are going to continue.
Mr. PORTER. Because there are more things to do in the hospital?
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Mr. COLMAN. That is right.
Now I will proceed with the comments on table III to which you
referred.
(d) The cost of services rendered in hospitals has increased rapidly
under the influence of many of the foregoing changes and in response
to other internal and national forces. Changes in the costs of other
types of health services have not been documented with accuracy and
less is known about the changes that have taken place in them. As
you will see from table III, during the period 1950 through 1957,
average costs have been increasing at- a substantial, though varying
rate. Some of the major reasons .for these increases are as follows :
Decreasing purchasing power of the dollar, increased salary rates, bet-
ter accounting for capital charges, and the addition of new and more
complex services, which are compressed into approximately the same
or shorter average stays during this period.
These variables force anyone thoughtfully developing a health bene-
fits plan to make a major policy decision, namely:-Is the plan to
attempt to project a level premium for an extended period such as
10 years, or is it to be paid for on a "pay-as-you-go" basis with charges
adjusted to experience over relatively short time periods of 2 or 3
years? Almost universally the pattern in private industry has been
the "pay-as-you-go" basis whether benefits were purchased from pri-
vate insurance or from Blue Cross. No one in 1954, for example, came
any closer to predicting 1959 hospitals costs than they did to pre-
dicting the 1959 interest rates on current Federal borrowing.
Therefore, the choice must be between a plan whose cost varies
gradually with the costs of services needed and used by its partici-
pants or a plan whose cost is stable but either too high or too low
in relation to the continuing costs of health services used by its par-
ticipants. We urge adherence to, and strongly support the approach
used in H.R. 89,10 and the similar House bills. It is realistic and
straightforward. The alternative level-premium-prefunding ap-
proach is complex, unsuited to this purpose, and will involve the
accumulation by Government of large pools of employee contributions,
the necessity for, and amount of which will be subject to continuing
question and attack.-
To discuss table III further, this reflects a series of forces that
have taken place in hospital care during this period. It is a com-
posite of pluses and minuses. You will see also there is an appre-
ciable variation in the rate at which this takes place-the high of 8.6
percent increase in the period 1950 to 1952, the low of 3.5 percent in
the period 1955 to 1956.
Again in anticipation of the same kind of question that Mr. Porter
asked awhile ago on admission rates, I would expect for the imme-
diate foreseeable future that these trends would continue at some
such level as this for a year or two. Where they are going to go
beyond that I do not know. The forces that are at work at the mo-
ment suggest no difference in this for the next 2 or 3 years.
Mr. PORTER. Some of these factors you mentioned as causing the
change, such as more realistic appraisals of capital costs will shake
down sooner or later?
Mr. COLMAN. YeS.
Mr. PORTTR. There will be increased salary rates at the hospitals?
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86 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. COLMAN. On the question of increased salary rates, I think it
can be defended that, in general, rates paid in hospitals are, for the
bulk of their employees, below rates paid in private industry for
comparable employment. I do not think that lag can exist forever.
I think it is going to be closed and that is why that statement is in there.
Mr. PORTER. So that is why this 6- to 8-percent increase every year
is due, and it will affect any plan we adopt.
Mr. COLMAN. Eventually the gap will be closed, and then the in-
crease will be more or less proportionate to all salaries.
Mr. PORTER. If we adopt this bill with particular contributions are
we not liable to have to revise it often if we have this kind of increase
every year?
Mr. COLMAN. Carefully administered I do not think it is going to
have to be revised very often. If I may, sir, I would like to come back
to that question because there are some other factors that affect it.
The CHAIRMAN. Do you look for further increases in hospital costs
in the next 2 or 3 years?
Mr. COLMAN. Yes.
The CHAIRMAN. How much of an increase do you expect?
Mr. COLMAN. Of this order of magnitude.
The CHAIRMAN. Around 6 or 7 percent?
Mr. COLMAN. I would expect 6 percent; something like that as an,
average.
Now continuing with my statement :
GENERAL STATEMENT ON H.R. 8210 AND SIMILAR HOUSE BILLS
We support wholeheartedly the provisions of H.I. 8210 and urge
its early passage in substantially its present form.
The CHAIRMAN. Is that the same as the Senate-passed bill?
Mr. COLMAN. Yes.
The CHAIRMAN. The first bill introduced and considered by the Sen-
ate was S. 94.
Mr. COLMAN. That is right.
The CHAIRMAN. You offered a good many suggestions for amend-
ing the bill.
Mr. COLMAN. Yes.
The CHAIRMAN. Were all of those amendments included in the new
Senate-passed bill?
Mr. COLMAN. No, Sir.
The CHAIRMAN. Can you give us a list of those proposed revisions
that you made to the Senate committee with regard to S. 94?
Mr. COLMAN. I will be happy to; as a matter off act that is included
in the testimony given before the Senate and I will supply a full copy
of that to this committee.
The CHAIRMAN. Can you give us some brief, concise account of what
your proposals are ?
Mr. COLMAN. The changes we proposed in S. 94 I do not think are
relevant to the bill that is currently before you. There have been sub-
stantial changes in the bill by the Senate committee since S. 94 was
first written.
The CHAIRMAN. Can you list the proposals which you made to S. 94
and which were not included in the Senate-passed bill?
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. COLMAN. I do not have them in my mind, but if I may, I will
supply that for the record. (Seep-133.)
Mr. JOIIANSEN. Do I understand from your statement to Mr.
Porter that you will be coming back to this question later in your
testimony-as to the frequency of adjustment of rates?
Mr. COLMAN. Yes. I will continue with my statement.
From the legislative history to date, the committee is doubtless
aware that the bill represents a compromise between, and a reconcili-
ation of, many divergent views. Such a program for Federal em-
ployees is long overdue and H.R. 8210 is the first such measure to have
the united support of employees, carriers, and the providers of health
services. We earnestly hope it will merit the support of this distin-
guished committee and your colleagues in the House of Representa-
tives.
COMMENTS ON SPECIFIC ASPECTS OF H.R. 8210
Perhaps the major compromise represented in H.R. 8210 is in
relation to the proportion of the cost borne by employees and by
Government. As one of the potential carriers under the bill, this is
not a matter on which we can appropriately take a position. How-
ever, it may help the committee to know that the 50-50 sharing con-
templated by H.R. 8210 is a common pattern in many large industries
such as steel and auto, for example. Among the largo groups enrolled
in Blu? Cross, the proportion borne by the employer varies from
about 30 percent to 100 percent, but 50 percent applies to the largest
number of employees currently enrolled. It is perhaps worthy of
note that there is one precedent on this question. The one health
benefits program already in effect for a large group of Federal em-
ployees, namely, the Tennessee Valley Authority program, provides
for an approximately equal sharing of cost between employer and
employee.
The report on the bill submitted by the Senate Committee on Post
Office and Civil Service is most complete. We are not competent to
comment on all of its aspects, but the portions which our experience
gives us the background to judge, are valid and have our concur-
rence and support. The section on page 14 entitled "How the Pro-
gram Would Operate" has pertinence to some of the questions earlier
in these hearings concerning the elimination of the usual require-
ment for competitive bids from carriers. The contracts with Gov-
ernment under this bill would be carefully developed, negotiated
contracts. The bill requires that each employee have at least two
and often four choices of program. Hence, the element of competi-
tion and free choice is inherent in the right the bill gives the employee
to make an informed choice among competing plans.
It should also be clear that the bill does not establish specifications
precise enough to permit sound competitive bidding. Properly the
bill gives the administering agency considerable leeway to negotiate
benefits that are consistent with the continuing needs of Federal em-
ployees. As pointed out earlier, the many variables in health services
make this flexibility imperative. In this sense, the act is an enabling
act. Benefits are strongly implied, but wisely are not frozen, and
accommodation to some change can be made without congressional
action. Section 16 does, however, require that your committee be
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88 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
kept currently informed of major steps taken in implementing the
program.
So the competition comes in when the employee makes his choice,
not when the carrier negotiates a contract with the administering
agency. Ile has to offer the best contract he can, or he. is not going
to get anybody to choose it, so competition is inherent in the bill. As
you will see later, those contracts are going to have to be carefully
negotiated by the administering agency.
Mr. PORTER. I see your next statement about not establishing speci-
fications precise enough to permit sound competitive bidding. I do
not understand this. It seems to me there are other people who com=
pete with Blue Cross, are there not?
Mr. COLMAN. Surely.
Mr. PORTER. I do not see why the Government could not set upa
list of precise specifications, submit them to two or three in a particular
community, and say, "What is your bid ?" What is wrong with that?
Mr. COLMAN. There are two problems. First of all, the primary
competition is between the so-called. service benefit plans, the Blue
Cross and Blue Shield plans, and the plans as offered by the insurance
industry. Specifications that would apply to one would not be appro-
priate to apply to the other.
Mr. PORTER. But as between plans such as your own why cannot
there be competition?
Mr. COLMAN. By and large, our plans are only authorized to oper-
ate in a specific geographical area. The Blue Cross plan in New
Jersey does not compete with the one in New York.
Mr. PORTER. There are other organizations in Washington who com-
pete along these lines.
Mr. COLMAN. Again, any specifications that would be appropriate
for Blue Cross would be entirely inappropriate for group practice pre-
payment, and vice versa. Each of these patterns, each of these major
sources of health services is challenged by this bill to produce the best
program it can to lay on the line for Federal employees, and the em-.
ployee chooses. Ile, chooses between Blue Cross and the insurance
industry in every case. He chooses between either of those two and
group practice prepayment in the areas, where those programs are
available such as Washington, New York, most of the west coast, and
one or two other areas. And he chooses between any one of those three
and a program sponsored by his employee association, if he belongs
to an association that has a sponsored program. So the specifications
that we are going to have to meet are specifications drawn up by the
Civil Service Commission, the administering agency under this bill,
of the basis on which we are going to be permitted to do business with
the Government. And within those, we are going to have to do the
best job we can in competition with the other three possible sources
the employee may choose from.
Mr. PORTER. I do not quite see why competition at one stage should
rule it out at another. It us say that the employee wants group
practice, he wants that kind of plan. The Civil Service Commission
is looking for the best plan to give them the alternative. Why cannot
they at that point have various group practice people, including Blue
Cross, submit their bids with respect to specifications for services?
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 89
Mr. COLMAN. The reason is that here in Washington there is a
group health organization which is the group practice organization
herein Washington. There is no one that competes with that on its
terms. It isthe only one that provides a group practice prepayment
program in Washington that I know of, so there is no one that is going
to compete with that organization in Washington to participate under
this bill as a group practice prepayment program. There is no one
that is going to compete with Blue Cross in Washington to provide
service benefits for Government employees under this bill under the
service benefit provision. An employee belongs to only one employee
association, so the only program ho is going to have to choose from
among the employee association sponsored programs is the one spon-
sored by his association, so that within these patterns, within these
four segments that are in the bill, there is no competition.
Mr. PORTER. Now. you are raising the, more fearful spector of mo-
nopoly.
Mr. COLMAN. I can assure you, sir, there is no monopoly in this
field.
Mr. PORTER. If there is no monopoly in a particular field, why is
there not competition?
Mr. COLMAN. There is between the four different approaches.
Mr. PORTER. Why in the particular approach is there not competi-
tion with regard to group plans ?
Mr. COLMAN. Let us take the group practice prepayment programs.
By definition they involve the establishment of a group of physicians
who give a full range of medical service practicing as a group. The
problem of establishing such a group of physicians competent and
qualified to give a full range of service is a very difficult one and you
cannot just say-let us start another group practice prepayment plan
in Washington tomorrow. This is ,,L life's work. The, fact of the matter
is there is one. There is no competition.
Mr. JOHrANSEN. In the field of private insurance companies is not
the situation different than in these other three categories?
Mr. COLMAN. Yes.
Mr. JOIIANSEN. With respect to potential competition?
Mr. COLMAN. It certainly is.
Mr. JOIIANSEN. Because of the number and diversity of such private
companies, which situation is not matched in other fields?
Mr. COLMAN. That is right.
The CHAIRMAN. You do not think there can be any competitive bid-
ding?
Mr. COLMAN. Not in that sense. The, competition will be between
the proggrams.
The CHAIRMAN. I received a letter from Mr. John Bremsteller of
the Association Group Insurance Agency which I will read into the
record.
(The letter was read as follows:)
ASSOCIATION GROUP INSURANCE AGENCY,
Washington, D.C., July 27, 1959.
DEAR CHAIRMAN MURRAY : My name is John D. Bremsteller, 500 Walker Build-
ing, Washington, D.C. I am an independent insurance broker licensed under the
laws of the District of Columbia. My chief source of income is derived from
selling association health and accident coverage to Federal employees. If Senate
bill. 2162 before your committee is enacted, its effect will essentially wipe out
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90 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
my present source of livelihood. I therefore feel that I have a valid right to
testify before your forum.
My chief objection to the bill, as now written, is section 4, provisions 1, 2, 3,
and 4. This section will distribute the business to a select few insurance car-
riers; completely ignoring the fact that there are programs now existent in
Government agencies and associations which are not only lower in cost, but which
are more definitive and comprehensive in benefits than those standards set forth
in S. 2162. I have one such program now in effect in the Geological Survey of
the Interior Department which after 6 months of active solicitation has reached
a participation rate of better than 65 percent.
I believe that if you and the members of your committee are sincerely inter-
ested in adding employee fringe benefits, and at the same time holding Govern-
ment expenditures to a minimum, it is incumbent upon the committee to hear
testimony that purports to do both.
If it is to late to testify, I request that section 4, provisions 1, 2, 3, and 4
be amended to include those programs now available to Government agencies
and associations which meet the standards to be set down by the Civil Service
Commission.
I will be available at your convenience to testify on the contentions made in
this letter.
Very truly yours,
JOHN D. BREMSTELLER.
The CHAIRMAN. What do you have to say about his comments?
Mr. COLMAN. I would refer you to the report of the Comptroller
General of a few years ago, I forget its exact date. The problem that
is raised by this letter is that there are many sources through which
health benefits could be purchased. There are individual insurance
brokers such as he, the many individual insurance companies, each of
which might operate individually or together, the various Blue Cross
plans, and so forth.
When this plan was first considered administratively from the
standpoint of the Federal Government, the Comptroller General wrote
a report on the subject and said that if you are going to authorize
the granting of payroll deduction for the payment of these subscrip-
tion charges-I do not think he got into the question of employer
contribution-if, you are going to authorize payroll deductions, you
should do it by requiring each of the types of carriers to set up a
clearinghouse so that instead of the Federal Government having to
do business with hundreds of segments of the insurance industry or
with 78 Blue Cross plans, they would do business with one representa-
tive of 78 Blue Cross plans or one representative of the insurance
companies.
Then he said we can live with it and do it that way. To my mind,
it was a very practical and a very reasonable approach. I think he
suggested the setting up of four or five clearinghouses, as he called
them, so that the agencies of Government would not be deluged with
complexities and could have one source to go for each major branch
of this industry. I think, from Government's point of view, that
is the only type of approach you can take. It is the one contemplated
by this bill.
If that report has not been put in the record, I would urge you, sir,
that it be made part of the committee's deliberations. It is a very
helpful report, from Government's point of view, on the administra-
tive problems involved.
The CHAIRMAN. I am sure that will be presented by the Civil Service
Commission when their representatives testify.
Mr. JOHANSRN. Mr. Chairman.
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The CIAIRMAN. Mr. Johansen.
Mr. JOIIANSEN. Is it true, as alleged in the letter that the chairman
read and if true, is it unavoidable that the particular individual
and firm responsible for that letter would be frozen out of the business
and out of the field under this legislation?
Mr. COLMAN. Sir, I would suggest that that is a problem that is
primarily the problem of the commercial insurance industry and
should be addressed to their representatives. I have some opinions
on it.
Mr. JOIIANSEN. Is this particular inquirer a segment of the com-
mercial field? Mr. COLMAN. As far as I know, he is. He is a licensed insurance
broker. I would assume so.
Mr. JOHANSEN. His problem would be identical with that of all
other commercial brokers. Am I correct that within that area under
this bill there would be competition?
Mr. COLMAN. I do not know.
Mr. JOIIANSEN. What would be the procedures under this legisla-
tion, in. your judgment, with respect to what I understand is the one
category in which there is a multiplicity of competing firms? What
would be the procedure?
Mr. COLMAN. The administering agency . under this bill is au-
thorized to negotiate a contract providing indemnity benefits. How
it chooses to go at that with the insurance industry is not spelled out
in the bill. I think it has been everyone's presumption-and cer-
tainly mine-that the way in which it woul.d be done is that the in-
surance industry would select some representative or representatives
to work with it in the development of such an offering and that there
would be one primary carrier responsible to Government for that
offering, and that the insuring responsibility under it would be pro-
rated amonm the various segments of the insurance industry. on some
basis agreeale to them.
Mr. JOHANSEN. In other words, it would be a pool operation?
Mr. COLMAN. That is my presumption of the way it would work.
Mr. JOHANSEN. Would you feel anything would be contributed
to the strengthening of this legislation and to the avoidance of any-
thing undesirable if it were spelled out with respect to that category
of coverage? I mean spelled out within the law and not left to ad-
ministrative decision.
Mr. COL MAN. I think the Senate committee report discusses this in
terms of congressional intent with sufficient detail to safeguard the
interests of employees in Goverment. I cringe a little at the prob-
lems of trying to write specific legislation that would cover all the
problems related to contract negotiation. I am not a lawyer, but I
know a little bit about it.
Mr. JOHANSEN. I think we can profitably pursue this when the
Civil Service Commission representatives appear.
Mr. PORTER. Mr. Chairman.
The CHAIRMAN. Mr. Porter.
Mr. PORTER. I do not see Blue Cross or Blue Shield mentioned in
the bill. Are they mentioned by name'?
Mr. COLMAN. No, sir.
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92 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. PORTER.. On page 7, the No. 1 service benefit plan, on page 14
of the Senate report when it goes over the various proposals, it does
mention as, A, a national Blue Cross-Blue Shield offering. They are
using that in the general sense, I suppose, of the fact that Blue Cross
has come to mean hospital benefits and Blue Shield has come to mean
medical benefits.
Mr. COLMAN. I think it is a perfectly valid statement that under
the terms of the service benefit plan as outlined in H.R. 8210 the only
organization that could offer a service benefit plan of that scope are
Blue Cross and Blue Shield.
Mr. PORTER. I had understood that there were alternative organiza-
tions, especially in some communities, that could do approximately
the same thing in terms of hospital and medical benefits.
My question was directed at whether or not those groups were going
to be allowed an opportunity to participate on the basis of competitive
bidding
Mr. COLMAN. As far as I know, they are not. I do not know of any
other organization that could offer a national service benefit plan, a
single program for all Federal employees, other than Blue Cross and
Blue Shield.
Mr. PORTER. Under the terminology of the bill of one government-
wide service benefit plan, and so forth. What are the assurances,
aside from negotiating ability, that the price the Government would
pay would be the best price available?
Mr. COLMAN. There are a series of them, sir. The first is, as you
undoubtedly know, Blue Cross and Blue Shield plans are nonprofit
community service agencies, administered by responsible local citizens.
There is provision in the bill for continuing study and report. Any-
body participating in this program lives in a goldfish bowl.
The provisions of that section of the report are as sweeping as I
think they could possibly be made to be. The full record of the opera-
tion will be under constant scrutiny by the General Accounting
Office, Civil Service Commission, the Comptroller General, Bureau of
the Budget, and so forth. I cannot imagine anybody living under this
program without having to defend his operations continually.
Mr. CORBETT. Will the gentleman yield?
Mr. PORTER. Yes.
Mr. CORBETT. I think you left out one safeguard, namely, certain
members of this committee.
Mr. COLMAN. Yes, sir. I am sorry. That is a very important one.
I am glad you called that to my attention, sir.
The bill provides that these contracts are to be referred to the com-
mittees of both the Senate and House before they are entered into.
Mr. PORTER. Thank you very much.
The CHAIRMAN. Is it your contention that Blue Cross has a
monopoly in its particular field?
Mr. COLMAN. It is the only way in which service benefits of the type
described here are available on a national basis. There just is not
anybody else operating with that degree of coverage throughout the
entire country. There are programs in individual localities, usually
fairly small, but each plan is independent, serves its own locality, has
its own local responsibilities and roots.
The CHAIRMAN. How many Blue Cross associations do you have?
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 93
Mr. COLMAN. Seventy-eight. Some of them serve complete States,
some of them serve metropolitan areas.
The CHAIRMAN. Do they all have the one single.plan?
Mr. COLMAN. No.
The CHAIRMAN. Do they all have the same rate?
Mr. COLMAN. No; sir; their rates vary depending on local hospital
costs, benefits offered-benefits offered are different in different places,
and there are variations. One of our real problems under this is
going to be to meet the challenge of the bill in providing one uniform
program for all Federal employees.
The CHAIRMAN. This bill just provides for a maximum?
Mr. COLMAN. Yes.
The CHAIRMAN. And it cannot be exceeded under this bill?
Mr. COLMAN. That is right.
The CHAIRMAN. And if the various benefits outlined in this bill
cannot be paid for by this contribution, then the benefits would have
to be lessened; is that right?
Mr. COLMAN. That is right, sir. What we anticipate doing under
this bill is to provide a single uniform program for all Federal em-
ployees in which all the Blue Cross plans will join in offering to the
Federal employees in their area so that there will be a single rate and
single set of benefits offered to all Federal employees.
The CHAIRMAN. In all localities?
Mr. COLMAN. In all localities.
The CHAIRMAN. Hospital costs are much less in some communities
than in others ; is that right?
Mr. COLMAN. That is right.
The CHAIRMAN. You do not make any distinction about that?
Mr. COLMAN. No, sir. They are appreciably different in a single
State.
The CHAIRMAN. That is true. As a general rule in your smaller
localities the hospital costs are lower than in the metropolitan centers;
is that correct?
Mr. COLMAN. And for the same reason the people in the smaller
communities sometimes go to the larger communities to get their hos-
pital care when they have a serious Illness for which hospital care is
not available in the local communities. The minute you restrict this
you restrict the services. You cannot provide the services of a big
metropolitan medical center at the cost level of a small rural hospital.
The CHAIRMAN. You say you have 78 different Blue Cross organ-
izations?
Mr. COLMAN. Yes, sir.
The CHAIRMAN. They charge varying or different rates?
Mr. COLMAN. Yes, sir.
The CHAIRMAN. Do all those who belong to it get the same benefits?
Mr. COLMAN. No, sir. The benefits vary. They can be standard
and we propose to make them standard under this bill. The offer we
are going to make to Federal employees is going to be a standard offer.
Mr. REES. Mr. Chairman.
The CHAIRMAN. Mr. Rees.
Mr. REES. I am sorry I was not here when you began your testi-
mony, but I was appearing before another committee. As I under-
stand it, you helped write this bill, did you not?
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94 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. COLMAN. No, sir. I was consulted on it. As a matter of fact,
there were more people consulted on this bill
Mr. BEES. I am not criticizing you. I am just asking you.
Mr. COLMAN. No, sir. I was consulted on it, along with a lot of
other people.
The CHAIRMAN. You did assist in it very materially?
Mr. COLMAN. Certainly.
Mr. REES. That is what I am asking you. You did help write the
bill?
Mr. COLMAN. When you say "write the bill," I do not think there
is one sentence in it that I wrote in the way the bill is now worded.
The CHAIRMAN. I wish you would furnish the committee with the
various objections you had to S. 94, the original bill, and all. those
suggested changes incorporated later into the bill that passed the
Senate, S. 2162.
Mr. COLMAN. No, sir, they were not. S. 2162 is an entirely dif-
ferent bill from S. 94. It follows the same general pattern.
The CHAIRMAN. I said in the beginning you did not approve of the
original bill, S. 94.
Mr. COLMAN. That is right, sir.
The CHAIRMAN. You suggested various amendments and revisions
in it. I want you to furnish a copy of those suggested amendments or
revisions and let us know if they are all included in the bill that did
pass the Senate.
Mr. COLMAN. I will do that, sir. (See p. 133.)
May I try to make this crystal clear? We supported S. 94
in principle. We requested a series of relatively minor changes
but there was one major change. As S. 94 was originally written, it
provided for a separate offering of major medical benefits. We urged
that major medical benefits be included with and related to the basic
benefits of the four segments.
That was the major change we suggested in S. 94. That change
has been incorporated in this bill.
I think that is the major record of our participation in the transi-
tion between S. 94 and S. 2162.
Mr. JOHANSEN. Mr. Chairman.
The CHAIRMAN. Mr. Johansen.
Mr. JOHANSEN. Just to clarify the record a little bit on the allu-
sions to possible monopoly, there is nothing so far as you know, is
there, that would prevent a possible development in the course of
human events of a Green Cross and Green Shield program, and if in
the course of that development it reached a stage where, upon periodic
review of these programs-is there anything in the law that would
permit a request for and a right to consideration for the substitution
of the Green Cross and the Green Shield for Blue Cross and Blue
Shield at the discretion of the Civil Service Commission?
Mr. COLMAN. There is no specific language of that sort that refers
to Blue Cross and Blue Shield. The only reference is to the types of
programs offered.
Mr. JOHANSEN. So that if there were such a Green Cross and a
Green Shield program, it could become a competitor for consideration
at a subsequent time?
Mr. COLMAN. Right.
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HEALTH BENEFIT
The CHAIRMAN. Did S. 94 have certain deductible provisions, such as
a $50 deductible or a $100 deductible?
Mr. COLMAN. I do not think there was any permission of those in
S. 94. 1 think S. 94 was a straight service benefit program.
The CHAIRMAN. I noticed you gave to the Senate committee a
marked copy of S. 94 which contained all the suggested amendments
by you.
Mr. COLMAN. That is right.
The CHAIRMAN. Will you furnish this committee a copy of that?
Mr. COLMAN. That is what I proposed to do earlier. That is what
I meant when I said it was all in writing, and I will be glad to give it
to the committee. I do not have one with me.
The CIIAHIMAN. flow many of those suggested amendment were
included in the new bill?
Mr. COLMAN. It was not approached that way. S. 2162 was a new
start. As I pointed out, the one major amendment that we requested
was incorporated in the way in which S. 2162 was drafted. That is
the one about the major medical.
The CHAIRMAN. I see you estimate the cost of the bill at $313
million.
Mr. COLMAN. That was S. 94.
The CHAIRMAN. What do you estimate the cost of the bill as passed
by the Senate, S. 2162, to be?
Mr. COLMAN. May I proceed, sir? The next section speaks of cost.
Mr. PORTER. I have one more question.
Mr. Colman, I understand the salaries and allowances of employees
of Blue Cross and Blue Shield will be a matter of public record.
Mr. COLMAN. Yes, sir.
Mr. PORTER. Could you tell the committee what the highest salary is
paid in Blue Cross or Blue Shield?
Mr. COLMAN. I do not, know.
Mr. PORTER. Do you have any idea?
The CHAIRMAN. You are of the association, are you not? Can you
not tell me what the highest salary is paid by your association?
Mr. COLMAN. No, sir; we do not pay them. These are all local
plans.
The CHAIRMAN. Are you not familiar with all your local plans?
Mr. COLMAN. Yes, sir; but I did not ask all the people I work for
how much they make.
Mr. PORTER. It is a matter of record that you probably have.
Mr. COLMAN. We do not have it.
Mr. PORTER. Could you get it without too much trouble?
Mr. COLMAN. I think I could.
Mr. PORTER. I think it would be helpful when we are trying to ex-
plain the bill, I am more sympathetic to it, but we have to demon-
strate when we deal with one group that made a good record that some
of the profits are not going into excessive salaries. That information
would help the bill.
Mr. COLMAN. All right.
Mr. JOHANSEN. Would it be in order, Mr. Chairman, to have similar
salary figures on the other type of insurance coverage that would be
provided under this bill? I am agreeable to having the information
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regarding Blue Cross and Blue Shield, but I see no reason to single
them out for that information.
Mr. PORTER. I did not think this gentleman would have access to
that information.
The CHAIRMAN. I agree that all should give it.
Mr. COLMAN. We will abide by your wishes in that, sir.
(The information follows:)
The highest salary known to be paid currently to a Blue Cross plan employee
is $47,500 annually paid to the executive vice president of the largest plan, which
has 7 million members and a gross annual income of $127 million.
Of the reporting plans :,17 report a highest salary of $25,000 or more; 11 report
a highest salary between $15,000 and $25,000; 15 report a highest salary between
$10,000 and $15,000; and 25 report a highest salary below $10,000.
Mr. COLMAN. As the Senate committees' report on the bill points
out, in any bill of this type, one section is closely related to :many
other sections. For example, the Civil Service Commission sug-
gested, and we did not oppose, a language change in section 4 to
make clear that only one offer was intended under section 4(l) and
only one under section 4(2). Now we are advised that a rigid in-
terpretation of the present language might require service benefit
plans to have contracts with providers of health services in every
location where Government employees are stationed. Desirable as
this is, as an objective, a requirement to negotiate service contracts
with physicians and hospitals in every city throughout the world
where even one Federal employee is located, would make the offer
of a service benefit program under the bill impossible. We trust
you will see fit to make the relatively minor change necessary in. this
section. However, the incident illustrates the intimate and involved
relationship between the language of the bill and the details of
the operation of the program authorized by the bill. In its pres-
ent form the bill has had intensive scrutiny by representatives of
all major groups affected. Further revisions should have equally
careful scrutiny to insure a practical and effective program.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
To make an accurate estimate of the total cost of the program in
its first year, one must have the following information :
(a) a detailed statement of the benefits to be provided under
each of the four types of programs authorized, and
(b) a reasonably accurate estimate of the number, age, sex
residence, and marital status of the Federal employees who will
enroll in each of the four programs authorized.
Mr. PORTER. The number of children makes no difference?
Mr. COLMAN. If you want to expand the notion of marital status,
I think of it as marital and family status, and include that under
that general heading. However, if you just had marital status, I
could do no better than I can right now because we do not know
the marital status of the employees of the Federal establishment.
Mr. PORTER. I understood part of this does not take into account
the number of children, the payments made.
Mr. COLMAN. That is right.
Mr. PORTER. I wondered how that is figured actuarially.
Mr. COLMAN. On the average, the persons without children are in
the older age groups and in that age the adults use more hospital care
than the younger adults with children. It about washes itself out.
As a matter of fact, I know of one group of fairly substantial size
where the two-person family uses more hospital care than the families
with children on the average. It is very largely a question of differ-
ential age.
The CHAIRMAN. I had a telephone inquiry yesterday from a lady
who is a Federal employee. She says that this bill is discriminatory
in that it charges married women with dependents more than mar-
ried men with dependents. The woman whose husbands are dependent
on them will be the same but the women whose husbands are work-
ing would have to pay more than men with families would have to
pay. How about that?
Mr. COLMAN. This is a policy decision of what you want to do as an
employer.
The CFIATRMAN. Is it true the married woman with children has to
pay more than the husband who is working?
Mr. COLMAN. A married female employee of the Federal Govern-
ment under this bill who has a nondependent husband is not given
as much of a Government contribution, employer contribution, toward
the cost of her program as the married male employee who has pre-
sumably a dependent wife.
The CHAIRMAN. Is that fair or just?
Mr. COLMAN. The rationale behind it, as I heard it discussed
Mr.CORBETT. What was that?
Mr. COLMAN. The reasoning behind it, as I heard it discussed, was
that unless you did that, the Government would be assuming some
portion of the responsibility for the costs of children of a man who
did not work for the Government and should be held responsible for
the expenses of bringing up his own children. So that the concern
was with the responsibility of the husband of such a woman and not
with the woman herself.
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98 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. CORBETT. Right at that point, Mr. Chairman, if the husband
were a dependent, her costs would be identical with the male?
Mr. COLMAN. That is right.
Mr. COBRETT. In other words, what you are, trying to get at, as I
understand it, the difference in these rates, it is the fact that the non-
dependent husband is working and has a degree of responsibility for
providing for this care which should not be assumed by the Federal
Mr. COLMAN. Exactly, sir. That is the reasoning behind it.
Mr. JOIIANSEN. That means then we men do not have exactly equal
Government.
rights with the women.
Mr. COLMAN. That is right.
Mr. CORBETT. You can get them by staying home and doing the
dishes.
Mr. JOHANSEN. I am not complaining.
Mr. COLMAN. That does not come as any news to you does it, sir?
The detailed statement of benefits to be provided wilif grow out of
the negotiations with the Civil Service Commission, as authorized by
the bill. The number of employees who will enroll in each of the four
programs and their characteristics cannot be known until an enroll-
ment offer has been made to them and they have made their informed
choice. Hence, at the outset, one can only rely upon the dollar maxi-
mums stated in the bill and multiply these by crude estimates of the
number of Federal employees who may participate. For the first year
the cost of the program to Government should not be higher than the
estimate of $145,300,000 given on page 17 of the Senate committee's
report and could be substantially lower. So long as participation in
the program is not compulsory for all employees, the dollar maxi=
mums in the bill provide the only starting point for cost estimates.
I can state, however, that since the bill was reported by the Senate
subcommittee, we have analyzed, as carefully as available data permit,
what benefits can be provided within the maximums stated. It is our
judgment that a program consistent with both the letter and spirit of
the level of benefits outlined in the bill can be offered to Federal em-
ployees within the, maximums stated in the bill.
Mr. CORBETT. ay I interrupt? This has been a matter of much
speculation. Would the gentleman guess that because of the large
number participating in this program that the benefits could be sub-
stantially higher than Blue Cross and Blue Shield offer to private
individuals?
Mr. COLMAN. Yes.
Mr. CORBETT. That is very important.
Mr. COLMAN. I would qualify that, however, by saying there are
other large groups of employees to whom we offer benefits that will be
somewhat comparable to these.
Mr. CORBETT. I carefully in my question avoided the group and said
individuals.
Mr. COLMAN. That is right.
Conversely, for any group of Federal employees distributed geo-
graphically, as are all Federal employees, amounts not appreciably
below the maximums stated in the bill will be necssary to provide the
benefits outlined in the bill. In other words, we believe there is a :realis-
tic relationship between the benefits described in the bill and the maxi-
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HEALTH BENEFITS FOR FEDERAL EMPLOYEE
mums stated. Material changes in either would require a change in the
other.
I would like to refer you to table IV, which is the best I could do in
meeting one of your requests in your letter. Any attempt to put a dol-
lar cost on a statement of benefits as general as those in the bill would
involve making assumptions that I think are unwarranted. To try to
give the committee some basis for understanding of the relative costs
of these segments of the bill, I did the best analysis I could of the pro-
portionate relationship between the four paragraphs in section 5 on
hospital benefits, surgical benefits, in-hospital medical, ambulatory
patient benefits, supplemental benefits, and obstetrical benefits, and
that proportionate cost is outlined on page 14.
These proportions can change a little bit as the specifications for
these sections are refined, but this is an order of magnitude figure that
will give you, I hope, the kind of information that you need to judge
these as to relative importance.
The chairman has asked that we comment specifically on subpara-
graph (D) of section 5 (a) (1) of the bill. We would expect that under
this paragraph benefits would be provided for minor surgery per-
formed in a hospital outpatient department or in a physician's office
and for services rendered in the case of accidental injuries. We would
not anticipate that benefits could be provided, within the cost maxi-
mums stated in the bill, for routine home and office visits of physicians.
I described here the limits of what we would propose to do in that
section, where you would go within those limits to fill it out or exclude
it would depend entirely on what you did with the other segments of
the benefits.
FUTURE COSTS
For the reasons previously stated, future cost projections cannot be
conclusively supported. The record of America's expanding economy
and the improvement and expansion of health services over the last 20
years suggests a gradual rise in the dollar cost of these benefits. It is
doubtful if this rise will be at an even rate. It is almost certain that it
will not be.
The CHAIRMAN. I understand you just previously referred to certain
surgery permitted to be paid for under this bill. This bill would cover
oral surgical services performed by a dentist, would it not?
Mr. COLMAN. It could.
The CHAIRMAN. But would it?
Mr. COLMAN. It is not spelled out in detail, but presumably it
would.
The CHAIRMAN. The bill does not cover ordinary dental service
such as removal or filling of tooth?
Mr. COLMAN. That is right.
The CHAIRMAN. Would this oral surgery have to be performed in a
hos ital ?
Mr. COLMAN. Probably. The usual practice in programs of this
sort is to include oral surgery performed in a hospital.
The CHAIRMAN. All right.
Mr..COLMAN. The rapid rise in the past 5 years has already set in
motion forces tending to limit future cost increase. One may rea-
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100 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
sohably expect future increases to bear a constant proportionate
relationship to salaries and wages.
Mr. PORTER. Your own figures on increased patient days of care and
hospital costs all seem to be going up regularly and substantially.
Mr. COLMAN. That is right.
Mr. PORTER. I appreciate this might be a little contradictory to the
linear trend of those figures. You are going to have more patients
with more days of care and the costs of hospital treatment are going
to go up.
Mr. COLMAN. Yes, sir.
Mr. PORTER. It seems to me that will mean greater expense of the
program-ever greater.
Mr. COLMAN. I am sure the dollar cost of the program will rise
over a period of time. It always has.
The CHAIRMAN. For what length of time would you agree to a
contract? Would you agree to a contract for 3 years at the same rate?
Mr. COLMAN. I think it would depend entirely on whether you
talked of the first 3 years or the second 3 years. I think that is a
question that ought to be seriously considered as you get into the pro-
gram. To begin with, there are so many unknowns in terms of the
number of Federal employees who are going to participate, 'what
kind of people they are; I think both from the standpoint of the car-
riers under this program and from the standpoint of Government you
will want to take a good, careful look at the end of the first year's
contract. I would urge the first year's contract to be a 1-year contract.
Mr. CORBETT. Granted that overall there will be an unsteady in-
crease, is it not also true that there are factors working the other way
to decrease the costs?
Mr. COLMAN. Yes, sir.
Mr. 'CORBETT. One you mentioned is that the period of hospitaliza-
tion is going down pretty rapidly.
Mr. COLMAN. Steadily down.
Mr. CORBETT. Second, with all your so-called miracle drugs--and
they will probably continue-as they are developed their cost tends to
to go down.
Mr. COLMAN. That is right.
Mr. CORBETT. Thirdly, if there are other discoveries in medicine,
particularly as regards heart disease and regards cancer, you could
look for factors reducing the total cost.
Mr. COLMAN. That is right.
Mr. CoRBETT. It is not all just an uphill climb.
Mr. COLMAN. That is right.
Mr. PORTER. Did I understand the gentleman from Pennsylvania
to say the period of hospitalization was decreasing?
Mr. COLMAN. The average stay per patient.
Mr. CORBETT. Yes.
Mr. PORTER. Days of care per person on your table, that figure
seems to have gone up.
Mr. COLMAN. That is per person, per year.
Mr. CORBETT. That is a total thing. There are more individuals
going in and there are more days of hospitalization totally at any
hospital, but the length of stay of any person is going down.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 101
Mr. PORTER. The cost is the number of people in the hospital in any
1 year.
Mr. CORBETT. If they are covered by this program. I am not chal-
lenging the notion at all that in the future, as we go on, either the
dollar cost will go up or the services have to be reduced. I do not
believe we should lose sight of the fact that there are factors that are
tending to keep the costs reasonably level for the carriers of the pro-
gram.
Mr. PORTER. Are you familiar with the figures in the Senate report
about the cost of the program?
Mr. COLMAN. Yes, sir.
Mr. PORTER. We had some testimony here that that cost is probably
the outside cost or stated very generously. Is that your opinion also?
Mr. COLMAN. The only variation there could be in those cost figures
under the bill is either you could have more married people, a higher
proportion of married people joining than is assumed in the com-
putation of those costs, or you could have a higher proportion of Fed-
eral employees joining. I do not think either of those eventualities
is likely.
My assumption is, my personal opinion is that the first year costs
will be lower than those figures stated in the Senate report.
Mr. PORTER. Would you say substantially or would you be in a
position to say?
Mr. COLMAN. This is a wild guess. How many of the 2,300,000
Federal employees are going to Join. I do not know.
Mr. PORTER. That is your business. I thought that is why you
might know.
Mr. COLMAN. I think the costs will be lower than those stated.
Mr. PORTER. 10 percent, 5 percent, 20 percent?
Mr. COLMAN. I would be beyond my competence if I gave you a
stated figure.
The CHAIRMAN. How many Federal employees belong to your
association?
Mr. COLMAN. About a million. With the members of their families,
it is about 3 million people.
The CHAIRMAN. You still estimate the cost of this legislation to be
$313 million?
Mr. COLMAN. No. The $304 million, as it is revised, is the figure;
$313 million was our guess for S. 94.
The CHAIRMAN. The Civil Service Commission, in its testimony be-
fore the Senate committee, estimated the cost to be $405 million, I
believe.
Mr. COLMAN. I think they revised that, sir. I think there was a
different assumption on that when they made that estimate. I think
you will find a revision of that in the later testimony.
The CHAIRMAN. All right.
Mr. CUNNINGHAM. Mr. Chairman.
The CHAIRMAN. Mr. Cunningham.
Mr. CUNNINGHAM. On Blue Cross and Blue Shield you still oper-
ate nationwide under the group plan, or do I recall some advertising
that indicates an individual can buy Blue Cross or Blue Shield now?
Mr. COLMAN. In most States, yes.
Mr. REES. What is the difference between the States in'that regard?
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102 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. COLMAN. These are all independent organizations. Their de-
cision as to how they operate their program in their own State
within the general standards of approval to qualify for the use of the
Blue Cross-
The CHAIRMAN. You do not have uniform plans and uniform costs
for all your 78 associations?
Mr. COLMAN. No, sir. Uniform rate, no. Some of the original
State enabling legislation authorizing the development of these ;plans
required them to enroll only groups of employees and did not permit
them to enroll individuals. Most of those have now been liberalized
and most Blue Cross plans do enroll individuals, but their initial
start was groups of employees.
Mr. CUNNINGHAM. There is nothing in here, then-if an employee
leaves a service, there are some places he would then be without this
protection ; is that right?
Mr. COLMAN. No. The bill requires that-I misunderstood your
question-from the very inception Blue Cross plans have encouraged
persons who left their place of employment to continue on as indi-
viduals. I thought you were talking about the enrollment of new
individual subscribers rather than groups.
The bill requires, sir, that any carrier participating under this pro-
gram must permit a person leaving the employ of the Federal Govern-
ment to continue under the program as an individual. Unless you are
willing to do that, you cannot qualify under this bill.
Mr. JOHANSEN. He can do that regardless of the State in which
he resides?
Mr. COLMAN. That is right. Any carrier who participates under
this bill has to do that. The bill requires it.
Mr. CUNNINGHAM. If he left the service and did not become em-
ployed by somebody who had a similar plan but wanted to carry it
on his own, he is permitted to do so?
Mr. COLMAN. Yes, sir.
Mr. CUNNINGHAM. His rates would be adjusted, I presume, up=
ward because you do make a saving in a group arrangement which
would not be true of the individual?
Mr. COLMAN. That is right; his rate would be presumably the same
as all others who left the employ in that locality.
Mr. CUNNINGHAM. But he can do that?
Mr. COLMAN. Not only that, but the carrier is required to offer the
opportunity.
The CHAIRMAN. Does he have any maximum age limit?
Mr. COLMAN. Again the bill requires that you cannot impose a
limitation.
The CHAIRMAN. I mean the Blue Cross plan now.
Mr. COLMAN. Many of them do not. For new subscribers, a few
do. We have never canceled subscribers because of age.
The CHAIRMAN. Suppose an employee who is 60 or 62 years old
wants to join. Can he loin under Blue Cross in all different plans?
Mr. COLMAN. Yes. And may continue on through life, and wq
now have
The CHAIRMAN. Is he charged the same rate as the young employee
of 25?
Mr. COLMAN. After he leaves his place of employment he is charged
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 103
the same rate as all other people who have left their place of employ-
ment, regardless of age. There is no special age rating.
The. CHAIRMAN. I notice in your testimony before the Senate you
said, I believe, that persons over 65 used hospitals three times as much
as those under 65.
Mr. COLMAN. That is right.
The CHAIRMAN. Where did you get those figures?
Mr. COLMAN. ]From our own records.
The CHAIRMAN. A survey you made?
Mr. COLMAN. Yes.
Mr. BEES. Do I understand that persons more than 65 years of age
presently can join Blue Cross?
Mr. COLMAN. In some States. As a matter of fact, especially in
Kansas. I think Kansas put on a special program for people over 65.
Mr..BEEs. I hope you,are right.
Mr. COLMAN. I think so. Yes, that is correct.
Mr. CORBETT. I think the question might not have been entirely
answered. Will not any Federal employee regardless of age be able
to participate in this program without any differential in cost?
Mr. COLMAN. Yes, sir.
Mr. BEES. Irrespective of what State he lives in?
Mr. COLMAN. Right. That is a requirement of the bill.
The CHAIRMAN. If he has reached the compulsory age, of retire-
ment of 70, he is charged the same rate as an employee 21 years of age?
Mr. COLMAN. Yes, sir.
The CHAIRMAN. He gets the 'benefits after retirement at the same
rate?
Mr. COLMAN. Yes, sir; 'as long as he meets the de 'inition in the bill
of a Federal annuitant. Those pare specifically defined in the bill.
The CHAIRMAN. It would be very attractive to those employees be-
tween 65 and 70, it seems to mee to enroll.
Mr. COLMAN. I think it will. May I just say the next section of
the testimony deals with them.
There is one aspect of the future costs of the program of which the
committee should be aware. Government's contritution toward the
cost of the program for active employees will be, in ,a sense, buried
in the appropriations Congress makes for the payroll costs of the
employing agencies. It does not require a separate congressional
appropriation. However, Government's share of the costs for future
annuitants will require a separate appropriation that will grow as the
number of eligible annuitants grows. Precise data as to the number
of annuitants who are, eligible under the terms of the bill, and the
rate at which this number will grow each year, are not available.
However, the number is not insignificant and the Government's share
of their costs may increase as much as $2 million per year until a stable
annuitant population is covered by the program.
There are many compelling reasons for encouraging retirees to con-
tinue in the program. If this is done, these costs will have to be met
in some mariner. The cost of the Government's share of the program
is not reduced by prefunding these costs for annuitants. It is merely
transferred to the payroll budgets of the employing agencies where it
does not stand out as sharply as it does when a special appropriation is
required each year for this purpose.
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104 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
So that this appropriation that will have tobe made for the cost of
annuitants to meet the Government's share of their participation in
this program is not an added cost, it simply is handled as a special
appropriation instead of loading it over the rate paid by active em-
ployees through the employing agency. It does not stand out sepa-
rately if you did it the other way.
Mr. JOHANSEN. What is meant by reaching a stable annuitant popu-
lation, and how soon could it be presumed that would occur?
Mr. COLMAN. The direct answer to your question of how soon it
would occur would have to be the result of a careful actuarial study
of the average distribution of the annuitant population that qualified
under the terms of this bill. So far as I have been able to determine,
there are no age data on annuitants that would permit that kind of
analysis because the definition of annuitants as included in here limits
it to people who have had at least 1.2 years of service. That kind of
age data has never been required before and it is not yet available. I
think that is a question that had best be referred to. the people who are
concerned with the retirement program.
Mr. JOHANSEN. I confess that I am not sure I understand the tech-
nical term of stable annuitant population. The point I am groping
for is whether it is going to be a matter of 5 years or 10 years or an
indefinite period of a $2 million per year increase.
Mr. COLMAN. Technically, the term "stable population" means
when you arrive at a population where the number of people dying
is about the same as the ones coining in, and that has been true long
enough so that you have a level age distribution within the group.
That is a complex actuarial computation, and you need a lot of data to
start with to do it, which at the moment is not available to do, it, at
least to my knowledge.
Mr. JOIIANSEN. Is there any basis for an educated or uneducated
guess as to how many years this substantial amount of increase would
be recurring?
Mr. COLMAN. I should think it would begin to level off in about 10
years, but this is a horseback guess.
Another thing that will affect it-this is another big unknown--is
the size of the Federal establishment 10 years hence. It is related to
the number of new annuitants coming in.
Mr. JOHANSEN. I hope some day in the Federal Government-I
wish Judge Davis were here to comment on it-we might reach a
stable population in terms of the number of Federal employees related
to the population of the country, or to some figure. I recognize it is
not going to be an absolutely stable figure. We do not seem to be
headed in the direction of any modest reduction in the population of
Federal employees.
Mr. REEs. Mr. Chairman.
The CHAIRMAN. Mr. Rees?
Mr. Rims. On page 8, in the second paragraph, you say:
There are many compelling reasons for encouraging retirees to continue in
the program.
Would you like to tell us what those reasons are?
Mr. COLMAN. I think one of the most important reasons is involved
in a hearing that has been going on in another section of the House of
Representatives on the Forand bill. Here you have a wide public in-
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
terest in developing a public program for the hospital care of the
aged that would impose major responsibilities on tax funds for this
group. Unless employers and employees are encouraged to pick up
this load themselves, the health needs of the aged are going to be-
come so acute that this demand for a public program will grow.
That is one compelling reason, in my opinion.
Mr. REFS. Which will create a greater cost to the Government?
Mr. COLMAN. I think it would be a substantially greater cost.
Mr. CoRBETT. Will the gentleman yield?
Mr. BEES. Yes.
Mr. CoRBETr. I believe another reason is that certainly the Gov-
ernment as the largest employer in the world, I do not believe it wants
to have a situation develop where any large number of persons reach-
ing an advanced age become charity cases. This is all contrary to
what we are trying to do, to produce a better life in America. It is
one of the things that appeals to me that with our retirement prograin
people who have had long service with the Government certainly
could out of their retirement benefits provide this protection for
themselves.
Mr. REES. Let us be realistic. It does mean a greater cost to the
Government. If they stay in, the Government cost is greater. I was
asking the gentleman if that is correct.
Mr. COLMAN. Yes, that is correct. If you are going to include
annuitants either on the basis proposed in the bill, on a pay-as-you-go
basis, or a prefunding basis or any other basis, there will be a cost to
Government for their share.
Mr. BEES. You are saying it is another way of taking care of these
people.
Mr. COLMAN. You are encouraging them to take care of themselves.
Mr. JOIIANSEN. Mr. Chairman.
The CIIAIRMAN. Mr. Johansen?
Mr. JOIIANSEN. There has been some question raised, I think in
these hearings, as I am sure there was in the Senate hearings, as to
the ability of the retirees to carry their share of the cost out of their
retirement benefits.
Do you have any experience with respect to your covered Federal
employees that would shed any light on the extent to which and
the ability with which annuitants are currently continuing and meet-
ing the cost of their own group program?
Mr. COLMAN. My immediate answer to you, sir, is that in Blue Cross
we now have, of our 53 million, about 31/2 million persons enrolled
who are over 65 years of age. It is the largest single segment of older
people who are covered for prepayment health services.
The reason we think this is true is because we have encouraged
them to do it at the same rate as the rest of the population and spread
their added cost over the rest of the population. It has met, I think,
with a wholesome response.
In specific answer to your question on Government employees, I
would like to consult a moment with Mr. Rawlings from the District
of Columbia, who may have some experience I do not have.
Mr. Rawlings informs me that here in Washington they have about
35,000 Federal employees who had previously been enrolled in the
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106 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Blue Cross program, retired from Government, and are now in the
program continuing to pay the full way themselves.
Mr. JOHANSEN. Is there any way percentaaewise to relate that to
the total number of retirees? In other words, to relate that to the
dropout. What I am trying to get at is whether there is experience
which encourages the confidence that with a 50-50 sharing of the
cost by the Government there will be a substantially larger proportion
of retirees who continue under the program.
Mr. COLMAN. Sir, I do not know of any specific experience in terms
of historical record. The logic of the situation is that the retired
person can go nowhere to get coverage of this sort at this kind of
rate. It just is not available.
Mr. JOHANSEN. Certainly he is going to do it if possible.
Mr. COLMAN. It is a good buy. If he does not buy it, he has the
problem of providing for the cost of that care or else becoming an
M object of charity, one of the two. So that everything we know about
in icates there is a real interest on the part of retirees in this kind
of offer.
Mr. REFS. If the Government makes a contribution as provided
under this bill, of course, he would be encouraged to carry on.
Mr. COLMAN. That is right.
The CHAIRMAN. I just received a letter from J. Edgar Hower,
Director of the Federal Bureau of Investigation, which reads as'
follows:
:
Hon. Tom MURRAY,
House of Representatives,
Washington, D.C.
MY DEAR CONGRESSMAN : We have reviewed the Federal Employee Health
Benefit Act of 1959, S. 2162, with considerable interest inasmuch as we have
at the FBI an employee organization identified as the Special Agents l1otual
Benefit Association (SAMBA). SAMBA is an association for all FBI emplcyees,
national in scope, and organized and operated as a mutual benefit association to
provide hospitalization and medical insurance for FBI personnel, regardless of
their position or where they are assigned.
SAMBA provides a comprehensive hospital, surgical, and major medical
expense policy underwritten by the Prudential Insurance Co. of America. The
association has enjoyed a history of improved benefits each year since it was
organized in 1948. There are approximately 9,200 members, and including de-
pendents about 28,000 people come under the protection provided through SAMBA.
During the last fiscal year claims paid totaled approximately $830,000.
In reviewing the Federal Employee Health Benefit Act of 1959, S. 21?2, it
appears that SAMBA satisfies the language therein as an employee organization
except for the restrictive definition of such an organization as a "bona fide labor
organization" in section 2(h). I am taking the liberty to bring this to your
attention with the hope that if amendments are made in the bill it may be
possible to include such wording as would make it possible for SAMBA to
qualify as an employee organization under the bill.
With best wishes and kind regards,
Sincerely yours,
J. EDGAR HOOVER.
If his organization is not included in this section, it certainly should
be, it seems to me.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 107
Mr. COLMAN. That is primarily an administrative problem. I
would personally take no position on it. I would caution you, how-
ever, that if you make enough exceptions for special programs of that
sort in addition to the programs authorized by the bill, each such
exception compounds the problem of the administering agency. My
initial reaction would be that ways be explored by which that program
could be included under the appropriate clearinghouse arrangement
that is authorized by the bill. I think that might be possible.
The CHAIRMAN. This organization certainly should be included in
any bill reported out by this committee. That is my opinion. You
may proceed.
COVERAGE OF PRESENT ANNUITANTS
Mr. COLMAN. As stated previously, not enough is know about the
age, sex, residence, eligibility, and marital status of present annui-
tants to permit calculations of the cost of a program for present
annuitants. However, from what is known, it would seem impractical
to try to include these persons under the provisions of the present bill.
They have special health service needs which should be recognized in
the development of the benefit pattern. They have not made contribu-
tions toward the program during their working lifetime, and in
several other respects their problem is different from that of the active
employees and future annuitants.
Inclusion of past retirees in a program with employer contributions
is the exception rather than the rule in private industry programs.
Such large programs as those for coal and steel workers did not
include past retirees. The few programs which have included them
usually do so for very low or materially reduced benefits. It should
be noted, however, that since inception Blue Cross has encouraged
retirees to continue their coverage as individuals and we now serve
some 3,500,000 persons over 65 years of age thus making a major
contribution to the health needs of the Nations retirees.
. Accordingly, we concure in the recommendation that the develop-
ment of a program for this group be the subject of a separate study.
(a) We urge the passage of H.R. 8210 in substantially its present
form. We have, offered one suggestion of change which we hope you
will consider.
(b) We believe its provisions will result in great benefit to Federal
employees, to the Government, and to the health services available for
all citizens.
(o) We stand ready to assist the committee and its staff to the full
extent of our capabilities.
(The tables referred to in Mr. Colman's statement follows:)
43062-59-8
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108 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
TABLE I. Blue Cross enrollment-United States, as of Dec. 81,1958
Total en-
rollment,
Dec. 31, 1958
Estimated
civilian
population,
July 1, 1958
Per ent of
State popu-
lation en-
rolled in
Blue Cross
Rhode Island-------------------------------------------------
618, 585
841,000
73. 55
District of Columbia------------------------------------------
783,115
11,085,000
72.18
Delaware -----------------------------------------------------
271,213
446, 000
60.81
Now York ----------------------------------------------------
9,423,946
16, 184, 000
58.23
Connecticut-------------------------------------------------
1,200,000
2, 304,000
52.08
Ohio----------------------------------------------------------
4,741,263
9,323,000
50.86
Pennsylvania-------------------------------------------------
5,556,012
11, 081, 000
50.14
Massachusetts------------------------------------------------
2,318,215
4,813,000
48.17
Micbigan----------------------------------------------------
3,678,291
7,850,000
46.86
New Hampshire-Vermont____________________________________
391, 446
917, 000
41.34
New Jersey---------------------------------------------------
2,204,969
5,697,000
38.70
Maine -
353,457
935, C00
37.80
Colorado------------------------------------------------------
616, 715
1,677,000
36.77
Maryland--------------------------------------------------
1,018,265
2, 88', 000
35. 12
Minnesota----------------------------------------------------
1,143, 467
3,370,0'0
33.93
Indiana------------------------------------------------------
1, 426, 215
4,574,000
31.18
Missouri------------------------------------------------------
1,283,574
4,241,000
30.27
Kansas-------------------------------------------------------
627, 464
2,079,000
30 18
North Dakota ------------------------------------------------
188, 514
049, 000
29.05
Illinois--------------------------------------------------------
2,754,411
9,839,000
27. 99
Tennessee----------------------------------------------------
924, 350
3,451,000
26.78
Iowa----------------------------------------------------------
718, 542
2,820,010
25.48
Wisconsin----------------------------------------------------
932, 383
3,932,000
23.71
Kentucky-----------------------------------------------------
710, 7e5
3,034,000
23.43
Alabama.----------------------------------------------------
730,559
3,185, 010
22 94
Oklahoma----------------------------------------------------
493, 469
2,250,000
21.03
WYoming-------- -------------------------------------------
68,412
316, 000
21.65
Virginia-----------------------------------------------------
717,857
2 3, 501, 000
20.50
Florida---------------------------------------------------.--
842, 290
4,348,000
10.37
Utah ---------------------------------------------------------
166,134
861, 000
19.30
Arizona---- --------------------------------------------------
206,780
1,118, 000
18.50
North Carolina --------_ _--_ ____--_-_-_
807, 255
4,471,000
18.06
Nebraska------------------------------------------------- --
234, 081
1,444,000
16. 21
West Virginia ------------------------------------------------
203,610
1,968,000
14. 92
Mississippi---------------------------------------------------
314, 656
2,169,000
14. 51
Arkansas -----------------------------------------------------
227, 647
1,749,000
13.02
Texas--------------------------------------------------------
1,157, 926
9, 206, 000
12.58
California-----------------------------------------------------
1,661,328
14, 025,000
11. 85
Louisiana--------------------------------------- ---------------
358, 722
3,077,000
11. 66
Cleorgia------------------------------------------------------.
425, 046
3,749,000
11. 34
Oregon .-----------------------------------------------------
174, 769
1,768,000
9.89
South Carolina-----------------------------------------------
211,788
2, 346, 000
9.03
New Mexico --------------------------------------------------
68, 851
816, 000
8.44
Alaska--------------------------------------------------------
14,069
167, 000
8.42
Washington------------------------------------------------.
196,038
2,706,000
7.24
Idaho---------------------------------------------------------
43, 437
658,000
6.60
South Dakota------------------------------------------------
40,588
692,000
6.87
Montana-----------------------------------------------------
10,912
682,000
1.60
Nevada-------------------------------------------------------
(1)
258,000
--------------
1 Includes 281 residents of Virginia served by the Washington, D.C., plan.
2 Represents Virginia population less 281,000 served by the Washington, D.C., plan.
8 Blue Cross enrollment shown under adjacent States.
TABLE II.-Hospital admissions and days of care per person' per year in United
States voluntary short term general and other special hospitals, 1950-.57
Admis-
Annual
Days
Annual
Admis-
Annual
Days
Annual
sions
rate of
of care
rate of
sions
rate of
of care
rate of
Year
per
increase
per
increase
Year
per
increase
per
increase
person
(per
person
(per
person
(per
person
(per
cent)
cent)
cent)
cent)
1950_____________
0.077
_
0.600
--------
1955 -------------
0.085
1.2
0.639
2.1
1951_____________
.079
2.6
.621
3.5
1111 -------------
.089
4.7
.662
3.6
1952_____________
.082
3.8
.626
.8
1957 -------------
.091
2.2
.676
2.1
1953_____________
.083
1.2
.632
1.0
7-year period----
________
2.4
--------
1.7
1954-------------
.084
1.2
.626
.9
I In U.B. civilian population.
Source: Annual Aug. 1 guide issues of Hospitals, and Statistical Abstracts, 1958.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 109
TABLE III.-Hospital costs per patient day in U.S. voluntary short-term general
and other special hospitals, 1950-57
Hospital
Annual
Hospital
Annual
Year
costs per
rate of
Year
costs per
rate of
patient
increase
patient
increase
day
(percent)
day
(percent)
1950---------------------
- $16.89
-------------
1955----------------------
$24.15
6.0
1951______________________
18.01
6.6
1956______________________
24.99
3.5
1952______________________
19.55
8.6
1957__________
26.81
7.3
1953----------------------
21.09
7.9
7-Year period_
------------
6.8
1954 ----------------------
22.78
8.0
Source: Annual Aug. 1 guide issues of Hospitals.
TABLE IV
Elements of cost of benefits as outlined in H.P. 8210, section 5(a) (1)
Percent
(A)
Hospital benefits (excluding maternity) ---------------------------
49.8
(B)
Surgical benefits -------------------------------------------------
18. 1
(C)
In-hospital medical benefits'-------------------------------------
7.2
(D)
Ambulatory patient benefits--------------------------------------
3.1
(E)
Supplemental benefits--------------------------------------------
15.1
(F)
Obstetrical benefits for normal deliveries---------------------------
6. 7
Total----------------------------------------------------------
100.0
1 Includes related professional services such as: anesthesiology, pathology, radiation
therapy, etc.
The CHAIRMAN. I will insert in the record at this point a letter
presented by Representative Donald J. Irwin, of Connecticut, from
the National Association of Post Office and Postal Transportation
Service Mail Handlers, Watchmen, and Messengers, Local No. 85,
Bridgeport, Conn., and also a letter presented by Representative
Charles M. Teague, of California, from the California Association of
ASC County Office Employees.
(The letters referred to follow:)
LOCAL No. 85, NATIONAL ASSOCIATION OF POST OFFICE AND
POSTAL TRANSPORTATION SERVICE MAIL HANDLERS,
Hon. DONALD J. IRWIN,
House Post Office and Civil Service Committee,
House Office Building, Washington, D.C.
DEAR CONGRESSMAN IRwIN : We have received information stating that the
House Post Office and Civil Service Committee will begin hearings on Tuesday,
July 21, 1959, on the Federal employees health and hospitalization program.
The Senate has already approved, by a vote of 81 for and 4 against, a hospitaliza-
tion bill (without amendments) which provides that the employee shall pay
one-half and the Government one-half of the costs involved in the proposed
hospitalization plan.
We, naturally, are very pleased and heartened by the action of the House
committee, of which you are a member, in scheduling hearings on this legisla-
tion. As you know from our recent correspondence to you, we are favoring and
urging your support of H.R. 7712.
We are hopeful that the committee will approve the provisions of ILR. 7712
and that the House will follow the Senate in voting overwhelmingly in favor
of this very important and essential legislation.
The postal employees who have signed this letter to you are urging your sup-
port and action in favor of II.R. 7712 when the committee begins hearings. We
cannot emphasize too strongly our interest in this proposed legislation. All
postal and Federal employees are vitally concerned with the possibilities of a
health and hospitalization program to be enacted this year. We know of the
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110 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
needs for enactment of this worthy legislation. We are certain that you. are
familiar and sympathetic to our requests for support and action pertaining to
this very beneficial legislation. Thank you from the officers and members of
local No. 85.
Respectfully yours,
LOCAL No. 85.
Gilbert W. Buckley, 442 Mount Grove Street, Bridgeport, Conn. ;
James N. Jackson, 195 Taylor Drive, Bridgeport, Conn. ; Her-
man Bader, 60 Karen Avenue, Stratford, Conn.; Charles W.
Meuane, 15 Walnut Avenue, Trumbull, Conn. ; John C. Brod-
rick, 41 West Avenue, Devon, 'Conn.; Dominick De Profio, 112
Stratfield Place, Bridgeport, Conn. ; Robert Rainey, 25 Revere
Street, Bridgeport, Conn. ; John R. Hill, 200 Newfield Avenue,
Bridgeport, Conn. ; Harold U. Blackwell, 1118 Stratford Avenue,
Bridgeport, Conn. ; Alfred D. Gordon, 40 Meadowview Avenue,
Stratford, Conn. ; Charley C. Young, 904 Havilu, Bridgeport,
Conn. ; Frank Fourtine, 30 Clearview Court, Bridgeport, Conn. ;
Frank Rescsanski, 35 Ridge Avenue, Bridgeport, Conn. ; James E.
Lowry, 313 California Street, Stratford, Conn. ; Francis B.
Rooney Sr., 147 Jones Court, Bridgeport, Conn. ; Ralph Boiant,
306 Brenell, Bridgeport, Conn. ; Melvin Kobay, 146 Parrott
Avenue, Bridgeport, Conn. ; John Ferraro, 355 Trumbull Avenue,
Bridgeport, Conn. ; Stephen J. Hantowshif, 74 Plainview Drive,
Stratford, Conn. ; George J. Stalin, 83 West Klund Avenue, Strat-
ford, Conn. ; Joseph C. Korser, 1630 Main Street, Stratford,
Conn. ; Raymond C. Bobho, 79 Sixth Street, Bridgeport, Conn. ;
Hoston M. Perry, 1 Fulton Court, Bridgeport, Conn. ; Robert L.
Gillin, 284 Bruce Avenue, Stratford, Conn.;. John Wright, 774
Seaview Avenue, Bridgeport, Conn. ; William E. Powell, 263
Beardsley Street, Bridgeport, Conn. ; Salvatore P. Cavallan,
Building 69, Apartment 78, Success Park, Bridgeport, Conn. ;
Joseph T. Krupski, 168 Beach Street, Bridgeport, Conn. ; Warren
J. Ford, 35 Sunset Avenue, Milford, Conn. ; Andrew Behuncik, 21
Barrows Street, Stratford, Conn. ; Paul M. Johnson, 516 Harral
Avenue, Bridgeport, Conn. ; Roland F. Ferguson, 1116 Stratford
Avenue, Bridgeport, Conn. ; Julian Medvin, 433 Golden Hill
Street, Bridgeport, Conn. ; Cornelius P. Kollov, 551 Cavern
Road, Stratford, Conn. ; John M. Kennedy, 174 Lenox Avenue,
Bridgeport, Conn. ; Lawrence Cirbala, 41 Cannan Court, Strat-
ford, Conn. ; Willie A. Dyer, 706 Trumbull Avenue, Bridgeport,
Conn.; Albert J. Sidlousky, 445 Capnan.Road, Stratford, Conn.;
Cyrel M. Yuno, 51 Fox Street, Bridgeport, Conn. ; Stephen Sem-
enkovich, 225 Bruce Avenue, Stratford, Conn. ; John F. O'Donnell,
52 Whiting Avenue, Bridgeport, Conn. ; Arthur C. Cook, Box
186. Bridgeport Avenue, Stratford, Conn. ; Vincent P. Feraco,
406 Dover Street, Bridgeport, Conn. ; Steve Bene, 41 Butler
Avenue, Bridgeport, Conn. ; Milton Angell, 57 Alanson ]toad,
Bridgeport, Conn.; Aaron O. Fast, 277 Success Avenue, Bridge-
port, Conn. ; J. C. Cummings, 255 Coleman Street, Bridgeport,
Conn. ; J. Avlio, 11 Datura Avenue, Milford, Conn. ; J. J. Mad-
den, 95 Buena Vista Road, Bridgeport, Conn. ; John Tamas,
151 May Street, Fairfield, Conn. ; Stanley Berthouse, 315 Tealsey
Avenue, Bridgeport, Conn.; Franklin J. Peet, 695 Merritt Street,
Bridgeport, Conn. ; Lizzie W. McFadden, 470 Broad Street,
Bridgeport, Conn.; John J. English, 820 Nallett Street, Bridge-
port, Conn. ; Paul J. Maco, 299 Dover Street, Bridgeport, Conn.
CALIFORNIA ASSOCIATION of ASC COUNTY OFFICE EMPLOYEES,
Whittier, Calif., July 21, 1959.
Hon. CHARLES M. TEAGUE,
House of Representatives,
Washington, D.C.
DEAR MR. TEAGUE : This refers further to the request of county employees of
the Agricultural Stabilization and Conservation Service, USDA, to be brought
under the life insurance and health and medical insurance plan for Federal
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employees, and more specifically it, is a commentary on the report made to the
Committee on Post Office and Civil Service on may 20, 1959, by Mr. Roger W.
Jones, Chairman, U.S. Civil Service Commission, and by the Bureau of the
Budget on May 19, 1959. We believe in answering Mr. Jones' comments we will
also cover the Bureau of the Budget report.
We, its county office employees, still contend that we work largely as Federal
employees, but inasmuch as we have been considered by some as non-Federal it
appears necessary that Congress enact legislation declaring the employees to be
Federal to make the contention come true. Throughout the County Administra-
tive Handbook, 1-CA, issued by the Commodity Stabilization Service, USDA, for
the operation of county ASC offices, county office employees are considered Fed-
eral employees in every instance where. it is to the advantage of the Government
for them to be so considered. Please note the following :
The regulations of the Secretary of Agriculture governing ASC county and
community committees (see Federal Register of November 2, 1956 (F.R. 8385),
May 8, 1957 (22 P.R. 3222),, and November 1, 1952 (22 F.R. 8802), November 13,
1958 (23 F.R. 8775), and December 10, 1958 (23 F.R. 9534) ), provide--
Section 7.3 "That the purpose of committees shall be to direct the administra-
tion of sections 7 to 17, inclusive, of the Soil Conservation and Domestic Allot-
ment Act of 1936, the Agricultural Adjustment Act of 1938, the Sugar Act of
1948, the Soil Bank Act and any amendments to such acts, and such other acts
of Congress as the Secretary of Agriculture or the Congress may designate.
This shall be done through community committeemen and other personnel respon-
sible to the county committee and in accordance with applicable laws, regula-
tions, and official instructions. The county and community committees shall not
engage in other activity." Committees, therefore, do not have authority to do as
they please as indicated.
Section 720 "The county committee, subject to the general direction and super-
vision of the State committee * * * shall be generally responsible for carrying
out in the county the program * * * and in so doing the committee shall * * *
employ the county office manager subject to the standards and qualifications of
the State committee (Federal employees) and to serve at the pleasure of the
county committee, except that incumbent managers shall not be removed other
than under the provisions of section 7.29, until all members of the county
committee have been in office for at least 60 days * * * fix the rate of compen-
sation for all personnel in accordance with schedules or instructions approved by
the Deputy Administrator" * * *
. Section 7.26 of these regulations restrict private business activity of both com-
mittees and employees ; section 7.27 restricts political activity of both committees
and employees ; section 7.29 provides for removal of county office personnel by
the State committee (Federal employees) in the event it is not done by the county
committee or county office manager, where necessary ; section 7.31 sets the annual
and sick leave (not the committee).
Section 7.34 provides that all books, records, and documents, used by the county
committee in the administration of programs assigned to it by the Secretary of
Agriculture or Congress shall be the property of the Department of Agriculture
and shall be maintained in good order in the county office. Section 7.35 provides
that they shall be available to any other person only in accordance with instruc
tions issued by the Deputy Administrator.
To answer the statement made by Mr. Jones on the bottom of page 3 we would
like to make the following observations:
1. While county office employees are not technically hired by Federal officers,
they must meet standards set by Federal officers in official management guides,
and each appointment is reviewed by a Federal officer to see that these standards
have been met and that the rate of compensation is, in accordance with instruc-
tions approved by the Deputy Administrator.
2. It can be clearly determined from the above quotations from the Secretary's
regulations that county office employees work directly under the supervision and
direction of a Federal officer.
Farmer fieldmen visit county offices at least once every 10 days to supervise
and assist in county office work and work plans. State office reviewers examine,
for corrective action, the county office operations at least once every 2 years, in
most cases much more often. CSS auditors perform complete audits and deter-
mine the adequacy of county office operations annually. General Accounting
Office auditors perform a 10 percent annual audit of county office operations.
Performance specialists from the State office closely check the work of each
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112 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
performance reporter (part-time employees) and determine whether or not his
work is acceptable and upon his findings that the work of said part-time
employee is not acceptable his employment must be terminated.
The hours of work, amount of leave, and salary schedule are set out in 1-CA,
issued by USDA, CSS, Washington, D.C., as prescribed by the Secretary's
regulations.
Would you consider this supervision of direction of a Federal officer?
3. We have quoted many paragraphs of the Secretary's regulations which
set up the functions under authority of an act of Congress or Executive orders
through the Secretary of Agriculture's office in which county office employees
are engaged.
We contend that we do not only meet a single one of these requirements, but
in fact we meet all of them.
With reference to the last half of page 4 of Mr. Jones' report, counties are
required to, and do, withhold social security and Federal income tax deductions
and maintain the necessary records of deductions. As before mentioned, the
employee-employer contributions are made in this connection. The Secretary's
regulations and instructions require the keeping of all records designated by
said regulations and instructions.
As a further example, the county agricultural agents who receive only approxi-
mately one-third of their salary indirectly from Federal funds, do make con-
tributions for both their retirement (State and Federal) and for the life insur-
ance premiums. This program is authorized by the Congress.
If the Civil Service Commission did not concur (reference is made to p. 6,
par. 2) In the legislation enabling county extension agents to be covered
under Federal retirement and Federal life insurance, then the Congress must
have enacted the legislation over the Commission's objections. We see no reason
why we should not also have this coverage. County extension agents are em-
ployed subject to the will of county boards of supervisors or county commis-
sioners who are elected by voters of the counties without regard to farming
interests. They also perform some functions authorized by Congress, but :none
of their services are directed by Federal officers. These employers have author-
ity to, and do, set salaries for these employees so long as 50 percent of their
salary is paid by said county board of supervisors or commissioners.
The precedent of this proposed action, in our opinion, has already been estab-
lished in the county extension agents' case of county ASC employees.
Most county office managers and many other county office employees are career
employees, and we believe that Congress would not be going beyond the obliga-
tions of the United States to afford staff retirement security for these employees
who are employed under the same personnel management guides as other Federal
employees. In fact, when county office employees are separated they are is,mued
Standard Form 8, "Notice to Federal Employees About Unemployment Com-
pensation." This is another of the many cases where we are "Federal em-
ployees" up to retirement and insurance benefit applications.
The proposed health program for Government employees (the hill does not
say "Federal") defines "annuitant" as * * * (p. 2, line 22) "an employee
who receives monthly compensation under the Federal Employees Compensation
Act as a result of injury sustained or illness contracted * * *." County ASO
employees are covered under the act ; in fact, many county employees have been
treated at U.S. Public Health Service hospitals for injuries incurred in the
performance of their duty and have received compensation under the act for
lost time.
How can we be defined as an "annuitant" and yet be declared as not under
this program?
We work alongside the above-mentioned county extension agent, the local
SCS personnel, who operate under a local board of commissioners also elected
by farmers, and FHA personnel, all of whom are civil service employees ; work
with the same group of farmers and perform generally similar services for the
farmer. In view of all this, it is hard for its to reconcile the finding of the
Civil Service Commission with the facts.
We should now like to highlight some of the instances in which county cffice
employees are considered Federal employees :
1. Appointment subject to approval of Federal officers.
2. Hours of duty, salary schedule, leave earnings and supervision of work
in accordance with Federal regulations and instructions.
3. Personnel management in accordance with standards for Federal em-
ployees.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 113
4. Performing only those functions authorized and/or directed by acts of
Congress or Executive order.
5. Covered under Federal Employees Compensation Act.
6. Excused from duty on other than legal holiday when the holiday falls on
Saturday, by Executive order applicable to certain Federal employees. (Exam-
ple, July 3, 1959, Executive order of June 12, 1959.)
1. Salary compensation received from Federal funds authorized by Congress.
8. Restrictions on private business and political activity imposed by the
Secretary's regulations.
9. May be removed from employment by Federal officer.
10. Afforded legal assistance by Federal attorneys in case of suit against a
committee or employee when acting in their official capacity in behalf of the
Secretary of Agriculture in the performance of assigned duties.
11. Space is provided in U.S. post office buildings (Federal, of course) for
ASC offices wherever such space is available.
12. Agricultural conservation program funds are used, up to 5 percent of each
county's allocation, to pay salaries of Soil Conservation Service employees, who
are registered civil service employees, to carry out a part of the agricultural
conservation program on a local level. The major part of this same progam is
administered by county ASC employees.
13. County office manager trainees are on county ASC payrolls while training
for an office manager position and are under the full supervision and control of
State office personnel who are Federal officers.
From the foregoing it should be concluded that the only areas in which county
office employees are not considered Federal employees are those dealing with
retirement, life insurance, health insurance, and job security benefits.
We again respectfully request that you carefully consider the status of the
approximately 15,000 county ASC employees so that they may be given equal
opportunity for job security as other Government employees. We believe that
the Congress has an obligation to see that the existing inequity be eliminated.
We do not believe the cost involved would be prohibitive. We especially urge
that, at this time, we be included in the health bill and Government life insur-
ance program.
If, at any time, the county employees, either collectively or individually, can
furnish you additional information, we will make every effort to see that it is
promptly and accurately provided for you.
Sincerely yours,
IRA D. CATE,
President, California Association of ASC Conntp Office Employees.
The CHAIRMAN. The House is now in session. I am sure the mem-
bers have certain questions to ask Mr. Colman before he is dismissed as
a witness. For that reason, the committee will not proceed further
at this time.
Unfortunately, the committee cannot meet tomorrow. Mr. Davis,
chairman of the Subcommittee on Manpower Utilization, has sched-
uled a hearing for tomorrow, which hearing was scheduled about 3
weeks ago. He made all plans for the meeting and has invited the
various witnesses to be here tomorrow.
For that reason the hearing will have to go over until 10 a.m.,
Thursday. I hope the members will be here. The committee now
will stand in recess.
(Whereupon, at 12:05 p.m., the committee recessed, to reconvene at
10 a.m., Thursday, July 30,1959.)
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HEALTH BENEFITS PROGRAM FOR FEDERAL
EMPLOYEES
THURSDAY, JULY 30, 1959
HOUSE OF REPRESENTATIVES,
COMMITTEE ON POST OFFICE AND CIVIL SERVICE,
Washington, D.C.
The committee met at 10 a.m. in room 215, House Office Building,
Hon. Tom Murray (chairman) presiding.
The CHAIRMAN. The committee will be in order.
The hearings will be resumed on various bills relating to health and
medical insurance.
Before we resume the testimony of Mr. Colman of the Blue Cross
Association and Dr. Stubbs of the Blue Shield medical care plan, we
have two Members of the House here this morning to make statements.
I think we will accommodate them by hearing them first and then
letting Mr. Colman and Dr. Stubbs take the stand.
I am very happy to present our colleague, Mr. Fulton of Pennsyl-
vania, a former member of this committee and the author of H.R
6167.
STATEMENT OF HON. JAMES 'G. FULTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF PENNSYLVANIA
Mr. FULTON. I am glad to see my old friends again, and if the
Foreign Affairs Committee had not snagged me I probably would be
sitting by my good friends, Mr. Corbett and Mr. Rees, on this com-
mittee, as I previously had been a member of the previous Civil Service
Committee.
I am supporting this legislation and believe it should be passed.
Provision for health insurance benefits for Federal employees should
be enacted into law at the current session of Congress. The urgency
of such a program appears to me to be so great that we cannot afford
further time to make additional studies or to collect additional infor-
mation.
The CHAIRMAN. What is that last statement?
Mr. FULTON. The urgency of such a program appears to me to be
so great that we cannot afford further time to make additional studies
or to collect additional information.
The CHAIRMAN..You do not want this committee to take snap or
hasty action without due consideration, do you?
Mr. FULToN. I . do not think this committee has ever taken snap or
hasty action, and I do not think I need caution this committee on that.
I think you have a good record of always acting on the facts and when
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116 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
The CHAIRMAN. All right.
Mr. FULTON. Already a great deal of factual material has been
amassed and its general tenor is that the Government is lagging be-
hind other large employers who already have provided extensive pro-
grams of health benefits for their employees. This material which
has been gathered and analyzed by congressional committees, Govern-
ment agencies, insurance organizations, and the unions demonstrate
rather conclusively that the benefits of such a program are so advan-
tageous to the Government as well as to the employee that there is no
sound reason for delay.
When I introduced my bill, H.R. 6167, it represented my thinking
on this subject. I am still of the belief that the program comprised in
that bill is sound and is more nearly proportioned to the need for medi-
cal care and to the financial circumstances of the greater number of
Federal employees. However, I realize that it would be more prac-
tical to put into effect as soon as possible even a partial program than
to delay legislation by striving for terms which seem to be more, nearly
adequate. Government employees as a group are so much in need of
these benefits that early action is imperative.
As you recall, I represent part of the city of Pittsburgh, with
Congressman Corbett. We are in a high wage area there and a
high expense area, so that it is very hard for Government employees
to exist on the pay which they receive at the present time.
It is with that purpose in mind that I support the proposal which
was approved by the Senate and is presently pending before the Arouse
committee. The equal division of cost between the Government and
the employees would still be a real step toward the establishment of
health benefits in keeping with the Federal Government's role as the
largest single employer in our good country.
Employers in private business have found it to their own as well
as to the employee's advantage to inaugurate a health insurance pro-
gram and continually improve it. The fact that so many of these
firms provide this benefit on a noncontributory basis is in itself im-
pressive evidence that it must be materially worth while. It it evi-
dently profitable for the employer to relieve his employees of the worry
which accompanies family illness in particular. Then too the em-
ployee's own health is important because it is so closely related to his
efficient performance.
An employee with a relatively small income, and this is truea of
the majority of Federal employees, may be able to budget his outlays
for ordinary medical care out of his regular income, but it so often
happens that the need becomes unusually great and costly. Then,
too, an unexpected need for surgery or for special types of therapy
may develop at any time. Such things are entirely unpredictable, and
the only solution that is of any great benefit to the individual is to be
covered by a systematic prepayment plan.
The health insurance program which is established now should
cover the major part of hospitalization, medical, and surgical ex-
penses. It should also make some substantial provision for those long
illnesses which may entirely deplete a person's savings and then leave
him with a huge debt. Whatever is done in this regard will be tre-
mendously helpful.
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I believe, therefore, that a health insurance program for Federal
employees should be established immediately, and that, if there can-
not be agreement on a program as liberal as in my bill II.R. 6167, the
terms of the bill approved should be such that it can gain wide sup-
port and early enactment.
I would say that I believe, since talking to my good friend, Attorney
McCracken, he has pointed out to me that an optometrist and a
dentist should be placed on the board so that we can have a broad
board.
The CHAIRMAN. Who made that recommendation?
Mr. FULTON. I have a good friend who is an attorney and he pointed
that out to me.
The CHAIRMAN. I did not get his name, though.
Mr. FULTON. His name is McCracken.
The CHAIRMAN. Where does he reside?
Mr. FULTON. He is in Washington, D.C., and he called that to my
attention. He called it to my attention that the board be broader, and
I think that is a good idea.
The CHAIRMAN. William P. McCracken?
Mr. FULPoN. Yes.
The CHAIRMAN. I know him. You may proceed.
Mr. FUIrroN. Hospitalization and other types of health care are as
necessary as adequate food, clothing, and housing. They are among
the basic necessaries of life. It is with that in mind that I urge im-
mediate action on this legislation.
I do feel, since we are on the advisory board, that it should be
broad and should have on it representatives of the various groups and
professions and should not be restricted to any kind of group or
professional men in this field. Under those circumstances, I think
it is a fine idea and it is my judgment, since it has been called to my
attention. I do know Mr. McCracken well and his wife, and I happen
to be in the same group with them that does square dancing, so we
have many other interests other than the joint interest in the law.
Any questions?
Mr. PORTER. Mr. Chairman.
The CHAIRMAN. Mr. Porter?
Mr. PORTER. I have just had a chance to look over the gentleman's
bill. It is similar to H.It. 8210?
Mr. FULTON. Yes, it is.
Mr. PORTER. In regard to coverage, the first part of H.R. 8210
defines the term "employee" as being `an appointive or elective officer
or employee in or under the executive, judicial, or legislative branch
of the U.S. Government, including a Government-owned or controlled
corporation."
In your opinion, should this bill cover Members of Congress?
Mr. FULTON. I would say that if we are going to have a broad bill it
should be discretionary within this committee as to the groups that
it would cover. There is the problem of the continuity of employ-
ment for a Congressman or an elected official. I can see where they
could by this committee be put in a separate group from people em-
ployed by the Government on a career basis. In fact, many Congress-
men, as myself, have outside income. I publish six weekly papers in
addition to my service as a Congressman. We are here, some of us,
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118 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
giving our time and taking away from our own businesses and pro-
fessions, but it also means that we have other sources of income that
other Government employees cannot have. I think there is a valid
reason for distinction if the committee wishes to make a distinction
between what you could call political employees at a high policy revel
and elective Government employees who are of a public nature and
whose service is more of a policy or public nature than it is of an
administrative or detail nature in the Government service.
Mr. PORTER. Did I understand the gentleman to say the need is
not as great for Congressmen as other Government employees?
Mr. FULTON. I think any employee limited in income and who
perforce must pay attention only to his one job has a greater need
because when he loses that job or becomes disabled he has no other
resource on which to rely.
Mr. PORTER. Then I heard the gentleman say he thought the, bill
should be enacted as soon as possible.
Mr. FULTON. May I comment a little further on your other point,
because I think it is a good one.
Being an employer of some size myself, I am always looking around
to get ambitious young people to work and to stay with the news-
papers. I think that same thing should apply to the Government.
We want these young people to come with the Government and come
at an early time, especially when they are raising their families and
having their responsibilities. But that is the time in Government
when their pay is lowest, and obviously they need to be protected
against these serious illnesses that might destroy the families of these
Government employees. I think this legislation will help attract
fine young people to the Government service.
Mr. PORTER. Now let me get back to the question, does this bill
cover Congressmen?
Mr. FULTON. I think if you press the point it could cover anybody
who works.for the Government.
Mr. PORTER. The next question is, should it cover Congressmen?
Mr. FULTON. I would probably include them, but I can see that
Congressmen are a separate group of cats.
Mr. PORTER. Do you agree with one of our colleagues who, I read
in the paper this morning, is not going to take the additional $600
stationery allowance that was voted to us?
Mr..FULTON. Let me say I am one of the people who more than
use up the expense allowance and I have already used my stationery
allowance. I have just sent out 130,000 questionnaires to my district
and am getting quite a few answers and I will use my expense al-
lowance. I think if it is given to us it should be well used and used
for the purpose for which it is given, to give better service.
Mr. PORTER. Regardless of what outside income the Congressmen
may have, do you think this boon should also be given to them?
Mr. FULTON. I do not look at it as a boon. If you can get better
Congressmen I would favor looking into it.
Mr. PORTER. You would get healthier Congressmen.
Mr. JOHANSEN. Mr. Chairman.
The CHAIRMAN. Mr. Johansen?
Mr. JOIIANSEN. I am sorry I was late. In a facetious mood I
would like to say-and this is not said critically-the gentleman's
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 119
reference to square dancing may have more significance to Mr. Le-
sinski than to myself. In my district square dancing has a distinct
political connotation.
Mr. FULTON. I am afraid this is a mixed crowd, men and women
and Democrats and Republicans, that I belong to in Washington.
Mr. JOIIANSEN. I would say square dancing in my district has
a distinct political connotation.
Mr. FULTON. May I ask, it does not mean dancing by "squares"
in Michigan, does it .
Mr. JOHANSEN. I will not answer that.
Seriously, I do not know of anyone in this room or on this com-
mittee that does not recognize there is a need for this program, that
it is very desirable, and that we would like to see it. There is one
problem that does concern some of us very, very deeply, and that is,
Where is the money coming from? What is it going to do in terms
of more deficit financing?
Does the gentleman have any comment on that score?
Mr. FULTON. I will say I am paying my income taxes both on my
congressional salary as well as my other income, and I pay it with
no dependents whatever, so I pay one of the highest rates of anybody
in the room.
Second, I think it is not a matter of just economy, but it is a matter
of seeing what we get for the money that Congress is spending.
When we are giving services that are really necessary, that we have
not been able to give before in this country, I do not look at that as
a bad thing. I am in the progressive group of Republicans who
feel that the Government expenditures in and of themselves are not
bad if they are done right and efficiently administered.
I am very willing to pay every dollar for the almost $40 billion
for defense that is my share. But I certainly feel that many of these
Federal subsidies should be stopped. I know if we would simply
stop the subsidies in the farm program, that everybody who pays
more personal income tax than 20 percent could get his money back.
Mr. JOHANSEN. I am sorry the gentleman from Iowa is not here,
due to his necessary attendance today at another committee meeting.
Mr. FuurON. 'I might say to the gentleman from Michigan that
compared to the gentleman from Iowa, although I am said to be
a liberal, my voting is more in line with that of Senator Byrd's budget.
The CHAIRMAN: That is news to me.
Mr. FULTON. May I point to the budget. If you will look at the
budget you will find the exact amount spent by the U.S. Government
per year for farm subsidies is the exact amount of surtax paid by
everybody in this country on their personal income taxes. If we
got some freeloaders off our back the income tax would come down.
Mr. JOHANSEN. While I do not go along with some of the scan-
dalous agricultural programs, I do not go along with the idea that
farmers are freeloaders.
Mr. FULTON. I do not say they are. Some agricultural programs
are good.
Mr. JOHANSEN. You would cut that out and I would cut some-
thing else out, but the truth is none of us will cut anything out and
we will add more and increase the deficit. I respect the gentleman
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120 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
because I think he would vote to increase taxes to pay for those
things he believes in.
Mr. FULTON. I certainly would, but I would cut the budget first.
Mr. JOHANSEN. But the gentleman and I cannot persuade our
colleagues to do the same.
Mr. FULTON. I am on the Foreign Affairs Committee and I voted
to cut $800 million out of the $3.9 billion mutual security program.
Would the gentleman cut the agricultural program by that much?
Mr. JOHANSEN. The gentleman has voted to reduce the whole thing
at every opportunity. But the fact still remains that we still go on
our way, as in the past year just ended, with a $13 billion deficit, and
we have no assurance that we will have a balanced budget this year.
We either have to do some cutting this year, and cut out some pro-
grams that are commendable such as this one, or add to the tax rev-
enues. We have those choices. What hope does the gentleman have
in this regard?
Mr. FULTON. To the gentleman from Michigan, a good friend' of
mine, I will say I get tired of complaints of what people are doing
for this Government, or that they are paying taxes. When I go
around some places in this country I feel actually poor because I see
these people living high and enjoying every luxury which I can-
not afford. How do they do it? Go to some of these resort places
and see the money being thrown around on useless things and tell us
why we should not have these necessary things the Government can
provide, for example, to help some family that had a tremendous
siege of illness or accidents. That is the kind of people I want to
P.
JOHANSEN. I do too. My point is why should we not pay for
their having it with tax revenues rather than deficit financing?
Mr. FULTON. May I say to the gentleman, Mr. Porter, because I
do not want him to think I was placing my hand on $600 extra, that
I have given more than 10 percent of my salary for public uses in
addition to what I do for religious purposes.
Mr. PORTER. Most Congressmen are not in a position to do that.
Mr. CORBETT. I wanted to say a word about the cost of this pro-
gram, because it will keep recurring.
Let us assume we are going to spend on an average $75 billion a
year for the predictable future. This item of approximately $150
million, which is less than $1 per person per year, in my mind-and
I can buy everything the gentleman said-but in my mind this is
one of the expenditures that ought to be a very high priority. I be-
lieve that the gentleman and any other member of this committee,
in setting up a budget and including those things which are most
necessary and desirable at the top of the list and coming down to
the bottom of the less desirable and less necessary things, could read-
ily find, out of $75 billion annually, $150 million a year to take care
of the lives and comfort of the Federal employees of these United
States, and I do not know of any program that we have, outside of
those that are contractual promises, that could not be cut some
amount; and I feel that the worry here about, "where is the money
coming from ?" is the least important argument against this bill. I
know the gentleman's very fine concern for a balanced budget and
reduced taxes, and that is fine.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 121
Mr. JOHANSEN. The gentleman did not mention reduced taxes. I
do not kid myself. I am talking about increased taxes if we are go-
ing to increase expenditures.
Mr. CORBETT. Does the gentleman believe we will have a balanced
budget this year?
Mr. JOHANSEN. God only knows. I have not the remotest idea. I
know if we continue voting more and more expenditures without
increasing revenues, I know if we do the one and fail to do the other,
and if we simply limit ourselves to talking about how we could cut
this and. how we could cut that when we know we cannot rally the
votes to do it, I know we will not have a balanced budget.
Mr. CORBETT. Apparently the votes are being rallied to hold down a
lot of expenditures and sometimes cutting them. But would the gen-
tleman agree if we are to hold the line for a balanced budget there
are many items that could be eliminated?
Mr. JOHANSEN. Certainly, but may I say to the gentleman I cannot
help distinguishing between what could be eliminated and any pros-
pects that they will be, which is the source of my concern.
I have no desire to make this very commendable program the
whipping boy, but everything that comes up, the argument is made
that it is the most important and most urgent thing.
Mr. FULTON. May I agree with the gentleman from Michigan on
his concern, because when I first looked into this I felt it would have
cost each taxpayer 84 cents a year.
Mr. JOHANSEN. I do not care if it costs the taxpayer 84 cents or
84 dollars. This Government cannot go on spending on every pro-
gram saying that this is mandatory and ever achieve fiscal stability.
Mr. FULTON. Do you not think that 84 cents per year per person is
worth while against the risk of bankrupting and destroying these
families because I have seen it.
The &AIRMAN. On what do you base this 84 cents per year per
person ?
Mr. FULTON. I took the figure of 175 million people in the United
States. At $1 per person annually for this program that would be
$175 million. But the cost of the program is estimated at $150 mil-
lion a year. I did it by mental arithmetic, using a system of 25's.
There are seven 25's in 175, so I took one 25 off. That was one-seventh
off the dollar for each person in the United States annually, which
gave me 86 cents per person in the country for an annual program of
$150 million. Then I took 2 more cents off, because the program
might not run as high as we thought because of the current economy
wave, and made it 84 cents cost for each person in the United States
for each year.
Mr. JOHANSEN. Mr. Chairman, may I just address myself to one
point the gentleman makes when he talks about bankrupting families.
I am not an unfeeling ogre who has no concern for catastrophic ill-
nesses in families. I have raised a family. I know what it means.
But I cannot help being concerned about what the bankruptcy of this
Nation can mean to every family in this Nation.
Mr. FULTON. But maybe part of my concern, which I should not
speak of, is that we had a member of our family who was an invalid
for 20 years, so we know what it is. Then I had a young employee who
came back from the service unable to move from his neck down with
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122 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
a service-connected injury and he cannot work and somebody had to
take care of him, so he is a member of our family. We had that for
10 years. Now a family who has had 30 years of severe illness would
possibly have a different appreciation, so when I come up with 84
cents per person per year, maybe people should not buy that extra
piece of candy or the extra movie or extra 5 gallons of gasoline and
put it to something more important. That is where I agree with Con-
gressman Corbett, it is the decision of which is the most important. To
me this is one of the basic needs in this country, to help folks who
otherwise would go bankrupt through no fault of their own.
Mr. JOHANSEN. I have as much sympathy with the problem as the
gentleman has.
The CHAIRMAN. What do you estimate the cost of this program to
the Federal Government would be ?
Mr. FULTON. Between $125 million and $150 million a year.
The CHAIRMAN. We had an estimate of $200 million a year.
Mr. FULTON. It would run, under your figures, $1.14 for each
American, and under my figure it runs 84 cents to 86 cents; and even
on your figure of $1.14, I will pay that and pay it gladly.
The CHAIRMAN. Are you not deeply concerned over the Federal
debt? I think most of us are.
Mr. FULTON. I think we ought to pass legislation to pay for what
we spend, although I say this, that when we are protecting. future
generations maybe they ought to pay some of it. A little bit of our
current defense should be paid from bonds.
Mr. JOHANSEN. I have heard for almost 30 years now about the
"terrible Hoover depression," and I think I know something about
what that did to families and what the consequences were to homes
and to people in terms of human suffering, but the "terrible Hoover
depression" did not involve, to my knowledge, the good faith and
credit of the United States. If we have another blowup, which
heaven forbid, I am not sure but that it will involve the credit and
good faith of the United States.
Mr. FULTON. I would like to hire you for my newspapers, someone
who is as concerned as you are. I think the gentleman from Michi-
gan is exactly right on that, that we should pay for this program.
Mr. BEES. Returning to this 86 cents per person, that might amount
to $4 or $5 a family. Is that not the way it might work out?
Mr. FULTON. Actually, what we are doing is we are spreading the
risk. So the loss due to illness is going to be there but the way the
loss will be placed will be different under this legislation.
This committee should recognize we are simply insuring against
losses of certain types. The losses are there anyway and they will cut
in the economy regardless of whether this bill is enacted or not.
Somebody will pay them. The question is, Should the tremendous
loss fall on a few people or should it be spread more evenly so that
it amounts to between. $1.14, based on the estimate of the cost of the
program of the gentleman from Tennessee, or 84 cents based on my
figures ?
I strongly favor the spreading of the loss so that these families are
not bankrupted and destroyed. I do not think the 84 to 86 cents -a
person will either make or break.the budget of-this Federal Govern-
ment.
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Mr. REns. I do not either. I am just suggesting, when you talk
about 84 or 86 cents a person, you must consider what that would
amount to for a family.
Mr. FULTON. I believe you are right, that it might run about $4.30
for a family of five. J
Mr. REES. For the average family it would be $3 to $4.
Mr. FULTON. It would run between my figure of $4.30 a family a
year and on Mr. Murray's figure it would be $5.70.
Mr. RrEs. I don't know that that is'pertinent to the discussion.
Mr. LEsINSIcI. I want to commend the gentleman from Pennsyl-
vania on his forthright statement.
I requested the gentleman from Michigan and others to report on
the legislation that I have in the hopper, one in conjunction with Mr.
Fino of New York, which would pay for this program time and time
again.
Another is to take out the so-called loopholes in the tax law which
would affect what you are talking about, where people have a lot of
money to spend at the resorts, meaning it is taken off the expense ac-
count of the corporations and it is not income to them.
You would have more than enough funds in the Treasury if we
got together and took out some of these loopholes in the tax structure.
Mr. DULSKT. I never thought the first time I spoke in the committee
it would be with words of praise. I think Mr. Fulton has expressed
the importance of this bill, faced up to all the problems involved,
without flinching. He. has been very, very candid. This kind of
discussion is of tremendous help.
I might say I am also impressed by the fact the committee seems to
be largely in favor of the bill and I hope we can et done with our
hearings as soon as possible, so we can get this legisglation this year.
Mr. FULTON. I thank the gentleman. I want to congratulate the
committee. It is always a challenge and pleasure to appear before
you.
Mr. FOLEY. I want to associate myself with the comments just made.
As I understand your testimony, you are giving us very wise and
prudent investment counsel.
As I understand you, Mr. Fulton, you are advising the Federal
Government to invest so many dollars in the health and well-being of
the Government worker.
My question is this : In your analysis and appraisal of the. proposal,
is it your conclusion that this investment would be a giveaway or that
the return, both from a monetary standpoint and the human value
standpoint, would either match or exceed the value invested by the
Federal Government?
Mr. FULTON. I believe you have an excellent point there-that it is
not any giveaway, nor is it just putting money down the drain that is
a drain on our economy.
The first point I made as an employer was that I believe if the Fed-
eral Government has this as part of its employment package that it
will attract young people, get better employees, and make them want
to stay longer.
I think it is an excellent policy on that score.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Secondly, there is the drain on the economy of these long and severe
illnesses, regardless of whether we pass legislation in. the Congress, or
this committee approves legislation or not.
This bill will provide a policy to prevent destruction of Govern-
ment workers' families by broadening the base of the risk by this
health program. I strongly favor the program.
The question then comes, "Will they get better care?" I believe on
your point my answer would be, "Yes, with this kind of help, they
will get better care." The illnesses will be shorter, so that there is a
personal gain as well as an economic gain.
I would agree with you on both points.
The CHAIRMAN. Thank you very much, Mr. Fulton.
The committee will hear next from our colleague, Representative
Paul A. Fino, of New York.
STATEMENT OF HON. PAUL A. FIND, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Mr. FIND. Mr. Chairman and members of the committee, I deem it
a privilege and a pleasure to be given an opportunity to testify in
support of legislation now before this committee which would set up
a Federal employees' health insurance program.
I consider this type of legislation not only important but necessary,
and I sincerely hope it will receive immediate and favorable con-
sideration.
Legislation to provide health benefits to Federal employees has
been considered for -a long time-for 12 years, to be exact. The time
is now ripe for consideration and approval of this kind of program
for our Government workers.
Equal in importance to the wide acceptance of this particular kind
of legislation is the nationwide acceptance.of prepaid health benefits.
These are available to 123 million persons in the United States today.
More than 75 percent of those participating in prepaid health plans
are enrolled through their place of work. Surely employees of our
Federal Government need be no exception. It is indeed shocking that
for so many years the Federal Government has not made available
to its employees the minimum benefits taken for granted by employees
in private industry.
In my own State of New York the employees of our State govern-
ment have been eligible to participate in a contributory health insur-
ance program for well over a year. The plan has been described as
one of the most liberal and comprehensive programs of its kind. Just
over a year ago 77,239 State employees were enrolled in the plan, and
this number has undoubtedly increased since that time.
W@ have the opportunity to offer this type of generous and workable
program to 2 million civilian employees of, the Federal Government
and their families throughout this country and overseas. They can
face the future with the assurance that their membership will not be
canceled, that they will have the opportunity to continue coverage
on an individual contract basis even after termination of Federal
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I-IEALTH BENEFITS FOR FEDERAL EMPLOYEES 125
employment, and that their coverage will continue when they retire
through payment of their contributions for which they can plan ahead.
We are all aware of the limited salaries upon which great numbers
of Federal employees are required to support their families. We have
also heard a great deal of talk about constantly rising medical costs.
It is our duty, our responsibility, to provide the employees of the
Federal Government with an opportunity for reasonable protection
against these health costs at a reasonable price. I, therefore, urge
this committee to give its approval to this much-needed legislation.
Mr. Chairman and members of the committee, I am grateful for
this opportunity to present my views, and I commend my colleagues
for their hard work on this type of legislation. I know that the legis-
lation which this committee finally reports will be a bill which will
'enhance the public interest and promote the general welfare of our
Federal public servants.
The CHAIRMAN. Questions?
Mr. JOHANSEN. What is the basis of the plan in New York? Is it a
50-50 plan ?
Mr. FIND. To be honestly frank with you, I am not to familiar with
the mechanics. It is a new plan which has only been in operation a
short time.
Mr. JOIIANSEN. But the State does participate?
Mr.' FiNo. There is a partial participation there.
Mr. PORTER. I appreciate the gentleman's statement. I want to
ask him about this New York plan, though.
As I understand the present bill, the Federal Government could
not deal with the same group which gave you a liberal and compre-
hensive plan. Under the provisions of this act it would have to be
one service-benefit plan.
I was wondering whether or not nay colleague had considered
whether or not there should be competition, in New York and else-
where, where there were plans, bidding to give the same medical
services as Blue Shield, and so on?
Mr. FIND. That goes into the mechanics of it, and as I said I am
not interested at this point in the mechanics of these plans. I am
interested in the principle.
Mr. PORTER. The principle here is competition, where there can
be competition you think there should be competition. You pointed
out `that in New York this plan is giving liberal and comprehensive
service?
Mr. FIND. That is right.
Mr. PORTER. On that basis you think the bill ought to allow that
plan, to bid in New York and elsewhere, for the right kind of com-
petition by the right kinds of groups with sufficient reliability to
furnish the same type of service?
Mr. FIND. I do.
The CHAIRMAN. Other questions?
(No response.)
The CHAIRMAN. Thank you very much, Representative Fino.
At this time I will place in the record the statement of Representa-
tive Seymour Halpern, of New York.
(The statement follows:)
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126 HEALTH BENEFITS FOR FEbERAL EMPLOYEES
STATEMENT OF HON. SEYMOUR HALPERN, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF NEW YORK
Mr. Chairman and members of the committee, thank you for the opportunity
to present my views on legislation for a Federal employees' health benefits pro-
gram. I support this legislation wholeheartedly and have introduced H.R. 8352
in this respect.
The committee is well acquainted with the efforts to secure such legislation
since 1947. Now that fundamental agreement has been arrived at among the
major parties interested in such legislation, the opportunity to carry it through
to effective culmination is more propitious at this time than ever before.
The rapid growth of programs of prepaid health benefits throughout the Nation,
particularly in private industry, has left the Federal Government as one of the
largest remaining employers failing to offer such a service to its employees.
The adoption of such a program by the Federal Government is long overdue.
'The proposed legislation does for the employees of Uncle Sam what has been
done by many enlightened private employers. The cost of illness can and often
does impose ruinous financial burdens. The proposed legislation will mitigate
this for the Government worker and his family.
The proposed' legislation offers a reasonable approach to the problem and
Involves the widest possible use of private insurance facilities, whether of
the Blue Cross-Blue Shield type, or private carrier plans, with an elective choice
at the discretion of the employees.
I believe that the principles underlying the proposed legislation are highly
commendable. They include coverage of as many Federal employees, as feasible,
coverage for the families of such employees, coverage for oversea employees,
some freedom of selection by the employees, an adequate medical expense in-
surance program at a reasonable cost, sufficient flexibility to allow for considera-
tion of additional benefits as major breakthroughs in medicine occur in the next
few years, and, a reasonabe sharing of the costs between the Government and
its employees on on a 50-50 basis.
I do regret that presntly retired Federal employees are not included in the
legislation, particularly since this group, as older citizens, is confronted with
heavier medical expenses than younger people. I understand that statistics and
data are being analyzed on this problem and I hope that legislation for this
group will be proposed soon.
The plan to let Federal employees get the type of protection which the em-
ployees of some of the more populous States and cities are now getting represents
a long-desired Government reform.
. The adoption of such legislation will certainly offer a stimulus for career Gov-
ernment service and should assure the Government of more efficient service from
its several million employees. As a consequence, the entire Nation will also
benefit.
Not to give the Federal employees the same kind of health insurance oppor-
tunities and health benefits which are available in the best plans for private
employees and those of some State and local governments would be unsound
from the point of view of national justice and unwise in terms of making certain
that the Government has an opportunity to recruit a very high level of
employees.
Cost estimates run in the neighborhood of $146 million for the Government.
It is entirely possible, however, that the carriers might offer programs with
certain cost reductions that could result in cutting the expense to the Govern-
ment below this figure.
The creation of a fund as a repository of the moneys for the health benefits
program will assure separate accounting, the payment of administrative expenses,
and the establishment of a reserve to provide for stability of subscription rates
over a reasonable period.
Finally, the establishment of an advisory council including representatives
of the employees, and, public experts, will assure adequate consideration to
all interested parties and result in proper administration of the program.
Mr. Chairman, I believe that the proposed legislation serves the best interests
of the Federal Government, its employees, and the public. It provides for a
system allowing for reasonable competition among the different types of programs
which should result in a better program for the employees.
This initial start does not mean that this will constitute the final form of the
program. Continuing study, after it is effectuated, should suggest possible
improvement and change.
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I respectfully request that the committee report out the legislation in sub-
stantially the same form in which it has been submitted. Thank you for your
courtesy in permitting me to testify on this matter.
The CHAIRMAN. Next we will hear Mr. Colman, vice president of the
Blue Cross Association, and Dr. Donald Stubbs, chairman of the board
of the Blue Shield medical care plan.
STATEMENTS OF d. D. COLMAN, VICE PRESIDENT, BLUE CROSS
ASSOCIATION; AND DR. DONALD STUBBS, CHAIRMAN OF THE
BOARD, BLUE SHIELD MEDICAL CARE. PLAN-Resumed
The CHAIRMAN. Mr. Colman, I believe you testified yesterday there
were 78 different Blue Cross plans throughout the United States. Is
that correct ?
Mr. COLMAN. Yes, sir.
The CHAIRMAN. Are they all operated separately and independently
so far as rates and benefits are concerned?
Mr. COLMAN. Yes, sir.
The CHAIRMAN. There is no uniform plan for all your different
Blue Cross organizations?
Mr. COLMAN. The are independent organizations established under
State law and usually responsible to the insurance department of the
State for supervision.
The CHAIRMAN. What kinds of reserves do these different Blue
Cross plans have?
Mr. COLMAN. Provisions of the State laws vary very widely on
that. I could furnish you with a memorandum of that if you wish,
sir. There is a great variation. Without getting into three or four
pages of tabular material I could not give it.
The CHAIRMAN. The cost of your service has been increasing all
over the country, however. Is that not correct?
Mr. COLMAN. Yes, Sir.
The CHAIRMAN. I noticed in last night's edition of the Washington
Evening Star, with regard to the Baltimore, Md., Blue Cross plan, the
following statement :
The Blue Cross executive director yesterday termed unfounded charges the
hospital insurance program is wasteful.
He says in this article :
We have all heard charges that some subscribers are abusing Blue Cross
benefits, and that hospital services are being used excessively or uneconomically.
Much of the comment on this subject, I believe, has been made recklessly,
without foundation.
The story goes on to say that last year the Blue Cross plan in Mary-
land was given an increase of 13.9 percent, and now, this year, Blue
Cross is asking for a further increase of 24.5 percent.
Are your rates increasing likewise in all 78 plans?
Mr. COLMAN. This question of rates 'is related to a series of factors
other than hospital service, sir. It involves the question of the use
made of hospitals. It involves the cost of hospitals, and it also in-
volves the time period over which you are considering the increase.
One of the functions of the reserves which you mentioned earlier
is to level out the fluctuations so that the time period over which you
consider increases has to reflect the time period in which you were
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128 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
dipping into reserves and the time period you want to project before
dipping into them again.
This question of the rate at which these changes take place is a very
complex one and it includes, also, the benefits provided and the
changes made to bring the benefits comparable with current practices
and hospitals.
All of those are involved in that change.
The CHAIRMAN. And does each Blue Cross plan set its own rate
and do they vary from one State to another?
Mr. COLMAN. Yes, sir; they,do.
Mr. REFS.. Why the discrepancy among the States in the cost and
operation of the Blue Cross plan? Is it management?
Mr. COLMAN. No. The cost of operation are quite comparable, if
you mean administrative costs.
For the past year the administrative costs of all Blue Cross plans
in the country were 5.6 percent of the total income of the plans. It
is 5.52 percent, the figure for the first 3 months of 1959; 5.84 percent
was the figure for the year 1958.
Mr. REEs. That is across the board?
Mr. COLMAN. Across the board for all.
Mr. REES. What would it be in Maryland? Maryland would be
one of the higher ones?
Mr. COLMAN. No, Maryland is one of the lower ones, sir.
Mr. DAVIS. Where a person who is covered by these programs of
Blue Cross and Blue Shield in one State, if he has an attack of ill-
ness while in another State, is he covered for the expenses to that
State?
Mr. COLMAN. Yes, sir. We have developed a program of which
we are very proud.
As the chairman has pointed out, these are local organizations re-
sponsibile to local authorities, and yet the American populace, with
its propensities for travel, is likely to get sick almost anywhere.
We have developed a program we call the Interplan Service Benefit
Bank, whereby a subscriber in one Blue Cross plan who is cared for
in the member hospitals of another Blue Cross plan, gets treated just
as though he were a member of the plan where he is being cared for.,
We have a leased wire service which clears these admissions over-
night, and the whole thing is on a, coordinated basis so that there is no
break in the continuity of coverage provided these people, no matter
where they are.
It is a coordinating job of which we are very proud.
Mr. DAVIS. To be a little more specific about it, if a member who is
covered, for instance, here in the District of Columbia, should be trav-
eling in Georgia and should have an attack of illness or some injury
occur there which might necessitate surgical attention and hospitali-
zation, he then would be covered by his Blue Cross plan.?
Mr. COLMAN. Yes, sir. Even more specifically, under the proposal
that is contemplated in this bill the benefits would be entirely uniform
no matter where he was.
This bill requires us to go one stop further than our standard pro-
gram for people being cared for out of State and give entirely uni-
form benefits no matter where they are covered.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 129
We have done that in several large employee groups-the steel-
workers, autoworkers, and so on.
The CHAIRMAN. Would this apply if this employee were taken ill
some place else and goes to a hospital not covered by a Blue Cross
plan?
Mr. COLMAN. There are very few that are not, sir. In those cases
we would provide an indemnity benefit.
The CHAIRMAN. You do that now?
Mr. COLMAN. Yes, sir.
Mr. LESINSXI. I was :Looking over the breakdown of the payments
of individuals by locations. The gentleman from Michigan, Mr.
Johansen, is from Battle Creek, and I am from Dearborn, Mich., and
the figures are the some, $16.70.
On the other hand, Dearborn and Detroit is a high wage area and
expenses would be higher.
Pittsburgh is $10.15 and I assume their wages are quite high there,
too. Why the difference? It is $6.50 difference.
Mr. CORBETT. If the gentleman would yield, according to these
figures we have here, and according to my memory of what I pay in ?
Pittsburgh, that $10.20 figure is wrong.
Mr. LESINSKI. It depends on the plan. Mine is $33 plus cents.
Mr. CORBErI'. On these figures before you for July 15, 1959, it gives
the average cost in Pittsburgh as 29.8 to 33.3 and not $10.20.
Mr. LEsiNSKI. I am going by the first sheet.
Mr. C'ORBETr. Is the fact right?
Mr. COLMAN. Might I have a crack at this?
The CHAIRMAN. Yes.
Mr. COLMAN. I think I know the table that is being discussed. I
think it is headed "The average subscription charges for the most
widely held certificate." Is that the table?
Mr. LESINSIiI. Blue Cross and Blue Shield rates. These are the
rates.
Mr. PORTER. Give the witness a copy.
Mr. CORBETT. This deals with average increases. He has a rate fig-
ure of $1.0.15 for a family plan.
Mr. LESINSB:I. That is the increase, Mr. Corbett. I am talking
about actual rates.
Mr. JOHANSEN. $10.15 for Pittsburgh is the actual rate.
Mr. LESINSKI. You are talking about rates and I am talking about
increases.
Mr. CORBETT. You were right the first time. My interruption was
in error.
Mr. COLMAN. This table from which the gentlemen are commenting
is headed "Combined Blue Cross/Blue Shield rates for most common
plans." This should be headed "For the most commonly held cover-
ages in these areas."
The types of benefits offered under the most commonly held and
used certificate in the specific areas vary widely from one area to an-
other, so these areawide differentials reflect two factors. They reflect
the differential cost factor which you mentioned. I think you will
find the average cost of Michigan hospitals is appreciably higher than
the average cost of hospitals in Pittsburgh. That factor is in here.
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130 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
The other factor is that the benefits being provided are substantially
different under these various programs.
Mr. QJOHIANSEN. Would that fact with relation to Michigan derive
in part, at least, from the fact that it was one of the pioneering States
in this program and that because of a longer history and perhaps ex-
panding types of benefits due to the experience with the program this
might have been brought about?
Mr. COLMAN. The auto industry was one of the early large groups
to interest itself in health benefits, and as a result they have broader,
benefits available than in most other areas.
Mr. LESINSKI. Would you say that facilities are more up to date
and more modern and that is why they actually cost more? Does that
have a bearing?
Mr. COLMAN. I wouldn't think there was a great differential there.
Furthermore, that is a question which would be almost impossible to
analyze because you would have to do it hospital by hospital.
Mr. LEsiNsxi. I appreciate that. On the other hand would you say
that the income in the area has a bearing upon the type of insurance
that the people buy?
Mr. COLMAN. The most direct bearing is on salary levels. About
65 percent of hospital expenses are for salaries, so that the key factor
in hospital costs are the salary levels in the community in which the
institution is operated.
The CHAIRMAN. Do you have an idea how many Federal employees
now are covered by your plan?
Mr. COLMAN. About one million.
The CHAIRMAN. Nearly half of them?
Mr. COLMAN. Yes, sir.
The CHAIRMAN. Do you have a Blue Cross plan covering ~ U.S. em-
ployees who reside outside the United States and worK for the
Government ?
Mr. COLMAN. No, sir, we do not.
The CHAIRMAN. Is there any plan covering them at the present
time?
Mr. COLMAN. The only one that I know of is a program, an indem-
nity program developed in the State Department for the State De-
partment oversew employees which we do not write.
We do have some oversea employees covered through establish-
ments that have been enrolled in this country and have been trans-
ferred. Many of our subscribers are overseas at the present time
and eligible for their nonparticipating hospital benefits which you
mentioned earlier.
The CHAIRMAN. How would you propose to provide service bene-
fits under your plan to Government employees living overseas?
Mr. COLMAN. We do not, sir.
As I pointed out in my testimony, it would be impossible and in
many cases unwise to require that we negotiate service benefit agree-
ments with hospitals and physicians all over the world.
When there are concentrations of employees in areas where this is
practical and reasonable we will do it,.but for the most part oversea
employees will be given indemnity benefits.
The CHAIRMAN. I believe you estimate the cost of this legislation
to be $317 million. Is that correct?
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Mr. COLMAN. That was the estimate we gave on S. 94. In my testi-
mony the other day I accepted the estimate in the Senate committee
report. I believe that is a valid first year estimate. That is $304
million total.
The CHAIRMAN. The Civil Service Commission estimates the cost to
be $405 million. Is that correct?
Mr. COLMAN. I don't think they have made an estimate on S. 2162,
have they, sir?
The CHAIRMAN. I don't know. I am asking you.
Mr. COLMAN. I don't think so, sir.
The CHAIRMAN. This bill provides the maximum rate that can be
-charged. Is that correct?
Mr. COLMAN. Yes, sir.
The CHAIRMAN. If that rate does not bring in sufficient revenue,
the benefits would have to be reduced?
Mr. COLMAN. That is right.
The CHAIRMAN. Do you approve of that plan?
Mr. COLMAN. There are two ways to approach this problem; three,
I guess.
You could have the employers' contribution fixed and the em-
ployees' contribution variable. You could have the employees' con-
tribution variable and the employers' contribution fixed.
You could have both fixed, and each of these presumably would be
in relation to a stated set of benefits, the cost of which is likely to vary.
If you fix both of the contribution rates and you presume that
you are going to have a stated set of benefits: the cost of which will
vary, there will have to be continuing revision to bring those two
into relationship- with each other. I anticipate such revision.
With careful administration the adjustment of the contributions
to the benefits through the years can be done in an orderly fashion
that will not create a serious problem in the program.
The CHAIRMAN. Do you approve of the maximum that is in this
bill?
Mr. COLMAN. Yes, sir. I think it is a realistic starting maximum
in this bill.
The CHAIRMAN. You do not have any maximum in your various
Blue Cross plans, do you?
Mr. COLMAN. Yes in this sense
The CHAIRMAN. Glan you increase or decrease the contribution each
year?
Mr. COLMAN. Only with the approval of the State insurance de-
partment.
The CHAIRMAN. That is what I mean.
Mr. COLMAN. That is right. Each time this is done it comes up
for careful review and careful scrutiny, and the basis on which it
is done is subject to the same kind of scrutiny you would have here.
The CHAIRMAN. There is no maximum contribution fixed on any
of your plans?
Mr. COLMAN. Not in that sense. It is fixed by action of the State
insurance department until they revise their action. We are not
free to change any time we want to.
The CHAIRMAN. Who assisted you in making your computation in
the cost of this legislation? I cannot understand the variance be-
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132 HEALTH BENEFITS FOR FEJY TIAL EMPLOYEES
tween you and the Civil Service Commission. You say the cost will
be $304 million and the Civil Service Commission says $405 million.
That is quite a variance.
Mr. COLMAN. The cost computations which we made were made
with the assistance of our own staff and two consulting actuaries, and
the basis on which they were made was stated in our testimony, the
assumptions we made, and I think the same is true of the Civil
Service Commission's estimate. To my knowledge the Commission
is not yet on record with a statement of the cost of S. 2162. Pre-
sumably they will be when they testify. Our estimates on S. 94,
I think, are a different issue from our estimates on S. 2162.
The CHAIRMAN. How much do you estimate you differ in the cost
of the two bills?
Mr. COLMAN. We estimated $313 million on S. 94 and we subscribed
to the estimate in the Senate report of $304 million on S. 2162.
The CHAIRMAN. That is a difference of $9 million.
Mr. COLMAN. That is right, sir.
The CHAIRMAN. Section 5 of the Senate bill provides maximum
hospitalization for 120 days but only 30 days for TB or mental
disorders.
Do you think employees hospitalized for nervous disorders or TB
should get less in the way of benefits than an employee suffering from
a heart attack?
Mr. COLMAN. Yes, I do, because these are benefits being provided in
short term general hospitals.
Most of the long-term care of mental disease and tuberculosis has,
through the years, been given in State hospitals and is very largely
supported by tax funds rather than by the payment of the individual
patient.
The purpose of including that benefit is to insure that the sub-
scribers, that the Federal employees participating under this pro-
gram, will have available to them the emergency diagnostic and sur-
gical care that might be necessary in connection with tuberculosis and
mental disease but not to encourage a complete shift in the function
of the two types of institutions, the State hospital system for TB
and mental disease and the voluntary and general hospital system
for acute illness.
The CHAIRMAN. I wish you would turn to section 5 (a) of the Senate
passed bill which provides for hospital benefits being the equivalent
of the full cost of hospital care in semiprivate accommodations in a
general or acute special hospital.
What is meant by an acute special hospital ?
Mr. COLMAN. That is, for example, an eye, ear, and nose hospital.
It cares for acute illness but for only one category of disease.
The CHAIRMAN. Is your organization covering employees who are
overseas, Federal employees?
Mr. COLMAN. Yes, sir.
The CHAIRMAN. You do not cover them now, however?
Mr. COLMAN. Yes, but not on any organized program related only
to them. We cover them when tiiay enroll through the employing
establishment and they are provided indemnity benefits.
The CHAIRMAN. How many overseas Federal employees do you
think you have enrolled under your plan now?
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. COLMAN. I have no way of knowing, sir. I would suspect it.
was a substantial number but I have no way of knowing.
Their enrollment is either paid for through a group treasurer in
an employing establishment in this country or else they have con-
verted to a direct payment certificate and they are dealt with no
longer as Federal employees but individuals on a direct payment basis.
They are not identified separately as Federal employees.
In our last testimony you asked that I supply the committee with
a marked copy of S. 94 with the changes we suggested. I have that
here. If I may I would like to insert it in the record.
The CHAIRMAN. Very well. You may do so.
(The bill S. 94, with changes suggested. by Mr. Colman, follows.
The language to be omitted is enclosed in black brackets, new matter is
printed in italic, language in which no change is proposed is shown
in roman:)
[S. 94, 36th Cong., 1st secs.].
A BILL To provide for Government contribution toward personal health service benefits for
civilian officers and employees in the United States service and their dependents, to
authorize payroll deductions for participants, and for other purposes
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled, That this Act may be cited as the "Federal
Employees' Health [Insurance Act] Benefits of 1959".
Snc. 2. In view of the demonstrated values of prepaid health service to the
well-being and efficiency of employees, and the widespread practice, on the part
of large private employers, of participating with their employees in obtaining
such benefits, the Congress enacts this Act in order that the Federal Government
shall measure up to the standards now commonly set by private employers in this
regard, by making available to Federal employees and their dependents the maxi-
mum financial protection against sickness costs, and the most comprehensive
preventive, diagnostic and curative medical care, obtainable for practical finan-
cial outlays by employees and by the Government.
Sac. 3. As used in this Act-
(a) The term "United States" includes the Territories and possessions of the
United States.
(b) The term "Commission" means the Civil Service Commission.
(c) The term "carrier" means a voluntary association, corporation, or part-
nership, or other organization which is lawfully engaged in providing, or paying
for or reimbursing the cost of, personal health services under insurance policies
or contracts, membership contracts, or the like, in consideration of premium pay-
able to the carrier, including a health insurance plan duly sponsored or under-
written by a national association of Federal employees.
(d) The term "Advisory Council" means the Federal Employees' Health Bene-
fits Advisory Council created by section [17] 16 of this Act.
(e) The term "dependent" means an employee's spouse; an unmarried child
under the age of nineteen years, an unmarried child under the age of twenty-
three years who is enrolled in a full-time course of study at an educational insti-
tution and who is in fact dependent on the employee for over one-half of his
support, or an unmarried child who is incapable of self-support because of a men-
tal or physical incapacity that existed prior to his reaching the age of nineteen
years and who is in fact dependent on the employee for over one-half of his
support; or such other persons as are included in such terms by or pursuant to
regulations prescribed by the Commission after consultation with the Advisory
Council. The term "child" includes an adopted child or a stepchild.
(f) The term "head" in reference to an employing establishment means (1)
the President with respect to the Executive Office of the President; (2) the
Secretary of an executive department with respect to his department, and the
highest administrative and policymaking officer or body, of any other independ-
ent establishment in the executive branch with respect to such an establishment,
except that in the case of any establishment governed by a board, commission,
or other plural-member body, where the presiding officer of such body is by law
designated as the chief executive and administrative officer of such body, he
shall be deemed to be the head of such establishment for the purpose of this
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134 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Act; (3) the Administrative Officer of the United States Courts with respect
to the judicial branch ; (4) the Comptroller General of the United States with
respect to the General Accounting Office; (5) the Librarian of Congress with
respect to the Library of Congress; (6) the Public Printer with respect to the
Government Printing Office; (7) the Architect of the Capitol with respect to the
Office of the Architect of the Capitol ; (8) with respect to officers and employees
of the legislative branch not under the jurisdiction of any other aforementioned
officers, the Speaker of the House of Representatives and the President of the
Senate jointly, or such other officer or officers as may be specified by concurrent
resolution of the Congress, or, with respect to officers or employees under the
jurisdiction of either House, by resolution of such House ; and (9) the Board of
Commissioners of the District of Columbia with respect to the municipal gov-
ernment of the District of Columbia.
SEc. 4. (a) Except as provided in subsection (b) of this section, each ap-
pointive or elective officer or employee (hereinafter called "employee") in or
under the executive, judicial, or legislative branch of the United States Gov-
ernment, including a Government-owned or controlled corporation (but not in-
cluding any corporation under the supervision of the Farm Credit Administra.
tion, of which corporation any member of the board of directors is elected or
appointed by private interests), and of the municipal government of the District
of Columbia shall, if the official station of such employee is within the United
States (including the Canal Zone) at such time and under such conditions of
eligibility as the Commission may by regulation prescribe, come within the
purview of this Act. Such regulations may provide for the exclusion of em-
ployees on the basis of the nature and type of employment or conditions per-
taining thereto such as short-term appointments, seasonal or intermittent em-
ployment, and employment of like nature, and shall be issued only after con-
sultation with the head of the department, agency or establishment, and with
the Advisory Council: Provided, That no employee or group of employees shall
be excluded solely on the basis of the hazardous nature of employment.
(b) This Act shall not apply to any individual by reason of his status or
service as a "member" of a "uniformed service" as such terms are defined in
the Career Compensation Act of 1949, as amended.
SEc. 5. The provisions of this Act for a Government contribution toward the
cost of prepaid health benefits and for payroll deductions shall be applicable to
any employee within the purview of the Act who elects, for himself or for him-
self and his dependents, to enroll (subject to the enrollment requirements of
the applicable plan) in any one of the following plans approved by the Com-
mission, after consultation with the Advisory Council :
(a) Plans for health benefits which are provided, to the maximum extent
practicable, on a service basis (that is, a basis whereby [premium] payments
by plans shall constitute full payment to the providers of the services stipu-
lated in the contract, without additional charges by the providers) pursuant to
[a contract] contracts entered into by or through the Commission in accordance
with section [9-(a) 18 and the non-occupational group major medical expense
benefits specified in section 8 (c) ;
(b) Plans for [basic] health benefits on a cash indemnity basis (that is, a
basis whereby the carrier agrees to pay certain stipulated sums of money, not
to exceed the actual costs incurred, to the employee or dependent who incurs
costs or charges under the conditions of the policy) pursuant to [a. policy]
policies purchased by the Commission in accordance with section 8 [9,(a)J;
and the non-occupational group major medical expense benefits specified in
section 8 (c) ;
(c) Plans of hospital, surgical, medical, or other personal health services (or
any combination of such services) and, the non-occupational group major medical
expense benefits specified in section 8(c) duly sponsored or underwritten by a
national association of Federal employees of which the employee is a member ;
or
(d) Group practice prepayment plans, including the non-occupational group
major medical expense benefits specified in section 8(c).
[SEC. 6. (a) Each employee to whom this Act applies will be enrolled, for him-
self or for himself and his dependents, for the nonoccupational group major
medical expense insurance for benefits provided in paragraph (c).
[(b) The Commission, after consultation with the Advisory Council, is au-
thorized, without regard to section 8709 of the Revised Statutes, as amended,
to purchase from one or more insurance companies, as determined by it, a policy
or policies of insurance to provide the nonoccupational group major medical
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
expense insurance benefits specified in this Act: Provided, That any such com-
pany must meet the following requirements : (1) Be licensed under the laws
of thirty-six out of the forty-nine States of the United States and the District
of Columbia to issue group health insurance; it shall be further required that
the thirty-six States shall have at least 60 per centum of the population of the
United States ; and (2) its total group health insurance benefit payments in-
curred in the United States, excluding loss of income payments, during the
most recent calendar year for which information is available to the Commis-
sion shall equal at least 1 per centum of all such payments incurred in the
United States by all domestic companies during such year.
[(c) Nonoccupational group major medical expense insurance shall provide
the following benefits for medical, surgical, and hospital expenses incurred in a
calendar year by each individual covered by the policy :
[(1) 75 per centum of the amount by which the covered medical, surgical,
and hospital expenses exceed the sum of any cash or service benefits provided to
such covered individual for covered medical, surgical, and hospital expenses under
any other policy or contract of insurance under this Act and the applicable
medical expense deductible. The medical expenses deductible shall be as [N follows:
Exppenses
Deductible
[Annual Salary
[Under $6,000------------------------------------ ------------------------- $100
200
[$6,000 through $10,999---------------------------------------------------- 3003
$
[ 11>000 and over ---------------------------------?------------------ --
[(d) The additional extended or major medical benefits offered under sub-
section (a) above shall not, however, duplicate, replace, or substitute for the
basic benefits offered under section 9 (c), nor shall any carrier curtail the: scope
or amount of the protection afforded by programs now in existence in considera-
tion of the fact that extended or major medical benefits are to be made available
to Federal employees.
[(e) The premium rates established under the major medical contract referred
to in this section shall, with respect to classes of subscribers enrolled in the
alternative plans of basic benefits provided for under section 5, take into account
the scope of basic benefits provided by such plans.] applies, to the
SEC. [7] 6. A written notice by an employee to whom this Act abead of his employing establishment, or by an annuitant to the Commission, on
a form prescribed by the Commission, stating that he has enrolled or desires
to enroll under a plan or policy of his choice under section 5 shall, subject to
[the employee's] his right to withdraw such notice in accordance with the regu-
lations of the Commission, be deemed to authorize deductions from the employee's
pay in accordance with section 91[103 (a) or from his annuity in accordance with
section 1.2 (d). If a person [an employee] to whom this Act applies has a spouse
[who is also an employee] to whom this Act also applies, either spouse (but not
both) may file a notice of enrollment for self and dependents under this Act; or
either spouse (or both) may enroll for himself or herself alone.
SEC. [8. On each anniversary of his enrollment under section 7 of this Act,
but not earlier,] 7. At intervals established by the Commission after consulta-
tion with the Advisory Council, each employee may exercise the right to transfer
from one plan or policy offered under section 5 to another, subject to the enroll-
ment requirements of the respective plans or policies [and] the regulations of
the Commission and subject' to the provisions of section 12. The exercise of this
right shall require formal notice on a form prescribed by the Commission, which
must be submitted to the head of the employing establishment [within a reason-
able period] on dates reasonably in advance of its effective date, as determined
by the Commission[, prior to the anniversary date].
Sac. [9] 8 (a) The Commission is authorized, without regard to section 3709
of the Revised Statutes, to enter into, or authorize enrollment under, a contract or
contracts with qualified carriers offering plans described in section 5 and providing
the benefits described in this section. [with one or more carriers which provide
health benefits primarily through contracts or agreements with physicians or
hospitals for the provision of prepaid basic health benefits to be furnished to
the maximum extent practicable on a service basis ; and to purchase from one
or more carriers an insurance policy for the provision of such basic benefits on
a cash indemnity basis.] Each such contract or policy shall be for a term
of not to exceed one year, but may be made automatically renewable in the
absence of notice of termination by either party.
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(b) Subscription charges and premiums for benefits elected under section 5
shall reasonably and equitably reflect the cost of the benefits provided.
(c) [Basic benefits] Benefits, for the purpose of this section, shall consist of:
(1) Benefits which the Commission, after consultation with the Advisory
Council, finds equivalent to the full cost of hospital care in semiprivate accom-
modations for one hundred and twenty days in any period of continuous hospitali-
zation, or for one hundred and twenty days in the aggregate in any periods of
hospitalization separated by ninety days or less ;
(2) Benefits which the Commission, after consultation with the Advisory
Council, finds to be reasonable and desirable with respect to medical and surgical
services during such periods of hospitalization ; and
(3) Such benefits with respect to services to hospital outpatients and other
ambulatory patients as the Commission after consultation with the Advisory
Council, finds to be reasonable and desirable, including diagnostic and treatment
services, surgical services, and services in cases of accidental injury.
(/t) Nonoccupational group major medical expense benefits which shall pro-
vide the following benefits for medical, surgical, and hospital expenses incurred
in a calendar year by each individual covered by the policy:
(i) 75 per centum of the amount by which the covered medical, surgical, and
hospital expenses exceed the sum of any cash or service benefits provided to
such covered individual for covered medical, surgical, and hospital expenses
under any other contract or policy of insurance under this Act and the applica-
ble medical expense deductible. The medical expense deductible shall be as
follows:
Annual salary Medical expense
---deductible
0throug through -------- -------------------------------------------- $$2001
$6,000 00
$1
-------------------------------------------------- $11,000 and over -------------------??--------------------------------- 340
The nonoccupational group major medical benefits offered hereunder shall not
duplicate, replace, or substitute for the benefits offered under section 8(c) (1),
8(0) (2), and 8(c) (3).
(5) [The] All benefits referred to above may be subject to such exclusions
as the Commission, after consultation with the Advisory Council, finds to be
necessary and desirable to avoid duplication of services or benefits otherwise
available or for other reasons.
SEC. [10] 9. (a) For each employee for whom there is in effect a notice of
enrollment in a plan in accordance with section [7] 6 there shall be contributed
by the Government an amount equal to (1) two-thirds of the premium or sub-
scription charges for the plan selected [basic insurance coverage and the full
cost of the extended or major medical insurance benefits,] or (2) an amount
equal to $2.50 biweekly for an employee or $7 biweekly for an employee and his
dependents (or corresponding amounts in the case of employees paid on other
than a biweekly basis) ; whichever is the lesser. The remainder of such sub-
scription charges or premiums shall be withheld from payments of salary to
the employee.
(b) The sums contributed by the Government and the sums withheld from
salaries under the foregoing subsection shall be paid by the heads of the respec-
tive establishments to the Health Benefits Fund established under section 10
[11].
(c) Appropriations available to each of the employing establishments and
to the Commission for salaries and expenses shall be available for necessary
administrative expenses of carrying out the purposes of this Act. There are
hereby authorized to be appropriated, to the employing establishments and to
the Commission, such sums as may be required under this Act for expenses
of administration.
SEC. [11] 10. There is hereby created a "Federal Employees' Health Benefits
Fund," hereinafter referred to as the "Health Benefits Fund," from which all
premium or subscription charge payments shall be made to such central agencies
as may be established by the participating carriers, and approved by the Com-
mission, after consultation with the Advisory Council, to facilitate the admin-
istration of this Act. The amounts withheld from the salaries of employees
and the annuities of retired employees, and the amounts contributed by the
Government toward the cost of health benefits for such employees, shall be
paid into the Health Benefits Fund. The income derived from any dividends,
premium rate credits or other refunds, or from interest earnings on amounts
held in reserve shall be credited to and constitute a part of the Health Benefits
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Fund. Any amounts remaining in such fund after all premium or subscription
charges have been paid shall be retained as a special reserve for adverse
fluctuations in future charges, or for the advance funding of the cost of [insurance
coverage] health benefits for retired employees, or may be applied to reduce the
premium or subscription cost of, or to increase the benefits provided by, the plan
or plans from which such proceeds are derived, as the Commission, after con-
sultation with the Advisory Council, shall from time to time determine.
SEC. [12] 11. (a) The Commission, after consultation with the Advisory Coun-
cil, shall prescribe regulations fixing reasonable minimum standards for partici-
pating [prepaid health plans] carriers, and it shall not enter into any contract
or purchase any policy under section [9] 8, or approve any plan for purposes of
section[s 5 and 6] 5, which does not comply with such standards. Approval of
such a plan shall not be withdrawn except after notice and opportunity for hear-
ing to the carrier or carriers and to the employees concerned.
(b) No contract shall be made, policy purchased, or plan approved, which
excludes employees because of race or sex or, at the time of the first opportunity
to enroll, because of age.
(c) No contract shall be made, policy purchased, or plan approved which
does not offer to employees, whose employment under the purview of this Act
is terminated, the option to convert their health benefits coverage to an individual
contract. The terminated employee who exercises this option shall pay the full
cost of the individual contract, on such terms or conditions as [may be] arc
prescribed by the carrier and approved by the Commission, after consultation
with the Advisory Council.
(d) The benefits and coverage made available pursuant to the provisions of
this Act shall be noncancellable by the carrier as to any individual subscriber,
except for fraud or nonpayment of premiums on the part of the subscriber.
SEC. [13] 12. (a) No contract shall be made or policy purchased under sec-
tion [9] 8 which does not provide that, as long as the contract or policy is in
effect, the stipulated benefits will be provided, in accordance with this section,
to retired employees and to the survivors of the deceased employees enrolled
thereunder at the time of retirement or death [in accordance with this see-
tion]. The provisions of this section shall also be applicable to any other plan
approved by the Commission [including any plan for extended or major med-
ical benefits referred to in section 6].
(b) The benefits provided pursuant to this section [to retired employees]
shall be available [under any plan to any] to a retired employee and his de-
pendents enrolled hereunder at the time of his retirement who (1) is retired on
an immediate annuity under the Civil Service Retirement Act or other retire-
ment system for Government employees, (2) has made contributions to [an] such
approved plan either (A) for the entire three years [during the last year] of
his creditable civilian service immediately preceding his retirement, or (B)
during the entire period of his creditable service after December 31, 1959, until
his retirement, and (3) elects to enroll for such benefits [, for himself or for
himself and his dependents].
(c) The benefits provided pursuant to this section [to survivors of deceased
employees] shall be available [under any plan] to [any survivor] the survivors
of a deceased employee if (1) [the] a survivor is entitled to an immediate an-
nuity under the Civil Service Retirement Act or other retirement system for
Government employees, (2) the employee has contributed to [an] such approved
plan either for the last year of creditable service immediately preceding his
death or during all of his creditable service from December 31, 1959, until his
death, and during such period the survivors (if then living) [was] were
covered as [a] dependents of the employee, and (3) [the] a survivor elects to
enroll for such benefits. Entitlement of a survivor under this subsection shall
cease when he ceases to be entitled to an annuity under the Civil Service Re-
tirement Act or other retirement system for Government employees.
(d) The amount of subscription charge or premium to be paid by a retired
employee or a survivor of a deceased employee under this section shall not
exceed the amounts paid by active employees in the same region enrolled for the
same health benefits ; and the amount to be paid by the retired employee or the
survivor shall be withheld from his annuity and paid into the Health Benefits
Fund. The remainder of the cost of the benefits, and any amounts which may
be allocated to finance such benefits in advance for employees to be retired in
the future, shall be contributed by the Government to the Health Benefits Fund.
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138 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
SEC. [14] 1,l. Any employee enrolled in a plan under this Act who is removed or
suspended without pay and later reinstated or restored to duty on the ground
that such removal or suspension was unjustified or unwarranted shall not be
deprived of coverage or benefits for the interim but shall have his coverage
restored to the same extent and effect as though such removal or suspension
had not taken place, and equitable adjustments shall be made in premiums,
subscription charges, contributions, and claims.
SEC. [15] 14. Each employee enrolled in accordance with this Act shall receive
either a contract or certificate, as specified in the plan or policy, setting forth
the services or benefits to which the employee, or the employee and his depend-
ents, are entitled thereunder, to whom monetary benefits shall be payable, the
procedure for submitting claims, and containing or summarizing the principal
provisions of the policy or plan affecting the employee or the employee a,nd his
dependents.
SEC. [16] 15. The Commission is authorized to prescribe such regulations as it
finds necessary, after consultation with the Advisory Council, for the adminis-
tration of this Act, including regulations with respect to the manner in which
employees shall give notice of enrollment under section [7] 6, regulations govern-
ing continued coverage during temporary absence without pay, and the condi-
tions (relating to reasonable notice to the employees affected) under which a
plan approved by the Commission may be withdrawn. Regulations, procedures,
and forms relating to the fiscal and accounting aspects of the administration of
this Act shall be subject to the approval of the Comptroller General.
SEC. [17] 16. There. is hereby established a Federal Employees. Health Benefits,
Advisory Council, to be appointed by the President and to consist of not more
than fifteen persons, one of whom shall be designated to serve as Chairman
of the Advisory Council. At least nine of the members of the Advisory Council
shall consist of representatives of bona fide Federal employee associations, and
shall serve without compensation, except for actual and necessary travel and
subsistence expenses while so serving away from their places of residence. The-
other members of the Advisory Council, shall be persons experienced in the
administration of prepaid health benefits or in the rendition of services under-
prepaid health benefit plans, and shall be compensated while serving on business
of the Council, at such rate, not in excess of $50 per day, as the Chairman of
the Commission may determine, and shall also be entitled to receive an allow-
ance for actual and necessary travel and subsistence expenses while so serving
away from their places of residence. It shall be the duty of the Advisory
Council to review from time to time the operation and administration of this
Act; to receive reports and information with respect thereto from employees,
and their representatives ; to consult with and advise the Civil Service Com-
mission, and when it deems necessary the employing establishments, in regard
to the administration of this Act ; and to make recommendations to the Com-
mission with respect to the amendment of this Act or improvements in its ad-
ministration. Each member of the Advisory Council shall hold office for three
years ; except that of the members first appointed, one-third shall hold office
for one year and one-third for two years; and that a member appointed to fill
a vacancy occurring prior to the expiration of a term shall hold office for the
remainder of such term. The Council shall meet not less often than quarterly,
on call of the Chairman of the Civil Service Commission or on request of any
three members of the Council. The Commission shall provide the Council with
the secretarial and clerical staff necessary and appropriate to the performance
of its functions.
SEC. [18] 17. The Civil Service Commission shall make a continuing study of
the operation and administration of this Act ; including surveys and reports
on health [insurance] benefit plans available to employees and on the experience
of plans receiving contributions under this Act, with respect to such matters
as gross and net cost, administrative cost, benefits, utilization of benefits, and
the portion of the actual personal expenditures of Federal employees for health
care which is being met by prepaid benefits. The Commission shall from time
to time make reports to the Congress and to the Advisory Council, on the results
of such studies, and recommendations with respect to the amendment of this
Act. The Council shall make such reports and recommendations available
generally to employees to whom this Act applies, and to carriers providing benefits
under this Act.
SEc. [1Q] 18. The district courts of the United States shall have original juris
diction, concurrent with the Court of Claims, of any civil action or claim against'
the United States founded upon this Act.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 139
SEC. [20] 19. This Act, including provisions for withholding and contributions,
shall become effective on July 1, 1959, or to the extent so provided in regula-
tions of the Commission, on the first day of the first pay period after that date-
The CITAniMAN. Benefits offered by the various Blue Cross plans
throughout the country differ considerably as to charges. Will
employees get the same benefits under this bill regardless of where
they are located or will they have to take benefits offered by the local
plan?
Mr. COLMAN. The provisions of this bill requires that we offer a
set of uniform benefits to the employees throughout the country.
Mr. REES. Uniform for everybody in every State?
Mr. COLMAN. Yes, sir.
Mr. REES. How would that affect the contributions? I notice in
Lyon County, Kans., for example, family contribution now is $9.80
while the contribution in this bill shows $18.40. There is a difference
there.
Mr. COLMAN. You are referring to the rate that is paid by the
people in Lyon County for the benefit program that is most generally
offered to the people in that community. I am sure that is not the
only rate being paid in Lyon County for different sets of benefits of-
fered in that community. The comparison of the rate has to be, as I
pointed out earlier, related to benefits provided under the program
and to the differential cost factor.
Mr. REES. They would pay $9.80 under this bill. Under the pro-
posed combined Blue Cross-Blue Shield rate program the total would
be $18.40-almost twice as much money, so when they pay their share
they gain only about 60 cents.
Mr. COLMAN. As I pointed out earlier, I do not think the two figures
are comparable because benefits to which they are entitled are entirely
different.
Mr. REES. Are you going to have similar benefits across the country?
Mr. COLMAN. Yes, sir.
Mr. REES. They will all be alike?
Mr. COLMAN. Yes, sir.
Mr. REES. So the fellow who pays $11.90 in Georgia will get the
same benefits as a man paying $16.87 in Battle Creek, Mich.?
Mr. COLMAN. I am not getting my point across to you.
Mr. REES. Battle Creek pays more than anybody else in this list.
Mr. COLMAN. This table, sir, is what individuals are paying in those
communities for the type of program which is most generally accepted
in those communities under We Cross. There are other Blue Cross
subscribers in these communities paying different rates from these
because they are getting larger benefits, different benefits, and there
are others paying smaller amounts than these because they are getting
fewer benefits.
Mr. REES. Battle Creek does get more benefits than they do in my
county in Kansas.
Mr. COLMAN. Under the Blue Cross program most widely in effect
in those two areas.
Mr. REES.. When this bill becomes effective they will get the same
benefits?
Mr. COLMAN. The table to which you are referring has no relation-
ship to what will be provided under the bill. When this bill becomes
43962-59--.10
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140 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
effective there will be a uniform program for all Federal employees
and their rates of payment will be exactly the same.
Mr. REES. His benefits may be less and mine more?
Mr. COLMAN. His benefits will be the same.
Mr. REEs. Less than they are now?
Mr. COLMAN. Oh, no. The program contemplated in this bill, I
think in every instance, will be greater than the benefits that are
routinely available under the most commonly held certificate in these
areas.
Mr. CORBETT. Did not the gentleman testify in his last appearance
that in all probability the program contemplated by this legislation
would include more benefits than are included in most other programs?
Mr. COLMAN. Except for some of the large employer group pro-
grams I think this is a more liberal program than is routinely avail-
able to small groups.
Mr. REES. Will the benefits be similar and uniform?
Mr. COLMAN. I am talking about benefits.
Mr. REES. They will be uniform?
Mr. COLMAN. Yes, no matter where they are, and those uniform
scales of benefits will be higher than the benefits that are routinely
available to most small groups now.
Mr. FOLEY. If I understood Mr. Rees' reference, he said in his home
community they are paying $9 and some cents for a program now.
The figure of $18 and some cents was cited.
As I understand your testimony, the $18, half of which would be
paid by the Federal Government, would provide that particular
family he is thinking of with a higher level of benefits than the family
now is receiving on its own paying the $9 and some cents. Is that it?
Mr. COLMAN. Exactly.
Mr. RE ES. We pay $9.80 now.
Mr. FOLEY. Yes.
Mr. REES. Under the bill the family contribution will be $18.40.
Mr. FOLEY. The family contribution would be one-half of that as I
understand it.
Mr. REES. They would pay almost the same thing they are paying
now.
Mr. FOLEY. The $18 figure is the maximum total Federal and indi-
vidual family contribution?
Mr. COLMAN. Yes.
Mr. FOLEY. It would be half of $18 that the family would pay and
the Government will pick up the tab for the rest.
Mr. JOHANSEN. As I understand it, it would be $9.20 as the bene-
ficiaries' portion as against $9.80.
Mr. FOLEY. But the level of benefits would be much higher because
the Government is paying the balance.
The CHAIRMAN. As you know, costs of hospital services have been
increasing over the past several years. Do you look for a further in-
crease in the next few years?
Mr. COLMAN. I would assume that.
The CHAIRMAN. In all services-medical, surgical, and general hos-
pitalization ?
Mr. COLMAN. I am most at home in the field of hospital care, and
if I may I would like to restrict my comments to that. Perhaps Dr.
Stubbs will want to talk about the other aspects of it.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES . 141
As far as hospital care is concerned I would expect that for the next
2 or 3 years there will be some continuing increase in the cost of hos-
pital care of the order of that which has been shown in recent years.
Mr. DAVIS. Why is that?
Mr. COLMAN. There is a series of factors which I referred to in my
prepared statement.
The first factor is that I believe average salaries paid in hospitals
will continue to increase. There seems to be nothing that would sug-
gest that they would stay level. That factor alone represents approxi-
mately 65 percent of their total expenditures.
The services being provided in hospitals are constantly changing.
I made reference to the question of open heart surgery. This is a very
complex procedure that involves a team of people. It is being under-
taken in more hospitals than ever before. A few years ago it was
being done in only a handful of institutions. It is now much more
general as more people are trained in it and compete in it. Operations
last 6 hours, with sometimes a shift of surgical teams, highly skilled
people tied up on one operation, so that the unit cost of hospital care
begins to mount as you undertake these more involved and complex
procedures.
The other question is the purchasing power of the dollar to which
I referred.
Another is better accounting for capital charges.
In the late thirties the capital costs of hospitals were very largely
met from philanthropic funds. A new building was almost always
paid for by philanthropy.
This is less and less true and hospitals have begun to account for the
capital charges that are involved in this.
Mr. PORTER. I would like to ask if the figures to which you are re-
ferring having to do with dollars, where you said 65 percent of the
costs was due to salary increases, whether those figures can be broken
down. Have there been studies made which would show what per-
centage of these salaries were administrative in the sense of execu-
tive and clerical, which were operational in the sense of semiprofes-
sional, professional, menial, and so on?
I would like to have the facts wherever interpretations are avail-
able and look at them from the standpoint of control.
In some institutions costs can get out of hand. I think you have
agreed to furnish information about salaries generally. I would
like to have you enlarge on. that if you can do it.
Mr. COLMAN. I can tell you offhand from my own knowledge that
of the order of 90 percent of that cost is represented by housekeeping,
maintenance, nursing personnel, things of that sort.
Mr. PORTER. I take it studies have been made which can be made
available to the committee showing what these salaries are and break-
ing it down and interpreting it?
Mr. COLMAN. Yes.
Mr. PORTER. And showing specifically the executive salaries to see
whether or not they would be out of line?
Mr. COLMAN. That is right.
Mr. PORTER. I assume the insurance commissioners look at these
from time to time?
Mr. COLMAN. Not hospital salaries; no.
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142 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. PORTER. But we will have those figures?
Mr. COLMAN. That is right.
Mr. PORTER. Are executive salaries looked at by insurance com-
panies when the matter of rates comes up?
Mr. COLMAN. No.
Mr. PORTER. What controls are there on executive salaries ?
Mr. COLMAN. For the most part these are voluntary nonprofit
agencies responsible to a board of unsalaried persons who have no
financial stake in their operation. Distinguished citizens in the com-
munity are involved who accept that responsibility and have it.
Mr. PORTER. We will get that information, however?
Mr. COLMAN. Not the executive salaries of hospitals, sir. I don't
have it and I don't know whether I can get it.
Mr. PORTER. It does not exist so far as you know?
Mr. COLMAN. Not that I know of on any collective basis.
Mr. PORTER. On any individual basis, is there any information
available of this kind?
Mr. COLMAN. Not that I know of, sir.
Mr. PORTER. I take it you know the salaries of your own organiza-
tion.
Mr. COLMAN. Yes, sir.
Mr. PORTER. Could we have those?
Mr. COLMAN. Yes, sir. I would be glad to give you mine, if you
want it.
Mr. PORTER. I want them in connection with the others. I see no
reason to single out the gentleman, who apparently earns whatever
he is getting.
Mr. COLMAN. At least this morning.
Mr. PORTER. I would like to go into the matter of competition, which
we talked about briefly the other day. I understand there is a medical
service group in New York, which Mr. Fino mentioned this morning,
which does serve the New York employees and is an alternative to Blue
Shield. Is that your understanding?
Mr. COLMVrAN. Yes, sir.
Mr. PORTER. What I am getting at is, why can we not change this
portion of the act? What are the objections-I assume there are some
because I assume the matter has been discussed-to one Government-
wide service benefit plan? In this case and in others where competi-
tion exists, why can there not be an alternative for the Government to
choose on a competitive basis?
Mr. CoLMAN. A comment was made which I would like to pass on
to you before I answer your question. I felt from the earlier com-
ments about the New York State program that there might be some
misunderstanding about that. The bulk of the employees in New York
States are covered by Blue Cross and Blue Shield under the New
York State program.
Mr. PORTER. Do they have a choice of this other one?
Mr. COLMAN. They have a choice of the group practice prepayment
program which is provided for in this bill. That is the item 4.
Mr. PORTER. But do they have a choice between this organization
whose name I do not remember, and yours and Blue Shield?
Mr. COLMAN. So far as I know, sir, they have exactly the same
choice that would be available under this bill. They can choose the
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Blue Cross or Blue Shield program, or they can choose the health
insurance program of New York, which is a group practice prepay-
ment program.
Mr. PORTER. I understand we are going to hear one of these gentle-
ment next Tuesday, so I shall not labor this matter right now, but it
did seem to me that under a service benefit plan, alternative. groups
now exist which could bid, and I was wondering what objections
there would be to that.
Mr. COLMAN. I think where we are having trouble, sir, is that we
have service benefit plans and group practice prepayment plans
.mixed up together.
Mr. PORTER. It is nice of you to say "we." It must be just me.
Mr. COLMAN. No, because we are both in this together. I think
the organization you are talking about in New York State is the
Health Insurance Plan of Greater New York. It is a group practice
prepayment plan, and presumably it would be one of the plans which
would make an offer under section 4, subsection (4), on page 8 of this
bill, as well as the Blue Cross-Blue Shield program which would be
offered under section 4, subsection (1), on page 7 of the bill.
I think that is correct, sir.
Mr. PORTER. We do not need to speculate, because on Tuesday we
will know.
Mr. JOHANSEN. Will the gentleman yield for a moment?
Mr. PORTER. Of course.
Mr. JOIIANSEN. Do I understand the point of apparent uncertainty
concerning the plan the gentleman from New York referred to in his
testimony, and which I understand the gentleman from Oregon is re-
ferring to, is whether that is of the Blue Cross-Blue Shield variety
or whether it is of a different category?
Mr. COLMAN. That is correct.
Mr. JOHANSEN. It seems to be the impression that it is of a different
category.
If the gentleman will yield further do we not come back to the
question I asked on Tuesday, to wit, that if there is a Green Shield
and Green Cross program, there is nothing in in this legislation which
prohibits the consideration in advance of the awarding of the con-
tract any time it is up for consideration?
Mr. COLMAN. That is correct.
Mr. Jo:FHANSEN. So the element of competition, if competition is
available, is written into this legislation.
Mr. COLMAN. Yes.
Mr. JOHANSEN. Then what is the shouting about?
Mr. COLMAN. I do not know.
The CHAIRMAN. Is it true that you have the contracts with hospi-
tals which you now use so tied up that no other competitive organiza-
tion can come into the hospital? Is that true or not ?
Mr. COLMAN. No, sir.
The CHAIRMAN. It is wide open now in all the hospitals?
Mr. COLMAN. The hospital can contract with anybody it wants to.
The CHAIRMAN. There is nothing in your contract which gives you
;exclusive rights?
Mr. COLMAN. Even if there were, I do not think it would be sus-
tained in court.
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144 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. JOIIANSEN. That would be monopolistic, would it not?
Mr. COLMAN. Yes.
Mr. PORTER. A couple more questions, if I may, Mr. Colman.
On page 3 it says :
The term "member of family" means employee's or annuitant's spouse, un-
married child under the age of 19 years * * *.
I am interested to know if 19 is the usual age that is used.
Mr. COLMAN. Yes.
Mr. PORTER. That is normal among the plans?
Mr. COLMAN. Yes. In further reference to that, Sir, there is a
little discussion of that in the Senate committee report. The reasoning
behind the choice of 19 was that at that age children either go to
college or go to work, as a general rule. If you vacillate on that point,
you begin to treat people who go to college differently from people
who go to work. Nineteen is the age at which people usually graduate
from high school, and it seems to be the most appropriate age.
Mr. PORTER. You define the term "dependent husband" but you do
not say "dependent child." You just cut them off at 19.
Mr. CoLMAN. That is true.
Mr. PORTER. On page 9 is a phrase that I wish you would interpret
for me. It is used a couple of times in lines 14 to 16, and then in lines
21to23.
Persons with incomes less than those of the one-quarter of Federal employees
earning the highest incomes.
Does that mean an average Ora, mean with incomes less than those
of the one-quarter? Do you go down le line of all the incomes and
then come down one-quarter and right at that point it would have to
be less? In other words, t le three-quarters lowest? Is that what
it is?
Mr. COLMAN. I would defer to people with more experience than
I in interpreting legislative language, but it was my interpretation of
that, sir, that you would go down the line until you came to that point.
I looked up some records as to where that would occur, and I believe
it occurs somewhere between $5,000 and $6,000 annual income.
Mr. PORTER. In other words, this goes back to the so-called sliding
scale that doctors sometimes use. If they see somebody in their office,
sometimes they do not investigate and find out what he has, but if his
suit looks like it and he looks like it, they charge him one fee. On the
other hand, if he looks as if he could stand more, they charge him
more. That is what this is?
Mr. COLMAN. This does not affect Blue Cross. This is primarily
Blue Shield, the medical care benefit programs.
Perhaps Dr. Stubbs will want to comment on that in respect to the
whole medical program.
Mr. PORTER. I would be glad to have light on it. It looks to me to
be very much at large. I realize the Commission finds it, and it is just
a guideline for them. I would be glad to have any more light on it.
The CHAIRMAN. You look for an increase in hospital and medical
care expenses for how many years in the future? How far ahead
can you~predict ?
Mr. COLMAN. During the next 3 years I see nothing which will
change the trend appreciably.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 145
The CHAIRMAN. Would you be willing to enter into a contract with
the Government for the next 3 years at a fixed price?
Mr. COLMAN. We have, I think, a couple of States where we might
have legal difficulties with that. Whether we could overcome that
or not, I do not know. There are one or two. States where I think
the individual plans would want to have an annual contract. Whether
we could provide a way around that for a national contract by having
that proportionate liability picked up elsewhere, I am not prepared
to state at the moment. I would strongly urge that in a program
of this sort where the number of participants is a matter of their
choice and not a matter of statistical determination, both the carriers
and the Government would be well advised to enter into at least
the first year's contract on an annual basis, and then take a good, care-
ful look at it at the end of the year and decide then what you want
to do about the term of the contract.
Mr. JOHANSEN. Right at this point, one of the areas of greatest
concern to me is expressed in the individual views of two members of
the other body in the report. I want to read those.
S. 2162 contains no provision which would clearly permit adequate prefunding
for the purpose of avoiding frequent increases in subscription rates.
Continuously increasing utilization of health facilities plus the steady growth
in the cost of these facilities will very soon cause the subscription charges
under S. 2162 to rise. This is evidenced by the fact that plans with unlimited
liability to pay for health services have had their reserves depleted and have
been constantly plagued by price increases during the last few years.
To stave off frequent increases in contract rates, S. 2162 should explicitly
provide for setting aside an adequate reserve. The reserve of 3 percent of
1 year's contributions plus income derived from any dividends, premium rate
credits, or other refunds which S. 2162 relies on to provide the necessary reserve
is totally inadequate for the purpose.
A health insurance program cannot subsist on a hand-to-mouth basis.
I realize that some of this may not be relevant to your type of pro-
gram, but the problem of changes in rates or reductions of benefits
and the problem of anticipating those deeply concerns me.
I wonder if you would care to comment on the whole statement
I quoted.
Mr. COLMAN. Yes, sir.
It raises a very real issue to which I think the committee should
address itself. The minute you start to provide for the establishment
of prefunding of liabilities within the structure of Government, you
are assuming the responsibility of estimating the amount of those
liabilities. If your guesses are wrong, you will have to underwrite
them.
Mr. JOIIANSEN. You mean if the guesses are low.
Mr. COLMAN. That is right. If the guesses are high and, I strongly
suspect, no matter what the guesses are, the amount of the reserve
for really unpredictable, unknown future variations will be subject
to continuing question and attack for every year that it sits there.
The notion of collecting payments from employees and from Gov-
ernment and setting them aside for a very indeterminate liability is
something that I think the committee ought to give very careful
consideration to.
Mr. JOHANSEN. We have had some very unhappy experience in that
area.
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146 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. COLMAN. That is right. Our strong urge was that in the long
run the safest way to go at this was on a pay-as-you-go basis, and a
good, careful look at it every year.
The CHAIRMAN. Should we not set up a reserve each year to pro-
vide against further increases in costs for hospital and medical care
or reduction in benefits?
Mr. COLMAN. I think the negotiation of the contract and the period
for which it is negotiated will have to take all of this into account,
but the notion of setting up a specific reserve for a liability over a long
period of time which is, to my mind, indeterminate, is a questionable
approach to the problem.
Mr. JOHANSEN. May I pursue this suggestion? Do I understand
you to suggest that there should be, at least at the outset, an annual
review?
Mr. COLMAN. Yes.
Mr. JOIHANSEN. Where would you perceive the responsibility would
lie if at the time of the annual review it was determined that either
premiums, both to the beneficiaries and to the Government, would have
to be increased or benefits reduced? Could that decision possibly be
administrative? Would it not be legislative?
Mr. COLMAN. If it was within the maximum limits of the bill, it
could be administrative. If it exceeded the maximum limits of the
bill, it would have to be legislative.
Mr. JOHANSEN. Is it your anticipation that frequently the problem
would be of such scope that it would not be within the maximums and,
therefore, would be a legislative decision?
Mr. COLMAN. The frequency with which that occurred would de-
pend entirely on how closely you approached the maximums the first
year. In other words, if the first year you negotiated the program it
hit right on the nose of the maximums, and you used the $304 million
that it is estimated this will cost the first year
The CHAIRMAN. Do not leave out the Civil Service Commission's
estimate of $405 million. Yours is not the only estimate on this cost.
Mr. COLMAN. Mr. Chairman, inasmuch as, to my knowledge, the
Civil Service Commission has not made an estimate on this bill, whose
terms are different from S. 94, I respectfully point out, sir, that that
$405 million referred to S. 94.
The CHAIRMAN. What do you estimate the cost of S. 94 to be?
Mr. COLMAN. $313 million.
The CHAIRMAN. All right. What is the estimated cost of the bill
as it passed the Senate?
Mr. COLMAN. $304 million.
The CHAIRMAN. A difference of only $9 million.
Mr. COLMAN. Yes, sir.
Mr. JOHANSEN. I am concerned about this thing on several. scores.
One, as I observed the other day-I do not think to this witness-
I do not want the Federal Government or the Congress to be, in the
role of an Indian-giver, in the sense of seeming to grant something
to the employees and then, due to factors beyond our control, the em-
ployees' control and the control of anyone else, either it shrinks or the
employees have. to pay more along with the Government.
I am concerned also about how frequently the Government may be
faced with an unanticipated increased cost. I am concerned about
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 147
how frequently we may have opened the question of whether, by rea-
son of these unanticipated increased costs, the Federal share ought to
be increased so it will be absorbed. I am just wondering how perennial
a problem this will be and whether your experience in terms of other
groups casts any light on this.
Mr. COLMAN. There is nothing in the last 10 years' experience in the
development of health services which suggests that this is not some-
thing which will have to be looked at periodically through the years.
The question of whether you look at it every 3 years or every 1 year
or every 5 years depends on the care with which you go into it in the
first place.
From all that I know, I think after you get by the first hurdle and
have some understanding of how many employees are going to take
advantage of this program, from there on you can begin to develop an
orderly approach to, it. We have been able to do it with other large
groups. The steel program is on a 3-year basis. It is not an easy
problem, because the inherent factors in it are not easy, but it is not
an impossible problem.
Mr. JoHANSEN. How does the problem which is reflected in the
statement I quoted differ with respect to the other alternative types
of coverage as against your type of coverage?
Mr. COLMAN. I think the factors are substantially the same as they
affect group practice prepayment. They could be the same as they
affect the indemnity benefit program. It would depend entirely on
the terms in which the indemnity benefit program was written.
I do not pretend to know about all of the employee association pro-
grams, but most of those I do know about are written in such terms
that this would not be a substantial factor as. far as the employee asso-
ciation programs are concerned.
Mr. JOHANSEN. Why is that so?
Mr. COLMAN. Because I believe most of their programs are written
in rather strict indemnity terms. The program discharges its resppon-
sibility by paying out so many dollars. The only thing that affects
the fluctuation there is frequency of use. You do not have the question
of changing costs involved in it.
Mr. JOHrANSEN. I see.
Mr. FOLEY. Will the gentleman yield there fora question?
On the frequency of use, could we translate that into claims expe-
rience. When you say "frequency of use," are you not thinking in
terms of the beneficiaries using the program?
Mr. COLMAN. That is right, and the types of services they use, too.
Mr. FoLEY. In connection with Mr. Johansen's question, does that
factor of claims experience not run through all types or programs,
yours as well as others?
Mr. 'COLMAN. Yes, sir.
Mr. FOLEY. So, considering a fixed-cost item, your forecast as to
the claims experience could be wrong, and even with the $18.40 maxi-
mum payment now, your estimate as to the claims experience for the
level of benefits or benefit schedule you provide could be wrong, even
at the end of 1 year, could it not?
Mr. COLMAN. That is correct.
Mr. FOLEY. If a 3-year contract were signed under that program,
you would have to absorb out of your own extra reserves elsewhere for
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148 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
the 3-year period if, in fact, you made a mistake in the forecast of
claims. Is that not correct?
Mr. COLMAN. Yes, sir; but it is not the estimate of claims that
bothers me. That one we can estimate pretty accurately.
Mr. FOLEY. From an actuarial standpoint?
Mr. COLMAN. Yes.
Mr. FoLEY. The actuarial :prediction is fairly accurate. So the
uncontrollable factor is the claims experience inherent in all programs,
plus the other uncontrollable factor, namely, the rising cost of the
services outside, doctors and hospitals.
Mr. COLMAN. Yes, sir.
I might make one other point on this. Even in the indemnity pro-
grams where indemnities do not create a problem over a short period
of time, if there gets to be too much of a differential between the in-
demnities provided in the program and the actual expenses which
people incur when they get sick, eventually you have to change the in-
demnity. So the factor is at work in all the programs if you really
do the job of providing the services which are in general use.
Mr..JOHANSEN. Because they are getting a lesser service.
Mr. COLMAN. Yes.
The CHAIRMAN. Mr. Harmon.
Mr. HARMON. Mr. Colman, I have been covered by the Blue Cross
and Blue Shield plan in Muncie, Ind. I believe my half of the
premium under the family plan when I first had it was $1.85 a month.
I worked for General Motors Corp. at that time. I believe the
literature indicated that after we had more members maybe the cost
would not be that much; but it has increased every year. It was al-
ways said, "You get more benefits," but I always noted that you got a
little more here but lost a little there in regard to the benefits.
Today, I think it says here, the premium is $12.17. Half of that
is $6.08. I think mine today is more than that under General Motors.
You mentioned the steelworkers, who have different coverage. I
think they have medical payments under Blue Shield in theirs.
What I am getting at is this. This thing has grown tremendously
in the years which have gone 'by.. I have yet to see the first time that
anyone has ever had to pay less. It always has been more.
You say that the hospital costs were 65 percent labor. Today in
Muncie or anywhere else, they do not pay too much for labor in hos-
Vitals, even the skilled help, the nurses, and that type of personnel.
still would like to know why, since we have so many more people
covered, the cost is so high. Have you an answer to that?
Mr. COLMAN. I will try.
When I first started in Blue Cross, the average salary to a graduate
nurse was about $85 a month. At the moment it is about $300 a
month.
Mr. HARMON. Not in the hospital in Muncie, but go ahead.
Mr. COLMAN. I bet it is $275, is it not, for a graduate nurse?
Mr. HARMON. It is very poor. I will have to check on it to be sure,
but I know the girls complain.
Mr. COLMAN. I am sure of that.
That is the range of variation that there has been since 1946 on that
one item, to my personal knowledge.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
On the question of Blue Cross charges, the first family rate that
I know of was put in operation in Newark N.J., in 1935 or 1936.
It was $2 a month per family. It stayed to same until well into
the war. During that period some benefits were added at no
change in the rate. It was not until the impact of the war economy
that these changes began to move.
I think what we are, looking at here is, in a very concentrated,
magnified way, the net result Ora whole series of changes which have
taken place in the economy of this country. It operates in such a
way that you see it in one indicator. It is just as much an economic
indicator as the cost of living index or the gross national product or
gone of the other standard indicators.
Mr. HARMON. Last year, in August, I was in the hospital for 4
weeks. You could hardly find a registered graduate nurse in that
hospital, and I suspect that is true all over the country. They may
have 1 for 100 patients or 50 patients. Then they have a lot of free
workers like the Red Cross Gray Ladies. Then they have nurse's
:aids and people like that.
Incidentally, due to the lack of nurses, I was given too much of a
drug and almost died. I got five more grains than I should have
gotten of a certain potent drug. Maybe somebody was trying to get
rid of me, I do not know.
Anyway, I still cannot see why it costs so much.
Mr. COLMAN. It is no mystery to those of us who have lived with it.
I do not know any way to understand it other than to be right in the
middle of it and feel it. There certainly is no scandal involved in it.
This does not come out anywhere. There have been all kinds of
investigations and legislative inquiries and all sorts of things. You
cannot find anything of that sort.
You find a group of relatively low-paid, dedicated people trying to
do a job under very difficult circumstances.
Mr. HARMON. May I ask one more question. This is a nonprofit
corporation?
Mr. COLMAN. Yes, sir.
Mr. HARMON. You do have a lot of real estate holdings, do you not?
Mr. COLMAN. Very few. A few of the plans own their own build-
ings in which they operate.
Mr. HARMON. Did not Blue Cross buy a big building in Chicago?
Mr. COLMAN. No, sir. They rent that.
Mr. HARMON. The whole building?
Mr. COLMAN. No; just the two floors they occupy.
Mr. HARMON. They have two floors?
Mr. COLMAN. Yes.
Mr. HARMON. Do you invest any of your money reserves and make
it bring in more money?
Mr. COLMAN. We try to.
Mr. HARMON. That is all.
The CHAIRMAN. Would you be willing to enter into a contract un-
der this bill for a period of 3 or 4 years at fixed costs ?
Mr. COLMAN. I am not qualified to speak on that, sir. I would
say that if the administering agency under the bill wanted a 3-year
contract, which we have done in some national programs, we would
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150 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
certainly do our best to deliver that kind of contract. I think that-
3 years probably is as long as we would be qualified to consider it..
The CHAIRMAN. In a 3-year contract, you would anticipate the in-
creased costs of hospitalization?
Mr. COLMAN; Yes, sir, we would try to.
The CHAIRMAN. What kind of reserve do you think should be set
up under this plan, if it is approved and becomes law, to absorb rate
increases for hospital and medical care for the next 5 years?
Mr. COLMAN. As I stated earlier, sir, the notion of setting up re-
serves within the structure of the health benefits fund as provided
by this bill, I think has great hazards in it.
The CHAIRMAN. Why is that? I wish you would elaborate on:
that.
Mr. COLMAN. If you ask us to give you a contract over a period
of time, we give you a contract, and if we are wrong that is our
problem, and that is the end of it. If the attempt is made to set up
the reserves within the structure of Government and any underesti-
mate is made, I think then it becomes an added cost to Government
and the liability comes back to you on the basis of appeal and need.
You cannot quite make it so final and so terminal if it is done with-
in the structure of the health benefits fund.
As I said earlier, the adequacy of that reserve, remembering that
half of it is coming from employees, will be under constant ques-
tion and attack, and I think it would be an uncomfortable thing for
Government to try to administer. In a sense, it would be putting
the executive branch of Government into the position of carrying an
insurance responsibility under this act.
The CHAIRMAN. I think a reserve should be set up so contingencies
in the way of increases for the next 3 to 5 years could be met. The
Senate recommended a 3-percent reserve. You do not approve of
that?
Mr. COLMAN. Yes, sir, I do. I think you do need a reserve of that
order of magnitude, but I do not think that reserve alone will pro-
tect against all the contingencies which may be required during that
period.
I think your major protection, sir, on. this point, is to make sure
that the initial entry into the program, is as careful and as modest
as possible, and that we do not try to spend all the maximum that is
in the bill for the first year. I think that is the important considera-
tion. I think it is for that reason that the bill wisely provides that the
initial contract comes back to this committee for review.
The CHAIRMAN. What has been the increase in hospital care for the
last 3 years, let us say?
Mr. COLMAN. That appears in table 3-3 percent, 3.5 percent, 7.3
percent.
The CHAIRMAN. Making a total of how much?
Mr. COLMAN. In those years, 13.8 percent.
Mr. BEES. Do I understand that under this plan, surgical benefits
would be uniform across the board?
Mr. COLMAN. Yes, sir. Mr. Bees, you are getting into the Blue
Shield aspect of it, which Dr. Stubbs, I think, would be better quali-
fied to testify on than I.
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HEALTH BENEFITS FOR FEDERAL EMPLO 4
Mr. REEs. I would like to nail that down. Your position is that
surgical benefits will be alike everywhere?
Mr. COLMAN. Yes.
Mr. BEES. They will cost the same everywhere?
Mr. COLMAN. Yes.
Mr. BEES. I want to go back just briefly to take another State in
this table we have talked about, entitled "Combined Blue Cross/Blue
Shield Rates." We discussed Kansas a while ago. Let us go to an-
other one. I will take Tennessee, where the charge per family is $8.30.
According to this statement, if this bill should go into effect, the fam-
ily costs will be $18.40 and the family will pay, not $8.30, but $9.40.
In other words, they will pay more than they have before, even though
they are expected to contribute half of the costs. What becomes of
the rest of the money?
Mr. COLMAN. That is assuming, sir, that the Federal employees in
Tennessee are enrolled under the most commonly held certificate in
that area.
Mr. BEES. I assume they are all the same certificate.
Mr. COLMAN. No, they are not. That is the point, sir. Those are
,all different benefits in those areas.
Mr. BEES. In other words, what you are telling us is that a family
will get more benefits under the new plan than they do now.
Mr. COLMAN. I think they will, yes.
Mr. BEES. You have no way of knowing that, because the benefits
.are uniform, is that not correct?
Mr. COLMAN. The benefits are uniform under the new plan. They
are not uniform under the programs they have now.
Mr. REES. All families are treated alike as far as benefits are con-
=cerned.
Mr. COLMAN. Yes, sir.
The CHAIRMAN. That is a quorum call. The committee will have
to adjourn.
Tomorrow, Mrs. Granahan's subcommittee has a hearing which has
been scheduled for the last couple of weeks, and we shall have to give
way to Mrs. Granahan. The next hearing on this legislation will be
next Tuesday. We hope to continue hearings throughout Tuesday,
Wednesday, Thursday, and Friday, if we can, if no other special
committees have hearings next week.
I shall ask Mr. Colman and Dr. Stubbs to return next Tuesday at
10 a.m.
The committee stands adjourned.
(Whereupon, at 12:05 p.m., the committee adjourned, to reconvene
at 10 a.m., Tuesday, August 4,1959.)
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HEALTH BENEFITS PROGRAM FOR FEDERAL
EMPLOYEES
TUESDAY, AUGUST 4, 1959
HOUSE OF REPRESENTATIVES,
COMMITTEE ON POST OFFICE AND CIVIL SERVICE,
Washington, D.C.
The committee met at 10 a.m., pursuant to notice, in room 215,
House Office Building, Hon. Tom Murray (chairman) presiding.
The CHAIRMAN. The committee will proceed with hearings on the
Senate passed bill on medical-hospital legislation and similar bills of
the various House Members.
We will ask Mr. Colman of Blue Cross and the representative of
Blue Shield to come to the table, please.
Dr. Stubbs, I believe, is the representative of Blue Shield, is that
correct?
Dr. STUBBS. Yes, sir.
The CHAIRMAN. All right Dr. Stubbs, we will be glad to hear from
you. We have already heara from Mr. Colman.
Dr. STUBBS. Thank you, Mr. Chairman.
STATEMENT OF DR. DONALD STUBBS, CHAIRMAN OF THE BOARD,
BLUE SHIELD MEDICAL CARE PLANS, ACCOMPANIED BY JOHN W.
CASTALLUCCI, EXECUTIVE VICE PRESIDENT, AND EDWIN R.
WERNER, MANAGER FOR NATIONAL ENROLLMENT
Dr. STUBBS. Mr. Chairman and members of the committee. I am
Dr. Donald Stubbs, a private practitioner of medicine in the District
of Columbia. However, I am appearing here today as the chairman
of the board of directors of the National Association of Blue Shield
Medical Care Plans. I am accompanied by Mr. John W. Castellucci,
executive vice president, and Mr. Edwin R. Werner, manager for na-
tional enrollment, of our national association.
During the 3 years since my appearance in the spring of 1956 be-
fore this committee to discuss this subject, Blue Shield has grown by
the addition of more than 7 million subscribers making a total of
nearly one-fourth of all the people in the country. Each of these is
covered for more services than before. One hundred and twenty
thousand doctors are participating physicians in Blue Shield. More
significant than this growth, however, is our enhanced ability to give
service and our increased stature as the fiscal arm of the medical pro-
fession which is so important as the keystone in the stability of the
entire voluntary health insurance system in this country. Although
we have retained the advantages of local, nonprofit control of our
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154 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
plans and deal at the grassroots with individual patients and their
doctors who sponsor our plans, we now are able through such mech-
anisms as our national accounts agreement to offer uniformity of
benefits very widely. For these reasons we believe that our experi-
ence and ability to help do the job under study by this committee
should be made fully available to you and this we gladly do.
At their annual conference last April Blue Shield Medical Care
Plans renewed their support of legislation which would lend assist-
ance to the financing of health care benefits for Federal employees.
The National Government is the largest employer which does not now
provide some form of health benefits for its employees. This form of
fringe benefit has become a condition of employment for a large seg-
ment of the population and in this respect the Government has fallen
behind the times by not helping to provide for the better health care
of its employees. Blue Shield plans-and Blue Cross plans are pres-
ently serving hundreds of thousands of Federal employees by provid-
ing them with a prepayment mechanism which, lacking a Government
contribution, is being paid for out of the employee's own funds. We
believe that these hundreds of thousands -of Government, employees
who are now participating in these programs give clear testimony to
the need for all Government employees to enjoy similar protection
against the cost of ordinary or catastrophic illness expense.
We believe that all qualified carriers should have an opportunity
to offer coverage to Federal employees; and that Federal employees
should have a free choice, subject only to the enrollment requirement
of the carrier, to select the plan of coverage which seems best to fit
his needs. We recognize that an individual employee may wish to
obtain health benefits through a national association of Federal em-
ployees of which the employee is a member ; or through group prac-
tice prepayment plans; or from an insurance company on a cash in-
demnity basis; or, as so many already have done, through plans for
health benefits which are provided, to the maximum extent practicable,
on a service basis.
In the final analysis all health care is at the individual patient-
doctor level. Blue Shield has been able to preserve this freedom of
choice and yet simplify administration so that a single national con-
tract can now control uniformity of benefits at the local level.
BLUE SHIELD'S OUTSTANDING CHARACTERISTIC IS PHYSICIAN PARTICIPATION
LEADING TO SERVICE BENEFITS
A prepayment -program for health care benefits for Federal em-
ployees should be readily acceptable to the medical profession and to
hospitals. The understanding and interest of those who provide
health services to Federal employees is an extra dividend in health
care benefits which is available to those who are members of Blue
Shield plans. Blue Shield plans are organized and operated for the
purpose of providing individuals with a method by which they can
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES budget and prepay medical-surgical expenses. Each plan is a non-
profit organization. With the exception of necessary administrative
expenses, all of the amounts paid to the plans by their members is
used to pay for medical services given the members and to maintain
a reasonable reserve. The participation of physicians in. the organi-
zation and development of Blue Shield plans demonstrates their inter-
est in helpin the eople obtain a prepayment mechanism for health
care benefits, gand tphey continue to have a corresponding interest and
concern about the welfare of the people who are enrolled in Blue
Shield. The objective of Blue Shield is to supply service-doctor care
rather than health dollars-and this difference makes Blue Shield
more than simple insurance. Service plans are those having agree-
ments with doctors whereby the doctor agrees to accept a stipulated
sum in full payment for his services in those instances where the
member's income does not exceed a specified annual sum. For ex-
ample, the plan's scheduled fee for an appendectomy may be $120
and the surgeon will accept this as full payment in those cases where
the income of the patient's family does not exceed $6,000 per year.
Of the 64 Blue Shield plans in the United States, 50 are service plans.
In the areas where Federal employees live and work, 56.28 percent of
Blue Shield plans guarantee that the payment made by Blue Shield
to the physician will be payment in full for families with incomes of
less than $6,000 a year. And it is readily apparent that the pattern
of service which does exist in Blue Shield is stabilizing in its influence
on the indemnity area and the same is true for Blue Cross. While we
recognize the value of such insurance mechanisms as deductibles and
coinsurance in controlling unnecessary utilization, we know that such
control is relative and often is much weaker than anticipated. On the
other hand, the service benefits and their accompanying indemnity
schedules for the remaining fraction of our program. are much more
effective cost controls because they are based upon agreement with the
purveyors of the services themselves, both doctors and hospitals.
The capacity of Blue Shield to provide a program of health care
benefits with built-in cost controls based upon local fee schedule agree-
ments with physicians, is expressed by the successful servicing of Blue
Shield medical care prepayment programs for the more than 40 mil-
lion Americans. Federal employees also deserve the opportunity to
participate in a program which provides physicians' services for
which the basic benefit costs are related to the economy of the commu-
nity in which such costs originate, and in which such costs can be
,computed by reference to a fee schedule. The cost of medical care is of
serious concern to the people of America, just as it must be for those
who hope to alleviate it for Federal employees. Suitable legislation
.should reflect this concern to support, or at least not damage, the best
elements in our already existent system of voluntary health insurance.
Blue Shield is an expression of physician interest in relating existing
costs in a given community to a prepayment program for medical ex-
pense which reflects local charges and is accepted as full payment in
many cases. Fortunately, the Blue Shield reflection of local fees by
local community practice can be incorporated into a program for na-
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156 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
tional accounts such as the proposed Federal employee health benefit
program. Blue Shield has the capacity and the mechanism for consoli-
dating favorable medical care cost factors in all communities and
offering a uniform package of physician services at a single rate.
It seems to us that the bills introduced by Mr. Morrison and others,
as well as S. 2162, which has passed the Senate, incorporate the prin-
ciples and objectives which Blue Shield has long supported and ad-
vocated. We are particularly gratified that these bills afford Federal
employees a large degree of freedom to select the kind of plan that
they deem most suitable for their needs. As was said in the report
filed by the Senate Post Office and Civil Service Committee :
The Federal Government has a greater opportunity than other employers to
influence soundly the development of health services and ways of financing their
costs. This opportunity should be used to encourage all responsible and prom-
ising efforts and not be arbitrarily limited to any single approach. Reasonable
competition among different types of programs will provide Federal employees
with a better program. However, unrestricted competition could make the pro-
gram administratively unwieldy and ineffective.
In this connection we suggest a clarification in the language of the
bills before you which we tul.nk is desirable to effectuate the intent of
the free choice principle.
Section 4 (1) of S. 2162 provides that the Civil Service Commission
may approve certain health benefit plans, including :
One governmentwide service benefit plan under which in whole or substantial
part the physicians, hospitals, or other providers of covered health services agree,.
under certain conditions, to accept the payment provided by the plan as full
payment for covered services rendered by them.
If the phrase "one governmentwide service benefit plan" means that
the Commission cannot approve a service benefit plan unless there is
one organization offering service benefits for every Federal employee,
everywhere, then the effect will be to eliminate service benefits from,
among the choices available to Federal employees. The reason for-
this is that full service is not available for all Federal employees for-
all of the health benefits provided under the bill. Some of the benefits.
will have to be supplied on an indemnity basis in combination with,
service benefits.
We are confident that it is not intended to deny Federal employees,
the advantages of service benefits to the very large extent that they
are available simply because such benefits are not universally preva-
lent. Therefore, we suggest that section 4 (1) be revised so as to make
clear that Federal employees may be assured the opportunity to select.
Blue Cross and Blue Shield coverage under this bill just as approxi-
mately one million have already done on their own initiative.
Thank you, Mr. Chairman, for permitting us to be heard. We
sincerely hope that our testimony will be helpful.
The CHAIRMAN. When was Blue Shield organized?
Dr. STUBBS. In 1939. It isabout 20 years old.
The CHAIRMAN. You say you have 78 different branches or local
organizations?
Dr. STUBBS. We have 64 in Blue Shield scattered over the country-
at the present time.
The CHAIRMAN. There are 78 in Blue Cross, I believe.
Dr. STUBBS. Yes, sir.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 157
The CHAIRMAN. What is the difference between Blue Shield and
Blue Cross?
Dr. STUBBS. In the development of these locally controlled programs
hospital care was the first thing that was brought in and that was
brought in under Blue Cross, which is an older program.
Blue Shield soon was added to the prepayment picture by the in-
stance of local physicians, but it has generally been at a later date in
each given locality.
In the beginning most of the Blue Shield plans were without dollar
assets of any appreciable degree and so it was natural for them to rely
on Blue Cross plans to administer the program that was supported
by the local physicians.
And so it has come about that both of these programs, Blue Cross
for providing hospital care and Blue Shield for physician services,
have grown side by side, and in most instances in the beginning Blue
Cross was the administering or business agency. As they grew larger
there tended to be a separation of certain of their activities. Some of
the Blue Shield plans are entirely separated from Blue Cross, but in
general they work closely together and the administration frequently
is in Blue Cross hands.
The CHAIRMAN. The organization is a nonprofit organization so
far as individual benefits are concerned?
Dr. STUBBS. Yes, sir. It is provided in our bylaws and in the
standards at the national association level, which must be met by local
plans to join the association, that their boards operate without salary
or without profit monetarily of any kind and that the plans them-
selves operate as nonprofit plans.
The CHAIRMAN. You do not have an overall plan for all your sepa-
rate .groups or organizations ?
Dr. STUBBS. No sir. In Blue Shield we grew up somewhat like you
and I did in the ?outh believing in local rights, and so our separate
plans are associated at the national level for the exchange of informa-
tion and for, aiding one another but they are autonomous in their
control.
The CHAIRMAN. Do you have a Blue Shield plan covering Federal
employees who are overseas?
Dr. STUBBS. We have no specific coverage for Federal employees
at all. They come into Blue Shield at this time
The CHAIRMAN. Do you have Blue Shield plans operating overseas
for the benefit of Federal employees?
Dr. STUBBS. There are many Federal employees who join their
local plan in this country of their own volition and when they go
overseas they retain their coverage. We have no plan overseas except
in Hawaii, which is now the 50th State.
The CHAIRMAN. So you do not have a plan for Federal employees
overseas unless they joined a plan in the United States; is that correct?
Dr. STUBBS. That is correct, yes, sir.
Mr. GRoss. Mr. Chairman.
The CHAIRMAN. Mr. Gross.
Mr. GROSS. How do you provide benefits overseas?
Dr. STUBBS. On an indemnity basis. We pay our fee schedule al-
lowance.
Mr. DAVIS. Mr. Chairman.
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155 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
The CHAIRMAN. Mr. Davis.
Mr. DAVIS. Is the Blue Shield organization accumulating any as-
sets, Dr. Stubbs?
Dr. STUBBS. We have a reserve that averages out to enough money
to continue operations for three and a fraction months if our income
-were to stop. Those assets are kept liquid to a great extent. They
are invested in a safe and prudent manner, usually under the regula-
tions that are provided for insurance company investments generally.
Mr. DAVIS. Are those the only assets you are accumulating?
Dr. STUBBS. They are the only assets although in some instances
.the building in which the operation is carried on is owned by the Blue
Shield or Blue Cross plan. Most of the plans rent their space.
The CHAIRMAN. How do you intend to provide benefits for Federal
employees overseas if this legislation is approved?
Dr. STUBBS. We do not expect to provide service benefits overseas.
The CHAIRMAN. How would they be covered; do you know?
Dr. STUBBS. They would be covered by an indemnification to the
extent of the fee schedule, and with that they would cover their med-
ical care.
The CHAIRMAN. Section 5 (a) of the bill reads :
To the extent possible with the funds available under this act, the benefits
to be provided under plans described in section 4 shall be the following : *
As I understand it, there is a maximum charge to be paid by the
employee and matched by the Government. If the amount is not suf-
ficient to cover all the benefits, then, as I understand the bill, the Civil
Service Commission will have to lessen the benefits.
Dr. STUBBS. I believe they would have to make the benefits conform
to the money available; yes, sir.
The CHAIRMAN. Section 5 (a), subparagraph (1) (A), headed "Hos-
pital Benefits," provides for 120 days' hospitalization for all employees
except those with tuberculosis or mental disorders, and they are only
given 30 days' hospitalization. Why should they not be given the
same hospitalization benefits as other employees who are suffering
other physical disabilities?
Dr. STUBBS. In most instances they have the. possibility of obtain-
ing care for those ailments in institutions especially designed to take
care of them and under community funds at the present time. The
provision in the bill and in most Blue Cross and Blue Shield programs
is to take care of the acute care and to see that they are taken care of
until long-term care can be arranged.
The CHAIRMAN. I wish you would turn to the Senate bill, section
5(a), subparagraph (1) (B), which is entitled "Surgical Benefits."
It provides :
Benefits which the Commission finds to be equivalent to the reasonable, neces-
sary, and customary charges for surgical services, and for care of abnormal deliv-
eries, made to persons with incomes less than those of the one-quarter of Federal
employees earning the highest incomes.
I believe the limitation is $6,000 in the bill ; is that correct?
Dr. STUBBS. That would figure out, we think, to close to $6,000.
The CHAIRMAN. Just read that section about that salary limitation.
Dr. STUBBS. Shall I read it out loud?
The CHAIRMAN. Yes, sir.
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Dr. STUBBS. It is on page 30 of my copy of the bill, section (B):l
"Surgical Benefits," and reads as, follows:
Benefits which the Commission finds to be equivalent to the reasonable, neces-'
sary, and customary charges for surgical services, and for care. of abnormal
deliveries, made to persons with incomes less than those of the one-quarter of
Federal employees earning the highest incomes.
The CHAIRMAN. How do you construe-that provision?
Dr. STUBBS. That would mean that the Commission would set up
provisions to provide a scope of benefits that are available under the
funds available, and that these would be offered under this option as,
service benefits for approximately three-fourths of Federal employees.
The CHAIRMAN. That would mean that certain surgical benefits.
would not be available to Federal employees in the top fourth; would:
it not?
Dr. STUBBS. No. It would mean those in the upper fourth might
have an additional charge. We would pay the same but it might not
be the full bill. In the case of those who get it as a service benefit
there would be no additional charge. That would be by contract.
But if the employee made an income above that specified in the con-
tract, then he might be subject to an additional charge by the physician
rendering the service.
The CHAIRMAN. If the fee schedule for surgical benefits is charged,
I suppose the lower income employees would have the full bill paid,
but the higher income employees would be subject to having the phy-
sicians charge them more than the fee schedule?
Dr. STUBBS. Yes, sir. That is the way they operate now.
The CHAIRMAN. Do you suggest a system to check on where doctors
charge a higher rate to Federal employees?
Dr. STUBBS. I do not know how you would do it. That would be
an individual agreement between the patient and his physician and
whether they chose to disclose it would be up to them, I should think.
The CHAIRMAN. Do each of your organizations in the field operate
separately?
Dr. STUBBS. Each operates on its own, but we have overlapping,
activities through agreement to do certain things for people who
travel into other areas.
The .CHAIRMAN. What requirements do you have about setting up
reserves or about your local groups setting up reserves?
Dr. STUBBS. We have a requirement that the local groups be finan-
cially able to meet their obligations, and we like to see them have a
reserve that would enable them to operate as much as 3 months on
the reserve alone if necessary.
The CHAIRMAN. You do not have a fixed percentage that must be
set aside as a reserve?
Dr. STUBBS. It is not specified as a fixed one. If the local plan
has an adequate reserve and maintains that, it does not have to add
anything at all.
The CHAIRMAN. Has there been a trend toward an increase in,
surgical or medical costs over the last several years?
Dr. STUBBS. I believe there has been a trend toward increase in
costs generally in the health care field. I believe that the data that
are available indicate that the physician's side of these costs has
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160 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
increased relatively less than the other costs. The Blue Shield
increases have not been so noticeable as those in Blue Cross because
of this factor, I think.
The increases that we have had in Blue Shield have more commonly
been from increasing the amount of benefit, the number of things
included, rather than from increasing fees to physicians. Changes
in schedules of physician fees have tended to lag behind other changes
in this field.
The CHAIRMAN. Do you look for increases in doctor and surgeon
fees in the next 5 years?
Dr. STUBBS. Very little. I think that will depend on the changes
in the economy, but in general the doctors are not changing their fees
unreasonably in this respect.
We have had only two changes in the fee schedule here in Wash-
ington, where more Federal employees are affected than elsewhere,
since 1947. At that time the fee schedule came into being as an esti-
mated two-thirds of the going fee for individuals of average income,
and it has been increased, as I said, two times since then; so that
statistically the fee schedule at this moment for Federal employees
earning less than $6,000 a year is approximately what was estimated
to be the going charge 12 years ago here in the District of Columbia.
So our fee schedules themselves have been subject to very reasonable
modification, we think. An increase in subscription cost is due to
the inclusion of many more benefits than we included earlier.
The CHAIRMAN. Do all your separate Blue Shield organizations
have identical provisions about medical care?
Dr. STUBBS. They have overall standards of care which are required
to be met, but as to the individual procedures that are covered in a
local area and i he fee schedule in that local area, each plan has its
own arrangement.
The CHAIRMAN. I notice a list here of the rates charged by the
combined Blue Shield and Blue Cross plans in various sections of the
country, and I notice they vary from a low of about $2.30 up to a
high of $6.33. In Hammond, La., the individual is charged $2.30, and
in Battle Creek, Mich., he is charged $6.33. What about this wide
variance in cost to the individual?
Dr. STUBBS. There is a variance in the services given to the indi-
vidual and there is a variance in the cost of medical care in those
localities as well. Since these plans cover varying amounts of serv-
ices, their rates vary. It may be that a plan with a high rate covers
a large proportion of the bills for medical care in its area and that
the patients in that area have relatively little additional payment to
make.
It may be that a plan with a low rate covers a low proportion of
the bills for medical care and that the patients make up a greater
proportion or share of the payment directly. We are not in position
to compare accurately the value of these rates unless we also compare
the percentage of the total care that they meet, and that is a very
complicated matter and would require considerable study to compare
only two plans. To compare all of the plans under that basis of com-
parison would be difficult and not profitable here because we are dis-
cussing a comprehensive type of program, which would be evened
out in the locality as to the benefits provided.
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The CHAIRMAN. If this legislation is enacted and you make the
contract with the Civil Service Commission, how would you provide
service benefits to employees living in areas where your plan is not
in operation?
Dr. STUBBS. We would not.
The CHAIRMAN. You would confine it to areas where you are now
serving 3
Dr. STUBBS. We would give service benefits wherever we could.
We are now giving them in more than half the areas to the extent
of the $6,000 level. We would expect, in view of the way Blue Shield
has grown in the last decade, that this area would increase in size.
But for those areas where we do not have service benefit arrange-
ments, as for the oversea employees, we would pay the indemnifica-
tion required by the fee schedule, and if the doctor made additional
charges it would be between him and the patient to make satisfactory
arranagements.
The CHAIRMAN. I would like to know why higher paid Federal
employees who pay the same rate as the lower paid Federal employees
cannot get the same benefits.
Dr. STUBBS. They would get the same benefits moneywise required
by the contract. It would be a question of the locality where the
patient lived as to whether he would have to pay an additional sum.
At the present time Federal employees living in various parts of the
country have to pay different amounts because of the locality in
which they are, living. That is beyond our control, as part of the
varied cost of living.
Mr. PORTER. Will the chairman yield?
The CHAIRMAN. Mr. Porter.
Mr. PORTER. I am very much interested in this problem, and I
would like to ask : Apparently Blue Shield pays on a sliding scale,
charging so-called what the traffic will bear?
Dr. STUBBS. I do not like that definition of it.
Mr. PORTER. Is there a better one?
Dr. STUBBS. Yes, permitting those who are unable to pay a normal
charge to have a lesser one so that there is variation in the charge.
Those who can pay the regular char e do so.
Mr. PORTER. How is that done? Say a man gets $7,000 a year. How
is that fact determined? Is his income tax return turned over to the
doctor?
Dr. STUBBS. That is between the patient and the doctor. That has
been a method described as existing in American medical practice for
generations. Blue Shield has not sought to change that but only to
conform as well as we could to give the benefits as well as we could.
Mr. PORTER. I am asking how it can be justified, regardless of the
fact it may have been in existence for generations. How can it be
justified?
Dr. STUBBS. I think it can be justified on the basis that doctors have
found over the years that many of their patients could not pay for the
care they received at even a reasonable rate, and that therefore some
have even paid more than they necessarily would have paid if every-
one had been able to pay his full fee.
We believe that without much question there is a tendency to level
out the fees in medical practice and that the very high fees are now
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162 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
rare,: few; and far between; that because prepaid mechanisms have
brought many more of our people into areas of payment: for their
medical care, the necessity for this wide range of fee charges is not as
great as it was. We may look forward to its being narrowed con-
siderably more. But at this time it still does exist in .some degree.
Mr. PORTER. What I am trying to get at is, how does a doctor who
makes the charges, or his business agent, first of all how does he know
whether the patient makes $6,000 or more or less?
Dr. STUBBS. If he knows, he probably asks.
Mr. PORTER. Does he ask?
Dr. STUBBS. Doctors have been encouraged by their medical organ-
izations to discuss fees with their patients and come to an arrange-
ment about them. I believe the courts, in their attitudes on charges
where they have gone into litigation, have encouraged those previous
arrangements.
Mr. PORTER. Do doctors ask their patients how much they make?
Dr. STUBBS. I do not know what all doctors do. I myself discuss
fees with patients.
Mr. PORTER. Do you discuss their income?
Dr. STUBBS. Rarely, because I do not like to go into the upper
range of charges. I am more satisfied to put it on the evened out
schedule basis.
Mr. PORTER. You think doctors can make a living doing that?
Dr. STUBBS. Yes, sir.
Mr. Porter, may I say one other thing about income. If a patient
has a service benefit type program, with a specified income level below
which service benefits exist, when the patient fills out his part of the
claim form he indicates whether he is above or below income level in
the space provided on the form. So that is specifically asked. I
interpreted your question to mean does a doctor ask each and every
patient, "How much do you make?"
Mr. PORTER. Mr. Chairman, I do not want to take up too much
time.
The CHAIRMAN. Go right ahead.
Mr. PORTER. If the income of a patient makes a difference in the
charge, it seems to me the doctor would have to know what his income
is.
Dr. STUBBS. If the doctor knows he is above the $6,000 level he may
add a small. cha.rae.
Mr. PORTER. Ian other words, there are two rates, one below and one
above?
Dr. STUBBS. There are at least two. Many Blue Shield plans have
several different levels of schedules with a different qualifying income
level for each.
Mr. PORTER. How do the hospitals deal with that?
Dr. STUBBS. The hospitals are dealing, for the most part, with
known costs. Doctors' fees are like lawyers' fees. Also, the doctor
can waive his charges completed, if he chooses to do so, much more
readily than a hospital can. If a hospital waives a charge it has to
find that amount of money from some -other source in order to pay
salaries to its working groups and pay for the drugs and soon.. If a
doctor has a consultation with a patient .and gives, advice, lie can give
his personal service free of charge, and there is not toomuch overhead
involved in the procedure.
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HEALTH BENEF T F It
Mr. PORTER. Is it not true that doctors today are becoming less and
less personal in their relationships with their patients, and they are
using business agents-that is true in my area in Oregon, I know-and
they are more impersonal today than when I was younger. Is that not
true over the country?
Dr. STUBBS. It is possible that as the science of medicine advances
that the personal relation suffers. It may be that the business side of
medicine being cared for by agents gives the doctor a better chance
to conduct his professional business.
The CHAIRMAN. What do you mean by business agents? You can-
not advertise for business?
Dr. STUBBS. Collecting the bills.
The CHAIRMAN. And setting the fees?
Dr. STUBBS. They can do that better than most doctors.. Doctors
are generally known to be poor businessmen. For example, I would
not like to charge any of you distinguished gentlemen for my services.
I would rather do it out of love. A business agent would believe I
should collect from you.
Mr. PORTER. The provision in the bill relating to persons with
incomes less than those of the one-quarter of Federal employees earn-
ing the highest incomes, I understand that means about $6,000, from
what I am informed. But those earning over that amount would be
charged whatever the doctor would decide should be charged according
to these traditions that are somewhat hazy but well settled?
Dr. STUBBS. I believe so.
I believe it might be worth a moment's comment on that part of the
program. Blue Shield is desirous of continuing to give service benefits
as broadly as it can. The alternative to that is an indemnity dollar in
which the patient gets the money and negotiates with the doctor at
all levels of income. We think it is a good thing to furnish services
instead of dollars, especially for the low-income group. We contend
also that a fee schedule is good as a, guide or yardstick. If the fee
schedule permits a patient with a $5,500 family income to get such
and such care without additional charge, and then if that patient
becomes a $6,500 employee and gets a very notably higher bill from
his doctor, he would have strong grounds for saying, "This seems out
of line because I formerly got such and such care for such and such
charge." So we believe it has a good effect. But we do not want. the
whole program. We want others also to be in there doing their best
job.
Mr. PORTER. On a community basis is it not impossible to determine
what a particular medical service is worth? The medical services in
the case of one broken arm would be worth more or less than in
another case of a broken arm so that it would wash out. Do you think
that is impossible, to set that down?
Dr. STUBBS. I believe it is impossible when we have a complicated
mixed up system of paying for the medical care such as we do now.
At the present time some patients pay the whole bill themselves.
Some got some insurance to help them pay the bill. Some others get
a service benefit payment for the bill. Others pay nothing and it
-comes out of public assistance. It would be possible to add all of those
together and come up with as fair community rate which would aver-
age out for everything, but until you had a mechanism for paying that
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fair community rate in every instance, it becomes something that we
might look toward approaching but which we have not reached.
Mr. PORTER. It may be something we cannot do anything about in
this bill.
Mr. DAVIS. Mr. Chairman.
The CHAIRMAN. Mr. Davis.
Mr. DAVIS. Doctor, you mentioned that you did not want to monop-
olize all of this program but you wanted your share of it. I do not
understand exactly what you mean by that. Could you explain that
a little?
How can this program be divided up under this legislation between.
Blue Shield and possibly other organizations?
Dr. STUBBS. I think the provision of the law requiring the Civil
Service Commission to consider four different prepayment groupings
gives a competitive background to the whole program.
In saying Blue Shield would not like to have all of it, I merely
meant we were paying full tribute to the idea of competition and of
free enterprise, which we have always supported.
Mr. DAVIS. Where would the competition arise?
Dr. STUBBS. The competition will arise mainly in the choice that
the Federal employee as an individual exercises in deciding what kind
of program is best for him.
Mr. DAVIS. Do you anticipate that there will be four different plans
available to the individual employee to choose from and he may select
any one of the four?
Dr. STUBBS. In some localities there may be no more than two, but
there may even be more than four. In the case of the Federal em-
ployee programs under organizations of Federal employees it will
depend on the employee himself being in an organization that has a
program as to whether he has one of these types of coverage.
Mr. DAVIS. Will you give us some illustrations?
Dr. STUBBS. Here in Washington, I am sure, there are a number of
different employee programs available to certain individuals in the
Federal Government. There is the Group Health Association pro-
gram available to Federal employees and there would be the Blue
Cross-Blue Shield program which is now already covering almost half
of the Federal employees in this locality, and there would be the insur-
ance industry programs of indemnification available. All of those
would be available to Federal employees in the Washington area.
Mr. DAVIS. There would be two types of coverage, then, available to
employees in Washington?
Dr. STUBBS. Four.
Mr. DAVIS. Four?
Dr. STuBBs. Yes, sir.
Mr. DAVIS. They have now the Blue Cross and Blue Shield cov-
erage which you said about half of them now are in?
Dr. STUBBS. Yes, Sir.
Mr. DAVIS. Then, they would have the insurance indemnification
plan by which they would not get services but they would get some
certain prescribed amounts?
Dr. STUBBS. Yes, sir; and those amounts might substantially cover
the service.
Mr. DAVIS. Then, what other choice would they have?
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Dr. STUBBS. Group Health Associations' group practice program.
Mr. DAVIS. What does that mean? I do not understand that.
Dr. STUBBS. This is a program that was established some 20 years
ago, I believe, under the home Loan Bank Corporation to furnish
prepaid medical care by a group of physicians joined together in a
clinic-type operation to furnish this care for Federal employees on
a prepaid basis.
Mr. DAVIS. How does that differ from the Blue Shield?
Dr. STUBBS. It differs from Blue Shield in that it has a specified
limited panel of physicians and it has a different range of benefits.
The local Blue Shield program has as participating physicians about
2,300 doctors residing in this general locality and a patient may call
any one of these doctors for any service in the schedule and the Blue
Shield plan will pathe specified fee to him upon evidence that the
service has been rendered.
In Blue Shields there is a free choice of physicians, a much broader
choice, and a choice of any hospital or any type of care benefit that
the patient wants.
Mr. DAVIS. You have told us about three possible exceptions. What
is the other one?
Dr. STUBBS. The postal employees, for example, have a program,
the details of which I am not familiar with, but it is a prepayment
health benefit program sponsored by the postal employee group.
The CHAIRMAN. What organization did you say?
Dr. STUBBS. The postal. employees, I believe, I would not like to be
specific about a Federal employee group, because I am sure you have
had and will have testimony on that point from the Federal em-
ployees.
Mr. DAVIS. I wanted to understand the four possible choices, and if
I understand them, they are the Blue Cross, Blue Shield, the insur-
ance indemnity and the group prepayment plan? Is that the fourth
one?
Dr. STUBBS. The fourth group consists of the various types of pre-
payment programs, which I believe are commonly indemnifications,
that are sponsored by employee union groups.
Mr. DAVIS. Thank you.
The CHAIRMAN. Mr. Rees?
Mr. REEs. Are all of those covered under the Blue Shield plan or
are they also covered by Blue Cross?
Dr. STUBBS. I do not know that absolutely all are, but very nearly
100 percent; yes, sir.
Mr. REES. And about what percentage of those under Blue Shield
are covered by Blue Cross?
Dr. STUBBS. Just about all of them.
Mr. REES. What share of Blue Cross people are covered by Blue
Shield?
Dr. STuBBs. About 90 percent.
Mr. REFS. I notice in your testimony you make a statement about
this fee business which was discussed a while ago, and you say there
that you charge for an appendectomy operation $120 if a man gets a
salary of not over $6,000 a year.
If his salary is more than that would you charge more than $120?
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Dr. STUBBS. It would depend, on the surgeon doing it. It might
or might not be more. It would be by agreement between the surgeon
and the patient.
Mr. REES. Does a member of the Blue Shield know about this?
Dr. STUBBS. He knows whether the patient is above or below the
income level.
Mr. RErs. Does he have a policy that indicates the cost?
Dr. STUBBS. Yes, sir; all the physicians have information sent to
them regularly. They have the fee schedule and all of that data. The
patients themselves have information going to them regularly.
Mr. REES. And the patient knows about that?
Dr. STUBBS. Yes, sir.
Mr. REFS. Of course, if the husband earns $6,000 and the wife earns
$5,000, I suppose you take that into consideration?
Dr. STUBBS. Yes, sir. It is family income that determines the status
of the contract.
Mr. GROSS. Will the gentleman yield?
Mr. REEs. Yes, sir.
Mr. GRoss. In the case of a person having an appendectomy, suppose
I had a ruptured appendix? How much arguing would I do over the
fee in advance?
Dr. STuBBs. You seem like a very reasonable man. I would not
suppose very much.
Mr. GRoss. Thank you, Doctor. But, I do not think I would be
in any position to do much arguing over the fee, would I ?
Dr. STuun. I think the discussion of fees in the last analysis is apt
to be when you are feeling much better. I do not think the surgeon
would argue over it while you were very sick.
Mr. GRoss. I would not want to argue with him before the operation.
Mr. CoRBETr. I would like to raise the question as to whether or not
in existing contracts there is a provision in there that Blue Cross or
Blue Shield would not pay for any medical services rendered by a
U.S. Government hospital, military or otherwise.
Dr. STUBBS. I think that the present regulations would vary on that
point with the different plans, and under their different contracts, but
in general it would be under the idea of providing a community serv-
ice and a community rate by a locally controlled organization such
as Blue Cross and Blue Shield, and the conservation of funds in the
plan would dictate that if the Federal Government or any community
agency were caring for this patient that the plan should not pay for
it additionally.
Mr. CORBETT. All right, now. I think possibly-and I have not
read your specific current plan, but one that I studied very recently
had that provision.
I suppose there are tens of thousands of Federal employees who are
veterans and some large precentage of those, have service-connected
disabilities and are therefore eligible. to go to a. veterans hospital.
Now, presently, as that proviso is in your contract . they cannot be
indemnified or the services paid for in whole or in part?
Dr. STUBBS. I think that in general we would, expect to pay if the
service were rendered in a hospital where there was a charge, and. if the
patient were put into a Government` hospital and were given the care,
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we would not expect to pay the Government hospital. I believe that
would be the position, but if this patient
CORBETT. But there would be no charge to pay.
Dr. STUBBS. That is right; we would have no payment but if he
went into a private hospital or a community hospital and there was a
charge for the hospital care and for the physician's services, I would
think that the provisions of the contract, as the Civil Service Commis-
sion will work them out, would be that this care would be covered
exactly as in any other case.
Mr. CORBETT. Presently-and I am sorry I do not know the current
figure because I am happy not to have been there, recently-I think
that at Bethesda a civilian employee eligible to go there, including
Members of Congress, pays in the neighborhood of $12 a day for hos-
pital service and a room.
The CHAIRMAN. I think they pay more than that.
Mr. CORBETT. Well, as I said, I have been fortunate enough not to
have paid anything recently.
The CHAIRMAN. My information is that it is about $20 a day.
Mr. CORBETT. Suppose a Member of Congress gets in this plan and if
this proviso is still there, Blue Cross could say "We are exempt from
payment of any part of the $20."
Dr. STUBBS. Mr. Farver here, from the Washington plan, tells me
that th,e.~y do pay that now, the cost in the hospital.
Mr. IJoRBETT. The reason I brought the matter up at this time was
to simply emphasize that there is a point here for consideration because
I think that the new plan that is being sold by the Secretary's Club-
and I studied through it pretty definitely and that exemption is there.
It is in that plan and it is something that ought not to be overlooked.
That is my whole reason for bringing it up.
Dr. STUBBS. I am glad that you brought it up, and I would certainly
expect that the Civil Service Commission would bear that point in
mind in drafting its regulations, but we do pay that now under the local
Blue Cross-Blue Shield program.
Mr. CORBETT. Thank you.
The CHAIRMAN. I do not presume you have very many service-con-
nected, disabled veterans in your plans, do you, since they can get free
surgical and hospital care?
Dr. STUJBBS. I suppose we do not really know. If we get them in our
own or in private hospitals or community hospitals, we do not inquire
into that aspect of it, and their dependents, of course, would be covered
by us under the family plans.
The CIIAIRMAN. Let me ask you about setting up a reserve under
this program : As you know, medical and hospital expenses have been
increasing over the last several years. That is true; is it not?
Dr. STUBBS. Yes, sir.
The CHAIRMAN. Do you not: look for a further increase in medical
and surgical and hospital expenses in the next 5 years?
Dr. STUBBS. So far as we can tell, it is very apt to come.
The CHAIRMAN: What kind of reserve do you think the Civil Serv
ice Commission should set up now after this plan becomes operative
in order to take care of these increases?
Dr. STUBBS. I would doubt whether the Civil Service Commission
would be any better off to have a reserve large enough to take care
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168 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
of significant increases years in advance than they would to have a
reserve only large enough to take care of minor fluctuations in short-
term programs. There would be the problem of management of the
reserve and of determining its size ahead of time so that it would not
seem to be too large, and that kind of thing. I would not feel myself
competent to offer an intelligent assessment of this matter, except
on one point : That it ought not to be too large but instead should
be checked carefully at the end of a year, and adjusted.
The CHAIRMAN. Well, it appears to me, if the Commission does not
set up some reserve in order to take care of these future increases in
medical and hospital costs, that the only alternative left would be for
the Commission to reduce the benefits to the employees; is that
correct?
Dr. STUBBS. Unless the amount of money provided by the law
were changed by the Congress; yes, sir.
Mr. DAVIS. Would the chairman yield to me at that point?
The CHAIRMAN. Yes, Sir.
Mr. DAVIS. The answer to that would be, then, to increase the
charge, would it not, so as to give an increased benefit? I mean to
increase the contribution by the employee and the Federal Govern-
ment?
Dr. STUBBS. That would be a mechanism by which it could be done.
As I understand, the bill at this moment, it provides a fixed maximum
for the contribution by Government and by the employee.
Mr. DAvis. And, if experience shows that that is not a sufficient
charge to furnish the desired benefits, you have a choice of two thing::-
Either cut down the benefits or increase the charge; is that right?
Dr. STUBBS. That is quite correct. I think, again, it might be
worth mentioning that this bill in itself will not control the cost of
medical care to Federal employees. This bill will determine what
proportion of those costs are being paid out of a prepayment mech-
anism. If we cut back benefits under the law, it does not mean that
we are cutting back medical care of necessity, but that we are shifting
more of the cost over onto the employee himself.
This latter change is a means of giving the employee a greater
concern about his medical care.
Mr. DAVIS. I do not express myself accurately. I did not mean to
cut down the service, but to cut down the benefits that would be
paid for.
Dr. STUBBS. Quite correct. I wanted to emphasize that the prob-
lem is the overall cost of medical care, and the extent to which we
expect to cover it by prepayment.
Mr. BROYHILL. Will the gentleman yield?
Mr. DAVIS. Yes, sir.
Mr. BROYHILL. With reference to the question asked by the chair-
man concerning the limitation for mental illnesses and tuberculosis,.
I think the answer that you gave-and also Mr. Colman last Thurs-
day-was due to the fact that the States generally provide hospitali-
zation for mental cases, and that would be limited in this plan.
Do you feel that that is a satisfactory answer, or satisfactory pro-
vision or limitation?
I ask the question because I see on the schedule here where a
witness is going to be testifying in that respect, asking that the allow-
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 169
antes for mental illnesses be made the same as for the other illnesses,
and I am wondering whether these State hospitals are of sufficient
capacity to treat all these illnesses.
I know in Virginia we have difficulty getting people in there some-
time. Some of our people have a psychological reaction to going into
a State institution as such, and there might be a limited illness or minor
illness that does not require severe treatment. I am wondering whether
we are being fair by having that limitation on mental illness; whereas,
if a person has a limited illness and did not want to go into a State
institution whether we could make some provision to provide care
for that person ?
Dr. STUBBS. I believe it would be largely a matter of cost, plus the
fact that at the present time the facilities in private institutions for
acute care are very limited themselves for this special need
Mr. BROYHILL. I notice in both respects-both State institutions and
private institutions
Dr. STUBBS. Unquestionably that limitation would be a factor in
providing the service even if you provided the money to pay for it
under this program, but it would affect the cost of this program very
significantly.
Mr. BROYHILL. Then, that is the primary reason for it?
Dr. STUBBS. I would believe so; that, plus the question of overlap-
ping and double payment. That-if the employees were entitled to
it under another system and the funds presumably have been provided
through a community, State or some other sort of arrangement-
whether they are inadequate or not is not the question in this law, but
if they are to be provided elsewhere and we provide them here also
we are making double provision.
Mr. BROYHILL. And the cost would be substantial?
Dr. STUBBS. The cost would be substantially increased, I am sure.
The CHAIRMAN. How many different plans do you have throughout
the country?
Dr. STUBBS. In Blue Shield we have 64.
The CHAIRMAN. And I presume that all of those 64 plans are not
exactly uniform or similar in the way of benefits?
Dr. STUBBS. They vary enormously. Our largest plan has over 5
million employees. Our smallest has only about 10,000, but the small-
est ones have the same rights of operating in an autonomous way as
the largest.
The CHAIRMAN. Under this program all employees would receive
the same benefits regardless of where they reside in the United States?
Dr. STIIBBS. Yes, sir. We feel sure on the basis of our national ac-
counts agreement, which was arranged at the Blue Shield national
level, that through negotiations with these plans we can bring together
the elements of similarity that exist among them and come up with a
uniform range of benefits that will be paid for at the local rate of fee
schedule. In addition, we can arrange a rate which is a single one
applicable to all Federal employees if that is the desire of the Congress
or the Civil Service Commission, in the interest of efficient operation.
Mr. DAVIS. Will the chairman yield?
The CHAIRMAN. Yes, sir.
Mr. DAVIS. What then determines the area or the jurisdiction of the
uidividal plan? You say you have 64 of them throughout the coun-
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170. HEALTH BENEFITS. FOR FEDERAL EMPLOYEES
try. What determines the area or the jurisdiction of each one of
those?
Dr..STUBBS. Each plan is organized under the provisions of State
law which vary widely. In most instances a plan will cover a statewide
area, but there are some States such as West Virginia and your and
my State of Georgia where the legal provisions make it possible for a
single city to have a plan. So, there is a plan in Atlanta, one in Co-
lumbus and one in Savannah. There are nine plans, I believe, in
West Virginia. Most of the plans, however, are statewide. The small
plans tend to vary even more from the average or the norm than the
large plans because often in a small community a single individual
may feel that it is a move in a dedicated direction to set up a locally
controlled, nonprofit plan and, as the plan executive, he may even
carry the checks to the local hospital on foot in order to save postage if
the need arises.
Mr. DAVIS. Thank you.
The CHAIRMAN. How often, and by what percentages, have your
various plans throughout the country had to raise their subscription
costs during the past 5 or 10 years?
Dr. STUBBS. We could give you a listing of the changes. I do not
have it available today. I would say that the major factor involved in
increasing rates in Blue Shield plans has been increasing the scope
of benefits.rather than changing fee schedules. Our costs have not in-
creased notably on a fee schedule basis, but we have broadened them
out to cover many things which 10 years ago we did not cover.
Mr. GRoss. Mr. Chairman, will you yield to me at that point?
The CHAIRMAN. Yes, sir.
Mr, GRoss. Doctor, I noticed in the papers a day or two ago articles
to the effect that a fee is now being charged for a telephone conversa-
tion by certain doctors. Certain doctors are charging fees for tele-
phone conversations not previously charged for. Is that something
new?
The CHAIRMAN. Is that a prescription over the telephone?
Dr. STUBBS. I do not know how prevalent it is, and I. do not know
how new it is. I suppose some doctors have charged for such things
and, perhaps, if they know the patient well and feel that that is the
only control they have over abuse of telephone time, that they have to
employ it. We do not have it in our fee schedule.
Mr. GRoss. According to these stories they are charging $1 or $2
per telephone call and in some cases, as the chairman suggested, they
are charging for prescription telephone calls also to the drug stores.
Dr. STUBBS. I am sure the telephone charges are rare and, as I said,
they are not in the Blue Shield fee, schedule.
Mr. GRoss. I was going to ask that question. They, are not in. your
schedule as of now; is that correct?
Dr. STUBBS. No, sir.
Mr. GROSS. How would they be covered then?
Dr. STUBBS. Well, we do not pretend to cover everything.
The CHAIRMAN. I would like to read you a letter froml lfr. Harmon
L. Monroe, the president of the Tennessee State Medical Association,
Nashville, Tenn., addressed to me, as follows :
This letter is one Primarily of information to advise you of a recent action of
the. Tennessee State Medical, Association to try and solve some. of the abuses =
involved in health insurance. This association has established a consultative
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HEALTH BE I
committee on administration of voluntary medical prepaid care plans, to study
and recommend steps to be taken where abuses of health insurance occur,
whether they be on the part of physicians, hospitals, the general public or others.
It was felt by members of the committee that the Members of Congress should
have this information, to be informed of the willingness and efforts of organized
medicine to take action in these controversial matters,
I am happy to state that the physicians of Tennessee are taking the lead to
further protect the public and preserve the best type of medical care to our citi-
zens. This is a step that not many State medical associations have. taken. We-
believe that we are pioneering in a most important field. It was the thought of
our committee that you would be glad to know that such steps are underway.
Assuring you of our continuing cooperation in matters pertaining to health-,,
and so forth.
Do you agree with this letter?
Dr. STIIBBS. It is a fine letter, sir, and I am glad it came from your-
State. It is the measure of a trend that is developing in all our organ-
ized medical circles.
Two weeks ago I attended a meeting in Denver where a discussion,-
was held as to the need for this kind of thing to be developed. Here
in Washington, again, where so many. Federal employees reside, there
has been for years grievance committee of the medical society which
could receive complaints of the type mentioned.
The CHAIRMAN. I believe Mr. Wallhauser has a question.
Mr. WALLHAUSER. In your study of this legislation has your organ-
ization given consideration to the establishment of the Advisory Coun-
cil which is in the bill and its composition, its duties and so forth?
Dr. STUBBS. We have discussed it some, sir.
Mr. WALLIIAUSER. Is it your conclusion that it is fairly arrived at-
its composition and duties?
Dr. TUBBS. It has a widely spread composition. I would feel that.
the need for an Advisory Council would be especially to act as a group
offering through their own varied connections, the special advantages
or any information or any studies or service that could be helpful in.
the administration of this program, and secondly, it could help main-
tain good public relations for this program if there were questions.
raised. For this latter reason, especially, it would seem desirable
to have a committee of widely based personnel composed of (1) mem-
bers who would represent purveyors of the services which could be
very helpful in taking care of the technical aspects of the program,
(2) those who are familiar with the prepayment mechanism would be
helpful and, (3) certainly, it is good to have from the standpoint of
the Federal Government itself, not only on the question of supervision
but of maintaining interest, Members of Congress and members of the
Government departments.
I- believe that at the present moment there is no specific specifica-
tion for a physician on the Council. One of our State groups has
called attention to that fact. We feel that this is something which the
committee can judge better than we can.
Mr. WALLLTAUSER. It calls for a representative of the school of
medicine. Of course, that does not necessarily mean that it must be a.
physician but it indicates that he wouldbe.
Dr: STUBBS. Yes, sir; that is correct.
Mr. WALLIZAUSER. And it also calls for the appointment of the
Surgeon General and the Chief of the Bureau of Medicine and Surgery
of the Veterans' Administration.
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172 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Dr. STUBBS. I had reference especially to a practicing physician,
one in private practice.
Mr. WALLHAUSER. You feel that the Advisory Council will serve
a very useful purpose even though it apparently does not have any
specific authority or duty?
Dr. STUBBS. I am sure that in a democratic process such as the one
under which this would operate, the mere matter of public information
has a great influence on the operation.
Mr. 'VWALLIIAUSER. Thank you.
Mr. SCOTT. Mr. Chairman, I have a question at this point.
The CHAIRMAN. You may proceed.
Mr. ScoTT. Dr. Stubbs, did I understand you to testify in response
to the question by Mr. Corbett that in case a Member of Congress or
a veteran got into a Government hospital and a charge was made, a
Blue Cross or Blue Shield policy would cover any charge that was
made?
Dr. STUBBS. No, sir; I did not intend to say that, sir. My specific
comment was that I had heard from Mr. Farver, sitting behind me,
who is the representative of the local Blue Cross plan, that in the
specific instance Mr. Corbett mentioned of going to the naval hospital
and having a per diem charge, Blue Cross does pay it at this moment.
I said, secondly, I thought that this matter ought to be considered
in the establishment of the regulations by the Civil Service Commis-
sion for this program, so that if the patient were cared for in private
institutions, of course, he would be covered ; and they might also
consider the matter of paying a per diem rate of this kind.
Mr. SCOTT. Why would not Blue Cross and Blue Shield appropri-
ately cover any chargethat was made at any of these hospitals, whether
it is a Government hospital or not?
Dr. STUBBS. Well, I think that this entire prepayment mechanism
would be intended to operate outside the Government area and within
the voluntary areas and that it would be purely a matter again of
conserving funds. The Government hospital is established to do a
certain job. If they have additional people to take in-civilians-for
care, that is a somewhat immeasurable cost to them, and they would
have to provide it regardless. We would be doubling the payment.
Mr. SCOTT. Under the proposed legislation do you not think any
plan should cover the people who find it necessary to go to a Govern-
ment hospital and have to pay some part of the charge?
Dr. STUBBS. I think it would be difficult for us to make arrangements
to do that unless the specification were carefully written into the regu-
lations drawn by the Civil Service Commission.
Mr. SCOTT. Well, a Government employee or a veteran or a Member
of Congress would have to be careful of what hospital he went to,
would he not, if he holds a Blue Cross or Blue Shield policy?
Dr. STUBBS. I do not believe he has the opportunity to go into a
Government hospital many places.
Mr. SCOTT. I know, but the policy does not cover all of the cost.
What if your policy did not pay any part of the cost?
Dr. STUBBS. What of the policy?
Mr. SCOTT. What if the policy did not pay any part of the cost?
What would be the use of his having it?
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Dr. STUBBS. He can go to any of the community hospitals or any
of the private hospitals wherever he chooses.
Mr. Scow. But if he happened to be a veteran and entitled to sur-
gical benefits then he ought to be able to go to a veterans hospital.
Dr. STUBBS. I believe that question can and should be settled in
the regulations.
Mr. SCOTT. I have in mind a Member of Congress who went out
to Bethesda Naval Hospital and stayed out there for several months
at a cost of $21 a day. He held a Blue Cross-Blue Shield policy and
after he got out, to his surprise he was not covered on any of the
expenses or to any extent.
What do you propose to do about a situation like that? What do
you think should be done?
Dr. STUBBS. I think it should be considered in the regulations and
if it is desirable to write in and if the Government feels it is desirable
to write in a provision of that kind it easily could be done.
Mr. SCOTT. If that Member of Congress had gone to a private hos-
pital under his policy he would have been entitled to collect the bene-
fit; would he not?
Dr. STUBBS. If he went within the range of his policy; yes, sir.
Mr. SCOTT. I simply cannot see the reason for that distinction.
The CHAIRMAN. I agree with the gentleman from North Carolina.
You mean if a Member of Congress belongs to your association and
pays his monthly contribution and goes to a Government hospital and
has to pay $21 a day for his hospital room, he is not covered by
Blue Shield-Blue Cross?
Mr. SCOTT. That is right, and I have the policy here before me
and a letter from the company.
The CHAIRMAN. That is a matter for Mr. Colman to answer.
Dr. STUBBS. It has been a long time since you have been on, Mr.
Colman.
Mr. COLMAN. The provisions with regard to care in Government
hospitals vary among the Blue Cross plans and vary among the
contracts of the individual Blue Cross plans. It is a very complex
question. The first thing to be clear about is whether we are talking
about service-connected or non-service-connected disability, and the
second thing to be clear about is whether this comes as a right to the
individual under the Veterans' Administration program or whether
it comes in some other fashion.
I support Dr. Stubbs' position that in connection with the benefits
provided under this program it will have to have special study because
it is a peculiarly acute problem to this group of employees and much
more general and acute than it is in most of our other employee
groups.
If any of you have looked through the regulations as to what
benefits people are entitled to in the government hospitals it is not
a simple problem. It is a very complex one, best dealt with in regula-
tion. It can be equitably solved.
The benefits provided here should not cover benefits for care in
Government hospitals to which the participant would otherwise be
,eligible without charge to him.
The CHAIRMAN. Doctor, they charged $21 a day in this case.
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174 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. COLMAN. I understand, sir, and I am saying what I think the
regulations ought to be under this program. This issue is not cov-
ered in the bill and I do not think it should be settled in the bill"
because it is altogether too complex. You would have to add another
chapter to the bill in order to cover it.
The CHAIRMAN. I am talking about your association. Why was
not this Member covered, and why was he not entitled to payment
on his hospital bill, leaving out the fact that he is a Member of
Congress?
Mr. COLMAN. This would depend entirely on the provisions of his .
contract, and these vary. They vary in individual plans in the dif-
ferent contracts that they write and they vary among plans..
Mr. GROSS. Would the gentleman yield?
The CHAIRMAN. Yes, sir.
Mr. GROSS. Do you have a plan which provides for that kind of
payment?
Mr. COLMAN. Yes, sir.
Dr. STUBBS. Mr. Chairman, if I may get back onto this question
I was being questioned officially for the record, I would like to offer
Mr. Scott to check into this case, because Mr. Farver reassured me
during Mr. Colman's soliloquy here that the provisions of our current
program here in Washington would require us to pay the naval hos-
pital; and we would like very much, sir, if you would let us, to in-
vestigate it.
Mr. Scorr. You say they would be required to pay it?
Dr. STUBBS. We would like to check your specific situation.
Mr. Scorn. I will certainly be happy to give you that information.
Dr. STUBBS. We are most desirous of having the Members of Con-
gress maintain their good health, even in Government facilities, Sir.
The CHAIRMAN. Mr. Harmon is recognized.
Mr. HARMON. Doctor, I have been a member of this plan ever since
it started-Blue Shield-Blue Cross-for my own protection and for
my family, and I have been hospitalized at various times. The one
thine that I would like to bring out here is that when we first, went
intollue Cross and later into Blue Shield we had a schedule of pay-
ments for surgical work done. It was all very fine. Then I dis-
covered-at that time I worked for General Motors, Delco Battery-
Division-that they had another schedule and it was not like mine.
Then I discovered that the doctor had another one, and then I dis-
covered that in Indianapolis they had another one.
Is there any explanation of this?
Dr. STUBBS. A very good one,. sir, because all of these programs
grew up in local communities according to the searching but some-
times fumbling efforts of individual people and small groups to develop
plans. We did not all start at the same point and did not aim in the
same direction because we did not know as much as we do now.
Mr. HARMON. I am talking about when you first sold the plan you
were going to have so many benefits for this job, and you did not have
them, when it came time to pay the bill. Here, for instance, is Joe
and George and John, friends of mine, who thought they would be
taken care of by the same doctor, but they have different payments and
not only that, but some of them do not get. anything. Why?
I think your organization needs a good investigation.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Dr. STUBBS. We are getting one right now.
Mr. HARMON. Well, I think you ought to have it. Another thing
is this. I would like to ask why that recently in Indiana, in lieu of
increasing premiums, you now only pay 75 percent? How do you
do that? They said your costs went up. This is not the group plans.
These are the individual plans for the poor, distressed people in my
district that complain to me about your program.
The CHAIRMAN. Is that both groups or just one group, Mr. Harmon?
Is it Blue Cross or Blue Shield? Does that apply to both?
Mr. HARMON. Yes, sir; and even that is true in hospitalization,
7but more so with the Blue Shield.
The doctor has a fee, but if he finds out you have Blue Cross, the fee
is something else. If he finds out you have Aetna, it is higher, and
if he finds out you make so much a week it is still a little higher.
'There ought to be happy medium somewhere.
Dr. STUBBS. I think we are better than we were when Chevrolets
were selling for $490.
Mr. HARMON. Why would that enter into it ?
Dr. STUBBS. It illustrates that the cost of everything is raised.
Mr. HARMON. We did not have any insurance then.
The CHAIRMAN. Do you not think that there should be some com-
-petition in awarding these different plans?
Dr. STUBBS. I think there will be, sir.
The CHAIRMAN. It seems to me there should be considerable com-
,petition. In other words, I do not want to see anyone get a monopoly.
Dr. STUBBS. We do not, either.
Mr. HARMON. They have a monopoly right now.
Mr. SCOTT. Dr. Stubbs, to whom should we submit the information
we have with respect to this case I mentioned?
Dr. STUBBS. If you have it there, sir, I will be glad to take it, or it
can be addressed to Mr. F. P. Rawlins, president, Group Hospitaliza-
tion, Transportation Building, Washington, D.C.
That is where you send your money.
.Mr. SCOTT. I will confer with you right after the hearings.
The CHAIRMAN. I believe Mr. Porter has a question.
Mr. PORTER. I agree with you that this section 41 about one govern-
mentwide benefit plan should probably be amended.
I wonder if you have a particular proposal to make in regard to the
language so that it would include all of the possible competing or-
ganizations that might give service?
Dr. STUBBS. The one thing that we questioned was the phrase "on
governmentwide program."
Mr. PORTER. Just say service benefit plans.
Dr. STUBBS. If the chairman would permit, we would like to sub-
mit a possible change of language for the consideration of the com-
mittee.
The CHAIRMAN. Yes; I would appreciate your doing so.
Mr. HARMON. I want to know why in Indiana you keep canceling
my coverage.
Dr. STUBBS. I will try to find out.
Mr. HARMON. I want to know why I could not continue to carry that
with the company I worked with when I am still on the payroll, and
if I had an opportunity I would be back there working right now.
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176 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
I want to know why you canceled it out without any notification to
me. I just talked to my wife a couple of days ago, and that has hap-
pened, and my family does not have any coverage and neither do I.
Dr. STUBBS. I think they should be covered and we would be glad.
to look into it, sir.
Mr. HARMON. Will you please do that?
Dr. STUBBS. We certainly will. We are always glad to investigate
questions of this kind.
Mr. HARMON. I am going to check into it when I go back home.
Dr. STUBBS. Since I -am working without salary, I am delighted to
do it.
Mr. HARMON. You and General Motors had better come up with
an answer.
Mr. GROSS. Mr. Colman, with reference to the veterans' hospital case,.
you referred to service-connected disability.
Mr. COLMAN. Yes, Sir.
Mr. GROSS. Is it not true that there are thousands of servicemen.
treated in veterans' hospitals on a non-service-connected disability
basis?
Mr. COLMAN. Yes, sir. This is a right, as I understaund it, that
Congress has permitted to the veterans, and there is no charge made
for that service to the patient.
Mr. GROSS. On the non-service-connected disability basis?
Mr. COLMAN. That is right.
Mr. GROSS. If this program is adopted, you would expect to have the,
heads of families of a large number of veterans in this program;
would you not?
Mr. COLMAN. Yes, sir.
Mr. GRoss. But up to this point there is no provision in your plan:
for the payment of medical care at veterans' hospitals?
Mr. COLMAN. No, sir.
Mr. GRoss. Do you not think it ought to be given consideration?
Mr. COLMAN. No, sir.
Mr. GROSS. Why not?
Mr. COLMAN. Because if the Government is going to give that free
care to all veterans, I do not think they ought to penalize the people
who want to belong to a prepayment plan and make them pay for it..
Mr. GROSS. If they are going to pay into this plan why should not
the veterans' hospitals be reimbursed?
Mr. COLMAN. It is perfectly all right, but it will raise the cost of
the plan to the participants in this program inequitably and not
against those who do not participate, but who are getting it free.
Mr. GRoss. Probably some of the people that you have insured in
the past in your plans have been going to veterans' hospitals and,,
therefore, they have been paying for something that they have not
been getting? Is that not true?
Mr. COLMAN. No Sir.
Mr. GROSS. You have not been reimbursing the veterans' hospitals
for the treatment?
Mr. COLMAN. No, sir; and that all reflects itself in the rates that we
charge.
Mr. PORTER. Will the gentleman yield?
Mr. GROSS. Yes.
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Mr. PORTER. I understand that Dr. Stubbs received no salary but I
assume there are people in the Blue Shield operation, who do receive
salaries for doing administrative work?
Dr. STUBBS. A few; yes, sir.
Mr. PORTER. Could you supply the committee with those salaries?
Dr. STUBBS. I can tell you that the national office of the Blue Shield'
is operating in its entirety, including all personnel and all other ex-
penses, at a cost of less than 1 cent per year to each of the members of
Blue Shield in all the plans.
Mr. PORTER. How many are there in Blue Shield?
Dr. STUBBS. 43 million.
Mr. PORTER. You mean somebody gets or could get 43 million cents?'
Dr. STUBBS. If he can persuade all of the others in Blue Shield who.
work for Blue Shield to do it for nothing, he is entitled to that.
Mr. PORTER. We should not speculate about it. You do have those.
salaries I assume?
Dr. STIIBBS. I do not have the salaries myself in all or any of these
things, but we can give you a range of salaries. I think it is fair to.,
say that all of the evidence we do have in this area is that those in the
health-care field in hospitalization and Blue Cross and Blue Shield'
are generally below what are thought to be comparable salary levels
in industry and organizations of this type, because it is true that for
those working in locally controlled nonprofit groups where all of the
boards are required by regulation to be unsalaried and without re-
muneration, the atmosphere is one of dedication. Also we get in this
outfit a lot whom some would call cranks who are willing to work for
nothing, or at least no salary.
Mr. PORTER. Who sets the salaries?
Dr. STUBBS. They are set by the boards.
Mr. PORTER. By the doctors themselves?
Dr. STIIBBS. No, sir; by the board of directors of the plans.
For example, take the local board here in Washington. The treas-
urer of it is Mr.. Bruce Beard, nominated by the District Commission-
ers; and we have Mr. Philip Talbott, who is past president of the
chamber of commerce; Mr. Robert McCann, the vice president of the
Telephone Co.; Mr. Robert Holmes, who is the Personal Director for-
the Library of Congress; and Dr. Halsey Hunt, who is the head of the
Aging Division of the National Institutes of Health. Men of that
sort are public members of our board, and they have control of the,
fiscal policies of the medical service plan in the District of Columbia..
It runs that way all through the Blue Shield program setup.
On the question of executive salaries, we are quite sure they are not
a matter of question or consequence, but we would be very happy to
try to give you some range on it. But, as I said earlier, every one of
our plans is locally autonomous and they do not have to tell us any-
thing beyond their own legal requirements of public recording except
how much money they spend for operating a Blue Shield plan on the
average. The national average is 10 percent of the income for operat-
ing costs.
The CHAIRMAN. What is the highest salary paid to any full-time
employee?
Dr. STIIBBS. I have no idea.
The CHAIRMAN. I would like to have that information.
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178 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. PORTER. I would like to have that information specifically.
The CHAIRMAN. We would like to have the information on Mr. Col-
man's organization and also for your organization.
Dr. STUBBS. Yes, sir.
The CHAIRMAN. Mr. Colman, you will give us that information?
Mr. COLMAN. Yes, sir.
The CHAIRMAN. I understand you have pretty high-salaried em-
ployees in both groups.
Mr. COLMAN. Well, I am perfectly willing to defend them.
(The information with respect to Blue Shield, represented by Dr.
Stubbs follows. The information with respect to Blue Cross, repre-
sented ly Mr. Colman, appears at p. 96.)
Ten plans having over 1 million subscribers : Total subscription income, $313
million; lowest salary, $17,000; highest salary, $33,000; average salary, $25,773.
Thirteen plans having 500,000 to 1 million subscribers : Total subscription in-
?come, $166 million; lowest salary, $7,000; highest salary, $27,500; average
salary, $18,250.
Seventeen plans having 200,000 to 500,000 subscribers : Total subscription
income, $110 million ; lowest salary, $7,125; highest salary, $19,000; average
.salary, $12,488.
Ten plans having 100,000 to 200,000 subscribers : Total subscription income,
$37,500,000; lowest salary, $6,250; highest salary $21,000; average salary, $11,642.
Ten plans having less than 50,000 subscribers: Total subscription income,
$2,820,000; lowest salary, $2,400; highest salary, $6,426; average salary, $4,320.
Mr. GROSS: I would like to pursue this veteran question a little
further.
What about a lower premium for veterans, Mr. Colman?
Mr. COLMAN. If they want to use the veterans care facilities, they
do not have to pay.
Mr. GROSS. Well, of course, we are speaking now of. the head of a
family who would come under this proposition.
Mr. COLMAN. Yes, sir.
Mr. GROSS. Without the head of of the family coming in, the fam-
ily would not be covered; would it?
Mr. COLMAN. No, sir.
Mr. GROSS. Do you not think it is inequitable to charge, a veteran the
same rate?
Mr. COLMAN. No, sir; I do not. I think the inequity would be the
.other way. I think that if you were to provide that participants in
prepayment programs who received care in veterans' hospitals would
have the program pay for that care, you would be forcing that group
? of participants to pay for a benefit that the Government has offered
to give free to anyone else, and you are imposing an added charge on
the people who want to take care of their own for the care that is
otherwise available to them.
Mr. GROSS. I do not follow that reasoning at all. If he has already
paid, why should you not reimburse the hospital?
Mr. COLMAN. By paying for what, Sir? He is paying for the care.
Mr. GROSS. For protection.
Mr. COLMAN. But not for care in veterans' hospitals, and you can
add that in as a benefit if you want to.
Mr. GROSS. What difference. does it make what, hospital he goes to?
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Mr. COLMAN. Provided it is not a veterans' hospital, if you want to
add that in as a benefit it is going to increase the rates.
Mr. GROSS. He is supposed to have the benefit of hospitalization.
wherever he may be.
Mr. COLMAN. If you write in a proviso that the prepayment pro-
gram will provide for payment to the Government for care rendered
in veterans hospitals,' it will increase the total cost of the program sub-
stantially and every one is going to have to pay for it.
Mr. GROSS. They are already paying for it.
Mr. IIARMON. Do you have n your contracts a specification that if
you go to a certain hospital you will not be paid?
Mr. COLMAN. Yes, sir; as far as veterans' hospitals are concerned.
Mr. HARMON. Why do you do that?
Mr. CoLrMAN. For the reason I just outlined.
Mr. HARMON. Yes; but those people have to pay when they go to
veterans' hospitals, as has been brought out.
Mr. COLMAN. No, sir.
The CHAIRMAN. Not a veterans' hospital ?
Mr. COLMAN. Not a veterans' hospital ; no, sir.
Mr. HARMON. How many crooks and racketeers have you had to send
to the penitentiary in the last 20 years that have made off with some
money ?
Mr. COLMAN. Well, I am happy to answer that question. To my
knowledge, none.
Mr. IIARMON. Well, I happen to know a little differently that in these
days when they are talking about racketeers in labor, I find there are
more bankers in the penitentiary than there are members of labor in
the penitentiary, but that is neither here nor there.
Mr. COLMAN. Well, sir, I was responsible for the Blue Cross plan
in New Jersey for 21/2 years, and in Maryland for 14 years, and in that
time there was never a criminal suit or a civil suit against those two
organizations.
Mr. HARMON. I would say that knowing people as I know people,
you just have not caught up with them, because without a doubt there
are some.
Mr. REES. I was going to ask the doctor this question.
According to a combined Blue Cross-Blue Shield rate schedule as of
July 1-to go back to Georgia, because that was mentioned a while
ago-the combined family cost is $7.44. That is the figure I have
before me.
Under this proposed legislation it is $18.40.
Dr. STUBBS. That would be the maximum; yes, sir.
Mr. REFS. So, the family in Georgia will pay $9.20 or half of that
instead of $7.54.
Dr. STUBBS. They get much more benefits. It would take care of
a much higher proportion of the cost of their medical care.
Mr. REES. I notice in Oregon that your total cost would be $12.61,..
and again, it is more for a total family under the figure of $18.40 in
the bill.
Dr. STUBBS. It is a question of the amount of benefits that they
would receive, and this bill would provide a broader coverage than is
now available to Federal employees in nearly all the areas.
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180 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. REES. What you are doing, really, is charging more in these
more expensive areas?
Dr. STUBBS. That, and it also may be that they are getting more
benefits. It may pay a larger proportion of the medical bill.
Mr. REES. Do you not think that a family in Pittsburgh, Pa., gets
more benefits than one does in Emporia, Kans., because there is
=twice as much cost involved?
Dr. STUBBS. It is possible, and it is possible that it costs more for
each unit of care in Pittsburgh.
Mr. HARMON. I would like to make one other comment. I expect
I have been in the hospital more than the average person. I am 56
years old and I expect I have been in the hospital more than anyone
on the Hill. I have spent at least 5 years in hospitals, and I have
never been sick. However, I have had many accidents, and I have
been close to death several times. I have had quite a bit of experience
with hospitals and hospitalization, and Blue Cross and Blue Shield
and I have yet to see the time when I did not always have to pay.
The reason I am in such a poor financial condition today is because
of these sicknesses. I have been trying, since I have been down here
in the past several months, to pay my hospital bills and doctors' bills
back home. However, that is neither here nor there, but I will say
I know quite a bit about the procedure of Blue Cross and Blue Shield
through the years, and believe me, there is plenty of room for im-
? provement. I made that observation the other day. Since I first
joined the plans I have gotten less and less and they always get more.
It looks like, if you were going to get more people into it, they al-
ready say that you buy these coverages for protection and you hope
you are not going to be sick and will not need to use it but with the
insurance companies and with the Blue Cross and Blue ?hield there is
no gamble with them.
That is all, Mr. Chairman.
The CHAIRMAN. Are there any further questions?
If not, we thank both Dr. Stubbs and Mr. Colman very much. We
regret that we have had to keep you here so long, but we thank you
for your cooperation.
Dr. STUBBS. Can I go back to practice, now?
The CHAIRMAN. Are you engaged in private practice?
Dr. STUBBS. Yes, sir.
The CHAIRMAN. I asked you probably more questions than in the
past because I have never had any kind of medical insurance, or hos-
pital insurance, in my life, and I know very little about the pro-
gram. I always pay my own bills, and I have been in the hospital
several times. However, I do believe in the principle that those who
are able to pay should pay more than those who are unable to pay,
so as to try to give lower and lower cost to the underpaid by charging
more to those who are able to pay.
I have always believed in that. I believe that those who are in the
higher brackets should pay more than those in the lower brackets,
so as to equalize the cost.
Dr. STUBns. Well, I am sure that is a medical philosophy that has
been widespread over this country.
The CHAIRMAN. Thank you, sir.
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Dr. Suess. Thank you, Mr. Chairman, and members of the com-
mittee.
The CIr.&n MAN. Is. Mr. Arthur H. Harlow, Jr., present?
Are you the gentleman that wanted to be heard?
Mr. HARLOW. Yes, sir.
The CHAIRMAN. How long will it take you?
Mr. HARLOW. Ten minutes.
The CIIAI.RMAN. All right; go ahead. We will indulge you and
try to finish with you this morning.
Mr. HARLOW. Thank you very much.
STATEMENT OF ARTHUR H. HARLOW, JR., PRESIDENT, GROUP
HEALTH INSURANCE OF NEW YORK
Mr. I-hiu ow. My name is Arthur Harlow, and I am president of
Group Health Insurance, Inc.,. of New York. Thank you for this
opportunity to testify before you today.
First, I want to emphasize that I support this bill. It will bring
to Federal employees advantages already enjoyed by a great many
employees of private industry. You may remember also the publica-
tion a few years ago of a booklet by the National Association of
Manufacturers which concluded that employer expenses of this kind
more than pay for themselves-in the form of lowered absenteeism
.and improved morale.
My principal purpose in testifying is to suggest a, change in the bill
which would allow the Civil Service Commission to include group
health insurance among the choices to be offered Federal employees
in the New York area. I not only believe this should be noncontro-
versial, but also I hope that this committee will agree that it will
improve the bill.
For this purpose, I would like to describe group health insurance
briefly and give the committee some data about its operations.
GHI is the oldest nonprofit, medical care insurance organization
in the northeastern part of the United States. It operates in the 18
southern counties of New York State, under the supervision of the
New York State Insurance Department. No commissions are paid
to agents, brokers, or employees.
The board of directors is divided equally between doctors and lay-
men. The latter include representatives of business management,
organized labor, and the community at large.
The current volume of annual premiums in force is $15 million.
More than 550,000 people are insured through group enrollment.
Among the union welfare funds whose members subscribe to GHI
as the result of collective bargaining agreements are printers, ma
chinists, office workers, painters, iron workers, teamsters, bakers, meat-
cutters and fur workers. Organizations which contract with us di-
rectly for coverage include the A. & P., American Iron and Steel In-
stitute, American Tobacco, Bank of New York, Book of the Month
Club, International Nickel, Macy's, Newsweek magazine, Helena
Rubenstein, and Sullivan & Cromwell.
Our largest group of subscribers-and most relevant to this hear-
ing-consists of approximately 50,000 cili serviceemployees and de-
pendents of the State of New York and local subdivisions in our., area
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182 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
of operation. The State program was launched through a bipartisan
commission when Mr. Harriman was Governor of the State. Now Mr.:
Rockefeller has included in his letter to employees a quote from the
Department of Health, Education, and Welfare that it is "the most
liberal and comprehensive program enacted by a government body to,
provide its employees with protection against medical costs." So it
is certainly nonpartisan.
. The State program offers employees three choices of medical care
plans, each the best of its kind. Blue Cross hospitalization goes with
each. The first plan for doctor services is like the plan provided for
in paragraph 1 of section 4 of the proposed bill; the second is the-
Health Insurance Plan of Greater New York, which fits into para-
graph 4 of section 4; and the third is our GHI family doctor plan,.
which would not be eligible for inclusion in the Federal program
under the bill as drawn. Almost 40 percent of eligible New York
State employees chose GHI at the time of the first enrollment in
December 1957. Now the program is being reopened to those who,
did not choose to be covered in 1957 and to allow others to switch from
one plan to another if they care to do so. Final figures are not yet
available, but the indications are that of those who are enrolling for the
first time-with the advantage of knowing the experience of their co-
workers during the last year and a half-between 80 percent and 90'
.percent are choosing GHI. Of those who are switching, about two-
thirds seem to be coming to GIII. It is interesting, I think, that an
analysis of the choices made in 1957 shows that workers in the lower
income brackets and particularly those with larger families chose GHI.
Plans of insurance offered by GHI range in comprehensiveness from
coverage only of surgery to the family doctor plan which provides
benefits, in addition to payments for in-hospital care, for an unlimited
number of home and office calls for general care, for out-of-hospital
diagnostic X-ray and laboratory tests, specialist consultations, and
such preventive services as annual physical examinations, well-baby
care and immunizations. In addition, there are riders to cover anes-
thesia and private duty nursing and drugs.
Medical care insurance offers two great advantages. First, it helps
its subscribers to meet their doctor bills. Second, by removing the
financial barrier between patient and doctor, it encouraes the prompt
diagnosis and early treatment which are essential to the'best of modern
medical care. That is why this coverage by our family doctor plan.
of general care for minor illnesses in the home and office is so impor-
tant.
All these benefits are provided on a free-choice-of -doctor basis. A
subscriber may choose any doctor anywhere in the world and receive
benefits from GHI. It is a "service benefit" plan in that 11,000 doctors,
in the New York area agree to accept GHI payments as their full fees
in medical or surgical cases in a hospital if the patient applies for
and uses semi-private accommodations-regardless of his income. In
addition, 5,000 of these doctors-general practitioners whom we call
participating family doctors-agree to accept GHI payments as their
full fees for out-of-hoospital care-for home and office calls and X-ray
and laboratory tests, as well as for maternity care,-,also regardless of
income.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
It is worth stressing that service benefits represent the most effective
way we have of controlling medical costs. GIII has not increased its
surgical schedule since 195.0 or its payments for home and office calls
since 1.955. Of course, no organization can stand alone against the
tide of inflation, but I do think this is an important indication of
stability.
Gill is the broadest free-choice-of-doctor, service benefit plan in
the United States. Lilco previous witnesses, I cannot detail too pre-
cisely at this stage just what benefits. we can offer to Federal employees
under this program. We must know more about the distribution of
costs and certain other details which are to be worked out by the Civil
Service Commission. However, I can assure you that within the costs
established in this bill, Gill can provide a plan that offers a great
many more benefits than those set forth as minimum standards.
I told you that GIII is the oldest plan in its area, but we feel we are
still pioneering. The proper function of a nonprofit organization in
this field is, we believe, to continue to seek ways of making medical
,care insurance more useful to its community.
Recently, we launched a "sister" corporation-Group Health Den-
tal Insurance-which was the first nonprofit, communitywide, service-
benefit dental insurance plan in the United States. And just this
year-with the aid of a grant from the National Institute of Mental
Health-we have undertaken a research project to investigate the in-
surability of short-term psychiatric treatments.
I believe that GHI offers the kind of insurance the Federal Govern-
ment wants to give its employees a chance to choose. Civil servants in
New York State like it and choose it when they have the chance. The
bill as drawn, however, limits choices for Federal employees to one
governmentwide service benefit plan, one governmentwide indemnity
benefit plan, employee organization plans, and local group practice
prepayment plans. It thus leaves out GHI in New York, which is not
a group practice plan. While its range of benefits is just as broad, it
offers its subscribers free choice of doctor.
I would like to stress that the inclusion of GHI would mean no
increase in cost to the Federal Government. It would merely enrich
the program for Federal employees in the New York area. I ask,
therefore, that the bill be amended to make this possible.
Mr. Chairman, I have attached to the copies of my statement
which I believe have been distributed to members of the committee
-some folders giving more information about our organization and
.about the New York civil service employees plan. I do not wish to
burden your record with an undue amount of data, but I thought
that the committee members might like to look at these folders-and,
of course, we will be glad to have all or any part of them printed in
the record if you see fit.
I wish to thank the committee again for this opportunity to testify
and I would be glad to answer any questions.
The CHAIRMAN. Where does the bill restrict hospitalization to just
one governmentwide service benefit plan? What section of the bill
is that?
Mr. HARLOW. There are four types of plans in the bill. One is a
governmentwide service benefit plan, one a governmentwide indemnity
benefit plan, and there are the organization employee plans, and
finally the local group practice plans.
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184 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
The CHAIRMAN. Why can you not qualify under the bill?
Mr. HARLOW. Because we are not a group practice plan.
Group practice plans require that you go to a group of doctors
operating from some local, common office. We do not make any such
requirement. We are a free choice plan. We pay benefits anywhere
in the world.
The CHAIRMAN. Under this bill you could not make any kind of
a bid to the Civil Service Commission?
Mr. HARLOW. The Civil Service Commission would not consider-
us and we would like the chance, if our plan is as good as we hope it,
is, to let them include us in the bill.
How old is your organization ?
Mr. HARLOW. We celebrated our 20th anniversary last year.
The CHAIRMAN. How many members do you have?
Mr. HARLOW. About 560,000 people.
The CHAIRMAN. I do not understand why you should not be allowed'
to come under the bill.
Mr. WALLHAUSER. Does the gentleman have any language he could.
suggest ?
Mr. HARLOW. I have a draft. I think it could be done in a couple-
of ways (y but I would be glad to submit suggestions.
The CHAIRMAN. I wish that you would.
Mr. WALLIIAIISER. We accept that.
(The material referred to follows:)
PROPOSED AMENDMENT TO S. 2162
At the end of section 4, add the following new paragraph :
"(5) LOCAL OR AREA SERVICE BENEFIT PLANS.--Service benefit plans, serving
a particular locality or area, which allow subscribers a free choice of physician
and under which in whole or substantial part the physicians, hospitals or
other providers of covered health services agree, under certain conditions, to
accept the payment provided by the plan as full payment for covered services
rendered by them : Provided, That the carrier offering the plan must have.
provided health services under a health benefits plan for a period of at least
five years."
At the end of section 5 (a), add the following :
"(5) LOCAL OR AREA SERVICE BENEFIT PLANS.--Benefits of the type specified
in this subsection under paragraph (1) or (2)."
The CHAIRMAN. Mr. Rees?
Mr. REES. I was going to suggest that you submit a formal amend-
ment for us to consider and look over.
Like the chairman, I do not understand why you do not come under'
the bill.
Mr. HARLOW. We are not governmentwide. We are a local plan.
Mr. REES. That is right.
Mr. HARLOW. We are not a plan of Federal employees that they run
for themselves.
The CHAIRMAN. But you have a good many Federal employees, did'
you sa ?
Mr. HARLOW. Not many Federal, but we have many State and local
government employees. Very few Federal employees.
Our largest single group is civil servants of the State of New York,,
of the subdivisions, counties, school boards, and such.
The CHAIRMAN. How many Federal employees do you have?
Mr. HARLOW. Very few.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 185,
The CHAIRMAN. About how many?
Mr. HARLOW. I would say probably less than a thousand, because
this is a group enrollment plan and we only take groups as they come.
The CHAIRMAN. Any other questions?
Mr. RTES. Just one more question.
You say that the difference between this bill and your proposal is
that you may select any doctor you want?
Mr. HARLOW. That is the fourth type of choice.
Mr. REES. Under the fourth type?
Mr. HARLOW. That is because for a group practice prepayment plan,
like the group health plan here in Washington
Mr. REES. Do you follow the fourth choice, if you could select any
doctor you want?
Mr. HARLOW. The wording here is, "local prepayment service benefit
plans" that allow freedom of choice.
Mr. RE, ES. With freedom of choice you come under the bill?
Mr. HARLOW. Yes; and we would like to add a short paragraph, that
is all.
Mr. WALLHAUSER. You mentioned that you only accept group ap-
plications. Under your proposal would an individual Federal em-
ployee have the right to join?
Mr. HARLOW. Yes; we participate in these choice programs very
broadly in private industry as well as from the State of New York.
Any member of a group that is going into this program would be
eligible, whether only a few chose, or a great many chose us.
The CHAIRMAN. Any other questions?
If not, thank you very much.
Your statement will be covered in full in the record.
Mr. HARLOW. Thank you.
The CHAIRMAN. The hearing will now be adjourned until 10 a.m.
tomorrow.
Dr. BABCOCK. Mr. Chairman, could I see you just a moment later?
I have made two trips here from Portsmouth and I would like to
present my brief to you. I would like to talk to you after these people
are dismissed.
The CHAIRMAN. Very well.
If you want to take the stand now we will take 2 or 3 minutes be-
cause the House is now in session.
Dr. BABCOCK. It will not take very long.
The CHAIRMAN. State your name for the record.
STATEMENT OF DR. JOSEPH M. BABCOCK, DIRECTOR, DEPARTMENT
OF NATIONAL AFFAIRS, AMERICAN OPTOMETRIC ASSOCIATION,
PORTSMOUTH, OHIO
Dr. BABCOCK. Mr. Chairman and members of the committee, my
name is Joseph M. Babcock. I reside in Portsmouth, Ohio, where I
have been engaged in the practice of optometry for more than 40 years.
I have been in charge of the Department of National Affairs of the
American Optometric Association for the past 17 years, during which
time I have also served as secretary of the Ohio State Optometric
Association.
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186 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Our national association, like most others in the health field, is com-
posed of individual members in each of the 49 States and the District
of Columbia. In most instances the individual joins the local or
State association and at the same time becomes a member of the na-
tional organization.
Our interest in S. 2162 and the companion House bills which are
being considered by the committee is twofold, first : to make certain
that Government employees who elect to avail themselves of the bene-
fits sought to be provided by these bills, shall be free to consult a
member of the optometric profession for their vision care if they so
desire, and, second, to have on the Advisory Council a representative
,of one of our schools of optometry.
It was my privilege to appear before the Senate subcommittee which
held the hearings as the result of which S. 2162 was drafted. In the
preparation of the Senate bill S. 2162 they did adopt some of our
recommendations, namely, those pertaining to the use of the word
"health" rather than the word "medical." the use of the latter term
universally results in the exclusion of optometrists from the program,
even though the individual patient may prefer to have an optometrist
perform the services to which that individual is entitled.
Before going further, it might be well if I briefly described the
.qualifications and functions of the two groups which provide thepro-
fessioual service essential to the care and preservation of the vision of
the American peoples. They are the optometrists and the ophthal-
mologists.
The optometrists constitute the group especially trained to examine
the eyes of their patients for defects in vision. When these are caused
by conditions which either partially or. wholly require medication or
surgery, the patient is referred to a physician. In civilian life be-
tween 60 and 70 percent of those seeking professional advice for their
visual problems consult optometrists. In each of the 49 States and
the District of Columbia, a person now seeking an original license to
practice optometry must be a graduate of an approved school or
college of optometry which requires a minimum of 5 years of study
at the college level, three of which are devoted to the optometric
specialty. They are also required to pass a State board examination.
There are in the United States somewhere in the neighborhood of
18,000 practicing optometrists. They specialize in refractions, pre-
scribing and fitting spectacles, contact lenses, orthoptics, subnormal
vision aids and visual problems of schoolchildren, motorists, aging,
and the employed.
The other group is known as ophthalmologists. Some of these have
been certified by the American Board of Ophthalmology and others
use the term without being certified. They are all physicians. Those
certified have taken postgraduate work in the field of eye care, have
completed a residency in an eye hospital, and passed the examinations
given by the American Board of Ophthalmology. They are especially
trained to perform eye surgery and to treat diseases of the eye, as
well as to refract.
There is no statutory regulation of an ophthalmologist and any
physician, even with, a general medical education which includes only
a smattering of training in the care of the eye, may if he so desires
call himself an ophthalmologist, an oculist, or an eye specialist.
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HEALTH BENEFITS FOR FEDERAL EI LOYEES-. 187
Congress, on numerous occasions in the last 15 years, has enacted
legislation recognizing the professional status of optometrists. One
example was the passage, in 19471 of the Medical Service Corps Act
as the result of which optometrists are now accorded commission
status in the Army, Navy, and Air Force. There are some 350
optometry officers on active duty in the three services with ranks rang-
ing from ensign or 2d lieutenant to colonel or its equivalent in the
Navy which is captain. There are also a substantial number of
civilian optometrists who are employed by the three services either on
a part- or full-time basis.
The 1950 amendments to the social security law expressly provided
that the services of optometrists should be made available to recipients
of the aid to the blind program in the several States in order'that the
States could qualify for Federal funds.
The 1958 revision of the laws relating to the Veterans' Administra-
tion expressly included optometrists in the Medical Department.
The American Optometric Association has a standing committee
known as the committee on social and health-care trends. One of the
principal functions of this committee has been to work with labor
organizations, employers, and others interested in group health with
a view to including vision care in these programs. As a result, the
Federal Safety Council in California which, if I am informed cor-
rectly, would qualify as a carrier under the provisions of these bills,
has a contract with the California Vision Service to provide opto-
metric services for the beneficiaries of the Federal Safety Council
program, who desire them.
It is also my understanding that the Group Health Association in
the District of Columbia, of which many Federal employees are mem-
bers, provide optometric services as part of their coverage.
It would unduly impose upon the time of the committee if I at-
tempted to give you, even in summary form, some of the accomplish-
ments of our profession in providing vision care for the partially
blind, for the aging, for industrial workers, and for children and
youth.
The primary reason for my appearing before this committee is
to recommend that the bill be amended by enlarging the membership
of the Advisory Council as contained in section 12(a) (7). Subpara-
graph (7) now provides for three members of the Council to be ap-
pointed by the President who shall be representative of university
schools of medicine, hospital administration, and public health, re-
spectively. Our recommendation is that this paragraph be amended
so as to provide for five members to be appointed by the President,
one of the additional members to be a representative of the schools
of optometry and the other of the schools of dentistry.
The bill also provides for at least two other medical members,
one the Sur-eon General of the Public Health Service, and the other
the Chief of the Bureau of Medicine and Surgery of the Veterans'
Administration.
The university schools of medicine, hospital administration, and
public health are all under the control of the medical profession, which
means that that group will have at least five members on the Council.
We submit that it is only reasonable that representatives of both
optometry and dentistry should be included on the Advisory Council.
43962-59-13
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188 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
There are 10 accredited schools and colleges of optometry in the
United States. Five of these are connected with universities, the
other five, whil duly accredited, are not connected with universities
and are sometimes referred to as independent schools. The university
schools are located at : University of Indiana, Bloomington, Ind. ;
University of Houston, Houston, Tex. ; Pacific University, Forest
Grove, Oreg. ; University of California, Berkeley, Calif. ; and Ohio
State University, Columbus, Ohio. The so-called independent schools
are : Massachusetts College of Optometry, Boston, Mass.; Pennsyl-
vania State College of Optometry, Philadelphia, Pa.; Southern Col-
lege of Optometry, Memphis, Tenn. ; Los Angeles College of Optom-
etry, Los Angeles, Calif. ; Illinois College of Optometry, Chicago, Ill.
It is generally recognized that vision is an important factor in our
national defense, but people are sometimes slow to recognize the im-
portance of vision in the performance of everyday tasks of all our
Government employees. A few months ago a case came to my atten-
tion of a Government employee who had been to some of the top med-
ical practitioners in the District of Columbia, both in the field of eye
care and mental hygiene. Her visual problem had been so acute that
it affected her nervous system and her general health. She was on
the verge of self-destruction when she was referred to a local op-
tometrist who was able to fit her successfully with a pair of contact
lenses. This not only solved her vision problem but restored her phys-
ical and mental health. Management and labor are becoming more
and more cognizant of the importance of vision of the employees to
the satisfactory performance of their tasks as well as to their safety.
In a program which is contemplated to involve the expenditure of
hundreds of millions of dollars, it would seem the height of folly to
set up an Advisory Council which did not have on it at least one vision
specialist. The best way to provide for that is to have on the Council
a representative of one of our schools or colleges of optometry.
Mr. Rrs. I understand the main thing you want is a member on
the Board?
Dr. BABCOCK. And a dentist should be on the Board.
The CIIAIRMMMAN. You mean the Advisory Council?
Dr. BABCOCK. Yes.
The CHAIRMAN. Are there not 11 there now?
All right; it will be considered.
Dr. BABCOCK. Thank you very much, Mr. Chairman..
The CHAIRMAN. At this point I will insert in the record statements
of persons representing various organizations interested in the health
insurance proggam.
(The statements referred to follow:)
STATEMENT or ALFRED F. BEITER, PRESIDENT, NATIONAL CUSTOMS SERVICE
ASSOCIATION
Mr. Chairman, the National Customs Service Association, which I represent,
is composed entirely of Government employees, the great majority of whom are
long-time career employees in positions subject to the Classification Act. The
membership is distributed throughout the United States, and we also have
members in Alaska, Puerto Rico, and the Virgin Islands.
I am most grateful to the committee for giving me this opportunity to
appear and represent our association at this hearing in active support of S. 2162.
Since 1947, our association has exerted every possible effort in behalf of legisla-
tion which would provide health insurance benefits to Federal employees and
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HEALTH BENEFITS FOR FEDE A E
their dependents. We know and appreciate the urgent need for enactment of
a health insurance program of this type. -In the. past, our association has made
comments on bills introduced in the'Congress which dealt with health insurance.
In studying the legislative history of such bills, we now feel, that the provisions
of S. 2162, as it passed the Senate, is a fair compromise of the provisions con-
tained in all other bills previously introduced. We also believe that S. 2162
conforms in many respects to the wishes of the administration. Any further
compromises with respect to benefits, and costs to the employees, should be
strongly resisted.
. It is common knowledge that the administration objects to the 50-50 sharing
of the costs, but would prefer to see the employees paying two-thirds and the
Government one-third of the costs. We believe a 50-50 arrangement is most
fair and equitable to all concerned. The Federal Government should be the
leader in the field of providing health service benefits to its employees. As
things now stand, the Federal Government is lagging far behind private indus-
try in this field. It is a well-known fact that most large private concerns are
presently underwriting the entire costs of health insurance benefits for their
employees. This bill, if enacted into law, would provide Federal employees with
health insurance benefits comparable to those presently being enjoyed by em-
ployees of most other large employee groups.
The Federal Government and the employees will equally benefit by the enact-
ment of S. 2162. For the very first time, Government employees and their
dependents would be able to secure adequate medical, surgical, and hospital
care through the medium of payroll deductions. The employees would have the
peace of mind in the knowledge that they could obtain the types of coverage most
suited to their individual needs. Employees and their families could enjoy a
better and fuller life due to improved health, and also because it would no
longer be necessary for them to accumulate funds to pay the costs of a possible
expensive illness.
The enactment of the provisions of S. 2162 will be a step in the right direc-
tion for the Federal Government toward measuring up to the standards set by
private industry in providing health insurance benefits for its employees and
their dependents. This bill has the support of employee groups and private
insurance companies, and we sincerely hope it will be enacted at this session of
Congress.
Once again, Mr. Chairman and members of the committee, I want to express
my thanks and the appreciation of the National Customs Service Association
for allowing me to appear before you in support of this legislation.
STATEMENT OP J. B. COBB, PRESIDENT, NATIONAL ALLIANCE OP POSTAL EMPLOYEES
Mr. Chairman and members of the committee, my name is James B. Cobb. I
am president of the National Alliance of Postal Employees whose home office
is located at 1.644 11th Street NW., Washington, D.C. I represent a member-
ship which is a cross section of all operating categories in the postal service
throughout 36 States. Appearing with me is Charles R. Braxton, research
director of our organization.
I wish to express my appreciation and that of the organization which I am
privileged to represent, for the opportunity to appear before you and to com-
municate the'views of a laboring people on this crucial piece of legislation.
Mr. Chairman and members of the committee, we find ourselves in accord with
this legislative proposal, II.R. 8210 and similar bills, and the principle of health
insurance which it clearly enunciates. However, there are some alterations
which we would favor and which we think would make the legislation more
meaningful. I refer to section 2, paragraph (c), line 4, which concludes with
the term "support." We feel that additional language should be inserted to
cover children abiding with the employee and dependent upon him and who may
or may not be relatives. This would cover situations where by reason of death
or other family disruption, a child living with an employee as a part of his
family may be covered even though the adoption process had not occurred.
We come now to what in our opinion is a potential hardship to the great body
of employees in the lower brackets. We refer to section 5, paragraph (e), lines
6-12.
The requirement that an out-of-pocket expenditure of $100 by the employee,
be made in addition to the provision of other insurance he may carry and in
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190 HEALTH BENEFITS FOR FEDERAL EMPLOYEES,
addition to that 20 percent of the balance, plus an undetermined amount over
$1,500 in the case of a catastrophic illness could create an insurmountable
problem.
Obviously, the requirement is directed at the possible abuse of the provisions
of the insurance program. On the other hand, we are here seeking to overcome
the underuse of prevailing medical facilities by those who hesitate because of
the uncertainty of costs.
In 1932, the Committee on Costs of Medical Care conducted a survey which
revealed that the amount of medical care received mounted rapidly with income.
And even then, the care received in. the upper income brackets was less than
"adequate" as defined by the committee.
It is well to note that the inference can logically be drawn that the income
group which can afford medical care may suffer tremendous inconvenience be-
cause of the unpredictable nature of medical costs. Those in the lower income
brackets who underuse medical care because of shortsightedness and costs pro-
hibition do not avail themselves of preventive care. The importance of this
act cannot be emphasized too much, when the group to which this measure
applies is considered. For when we consider the concern of the executive agen-
cies with the use of sick leave, and rightly so, we may well look to the active
application of preventive care. However, the initial costs must be conducive.
to the participation in such a program.
With reference to section 7(a)3 we feel that the increase in the family plan
costs and the reduction in the share of the costs borne by the Government is in
sharp contrast to the provision of paragraphs (a)1 and (a)2, in which the
costs are equally shared by the Government.
We repectfully request that the Government's share of the cost be made
more commensurate with the needs of an employee who is responsible for a
family-and not, by inference, penalize him for the same.
In section 12, paragraph (b), we are concerned with the role of the Commis-
sion in its relation to the Advisory Council. The language, as used in this
bill, empowers the Council only to advise and to consult. Moreover, the lan-
guage of the bill requires the Commission to consult with the Advisory Council-
after which it can proceed to reach its own findings and conclusions. We
respectfully suggest that the consent of the Council in the decisions of the Com-
mission at least on the broad framework of overall policy would provide an
equitable procedure.
In support of the principle embodied in the bill, we would like, briefly, to
present some argument as to the basis of our reasoning.
We feel that many Federal employees are not availing themselves of the
available medical care because of limited income, because of confusion stemming
from the claim of the numerous competitors in the field, and because of obli-
gations incurred for a minimal standard of living. As we see it, this proposal
goes a step further than programs now existing to eliminate the dollar barrier
between the Federal employee and the physician. We further feel that the
doctor also faces the dollar barrier, with the knowledge of the patient's need
and some hesitation with reference to his ability to pay the cost. With the
elimination of this obstacle, the patient and the doctor can come together on
the basis of need and need alone.
It is worthy of note that the bill before this committee takes care to preserve
the doctor-patient relationship in the alternative plans advocated. While recog-
nizing the reality of a well-defined custom such as this relationship, the opposi-
tion to applying the insurance principle to a social and economic need cannot
go unheeded. In this regard let me state the view which we direct to this
question. Medicine and the healing arts must ever remain the servant of the
society of which it is a part. Those who feel that this approach to the catas-
trophe of illness must adjust their thinking to that role and rededicate them-
selves to the how cf providing for the health needs of society. We feel that
the relative importance of status of this profession, as other professions whose
purpose is the advancement of mankind, must not outweigh the purpose of its
origin.
These thoughts place the invective of "socialized medicine" in proper perspec-
tive with emphasis on the qualitative gains to the Nation and its people and its
economy. Professor Galbraith in his "Affluent Society" has this to say : "The
test ahead of us will be less the effectiveness of our material investment than
the effectiveness of our investment in man." That point is well applied here
as opposed to those who see the factor of health as a worthy sacrifice to the god
of the dollar and personal or institutional aggrandizement. We foresee a more
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HEALTH BENEFITS FOR FEDERAL- EMPLOYEES 191
stable work force and a more stable family structure in the release from this
phase of concern and worry which accompany the threat of illness and disease.
Thank you, Mr. Chairman and members of the committee, for the attentiveness
and courtesy which you have shown to our presentation. It is our hope that
we have contributed in some small way to the deliberations which you are enter-
ing into on this measure ; and finally, may I, on behalf of our laboring people,
wish you the best of health and an enriched life.
I thank you.
Hon. ToM MURRAY,
Chairman, Post Office and Civil Service Committee,
House of Representatives, Washington, D.C.
DEAR MR. CHAIRMAN : This letter outlining the position and recommendations
of the American Medical Association with respect to S. 2162, 86th Congress, is
respectfully submitted for the consideration of your committee. We are present-
ing our views in a written statement rather than through oral testimony so that
the committee may be able to accommodate all who have applied to testify. If,
however, any members of the committee have specific questions which they
would like to direct to the American Medical Association, be assured that we
will do our best to supply an answer.
For many years the American Medical Association has been active in encourag-
ing the extension of coverage and the improvement of benefits under Blue Cross-
Blue Shield, and commercial health insurance programs. Our interest in the
overall field has included serious consideration of the health insurance program
for the benefit of Federal employees and their dependents. For at least the last
5 years we have followed with interest the bills that have been introduced in
Congress in this regard and have worked with the U.S. Civil Service Commis-
sion and other interested agencies, inside and outside of Government, in an
effort to devise the most satisfactory arrangement.
. At its meeting on March 19-20, 1955, our board of trustees voted to approve
legislation which would authorize the Civil Service Commission to make avail-
able, on a voluntary contributory basis, group hospital, surgical, medical, and
other personal health benefits for civilian officers and employees in the Federal
service. This is still the official position of the association-
As a result of a more detailed consideration of pending legislation by our
council on medical service and our council on legislative activities, it has been
suggested that the plan finally agreed upon should-
(a) Permit a realistic choice of plan on the part of the individual em-
ployee.
(b) Permit all qualified carriers to offer coverage.
(c) Require financial participation by the employee in the payment of
premiums under any plan or plans selected.
(d) Provide for a minimum of governmental regulatory authority over
participating carriers or plans.
(e) Provide a method by which the person who retired before that
date can participate on a contributory basis.
It is our further belief, however, that the American Medical Association should
not attempt to offer suggestions as to-
(a) The specific amount of the Government contribution to the program.
(b) The maximum benefits payable under a basic or major medical pro-
gram.
(c) The formula to be applied for determining the eligibility of an in-
surer to participate in underwriting basic or major medical benefits.
In applying these policy statements to S. 2162, the pending legislation it is our
belief that satisfactory amendments can be made rather easily within the
framework of this legislation.
Section 2.-It is noted that the Senate-passed bill provides eligibility for in-
dividuals who retire after the date of enactment and before the effective date
of the bill. While we feel that this provision is desirable, we regret that the
bill does not provide for the already retired. We are heartened by the knowl-
edge that the Senate Post Office and Civil Service Commission is presently con-
sidering a program under which health insurance will be offered to this
group. While recognizing that such a program represents somewhat of a
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192 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
deviation from past precedents, we sincerely believe that the participation of
these individuals on a voluntary and contributory basis is desirable.
Sections 4 and 5.-These sections describe the basic health plans and the
major benefits covered by the bill. Section 4 requires that there be one gov-
ernmentwide service benefit plan. We feel that the phrase "one government-
wide," while intended to eliminate the necessity of the Civil Service Commission
to enter into contracts with individual service benefit plans, is unfortunate.
We know of no nationwide service benefit program which could meet the re-
quirement of providing service to all Federal employees. In a number of
States, the Blue Shield programs operate indemnity plans. We, therefore,
recommend that section 4(1) be amended by striking the phrase "one govern-
mentwide."
In conclusion and on behalf of the American Medical Association, I would
like to express our appreciation for the opportunity to present our views on
S. 2162, 86th Congress. If the committee is desirous of additional comments
or information, please feel free to call on us.
Sincerely yours,
F. J. L. BLASINOAME, M.D.,
Executive Vice President.
STATEMENT OF FRIEDA RaicIIER, PRESIDENT, FOUNDATION FOR COMMUNITY AID TO
MENTAL PATIENTS
It would appear that the intent of Congress in its consideration of the House
and Senate bills on health insurance for civil service employees is to provide a
way for the Government to help protect its employees from the economic hazard
of catastrophic illness. This principle, embodied in both the House and Senate
bills, is wholeheartedly endorsed by intelligent taxpayers of the United States.
Commercial and voluntary hospital insurance are beginning to expand coverage
for psychiatric care in community general hospitals. The Congress would give
further impetus to expanding coverage for psychiatric care by providing the
same benefits as the House bill provides for other illnesses.
Mental illnesses have been historically discriminated against in health insur-
ance plans. The Senate bill, S. 2162, although a sound piece of legislation, dis-
criminates against psychiatric disability to the extent that it limits the allow-
able period of hospitalization to 30 days. The House bill, although not specifically
discriminatory, could be interpreted as such. Voluntary and commercial health
Insurance plans have only in a few instances provided limited coverage for
psychiatric disability, generally at an additional premium cost.
The Congress should make certain that insurance carriers include in coverage
made available to Federal employees under this legislation care for psychiatric
disability under the same conditions as all other illnesses covered.
Health insurance which covers the cost of catastrophic illnesses can no longer
be confined to physical ailments. Illnesses of psychogenic origin are just as
disastrous to the individual in terms of loss of wages and costs of medical care.
We can no longer continue to afford the cost to taxpayers of discriminating
against illnesses of psychogenic origin if we are to reduce the costs of institu-
tionalization of patients. The average cost per admission in a mental institution
Is $3,600. Psychiatric patients in community general hospitals stay an average of
21 days. The cost per admission is about $350. Moreover, the evidence is be-
coming available that early treatment at the community level reduces the need
for prolonged institutionalization and repeated hospitalization.
As a community organization in nearby Virginia devoted to the problems and
needs of mental patients, the Foundation for Community Aid to Mental Patients
is especially concerned that protection be extended to cover mental as well as
physical illness.
The modern psychiatric treatment services possible in our general hospitals
are handicapped in their development because hospital insurance plans so often
discriminate in their coverage. It is conceivable that nearly all of our huge,
wasteful, overcrowded State hospitals might be replaced in the future with a
relatively small number of psychiatric beds in our general hospitals. At the
present time, less than 10 percent of our general hospitals have psychiatric
services, and their total number of beds is only one-thirtieth the number in our
State mental hospitals. Nevertheless, in 1958 there were more psychiatric
patients (225,000) treated in these general hospitals than in all the State mental
hospitals combined. The reason for the better record was simply that treat-
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HEALTH BENEFITS FOR F D
went, not custody, was provided, and the turnover of patients was so much
greater that 20,000 beds were able to do a better job than the 550,000 mental
hospital beds.
The future of the psychiatric services in our general hospitals will depend,
to a very large degree, upon hospitalization insurance coverage. So far they
have developed within the limits imposed by the common practice of discrimi-
nating against psychiatric patients. It would be to the eternal credit of the
86th Congress if it helped established a new and progressive precedent in this
respect when it prepares its final legislation on health insurance for Federal
employees.
Federal employees who are committed to mental hospitals because of their
inability to pay for psychiatric treatment in the early stages of their illness pay
a double penalty for an illness which may be job connected. A record of a com-
mitment to a mental hospital is a severe handicap to the patient who makes a
sufficient recovery from his illness to be released from the hospital. Many are
forced to accept work below their capability because they cannot call on their
records of training and experience without revealing their commitment for
mental illness.
Specifically, it is recommended that the final bill make clear that the intent of
Congress is to provide health insurance protection against catastrophic illness,
in all its possible clinical manifestations.
PROGRAM OF TILE FOUNDATION FOR COMMUNITY AID TO MENTAL PATIENTS
1. To establish convalescent homes at a community level for the use of mental
patients (luring the probation period as centers for fellowship, and as centers for
vocational rehabilitation and job placement through existing agencies;
2. To give material aid to individual recovered patients in time of need ;
3. To eliminate jail commitments except when unavoidable as to the crimi-
nally insane;
4. To establish psychiatric wards in community general hospitals for the
observation, short-term treatment, and outpatient care of mental patients, and
where needed, for the commitment of such patients to mental hospitals for pro-
tected care ;
5. To provide legal aid as needed for the benefit of the patient and his family,
and to speed up the process of communication between the courts and the mental
hospital authorities in order to restore legal sanity and full citizenship to medi-
cally recovered mental patients ;
6. To arouse public support for the appropriation of funds adequate to meet
the minimum standards for medical care in mental hospitals, based on the
standards set by the American Psychiatric Association ; and
7. To study problems affecting the full recovery of mental patients ; such as
the study of commitment laws, special requirements with reference to driver's
license, coverage of hospitalization and medical care insurance plans, and studies
and evaluation of programs in operation in local communities for the benefit of
recovered mental patients.
The program of the Foundation for Community Aid to Mental Patients is
intensely practical and concrete. It will supplement the educational preventive
program of the National Association for Mental Health.
The Foundation is registered with the united community services at Wash-
ington, D.C., nearby Virginia, and Maryland. All contributions are tax free.
Chairman, Post O,flce and Civil Service Committee,
House of Representatives, Washington, D.C.
DEAR CHAIRMAN MURRAY : I am Joseph E. Jones, a general insurance agent
with offices in the District of Columbia, serving the metropolitan area, nearby
Maryland, and Virginia for 22% years. As long ago as 1942, I was privileged to
serve as underwriter for large groups of Government employees and since that
time have written many Government agencies, including the Central Intelligence
Agency, the National Security Agency, the American Foreign Service Protective
Association, and others. The total number of Government employees, including
dependents, insured by my organization is well over 100,000.
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194 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
My agency pioneered the development of group hospitalization coverage for
Government employees at a time when other companies and service organizations
showed no interest in providing this protection. I was successful in securing
an underwriter who was willing to pioneer this type of coverage with Inc.
In serving the needs of these organizations and others over the years I have
been called upon to provide unique services peculiar to these agencies. For
instance, claims incurred in foreign countries are paid in my office and benefit
checks are mailed the same day the claim papers arrive to claimants throughout
the world. Further, any security regulations required have been fully met by
my agency while providing this important protection.
These plans have been in operation for a number of years and have built
up reserves which, according to my interpretation of S. 2162, will be lumped
in the general fund and thereby taken away from these Government employees
who had the foresight to band together for their mutual protection and by so
doing accumulate these reserves.
I have been advised by these agencies that they are completely satisfied
with the services rendered and that they are anxious to continue with their
present underwriter, thereby protecting the investment they have built up over
the years. While many existing plans are protected by the proposed legislation
and will be able to continue, the above listed agencies and others will be denied
this opportunity.
For 20 years I have devoted my financial resources, time, and effort in
pioneering and developing excellent coverage for Government employees. While
I endorse the spirit and intent of the legislation you are considering, I respectfully
ask that the committee give consideration to a proposed amendment which Would
allow me to continue to provide these services to these agencies if they so desire
and to offer my services to any other Government agency that would desire it.
Respectfully yours,
JosEPH E. JONES.
POST OFFICE AND CIVIL SERVICE COMMITTEE,
House Office Building,
Washington, D.C.
PORT OF NEW YORK,
New York, N.Y., July 31,1959.
GENTLEMEN : I am the president of the U.S. Customs Inspectors' Association
of the Port of New York. My organization was founded in 1893 and is one of
the oldest employee associations in continuous existence. We are an inde-
pendent association-not affiliated with any union or group whatever. We do
though enjoy cordial relations with all employee organizations. The members
of my association are all members of the customs inspectional personnel in the
Port of New York from the trainee inspector to the deputy collector.
This association asks that your committee act favorably on the companion
bills to S. 2162: H.R. 8210 by Congressman Morrison of Louisiana ; H.R. 8222
by Congressman Davis of Georgia ; and H.R. 8211 by Congressman Porter of
Oregon, all exact duplicates of the Senate bill. The bills as written contain
many desirable features, and if enacted into, law will be a most welcome piece
of legislation.
Respectfully,
Hon. Tom MURRAY,
House of Representatives,
Washington, D.C.
NATIONAL SECURITY AGENCY,
Fort George G. Meade, Md., July 81, 1959.
DEAR MR. MURRAY : Thank you for your letter of July 23, 1959. We have
taken a considerable interest in the Federal Employee Health Benefit Act of
1959, S. 2162, especially as it pertains to our health insurance program.
We have here at NSA an employee organization known as "GEBA," Gov-
ernment Employee Benefit Association, Inc. GEBA is an association organ-
ized and operated as a cooperative endeavor to provide hospitalization and
surgical insurance for NSA employees no matter where they may be located.
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HEALTH BENEFITS FOR FEDE
GEBA provides a comprehensive low-cost hospital and surgical program un-
derwritten by Mutual of Omaha.
Our experience with the program since its inception in 1957 has been ex-
cellent with considerable benefits and returns for those covered, who number
about 15,000 individuals including dependents. In addition to paying approxi-
mately one-half million dollars in claims, we have accumulated a considerable
reserve in the relatively short period of operation.
There is a strong desire that there be appropriate provision made in the pend-
ing health insurance legislation to permit continuance of this program.
We will be happy to have an official of this Agency available to answer any
questions you may have concerning our plan.
Sincerely,
Louis W. TORDELLA,
Deputy Director
CANAL ZONE GOVERNMENT,
OFFICE OF THE GOVERNOR,
Balboa Heights, C.Z., July 30, 1959.
Hon. TOM MURRAY,
Chairman, Post Office and Civil Service Committee,
House of Representatives, Washington, D.C.
DEAR MR. CHAIRMAN : Reference is made to H.R. 7712 which was introduced by
Representative Morrison on June 12, 1959, and referred to the Committee on
Post Office and Civil Service.
The purpose of this bill is to provide for Government contribution toward a
voluntary health insurance program for Government employees. This office has
no. comment to make on the provisions of the bill generally. However, I would
like to point out one feature of the bill which I believe would unfairly discrim,
mate against certain employees of the Canal Zone government and the Panama
Canal Company.
Section 2(a) of the bill provides in part as follows :
"The term `employee' * * * does not include * * * (2) a noncitizen
employee whose permanent-duty station is located outside a State of the
United States or the District of Columbia."
This provision would have the effect of excluding noncitizen employees of the
Canal Zone government and the Panama Canal Company from the benefits which
would be provided by the proposed legislation.
I believe that because of unique conditions which exist in the Canal Zone there
are compelling reasons why any health insurance program which is enacted for
Federal employees should apply to noncitizen as well as U.S. citizen employees
of the Canal Zone government-Panama Canal Company. The canal enterprise
has approximately 10,000 noncitizen employees and only about 3,600 U.S. citizen
employees and the canal enterprise provides hospital facilities for its noncitizen
employees as well as its U.S. citizen employees. Such a practice is to the definite
advantage and benefit of the canal enterprise in keeping a healthy working force
available at all times to operate the canal. Likewise, I believe that it would be
to the best interests of the canal enterprise if any health insurance program
which is enacted were available to both noncitizen and U.S. citizen employees.
At the present time, both U.S. citizen and noncitizen employees of the canal
enterprise participate in a voluntary group health insurance program, which is,
of course, maintained at the present time without any government contribution.
Further, if the bill were enacted in its present form I believe that it would
conflict with certain established policies under and. in relation to treaty com-
mitments to the Republic of Panama in regard to the equality of treatment of
U.S. citizen and noncitizen employees of the canal enterprise. In an ancillary
note to the 1936 treaty between the United States and the Republic of Panama
the United States stated as follows :
"With reference to the represenations made by you during the negotiation of
the treaty signed today, regarding Panamanian citizens employed by the Panama
Canal or by the Panama Railroad Company, I have the honor to state that the
Government of the United States of America, in recognition of the special rela-
tionship between the United States of America and the Republic of Panama with
respect to the Panama Canal and the Panama Railroad Company, maintains and
will maintain as its public policy the principle of equality of opportunity and
treatment set down in the order of December 23, 1908, of the Secretary of War,
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196 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
and in the Executive orders of February 2, 1914, and February 20, 1920, and will
favor the maintenance, enforcement, or enactment of such provisions, consistent
with the efficient operation and maintenance of the canal and its auxiliary works
and their effective protection and sanitation, as will assure to Panamanian citi-
zens employed by the canal or the railroad equality of treatment with employees
who are citizens of the United States of America." [Emphasis added.]
The above-quoted language technically applies only to noncitizen employees of
the Canal Zone government and the Panama Canal Company ; however, in the
interest of uniformity and because of the principle of uniform application of
employment standards in the Canal Zone established by the Canal Zone Wage
and Employment Practices Act of 1958 (Public Law 85-550; 72 Stat. 405), it
is considered that the language should be applied as if it included all noncitizen
employees,of any agency of the Federal Government in the Canal Zone.
In accordance with the views expressed above it is suggested that H.R. 7712
be amended so as to make it applicable to noncitizen employees in the Canal
Zone. Specifically, it is suggested that section 2(a) (2) be amended by inserting
the words ", the Canal Zone," immediately after the words "a State of the United
States."
The Bureau,of the Budget has advised this office that It has no objection to
the submission of this report.
Sincerely yours,
JOHN D. McELHENY,
Acting Governor of the Canal Zone,
Vice President, Panama Canal Company.
STATEMENT OF FORDYCE W. LUIIcART, PRESIDENT OF GROUP HEALTH ASSOCIATION,
INC.
Mr. Chairman and members of the committee, my name is Fordyce W. Luikart,'
president of the board of trustees of Group Health Association, Inc., Washing-
ton, D.C. Of the four health benefit plans provided in section 4 of S. 2162 our
association's plan would be classified as a group practice prepayment plan.
The association was founded 22 years ago by Government employees of the
Federal Home Owners Loan Corporation who were determined to obtain quality
medical care for their families on a prepaid basis. This member-owned, non-
profit medical organization has grown to a current enrollment of some 33,000
Group Health Association has several distinguishing characteristics. These
are:
1. Group practice which brings together the family physician and a variety
of specialists into a medical team serving the members. Advances in the Amer-
ican medical scene have been so extensive that pooled knowledge and the judg-
ment of several physicians, working together, assure quality medical care
with advantages to patient as well as to physician.
2. Preventive medical care which gives attention to health maintenance as
a day-by-day matter. This emphasis is not only a medical good but also an eco-
nomic good for the member in terms of less hospitalization and less loss of
productive time.
3. Prepayment which permits the member to budget expenditures for medical,
hospital, and surgical care.
4. Membership control which gives assurance that the wishes of the mem-
bers are fully considered in major policy and program decisions.
At the present time there are 74 physicians, surgeons, and dentists either on
the staff or retained as consultants. Medical care is rendered in such diverse
fields as pediatrics, adult medicine, obstetrics, gynecology, allergy, dermatology,
neurology, ophthalmology, orthopedics, and radiology. The association em-
ploys 185 persons on its supporting staff. We operate two medical centers:
one in downtown Wh shington, D.C., and one in nearby Takoma Park, Md.
In addition to housing, the medical and dental departments there are such
auxiliary services as physical therapy, optical, and X-ray. There is a phar=
macy at the downtown center which affords savings on drugs and medicines.
To become a member there is a $50 membership fee, payable $2 a month for
25 months and a nominal $5 application fee. The monthly dues for a family of
two adults and one child is $12. Of course, the composition of the family de-
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termines the total monthly rate. Each adult is $4.50; each child is $3. There
is no charge for more than three children. The basic dues rate covers doctor,
hospital, and surgical care. There are extra charges for certain type services
rendered in the medical centers: e. g. $3 for X-ray or EKG. There are other
nominal charges for special tests or laboratory procedues.
About half of our members are Federal employees who have all joined the
association voluntarily. They' have chosen the Group Health plan, I believe,
because it combines the full scope of medical and surgical services-preventive,
diagnostic, and therapeutic-available as needed in home, office, or hospital-
under the standards of a qualified professional staff.
For several years we at Group Health have followed the various bills pro-
posing that the U.S. Government contribute financially to Federal employee
health plans and have consistently maintained that the individual employee
should have the right to choose the health plan that best suits his needs. This
right is very important to GIIA's members who work for the Federal Govern-
ment and who have already made their choice. For them there is no substitute
for the intergrated health program that I have described above. We therefore
strongly approve the provision of S. 2162 allowing for freedom in selection of
a health plan:
The provisions of S. 2162 provide a broad framework of a "flooring" on benefit
levels and a dollar "ceiling" amount on cost within which the Civil Service
Commission can develop specific contracts with carriers and plans such as ours.
This is the only practical legislative approach, we believe, in dealing with the
advancing and complex health field. We have related our plan and the cost
to the types and level of benefits provided in the bill. It is our belief that within
the dollar ceiling we can develop a proposal for the consideration of the Com-
mission that is acceptable to our Federal employee members. However, any
significant reduction in the maximums would not permit us to make an offering
matching our present comprehensive plan which provides-for unrestricted
members-almost unlimited medical and surgical care as well as 6 months'
hospitalization a year in semiprivate accommodations.
Many of our members are subject to some "restriction on medical service."
In other words, "service at cost" is provided for ailments which existed before
their enrollment in our plan. This practice would be discontinued under our
proposal in response to S. 2162. Such a change would shift the costs for treat-
ing restricted conditions of our Federal employee members from the individual
member to the plan as a whole, and would tend to raise the group rate.
Though we have no direct supporting data to offer, we believe that. our plan,
because of its comprehensive scope, may be attractive to those most in `need
of day-to-day health care ; i.e., families with Children as well as those in the
older age brackets. This care will tend to be costly.
I am sure, Mr. Chairman, that your committee is aware that the cost of the
proposed health program cannot be estimated with preciseness, either for our
plan or the whole program, until the detail of benefits to be provided is worked
out and the number of employees who will enroll is known.
The bill provides that the enrollment of employees and annuitants in health
benefit plans and the payment of contributions shall take effect early in July
1960. The time elapsing from date of enactment to July 1960 is to allow for
implementing -actions ; i.e., the development of proposals by carriers, negotia-
tions between carriers and the Civil Service Commission, and employee election
of plan. It is important that group practice medical organizations such as ours
know as soon as possible the probable number of employees who will select our
respective plan. For group practice plans this is a very real consideration if
additional facilities and staff beyond existing capacity are required to render
adequate service. To arrange for the latter is not an overnight matter. There-
fore it is to be hoped, Mr. Chairman, that by legislative intent it be indicated
that tentative employee selection of plan be permitted early in the "tooling
up" period.
The cost of medical care continues to rise. Our hospitalization experience
since 1955 is given in the table attached to my statement. It will be seen that
the average per diem cost has increased from $31.06 in 1955 to a figure of
$37.89 in 1958, and that the average cost per hospital episode has increased from
$193.58 to $248.73. The average annual increase has been over 61/2 percent.
This is not the isolated experience of GHA-it is true countrywide. It cannot
be explained entirely in terms of salary and wage increases and higher unit
prices ; there has been a tremendous advance in diagnosis and treatment requir-
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Ing more of everything : staff, laboratory tests, drugs. As medical care has
improved and become more complex there has been unprecedented demand for
new and better equipment and better designed facilities. There has been a
tendency to use more specialists and more skills.
The bill, we believe, will be of great benefit to Federal employees generally,
and we urge its enactment. Health service is a modern day necessity, and it is
commendable that the Federal Government recognizes its responsibility as an
employer to see that Federal employees are not denied this service because of
financial limitations.
In conclusion, may I say that our association stands ready to assist to the
full extent of our capacity in the Government health program.
Group Health As'sociation, Inc., Washington, D.C., hospitalization, 1955-58
[Costs per patient-day, average length of.sta.y, and cost per episode]
9b5___________________________________
1955
956__________________________________
1
957___________________________________
1
1
968_______. __________________________..
Number
Number
Average
Average
Average
Year
of opi-
of days
Total cost I
per diem
days per
cost per
sodes
cost
episode
episode
1,688
10,321
$326,764.30
$31.66
6.1
$193.58
1,850
11,638
372,993.05
32.05
6.3
201.62
1,844
11,540
404,342.69
35.04
6.3
219.27
1,705
11,192
424,082.79
37.89
6.6
248.73
I Includes the following services: Anesthesiology, X-ray, physical therapy, special tests such as EKG,
EEC, BMR.
STATEMENT OF MR. FRANK VAN DYKE, ASSISTANT PROFESSOR OF ADMINISTRATIVE
MEDICINE, COLUMBIA UNIVERSITY SCHOOL OF PUBLIC HEALTH AND ADMINISTRA-
TIVE MEDICINE
I am very glad to have the opportunity to come here today to talk briefly
about the Federal employees' health bill. First of all, let me say I endorse
the general outline of the health plan proposed in Senate 94, and oppose the
proposal of the Civil Service Commission as set forth in their statement to this
committee. My views are my own. I do not represent either the State of New
York or Columbia University. I want to make that clear, because most of my
testimony will be a discussion of the health plan for New York State employees.
This plan has been called "the most liberal and comprehensive program enacted
by a governmental body to provide its employees with protection against medical
care costs."
At the close of the year 1958, 83,000 State employees and retired employees
had joined the plan. About 100,000 persons were eligible to join. The number
of persons covered, including dependents, totaled about 200,000. It may be of
interest to you to have a brief description of how the plan started, the principles
embodied in it, administration of the program, and benefits and costs.
Late in 1955 the Joint Legislative Committee on Health Insurance Plans of
New York State asked the Columbia University School of Public Health and
Administrative Medicine, which was then acting as consultants to the committee,
to prepare a set of principles which could be the basis for a health insurance
plan for State employees. Several copies of a 17-page statement, drawn up by
the university staff, have been given to your staff. You might want to include
this statement in the record as part of this testimony as an example of how a
university research group approaches the problem of how to devise a health
plan. In brief, the staff suggested to the New York State Legislative Committee
that a health plan for employees take advantage of the best existing health plans
in the State and where possible give employees a choice of plan. We suggested
that where service benefits were available for any type of coverage, the State
purchase service benefits rather than indemnity coverage. The staff recom-
mended that retired employees be covered in full at no increase in premium
and that all health insurance be noncancellable and convertible.
Legislation to provide a health plan for employees passed both houses and
was signed by the Governor. One of the features of the law which may be of
particular interest to you is that it provided for a temporary health board of
eight members. This board, four members of which were appointed by the
Governor and four by the legislative leaders, was made responsible for prepar-
ing the health plan which was broadly outlined in the enabling legislation.
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HEALTH 13ENEFITS FOR FEDERAL EMPLOYEES 199
Whether by chance or design, this method of administration has proved to be
extremely useful in working out a good health plan. The reason for this, I
think, lies in the composition of the membership of the board. The director
of the civil service commission is chairman. Other members are. the State com-
missioner of health, the budget director, the comptroller, and four citizens at
large. The citizen members are the Columbia University dean of the School of
Public Health and Administrative Medicine, the director of the Endicott Johnson
health plan for industrial workers, a plan which is one of the oldest and most
complete in the State, the medical director of Cornell University Infirmary, now
president-elect of the State medical society, and the officer of the General Elec-
tric Co. who was responsible for the administration of their insurance program.
A civil service commission staff is not apt to have the technical knowledge
required to design a health plan. There is nothing extraordinary about this.
The study of health services, like other branches of knowledge, is specialized.
A knowledge of the various ways health services are provided, the strengths
.and weaknesses of different health plans, and ways in which insurance can
improve the caliber of health services to people are needed if employees are to
have the best available plan.
It seems to me that a Federal employees' health plan will be better if it is
possible to find some administrative device which will put policy decisions in
the hands of health-oriented persons. Otherwise you may find you will have
an insurance program designed to meet the needs of the insurance companies
and the people who administer the plan.
I respectfully suggest that you consider providing an administrative method
so that the Federal employes' health plan will be guided by the disinterested
advice of persons familiar with the provision of health services to people.
The report of the research staff to the Joint Legislative Committee on Health
Insurance Plans of New York State advised the committee to provide service
benefits wherever it was possible to do so.
A majority of the New York State Health Insurance Board accepted the serv-
ice benefit principle in the plan design. Service benefits have at least two advan-
tages. For low and moderate income people, it is important to have ready access
to health services with as few financial barriers as possible. The second advan-
tage is that it places an upper limit on the cost of medical care. This upper
limit can be adjusted from time to time as needed, but it does tend to prevent
inflationary charges. As an example of the inflationary aspects of some types
of insurance, let me quote from the report of a consulting firm which specialized
in health and welfare plans.
"Our company analyzed over 10,000 surgical claims where benefits were paid
under a $150 surgical schedule. We found that this surgical schedule paid only
55 percent of the surgeon's total charges. A similar analysis, for claims paid
under a $225 surgical schedule, showed that such a schedule paid 60 percent of
the surgeon's total charges. And an analysis of claims paid under a $300 surgical
schedule showed that such a schedule paid only 69 percent of the surgeon's total
charges. As you can see, a 100 percent increase in the surgical indemnity
schedule served to reduce the patients' share of the bills by only 14 percent."'
One of the first decisions made by the New York State Temporary Health
Board was to think of the health plan as having three basic parts. Part I is a
hospital plan, part II a medical plan, and part III is for coverage not included
in the first-two parts. The reason for dividing the health plan into three parts
was to take advantage, as I said a little earlier, of the best available coverage.
The New York State Board decided to adopt a basic 120-day hospital plan
including diagnostic admissions, coverage for Infants, and mental coverage for
30 days. The specifications were written by the board and put out to bid. A
number of insurance companies and Blue Cross bid on this part of the contract.
Medical-surgical benefits presented a special problem because the board
wanted a service benefit contract with a $6,000 income ceiling. There are seven
different Blue Shield plans in New York State, two of which did not offer a
service contract at that time. It was necessary to negotiate with these two plans,
and they eventually agreed to participate in bidding on one statewide contract
which provides that for families with incomes of less than $6,000, the doctors
will accept insurance payments as payments in full and will not render an addi-
tional bill to the patient. Insurance companies and Blue Shield bid on this part
of the contract.
i"The Consultant and Doctor-Sponsored Plans"; Martin E. Segal. Speech at New
Washington Hotel, Seattle, Wash., Oct. 28, 1955.
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200 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Standard Blue Shield or insurance company contracts have a very important
gap. They do not provide for home and office calls. To fill this gap, the Board
decided to purchase a third program which woudl fill in some of the gaps of
the two basic programs. A major medical program was devised and a number
of insurance companies bid on it. An important part of this third step was to
permit employees to substitute for parts II and III the two medical plans in
the State which do offer home and office calls on a service benefit basis. Neither
of these plans covers the entire State. The principle employed was to fix a
contribution on the part of the State for the so-called statewide plan, i.e., parts
I, II, and III. Those employees who elected to substitute one of the home and
office call, service benefit, medical care plans for parts II and III would receive
exactly the same employer contribution toward the costs of the plan as all
other employees received.
In effect, the Board set the standard that employees were free to choose a
nonprofit, comprehensive service benefit, home and office medical care plan.
Freedom of choice was limited to those plans which could meet this standard.
Blue Cross was awarded part I of the plan, Blue Shield, part II, and the
Metropolitan Life Insurance Co., part III.
Employees who had retired before the plan went into effect were offered
parts I and II of the plan. Major medical insurance was not offered them,
however. Only about half of the eligible prior retirees enrolled. The reasons
for this low participation are not known.
The rates of the plan with its various options are appended to this testimony.
The total monthly cost of the statewide program for a single employee is $6.15,
of which the State pays half. The monthly cost of the statewide program for
a family is $15.97, of which the State pays 35 percent. Total costs for the
first year were $10,702,000. For the statewide part of the plan, about 16 percent
of the first year's premium was for part III of the plan. Parts I and II
absorbed most of the costs because most of the services provided were through
the two basic plans.
I said earlier that the New York State plan had 83,472 employees or retired
employees enrolled. At the end of 1958, 66,844 of those were enrolled in the
statewide plan ; 14,381 chose to enroll in Group Health Insurance, Inc., as a
substitute for parts II and III of the statewide plan. Group Health Insurance
has arrangements with several thousand doctors who agree to accept the insur-
ance payment as payment in full. The remainder, 2,247 employees, selected
the health insurance plan of Greater New York, which is a medical' group
practice plan. This multiplicity of plans has not presented any insurmountable
administrative problems. There is no doubt that one plan is easier to admin-
ister than several. This is particularly true during the first year of operation.
Once employees are enrolled, however, the various routines necessary for payroll
deductions and the like can be carried out without confusion.
An important aspect of any health plan is provision for continuous review
of how it actually works. In New York State some thought was given to this,
and a review committee of the board was established. This committee has
begun to analyze the first year's experience to determine whether weaknesses
exist which require correction. A Federal employee's health plan would benefit
from continuous study. The Department of Health, Education, and Welfare is
a center now for such research and you may want to consider whether that
Department should be assigned the responsibility for technical review of a plan
after it is established.
I would like to turn now to discuss a very important defect of the proposal
made by the Civil Service Commission.
Total private expenditures for all forms of medical care in the United States
amounted to under 4 percent of disposable personal income in 1950 but increased
to 4.9 percent by 1957.2
This in itself is not alarming. Perhaps people should spend a somewhat
larger percentage of their income on medical care. Much still needs to be
done to improve the quantity and quality of medical care and this, of course,
costs money. We need, however, to arrange things so that the cost of medical
care is not unnecessarily increased. The Civil Service Commission in its testi-
mony has proposed an insurance plan which may very well increase the cost
of medical care for Federal employees and their dependents and, by setting a
2 Source: Statistical Abstract of United States, 1958, p. 305, p. 76. Health Information
Foundation, "Consumer Spending for Medical Care" ("Progress in Health Services," vol.
VII, No. 10, December 1958):.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 201
pattern for charges by physicians, druggists, hospitals, nurses, and others, tend
to increase the costs of medical care for everyone.
While this matter can be discussed for hours, the basic point I wish to make
is simple. Major medical insurance, after an initial deductible of $50 for ex-
ample, pays a percentage of the total bill, for example 80 percent. This is a
relatively new type of health insurance. There are two other general types
of health insurance. There is the so-called service contract which pays the
hospital and doctor in full for certain specified services, and an indemnity type
which pays the purveyor of service or the patient a flat amount fixed in the
contract. It a service contract is in effect, there is no possibility of the hospital
or doctor increasing charges, except through change in the contractural ar-
rangements. If an indemnity contract is in effect, the insurance will pay
a fixed fee, and the remainder, if any, must be collected from the patient. The
patient has an incentive to control the total fee because he must pay for every-
thing in excess of the insurance indemnity. If the fee is excessive, he may
refuse to pay. The patient has a pocketbook reason to control the fees he is
charged.
Major medical insurance, in contrast to service benefit insurance or indemnity
insurance, has no built-in incentives on the part of anybody to control costs.
Let me give you an example. If you, a noninsured private patient, are charged
$500 for an operation, you of course pay the full $500. If, however, you had a
major medical policy for which you paid the first $50 and 20 percent of the
remainder of the bill, you would pay $50 plus 20 percent of $450, or a total of
$140. What if the doctor decided to charge $600? Your share would be $160
and the insurance company would pay the $80 additional. This 20 percent
increase in the total cost would of course be reflected in insurance company
premiums for the next year, although your bill at the time of service would be
only $20 more. We must be realistic about such things. No studies are neces-
sary to demonstrate that many people consider insurance companies as fair
game.
The promise of "you send me the bill and we will send you the check" on the
part of the insurance company is an open invitation to higher medical care
bills. Nor is this fraud on the part of purveyors of 'service. It is only natural
for people to place a high valuation on their own services. Therefore, if the
buyer departs from his traditional role in our society of exercising caution, we
can expect higher costs for health services without additional or better services.
Ordinary prudence on the part of the Government would dictate that if the
major medical approach to payment of medical bills is to be used at all, it should
be used sparingly, as it is in the New York State program.
I want to tell you that these views I have expressed on the inflationary spiral
which unlimited major medical insurance will bring about are not supported
by very much scientific data. The reason for this is the insurance companies
have never revealed scientific data on their payments to purveyors of service
under major medical which is susceptible of comparison with payments for like
services under other kinds of insurance. Having said that there is little avail-
able direct evidence to support a statement that major medical insurance may
be inflationary, let me give you a clue, or straw in the wind, which tends to
support this view, When the New York program was put out to bid, each of
the three parts required a separate bid. The board found that one of the in-
surance companies explicitly stated that its bid would be higher if the two basic
parts of the plan were not service benefit in nature. Unfortunately, the New
York State experience data on the employees' health plan has not yet been
published in a form which gives comparative costs for specific services.
I am sure the Government is not anxious to inflate the cost of medical care.
If it is decided that major medical insurance should be considered, it seems
to me the Government is entitled to know in advance what the likely effect
of it will be. There is no need to take a leap in the dark. The insurance car.
riers could be asked to open their records to a Government research team which
could determine, on the basis of a sample of a few thousand cases of major
medical payment, stratified by income, place of residence, and type of procedure,
the actual payments for certain specified services. These payments could then
be compared with prevailing fee schedules and prevailing charges for persons
with low and middle incomes.
If one of the large insurance companies would make, all its records available
to competent research technicians in the field who employed accepted methods
of analysis, we would know whether their payments to the purveyors of service
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202 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
are higher or lower than payments made by the same company on a generous
fee schedule arranagement. If the cost were as little as 10 percent higher,
we would be justified in questioning whether this method of payment is right
to use for low and middle income employees. The people who are attempting
to sell major medical insurance have an obligation to provide facts.
Until we can be sure that the purveyors of service do not charge more for the
same thing under the major medical incentive to do so, we should be very care-
ful of introducing such a scheme to cover several million people.
In preparing for today, I looked through the attachment to the letter dated
April 14, 1959, to Senator Olin Johnston from the Civil Service Commission.
The various principles, beginning on page 2, seem designed to make it as
simple as possible for the Civil Service Commission to administer a health plan.
This is important, but undue weight seems to be given to administration. This
statement of principles confirms my impression that people who have experience
and training in health matters should be consulted.
In reading through the document, without attempting to analyze it, I noticed
a few statements which seem to be in error. Page 24 states that To require
indemnification for the full cost of 120 days' hospitalization is not only unreal-
istic (the premium for such protection would be so high as to be prohibitive),
but is contrary to the well-established practice of insurance carriers." This is
not correct. A little later on page 33, it is stated that "withholding premiums
from retirement annuities would be unprecedented-at least under the civil
service retirement system." It may be unprecedented for the Federal Govern-
ment, but ample precedent exists elsewhere.
The Civil Service proposal, with its principles and justifications, is almost
identical to a plan considered by the New York State Temporary Health Board
and rejected by it. If there is a single principle which the New York State
Board used, a principle which they did not explicitly state, it is that established
social devices which are in actual use and which provide for some control of the
cost of medical care should be employed wherever they are available.
The Federal Government has many programs designed to improve or supple-
ment the health care of all citizens. These programs over a period of years
have developed standards which, in some fields of health at least, have resulted
in marked improvement in the quantity and quality of health care for almost
everyone. A health plan for Federal employees should not ignore the experience
which the Government has attained in many years of work.
In summary, let me say that S. 94 can be the basis for a fine health plan for
employees and at the same time be relatively simple to administer. You can
secure a single, uniform, service benefit hospital contract for all employees every-
where from Blue Cross or an insurance company. Similarly, you can negotiate
for a single medical-surgical service benefit in-hospital contract for all employ-
ees everywhere in the country. These may be a little more complicated to ar-
range, but it can be done either through an insurer or, if that fails, by the
Government itself.
As a third part to the plan, a single extended benefit or a major medical con-
tract can be written with as many safeguards as possible to supplement the
hospital portions and the medical-surgical portion. It should be possible for the
health experts of the Federal Government to develop an extended benefits pro-
gram which will employ safeguards against runaway inflation. Such a program,
if it supplements broad basic service benefits, should not be expensive.
As for employees who wish to choose some other service benefit plan, stand-
ards can be established which will limit the choice to those relatively few plans
in the United States which offer comprehensive service benefit medical care.
A few of these plans offer hospital care and medical care as a package. Most
Government employees would join the nationwide plan. For those who choose
one of the approved alternates, the Government could limit its liability as New
York State has done, by making a uniform contribution for each employee.
The advantage to the Government in permitting employees to choose an alter-
nate plan is that some of these plans are able to offer a high quality of medical
care with controlled costs. The Federal Government, with its overriding con-
cern for the health of all the people, should encourage sound efforts to improve
the quality of care.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
New York State health insurance program, schedule of employee-employer con-
tributions for health insurance coverage, contract year Apr. 1, 1959, to Mar.
81,1960
Metropoli-
Blue
Blue
tan Life
Total
Employees
Employer
Cross
Shield
Insurance
Co.
Statewide plan:
Individual______________________
$3.70
$1.39
$1.06
$6.16
$3.07
$3.08
Individual and dependent---___
8.14
4.81
3.02
15.97
9.46
6.51
Blue
GUI
Cross
Group Health Insurance Plan, Inc.
option:
Individual______________________
$3.70
$3.85
------------
$7.55
$4.47
$3.08
Individual and dependent-----_
8.14
11.33
____________
19.47
12.96
6.51
Blue
HIP
Cross
Health insurance plan option:
Lower income:
Individual__________________
$3.70
$3.50
_______-----
$7.26
$4.18
$3.08
2 persons ------------------_
8.14
7.12
____________
15.26
9.38
5.88
3 or,nore persons -----------
8.14
10.68
------------
18.82
12.31
6.51
Upper income:
Individual__________________
3.70
4.32
____________
8.02
4.94
3.08
2persons -------------------
8.14
8.64
____________
16.78
10.27
6.51
3 or more persons -----------
8.14
12.96
------------
21.10
14.59
6.51
Blue
Blue
Cross
Shield
Prior retirees:
Individual______________________
$3.70
$1.39
____________
$6.09
$2.54
$2.65
Individual and dependent-.----
8.14
4.81
------------
12.96
7.65
6.30
The CHAIRMAN. The meeting will stand adjourned until 10 a.m.
tomorrow.
(Thereupon, at 12:05 p.m., the hearing was adjourned, to recon-
vene Wednesday, August 5, 1959, at 10 a.m.)
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HEALTH BENEFITS PROGRAM FOR FEDERAL
EMPLOYEES
WEDNESDAY, AUGUST 5, 1959
HOUSE OF REPRESENTATIVES,
COMMITTEE ON POST OFFICE AND CIVIL SERVICE,
Washington, D.C.
The committee met at 10:15 a.m., pursuant to notice, in room 215,
House Office Building, lion. Tom Murray (chairman) presiding.
The CHAIRMAN. The committee will be in order.
The hearings will be continued on the various medical, hospital bills
pending before the committee.
I wish that the members not here would come on time. I am not
taking about those present. We have already lost 15 minutes this
morning and we still do not quite have a quorum.
I am sure that nobody will make a point of no quorum, or I trust
not. In order to proceed with this hearing just as fast as we can,
the present arrangement is to complete the hearing of witnesses, out-
side the administration, by next Tuesday, August 11, and then on
Wednesday August 12-1 week from today-we will hear from the
witnesses of the Civil Service Commission and the Bureau of the
Budget.
I would hope to wind up those hearings next week and then go
into executive session.
I do wish the members would get here on time so that we can start
promptly at 10 o'clock each morning.
The first witness this morning is Mr. Manton Eddy, vice president,
Connecticut General Life Insurance Co., Hartford, Conn., represent-
ing the Health Insurance Association of America, the Life Insur-
ance Association of America, and the American Life Convention.
Mr. MORRISON. Mr. Chairman, before the gentleman gets started,
is it my understanding of what you said that all witnesses and all
testimony will end a week from Thursday?
The CHAIRMAN. I said the administration would begin Thursday.
I presume it will take a couple of days for the administration wit-
nesses.
I hope to wind up the hearings next week.
Mr. MORRISON. I think we ought to be a little more definite on that.
I think this. We have an understanding-I heard you talk to my
distinguished colleague from Pennsylvania-I think if we could have
an understanding on it as to when the hearings will end as far as
all witnesses are concerned, why it would not be necessary to go into
executive session. If we cannot have an understanding, I am going
to move that we go into executive session.
The CHAIRMAN. We hope to finish the hearings next week.
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206 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. MORRIsoN. It is not a question of hoping.
The CHAIRMAN. Nobody can tell definitely.
Mr. MORRISON. Mr. Chairman, then I
The CHAIRMAN. We are pushing the hearings as vigorously as we
can and if all members would be here on time, that would help.
I am glad that the gentleman from Louisiana is here.
Mr. MORRISON. The feeling-is mutual.
I am going to move that the committee go into executive session
to decide when the hearings will end. Is a referendum or motion
Mr. FOLEY. I will second it.
The CHAIRMAN. I think we ought to take that up when the wit-
nesses have completed their testimony this morning.
Mr. MORRISON. I am going to insist that that be done.
Mr. CORBETT. In view of conversations held this morning and in
view of the exact times that had been scheduled, I think the chairman
has misspoke himself,
You said the Government agencies would be heard starting Thurs-
day, and earlier you said starting Wednesday. I think Wednesday
was what you had in mind.
The CHAIRMAN. They are scheduled for Wednesday, August 12.
That is right.
Mr. CORBETT. In view of that, I would like to say to the gentleman
from Louisiana that if we can conclude Thursday or Friday, it is
pretty well certain we would not do much at the end of the week any-
how. There is probably no important amount of time lost and I am
satisfied that if we proceed without insisting on a quorum, or better
still have a quorum present, we ought to be able to meet that schedule.
Mr. RE, Es. I would like to have a. quorum present from now on.
Mr. CORBETT. The House often-and we proceed under the rules of
the House-in matters of this kind where we are not amending legis-
lation, can proceed to take testimony so that it is available in the re-
ports for the agencies and Members to peruse and if anyone wants
to delay and fuss the thing around, then we are going to get into
action that will just cause a lack of intelligent approach and perhaps
an emotional one. This legislation is too important to get into a test
of strength rather than the logic of the situation.
Therefore, Mr. Chairman, I am asking the gentleman from Lousiana
if he perhaps cannot withhold that motion.
Mr. MoRRISoN. I would withhold it if we can have a definite under-
standing that all hearings will cease a week from this coming Friday.
Mr. LESINSgi. Do you think that we can conclude the hearings by
that time?
The CHAIRMAN. I hope so. We can expedite them.
If the committee will come along with me, we will have sessions on
Saturday and on Monday, if the committee will do it. I want wit.
nesses to be heard and I do not want snap action or judgment taken by
this committee.
Mr. LESiNS$I. I concur with the chairman that this is important
legislation.
The CHAIRMAN. How many people will be here Saturday?
Mr. OLIvm. I will be out of town, Mr. Chairman.
The CHAIRMAN. We will have three here Saturday.
Are you withholding the motion for the time being?
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Mr. MORRISON. Provided we have an understanding that all wit-
nesses and all hearings will end a week from Friday.
The CHAIRMAN. We will do the best that we can about it.
Mr. MORRISON. There is no question about doing the best that we
can. I want a definite understanding.
You are entitled to your opinion and I am entitled to mine. I have
a preferential motion before the committee and if there cannot be an
agreement reached that all hearings and testimony end a week from
Friday, then I am going to insist on my motion.
Mr. JOHANSEN. Mr. Chairman, I understand the statement made
on the opening day of these hearings had to do with a willingness on
the part of the gentleman from Louisiana-and I certainly respect his
statement-to have sessions in the evening or on the weekend, or
whenever necessary.
Mr. CORBETT. And he would be here.
Mr. JOHANSEN. And he would be here.
I think this is a matter of a two-way street and I unfortunately
could not be here yesterday because I had to be in my district and
was not able to return until after the morning session.
The CHAIRMAN. You must remember, Mr. Morrison, that the chair-
man of this committee has certain rights, responsibilities, and preroga-
tives.
After all, it is up to the-chairman to go before the Rules Commit-
tee to present the request for a rule. If you take any step or action
here this morning, I will not appreciate it and then you can go along
with a discharge petition.
Mr. CORBETT. Mr. Chairman, I am going to move that the motion
be deferred until Monday of next week.
Mr. JOHANSEN. I will support it.
The CHAIRMAN. Any discussion of the motion?
Mr. MoRRisoN. Is yours a substitute motion?
Mr. CORBETT. No, sir. I am, in effect, withholding action on the
motion until Monday of next week for the purpose of determining how
far along we are and determining the necessity and desirability a little
better than we can do this morning.
Mr. MORRISON. The only way your motion can be recognized is for
it to be a substitute motion to mine.
Mr. CORBETT. It is a motion to defer action.
The CHAIRMAN. A substitute?
Mr. CORBETT. It is a substitute or anything else. It is an action
to table to a certain date. You can call it whatever you want.
The CHAIRMAN. Is there discussion on the motion?
If not, those in favor of the substitute motion of Mr. Corbett-
Mr. MORRISON. May I ask for the yeas and nays.
The CHAIRMAN. All right.
I think we will have to excuse these people and go into executive
session.
You are all just wasting time here.
Mr. CORBETT. Mr. Chairman, I think we do not need to get into
great technicalities. I could have moved that the previous question
be set for next Monday and it would have been perfectly in order.
Here with everybody gathered, I do not believe that the action of
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208 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
postponement of the motion needs to be in executive session, postpone-
ment of a vote without a rollcall.
The CHAIRMAN. We can take a roll call but we cannot do that in
open session.
Mr. CORIIETT. Does the gentleman insist on a roll call?
Mr. MORRISON. Yes.
The CHAIRMAN. I ask that the room be cleared while the committee
votes in executive session.
(The committee went into executive session.)
The CHAIRMAN (Open hearing being resumed following the execu-
tive session). The first witness this morning will be Mr. Manton
Eddy, vice president of the Connecticut General Life Insurance Co.
Mr. Eddy, I hope you will make your statement as precise as pos-
sible and to the point.
STATEMENT OF MANTON EDDY, VICE PRESIDENT, CONNECTICUT
GENERAL LIFE INSURANCE CO., HARTFORD, CONN., REPRESENT-
ING THE HEALTH INSURANCE ASSOCIATION OF AMERICA, THE
LIFE INSURANCE ASSOCIATION OF AMERICA, AND THE AMERI-
CAN LIFE CONVENTION; ACCOMPANIED BY LAWRENCE CATHLES,
VICE PRESIDENT OF THE AETNA LIFE INSURANCE CO. OF HART-
FORD, CONN.
Mr. EDDY. Yes, Mr. Chairman, and with your permission I will
attempt to brief it.
Migght.I have the full statement reproduced in the record? Would
that be possible?
The CHAIRMAN. You will have such permission.
(The statement follows:)
STATEMENT OF MANTON EDDY ON BEHALF OF THE AMERICAN LIFE CONVENTION,
THE HEALTH INSURANCE ASSOCIATION OF AMERICA, AND THE LIFE INSURANCE
ASSOCIATION OF AMERICA
My name is Manton Eddy. I am vice president and secretary of the Connecti-
cut General Life Insurance Co. of Hartford, Conn. With me is Mr. Lawrence
Cathles, vice president of the Aetna Life Insurance Co., also of Hartford. We
are appearing today on behalf of the American Life Convention, the Health
Insurance Association of America and the Life Insurance Association of America,
three associations having a combined membership of over 400 insurance com-
panies. Collectively, these companies have more than 95 percent of the group
accident and health insurance in force in the United States.
We wish to express our appreciation to the committee for the opportunity to
appear today. We have had a deep and continuing interest in the matter of
health care insurance for Federal employees and we wish to be of as much help
as possible. We will freely make available our extensive experience in this
field and in our testimony we will attempt to respond to the questions the chair-
man has raised in his letter of July 23.
It is a matter of record that there has been a tremendous growth in health
insurance coverage in the last decade. Today in this country there are more
than 121 million persons protected against the cost of hospital and doctor bills.
Their protection may come through insurance company policies or through Blue
Cross and Blue Shield or through other health care plans. However, of the 121
million persons with protection, 74 million of these are covered under insurance
company policies. These policies are provided on both a group and an individual
basis by the many hundreds of insurance companies handling health insurance
in the United States.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 209..
Major medical expense insurance which helps people pay especially heavy
bills resulting from a catastrophic or prolonged illness is a somewhat recent de-
velopment but is having remarkable growth. At the end of 1956 the number of
people protected was approximately 9 million. This number increased to more
than 13 million by the end of 1957 and at the end of 1958 had reached 17 million.
Our member companies warmly endorse the proposal to make health care in-
surance available to the employees of the Federal Government and we sincerely
hope that appropriate legislation can be enacted by this Congress.
We are of the opinion that S. 2162 and similar House bills provide a prac-
ticable basis for the development of a program of health care benefits for Fed-
eral Government employees, their families, and dependents. We do, however,
urge careful consideration of the relationship of benefits and contributions
under the proposed legislation, because even though almost all types of health
care are indicated in the bill, the benefits received will necessarily depend upon
the actual dollars available.
The chairman has suggested our.giving a comparative discussion of para-
graphs 1 and 2 of section 5 (a) and our comments on the scope and meaning of
subparagraph (D) of section 5(a) (1). Benefits under the service benefit plan
are outlined in considerable detail in section 5(a) (1). However, the description
of ambulatory patient benefits in subparagraph (D) is extremely broad and the
scope of benefits could be almost unlimited. Earlier Blue Cross testimony has
indicated that they would expect benefits under this subparagraph to be re-
stricted to minor surgery and to services in case of accidental injuries. Such an
interpretation would thereby exclude from subparagraph (D) a wide range of
services for ambulatory patients such as all diagnostic and therapeutic X-rays,
all pathology, and all home and office visits of physicians. Presumably benefits
for such services would be expected to be covered under the supplemental bene-
fits provided for in subparagraph (E) to the extent that funds were available.
On the basis of such a restricted interpretation of subparagraph (D) and of a
reasonable interpretation of benefits in the other subparagraphs it is probable
that service benefits can be provided in the first year for active employees
within the maximum contributions specified in the bill. With retirees included,
any possible margin seems to disappear. It is our conviction, however, that fu-
ture increases in costs are to be expected and will inevitably necessitate either
reduced benefits or increased contributions by Government and by employees.
These increases in cost will flow from two inexorable factors. These two fac-
tors are (1) the recognized annual upward trend in the cost of hospital-surgical
medical care, and (2) the greater average cost of benefits for annuitants who.
will increase in number each year.
With respect to the first, previous testimony before this committee has clearly.
indicated the continuing increase that has been taking place in the overall cost
of hospital care.. This increase has been attributable to the increased utiliza-
tion of hospital facilities, the changing patterns of medical care, and in part to
inflation. Abuse, we feel is an extremely minor factor.
Experts in this field appear to be in general agreement that hospital-surgical-
medical costs can be expected to continue to increase for the immediate future
at a rate of approximately 5 to 6 percent each year. It is pertinent to note that the
Consumer Price Index of the Bureau of Labor Statistics for July 1959, shows that
medical care has increased approximately 5 percent since July of last year,
whereas other items in general have remained relatively constant.
The second factor of increasing cost concerns the number of annuitants under.
the program. Available statistics in connection with the Federal employees re-
tirement plan indicate that in each of the next few years between 40,000 and
50,000 employees will retire. Contributions will be made at the same rate for
annuitants as for active employees, but the facts are that the real costs of bene-
fits for annuitants will be about 21/2 to 3 times the costs of benefits for active em-
ployees. This is the experience of the insurance business and also that of Blue
Cross as they have testified. In round figures the amounts paid out in benefits for
annuitants will average $140 more a year per annuitant than the contributions
from Government and annuitants. If there are to be 40,000 new retirees each
year, the total payments for benefits will increase substantially each year for
that reason.
Table I, which is attached to this statement, makes a projection of benefit
payments for active employees and new retirees over a 5-year period.
It is important that a soundly designed plan recognized at the outset that
there are these factors which will bring about increased benefit payments year.
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210 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
by year. If benefit levels are set initially equal to maximum contributions, it will
follow that later benefits must be reduced unless additional contributions by
Government and by employees are made in subsequent years. It would seem
a prudent course to begin with benefits that are expected not to exhaust the
Federal employees health benefits fund at the start. If a 20-percent margin
between benefits and contributions is created in the first year, it should be possible
to continue the level of contributions without a reduction in benefits for perhaps
5 years.
The chairman's letter asked that we suggest the nature of the benefits which
could be offered by indemnity carriers under paragraph (2) of section 5(a) of
S. 2162. It is not possible, of course, to predict at this time what would be the
outcome of negotiations by the Civil Service Commission with indemnity carriers.
We have, however, given thought to a program which would make wise use of
the dollars available and concentrate on the important last dollars of catastrophic
illness rather than on the first dollars of more frequent routine and minor illness..
One plan which might be considered could be described as a program of com-
prehensive medical expense benefits, as follows :
(a) For hospital room and board charges at the semiprivate level 100
percent of the first $1,000 of such expense, and 80 percent of the excess.
over $1,000;
(b) For other benefits (which would cover hospital fees other than room
and board and would cover the complete range of diagnostic and therapeutic
care and treatment, medical supplies, and services) 80 percent of charges
subject to a $50 deductible in a calendar year. There would be a lifetime
maximum amount of $15,000 and the first $1,000 of benefits in any calendar
year would not be counted in reaching the $15,000 limit;
(c) The pregnancy benefit would be $200 for normal pregnancies without
a deductible or coinsurance;
(d) There would be certain exclusions but they would be the ones normally
understood, such as occupational injuries, dental care other than oral
surgery, most cosmetic surgery, and the cost of eyeglasses, hearing aids, and
examinations for physical checkups.
Such a program would be very broad in scope and would provide substantial
benefits for catastrophic illness within a reasonable budgetary cost. It would
require the individual's participation in some of the costs of illness but at a
moderate level which we believe is reasonable and proper and is on a basis which
saves available dollars for their more important use when catastrophic illness
strikes.
For such a program our estimate of benefit payments is $216.4 million the first
year for active employees and an added $11.4 million for the newly retired.
Table II which is attached to this statement makes a projection of the benefit
payments for active employees and new retirees over a 5-year period under such
a program.
The figures do not include any estimate of administrative costs of the insurance
carrier or any figure for State premium taxes.
We have assumed that the precise benefits under a governmentwide indemnity
benefit plan would be determined through negotiations by the Civil Service Com-
mission with potential indemnity carriers and that the choice of a particular
carrier would result also from these negotiations. If the pattern of the Federal
employees group life program is followed, the carrier selected as the principal
underwriter of the program would be required to reinsure with all other quali-
fied carriers desiring to participate in the program. If this committee feels that
the group life pattern is desirable-and we urge that it reach such a conclusion-
we suggest the following amendment to the bill so that there be no doubt about
the intent of Congress :
After section 6 (b) insert the following : "(c) Any contract or policy under this
act shall provide that, under conditions approved by the Commission and a
formula determined by it, portions of the total insurance under such contract or
policy shall be reinsured with such other carriers as may elect to participate in
such reinsurance."
Reletter the following subparagraphs of section 6 accordingly.
We have been asked to comment on the effect of extending the proposed legis-
lation to Federal annuitants already on the retirement rolls and to their sur-
vivors. We are not in a position to offer recommendations as to whether this
program should be extended to this group because, although obviously such an
action on the part of the Federal Government would have very desirable and
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
perhaps far-reaching effects, the ultimate determination will most probably be
based upon budgetary considerations.
It is quite evident that the average cost of benefits for annuitants is consider-
ably greater than for the much younger group of active employees. As we have
indicated in our previous statements with respect to future annuitants, we can
expect benefits to be about 21h to 3 times as great for annuitants as for active
employees. Assuming that the 375,000 annuitants and survivors are composed
of approximately 280,000 annuitants and approximately 95,000 survivors, we
would estimate the first-year benefit payments under the program we have
previously outlined, at about $74 million.
In our earlier remarks we have pointed out the tendency of hospital-surgical-
medical costs to increase in future years and these same forces will affect the
benefits of annuitants. However, in the case of the present group of annuitants
and survivors, there will be the offsetting forces of deaths, recoveries, and with-
drawals. We would expect that these two opposing forces would largely offset
each other for the next few years with the result that the cost would remain
almost stable.
We trust, Mr. Chairman, that we have been responsive to the questions you
have addressed to us and we wish to repeat our earlier assurance of desire to be
of all possible assistance to this committee.
TABLE I. Projection of service benefit payments
[In millions]
Benefits for
active
employees
Benefits for
future
retirees
1960----------------??---------------------------------------
287.7
15.2
302.9
1961-------- ---------------------------------------------------
302.1
28.2
330.3
1962--------------------------------------------------------...
317.2
42.4
359.8
1963--------------------------------------------------..-------
333.1
58.7
391.8
1964-----------------------------------------------------------
349.8
74.9
424,7
Assumptions:
(1) 2,000,000 active employees are eligible.
(2) 90 percent of active employees elect to join.
3 40 percent of active employees enroll as individuals and 60 percent as families.
(4) New retirees enter the program at an annual rate of 40,000.
TABLE II. Projection of comprehensive medical expense benefits payments
[In millions]
Benefits for
active
employees
Benefits for
future
retirees
1960---??----------------------------------------------------
216.4
11.4
227.8
1961-----------------------------------------------------------
227.2
21.1
248.3
1962-----------------------------------------------------------
238.6
31.7
270.3
1963----------------------------------------------------------
250. 5
43.8
294.3
1964 -----------------------------------------------------------
263.0
56.3
319.3
Assumptions:
(1) 2,000,000 active employees are eligible.
2) 90 percent of active employees elect to join.
3) 40 percent of active employees enroll as individuals and 60 percent as families.
(4) New retirees enter the program at an annual rate of 40,000.
Mr. EDDY. The chairman has identified me and the three organiza-
tions for which I am appearing. With me is Mr. Lawrence athles,
vice president of the Aetna Life Insurance Co., of Hartford, Conn.
The 3 associations we are representing have a combined member-
ship of over 400 insurance companies.
I mentioned our interest in this field and our extensive experience
and the fact that we have more than half the people covered who are
covered by our insurance companies.
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212 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
In connection with S. 2162, and similar House bills, the chairman
has suggested our giving a comparative discussion of paragraphs
1 and 2 of section 5(a) and our comments on the scope and meaning
of subparagraph (D) of section 5(a) (1).
Benefits under the service benefit plan are outlined in considerable
detail in section 5 (a) (1). However, the description of ambulatory
patient benefits in subparagraph (D) is extremely broad and the
scope of benefits could be almost unlimited. Earlier Blue Cross testi-
mony has indicated that they would expect benefits under this sub-
paragraph to be restricted to minor surgery and to services in case of
accidental injuries. Such an interpretation would thereby exclude
from subparagraph (D) a wide range of services for ambulatory
patients, such as all diagnostic and therapeutic X-rays, all pathology,
and all home and office visits of physicians.
Mr. PORTER. Mr. Chairman, at this point I would like to ask the
gentleman if this is what the Commission finds to be reasonably
desirable up to this time.
Mr. EDDY. No, sir. I am suggesting that a complete gamut of
everything possible under that would cover these other services.
Mr. PORTER. Do you think that the legislation as written then is
all right?
Mr. EDDY. I have no quarrel with it.
The CHAIRMAN. Proceed.
Mr. EDDY. On the basis of such a restricted interpretation of sub-
paragraph (D) and of a reasonable interpretation of benefits in the
other subparagraphs, it is probable that service benefits can be pro-
vided in the first year for active employees within the maximum con-
tributions specified in the bill. The inclusion of retirees in the first
year will bring the total benefits up just about to the maximum con-
tribution specified. It is our conviction, however, that future increases
in costs are to be expected and will inevitably necessitate either re-
duced benefits or increased contributions by Government and by em-
ployees. These increases in cost will flow from two factors. The
first is the recognized annual upward trend in the cost of hospital-
surgical-medical care, and the second is the greater average cost of
benefits for annuitants who will increase in number each year.
I point out, as previous testimony has, that there can be expected
an increase of approximately 5 percent a year in the cost of hospital-
medical-surgical care.
At the end of this statement there is a table attached which makes
a projection of the costs over a 5-year period and in our projection
the benefits for active employees would total $287 million and in 5
years' time would have increased to $349 million.
The retirees would start at about $15 million and in 5 years' time
would have reached approximately $75 million, or a total cost starting
at approximately $300 million and in 5 years' time reaching a figure of
over $400 million.
It is important that a soundly designed plan recognize at the outset
that there are these factors which will bring about increased benefit
payments year by year. If benefit levels are set initially equal to
maximum contributions it will follow that later benefits must be re-
duced unless additional contributions by Government and by em-.
ployees are made in subsequent years. It would seem a prudent course
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 11
to begin with benefits that are expected not to exhaust the Federal
employees health benefits fund at the start. If a 20-percent margin
between benefits and contributions is created in the first year, it should
be possible to continue the level of contributions without a reduction
in benefits for perhaps 5 years.
The chairman's letter asked that we suggest the nature of the bene-
fits which could-be offered by indemnity carriers under' paragraph 2
of section 5(a) of S. 2162. It is not possible, of course, to predict at
this time what would be the outcome of negotiations by the Civil
Service Commission with indemnity carriers, but we have given
thought to a program which would make wise use of the dollars avail-
able and concentrate on the important last dollars of catastrophic ill-
ness rather than on the first dollars of more frequent minor illnesses.
Mr. JOIIANSEN. Mr. Chairman?
The CHAIRMAN. Mr. Johansen.
Mr. JOIIANSEN. May I interrupt? I want to go back a moment to
what the gentleman said.
This differential, which I understand the gentleman suggested of
20 percent between the benefits and the payments, the gentleman may
have stated it but it escaped me and I would like to know by what
device should such a limitation, if there were one, be created ?
Mr. EDDY. I think the bill creates a device of a fund into which the
contributions are placed and out of which the premiums for the con-
tracts, or the subscription rates? will be paid.
If the premiums and subscription rates are less coming out of the
fund, are less than the amounts going into the fund, the fund would
have this reserve margin for later years when the subscription rates
and the cost of benefits are increased.
Mr. JOIIANSEN. Would it be the self-restraint of the participants,
or some provision of the program itself, which would provide this
restraint and thereby provide the margin of 20 percent?
Mr. EDDY. I think, sir, it would be a, conservative arrangement on the
part of the Civil Service Commission that the program which they
arranged, which under their contracts were arranged, were conserva-
tively calculated so that it would not exhaust all the money coming
into the fund.
Mr. JOIIANSEN. In other words, the Civil Service Commission it-
self would police that by providing less than the maximum benefits
during the earlier years?
Mr. EDDY. That is correct.
Mr. JOHANSEN. Thank you.
Mr. EDDY. We have outlined this program, which does place em-
phasis on catastrophic last dollars.rather than on first dollars, and I
will not read this in detail unless you wish.
The CHAIRMAN. Very well.
Mr. JoHIANSEN. Mr. Chairman, I apologize for interrupting and I
hope that I can avoid being repetitious, but I want to get at this point :
If the Commission so exercises restraint and if there are increased
costs within the first 5 years, does not that, in effect, mean that the
theoretical2 potential benefits under this plan would, in all likelihood,
not be achieved or attained at any time during the first 5 years?
I mean to say, if it is necessary to keep it down to meet the occur-
rence of increased costs during the 5 years, could not the effect be prac-
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214 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
tically that the hypothetical, maximum benefits could never be
achieved during that 5 years?
Mr. EDDY. That is correct.
At one time, we attempted to estimate the cost of the maximum,
theoretical benefits which could be provided under section 5 (a) (1),
and our best estimate was a minimum of $425 million, if the maxi-
mum benefits were included, which is complete coverage for all costs
of hospital, surgical, medical, and health care.
Mr. JOHANSEN. Would there be any basis or justification for any
feeling on the part of the Federal employees that the action subse-
quent to the enactment of this plan by the Civil Service Commission
of restraining those benefits in order to provide this cushion would
constitute in any way a deprivation or breach of faith with respect
to what they hays right to expect from the program?
Mr. EDDY. It is possible that that could result. I would think that
if this committee agreed with our thinking, that it is wise and prudent
to start on a conservative cost, that the committee report would indi-
cate that that is the intended program so that the individuals who were
to benefit under the program would not feel that they had received less
than had been intended.
Mr. JOHANSEN. Would the gentleman feel that there would be a
normal and quite understandable pressure upon the Congress, or the
Commission, or both, to increase those 'benefits in disregard of that
principle of prudence?
Mr. EDDY. Let me speak broadly, if I may.
It has been our observation that human nature is the same every-
where and all of us are anxious to see more in the way of benefits year
after year, if our employers will provide them.
Mr. JOHANSEN. The gentleman would agree that that rule with
regard to human nature might conceivably apply to Members of Con-
gress ?
Mr. EDDY. I would say, yes, sir.
The CHAIRMAN. As I understand, you are convinced that the can-
tributions that are made by the Government and by the employees
who are covered will not be sufficient to take care of the benefits pro-
vided in this bill.
Mr. EDDY. We are convinced of that.
The CHAIRMAN. And, as I understand, under the bill if that situa-
tion becomes true there will have to be a reduction in the benefits;
is that correct?
Mr. EDDY. That is correct.
Mr. GROSS. Mr. Chairman.
The CHAIRMAN. Mr. Gross.
Mr. GROSS. To pay maximum benefits would cost more than $400
million, I believe you said.
Mr. EDDY. I used the figure of $425 million minimum.
Mr. GROSS. What would be the average contribution on the part of
the Federal employees?
Mr. EDDY. This present bill provides a total of $300 million,
roughly, so that $425 million would mean an increase of 40 percent
more so that the $1.75 would be about $2.50 and the $4.25 would be
about $5.75.
The CHAIRMAN. How many employees do you anticipate will seek
coverage under this legislation?
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Mr. EDDY. It would be difficult to predict, but all of us in the field
of offering benefits have learned there is a point beyond which in-
dividuals cannot, and will not, contribute, and we are convinced from
our experience that many people prefer to, buy insurance that is
reasonable and protects them against extreme hazards rather than
attempt to buy protection for every possible dollar of payment.
The CHAIRMAN. Is it your opinion that if the contribution is not
sufficient to provide the maximum benefits under this bill that it should
be limited to major medical benefits?
Mr. EDDY. Under our proposal the first $1,000 of hospital room and
board on a semiprivate room basis would be covered in full. Beyond
that there would be a $50 deductible and a 20-percent coinsurance
factor, so that the individual would be sharing in the cost of illness
but not on a basis that is extreme or insupportable, and the maximum
available would be a $15,000 amount, which should take care of all
catastrophic illnesses.
Our estimate of the cost of such a program is given in. table II
attached to my statement. You will find there the benefits for active
employees at the outset is $216.4 million and it grows in 5 years to
$263 million; and the benefits for future retirees start at $11.4 million
and grow in 5 years to $56.3 million. The total at the outset is $227.8
million and at the end of 5 years it is $319.3 million.
Mr. PORTER. Mr. Chairman.
The CHAIRMAN. Mr. Porter.
Mr. PORTER. Mr. Eddy, are you against competition?
Mr. EDDY. I am very much in favor of competition. I say that sin-
cerely. I think without competition businesses tend to become smug
and self-satisfied.
Mr. PORTER. I do too.
I notice from your statement that you appear here representing
companies that have more than 95 percent of the group accident and
health insurance in force in the United States and that the three
associations in whose behalf you are appearing have a combined mem-
bership of over 400 insurance companies. I do not see any competi-
tion here.
Mr. EDDY. I am sure the committee would not want to, hear from
400 witnesses from 400 insurance companies. What we are speaking
to is not the point of what we would like to sell. The committee has
asked for our advice on what are good benefits, what we sell to busi-
nesses and industry generally, and we are glad to give that advice and
those suggestions.
Mr. PORTER. Do you approve the principle of having one Govern-
ment program ?
Mr. EDDY. I think it would be difficult for the Government to
undertake to have a great number of programs. Most businesses, when
they decide to install benefits for their employees, review the programs
and suggestions of a great many insurance companies and select the
one they feel they would like to deal with. That decision is based
on many factors. It includes the question of cost; it includes the
question Of services; if the business is a national concern doing busi-
ness in 48 States it would not contract with a company doing business
with only two States.
Mr. PORTER. As I understand, you are against having one Gov-
ernment program?
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Mr. EDDY. No. I think the Government should have one.
Mr. PORTER. One plan but a lot of companies bidding?
Mr. EDDY. I think the Government should decide what are the exact
benefits it wishes to purchase, and I think it should decide from whom
it wishes to purchase those benefits.
Mr. PORTER. Do you think they should put it out on bid?
Mr. EDDY. I do not think this lends itself to competitive bidding on
price basis becau:;e of the dollars paid for insurance, 95 percent of those
dollars will go to doctors, hospitals, and nurses, and for the purchase
of medical supplies and services. The administrative expense of the
company handling the program will probably not be greater than 5
percent; it probably will be less.
Mr. PORTER. Mr. Massie testified the administrative expenses of his
association were 10 percent 1 year and 8 percent 1 year. ? Why should
we not have the companies compete to lower those administrative costs
to give a lower premium rate?
Mr. EDDY. I am sure before the Civil Service Commission will pick
a company to administer the program, that company and other com-
panies Al have the matter of administrative expenses discussed.
The group life program which the Government has purchased from
one company started on the basis of administrative expenses of 11/2
percent and the actual administration has been less than 11/2 percent.
Mr. PORTER. As I understand, the plan here is to have the Govern-
ment deal with a group of companies and they will divide the busi-
ness. Is that correct ?
Mr. EDDY. No. The Government will contract with one company
if they follow the pattern of the group life program.
Mr. PORTER. I do not see any competition, then.
Mr. JOIIANSEN. Will the gentleman yield ?
The CIIAIRMAN. Mr. Johansen.
Mr. JOHANSEN. Can the witness give any suggestion as to an ad-
ministratively feasible program that would meet the criteria of com-
petition? Will the gentleman tell us on what basis that would be
administratively feasible?
Mr. EDDY. I think it would be very difficult to write the criteria in
the bill. In my own eyes I can see the Civil Service Commission
sitting down and talking to half a dozen of the national insurance com-
panies, finding out what they can offer and at what price, what their
administrative expense will be, and what their. service facilities are,
and the choice of company would be determined by the proposals that
had been submitted from those different companies, and the Civil
Service Commission would have selected the one that seems to offer the
best price and the best service.
That is what we face in dealing with corporations in private busi-
ness when we attempt to sell our product. The buyer will. ask, "What
will you do ? How much will you charge? What are your service
facilities?" And in the light of all the information that is elicited,
the buyer will determine which company he will deal with.
Mr. PORTER. It seems to me it would be better to make up he specifi-
cations and let the companies bid and decide whether they can cut the
administrative cost to give a lower premium.
Mr. EDDY. There is nothing in this bill, as I read it, that prevents
the Civil Service Commission from going through that procedure, but
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HEALTH BENEFIT F' A
I do not think it would necessarily accomplish the result you have in,
mind.
Mr. PORTER. Why?
Mr. EDDY. This competitive bidding on price deals with dollars
and the benefits provided under this bill will be dollars distributed
among hospitals, doctors, health facilities, all over the country. Theo-
retically I can visualize I could make a lower bid if I were contem-
plating a delay in settling claims, for example. I could do it cheaper
if I could do it with less service.
Mr. PORTER. That could be included in the specifications.
Mr. EDDY. I think it would be difficult to specify claims must be
settled in 24 hours.
Mr. PORTER. You mentioned a 5 percent administrative cost and
Mr. Massie, who preceded you, mentioned 8 percent and 10 percent,
and I imagine in different companies that amount varies depending
on the salaries paid their officials and many other things. I think
the difference should go in lower premiums.
Mr. EDDY. I think the bill does not prevent it and I am sure the
Civil Service Commission, in choosing an underwriter, will do so
only after intensive discussions on all these matters with the companies.
The CHAIRMAN. The bill, under section 6(a), does not require com-
petitive bidding.
Mr. EDDY. It does not require it, no.
The CHAIRMAN. Would you favor ,a provision in the bill requiring
competitive bidding?
Mr. EDDY. I think it would restrict the Civil Service Commission
in procuring the best results.
The CHAIRMAN. I)o you think the various insurance companies
will plan to pool their resources and share in this business and make
one bid?
Mr. EDDY. No. We could not 'and would not make one bid. We
would have to operate separately. While Mr. Cathles is with, me
today in speaking of our experience in the business, he would not be
sitting with me if we were discussing a contract with the Civil Service
Commission.
The CHAIRMAN. Would these private companies be able to provide
benefits or coverage for employees overseas?
Mr. EDDY. Yes.
Mr. FoLEY. Mr. Chairman.
The CHAIRMAN. Mr. Foley.
Mr. FOLLY. I would like to point out there is this inherent competi-
tion between the mutual insurance companies and the stock insurance
companies. Is that not correct?
Mr. EDDY. That is correct.
Mr. FOLLY. So that there is a guaranteed general competitive aspect
between those two types of insurance companies.
Mr. EDDY. That is certainly a guarantee.
Mr. HOLIFIELD. Will the gentleman yield?
The CHAIRMAN. Mr. Holifield.
Mr. HOLIrIELD. While I would like to see competitive, bidding where
possible, I happen to know somehing about negotiated contracts and
they frequently have the inherent competitive feature. I would as-
sume if the Civil ServiceCommission sat down in good faith with 10
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218 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
or 15 companies and asked each to make a proposal, that they would
not be identical and the Commission would be in a position to exercise
good business judgment and prudent judgment in selecting from that
group the proposals which were in effect the competitive test among
the proposals.
Mr. EDDY. That is true. You have said what I was attempting to
say and you have said it clearly.
Mr. HOLIFIELD. In place of going through the regular prescribed
competitive bidding procedures of the Government, this would be
by negotiation?
Mr. EDDY. Yes, sir.
Mr. BROYIHLL. Mr. Chairman.
The CHAIRMAN. Mr. Broyhill.
Mr. BROYHILL. How does the program proposed in this bill compare
with the average program of private employers in respect to the 50-50
employer-employee contribution and in respect to the benefits?
Mr. EDDY. There is such a wide range of programs and contribu-
tions in private business that it is difficult to speak of an average and
be accurate. Programs can provide for no contributions by employees
ranging up to full contribution by employees. But in general I think
the 50-50 would be looked on as the middle of the road approach.
Mr. BROYHILL. Do you not have a standard policy that is a little
more popular than others?
Mr. EDDY. In the field of group insurance where large businesses
are buying benefits, a large business frequently has its own wishes
and group programs for large employers are generally tailored to the
wishes of that employer. Sometimes the choice is determined by the
amount of dollars available to go into the program. Major medical
expense insurance has been designed to take care of the long-term
and catastrophic illnesses. It is the most recent form of benefits that
we haveand it is the most popular. If a person has the choice between
dollars going for the first 10 days of hospital care or more dollars
going for a long illness after his own dollars have been spent, it is
our experience that the employee chooses the catastrophic type of
benefits.
Mr. BROYHILL. The purpose of my question was to determine
whether or not we are proposing in this legislation more benefits for
Government employees than the average private employer provides
for its employees. I understood your answer to be that in general the
contribution is 50-50. Would you say the benefits were generally
similar? In other words, we are not providing something a great deal
better than the average provided by industry, or something a great
deal less than the average in private industry?
Mr. EDDY. I would say roughly $300 million provides benefits al-
most as liberal as any private employer provides today.
Mr. BROYHILL. Almost as liberal?
Mr. EDDY. As liberal as almost any. One may find an exception
that proves the rule, but it would place the Government among the
very best programs.
Mr. BROYHILL. As far as benefits?
Mr. EDDY. As far as benefits.
Mr. BROYHILL. But not as far as contributions?
Mr. EDDY. The 50-50 is the middle of the road approach.
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Mr. BuoYHILL. Mr. Eddy, I might say your company, the Connect-
icut General Life Insurance Co., underwrites insurance for a firm
of which I am a stockholder.
Mr. EDDY. I am delighted, sir.
Mr. JOHANSEN. Mr. Chairman.
The CHAIRMAN. Mr. Johansen.
M.r JOIIANSEN. I am wondering if we cannot lay this bogeyman of,
no competition once and for all.
Do I understand in any type of insurance coverage there will be a
definite competitive factor in the negotiations with the Civil Service
Commission?
Mr. EDDY. I am convinced there will be.
Mr. JOIIANSEN. Is it not also true that by reason of this program
offering the Federal employees a choice between the Blue Cross-Blue
Shield program and the type provided by your company and by other
organizations, is it not true there is a factor of competition and a
factor of choice for the Federal employee provided in this program not
normally present in the programs of private employers?
Mr. EDDY. I think that is true.
Mr. JOHANSEN. I hope this will lay, once and for all, this bogey-
man of no competition.
Mr. R.EES. Mr. Chairman.
The CHAIRMAN. Mr. Rees.
Mr. Ri,ES. We have been given to understand that the contributions
under this bill would provide something over $300 million.?
Mr. EDDY. That is our judgment.
Mr. REES. And it is your estimate that it would cost $400 million
for the same benefits?
Mr. EDDY. The bill does not specify definite benefits. It speaks in
paragraph (D), for example, of benefits for ambulatory patients, and
it says those benefits shall be that which the Commission finds to be
practicable, reasonable, and desirable. If the money is not available
benefits will not be provided, and it is our judgment that the $300 mil-
lion will not provide a wide range of benefits for ambulatory patients
except as they will come under paragraph (E), the supplemental bene-
fits, where there is a coinsurance factor, and there may need to be a
limitation of, benefits there. You, can only buy benefits to the extent
you have money to buy benefits with.
There is a very important sentence at the beginning of section 5
which says "To the extent possible with the funds available" the bene-
fits described will be provided. It is possible that the Federal em-
ployees will not identify the purpose and meaning of that sentence,
but, to me that sentence means, "We can only spend $300 million and
cannot provide benefits beyond that point."
The CHAIRMAN. I agree if the contributions are not sufficient to
take care of all the benefits under this bill there is no alternative left
to the .Civil Service Commission under this bill than to reduce the
benefits to match the contributions.
Mr. EDDY. Yes.
Mr. Riu s. Is it your opinion that it will, take $425 million to take
care of the promises made under this bill?
Mr. EDDY. I do not think the bill makes those promises.
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Mr. CoRBEPr. Did not the gentleman say, when he made the esti-
mate of $425 million, that that would be the cost of maximum benefits?'
Mr. EDDY. Yes, sir.
Mr. BROYHILL. Will the gentleman yield?
The CHAIRMAN. Mr. Broyhill.
Mr. BROYHILL. The bill provides for specific amounts of contribu-
tions by the Government: $1.75 biweekly for an individual employee;:
$4.25 biweekly for a male employee and members of his family; and
$2.50 for a female employee and members of her family if a member
of the family is a husband, other than a dependent husband.
How does that employer contribution for a health insurance pro--
gram compare with employer contributions in other policies you
sell?
Mr. EDDY. I think it is a liberal one.
Mr. BROYHILL. It is more than the average employer contributes?
Mr. EDDY. More than the average employer contributes.
The CHAIRMAN. There are several Government employee groups to-
day that have health and hospitalization programs. For instance, the-
Federal Bureau of Investigation has its own program and so does
the Central Intelligence Agency and the National Security Agency..
Do you see any reason for not allowing those groups to continue their.
operations provided they have programs that meet Civil Service Com-
mission specifications?
Mr. EDDY. There is no reason except the possible one of simplicity
of operation. The more separate programs that are permitted to,
exist, the more administrative complixity will come about. That is-
not necessarily an important factor. I think it is important there not
be a great number of separate programs because if we get too many
small groups there can be additional costs that develop over the years.
But if this committee or the Government felt it desirable to have more
than one program, there is no reason for not having more than one..
The CHAIRMAN. I am concerned about the coverage of Government
employees overseas. There are many of them. How would they be
taken care of ?
Mr. EDDY. Under an insurance company program they would be
taken care of the same way that people are taken care of in this coun-
try. They are hospitalized, they have doctor bills, and those bills will
be paid under the terms of the insurance contract the same as
though the hospitalization or medical bills were incurred in the city
of Washington.
Mr. IRWIN. Mr. Chairman.
The CHAIRMAN. Mr. Irwin.
Mr. IRWIN. I would like to commend the witness, who is from the
State of Connecticut. You have been a very good witness.
Mr. EDDY. Thank you.
Mr. IRWIN. In your statement you make reference to two inexorable
factors that will lead to increases in cost. The one with reference
to the greater average cost of benefits for annuitants who will in-
crease in number each year is clear, but could you help us in regard
to the other factor, which you say is "the recognized annual upward
trend in the cost of hospital-surgical-medical care"?
From the statistics, that you quote from the Bureau of Labor Sta-
tistics, you point out medical care has increased 5 percent whereas
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in general other items have remained constant. In effect that is,
partly contributing to inflation it seems to me. You say it is gen
erally recognized these costs will go up. How can that be stopped?
Mr. EDDY. I am not sure I can offer a solution, but I can give rea-
sons for why that has happened.
The American people are getting better and better hospital care.
The hospitals in great metropolitan centers are geared to provide
almost the ultimate in hospital care. There are new drugs and new
prostheses that have developed in the last couple of decades that con-
tribute to greater cost for better care. The American public are more
accustomed to going to hospitals. My generation were born at home.
My children were born in hospitals. We use hospitals more.
Mr. IRWIN. Therefore, the increase in cost would really be an in-
crease in cost for better benefits?
Mr. EDDY. Yes, sir. When we say the cost is mounting 5 percent
a year, we are not pointing a finger of scorn at that. It is in fact
evidence of better and better care. There is very little evidence of
waste.
Mr. IRWIN. Is it due to the fact there is a lack of facilities and
therefore more people are competing for those facilities?
Mr. EDDY. I do not think so. I could give you figures from the
Consumer Price Index. All items in that Consumer Price Index
from the base period of 1947, 1948, and 1949 to 1958 have increased
to 123.5. Medical care has increased to 144.9. Of that 144.9 the
hospital rates take the top billing. They have gone up to 198. Sur-
gical fees have been increased to 122.7, and general practioners' fees
to 139.3. Not all have risen in the same degree but all have risen, and
there is no reason why they should not have risen. They are con-
tributing to better care of the American people.
Mr. IRwiN. Your analysis is that this increase reflects better serv-
ice more than anything else?
Mr. EDDY. Yes.
Mr. IRwIN. Thank you.
The CHAIRMAN. Have not most of the companies raised their rates
for these plans in the past 5 years?
Mr. EDDY. I cannot speak for all companies but my own company,
we raised our rates about 15 percent in 1953 and 15 percent again in
1957 for hospital and medical care. Mr. Cathles tells me his com-
pany has done essentially the same. I suspect, competition being
what it is in the insurance business, there is no great difference in
rates among the major companies because one has to have a'reasonable
balance with his competitors to get any business.
The CHAIRMAN. If this legislation is enacted would you be willing
to sign a 3-year or 5-year contract for a specified amount?
Mr. EDDY. I would prefer not to, sir.
The CHAIRMAN. Private insurance companies have to pay taxes?
Mr. EDDY. Yes.
The CHAIRMAN. Do they compete. favorably with Blue Cross and
Blue Shield in view of that situation?
Mr. EDDY. It does not make our competitive life easy. We are
subject to State premium taxes of between 2 and 21/2 percent. I
imagine the average is 2% percent nationwide. I believe a half
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222 HEALTII BENEFITS FOR FEDERAL EMPLOYEES
dozen States require Blue Cross to pay premium taxes. That is a
competitive factor that, as I say, makes life more difficult for us.
The CHAIRMAN. Blue Cross and Blue Shield have a certain advan-
tage in that respect over private insurance companies?
Mr. EDDY. They have an advantage to that extent and it is some-
thing perhaps this committee would like to consider. I understand
it would be within the prerogative of Congress to say in the legisla-
tion it would be free of State premium taxes.
Mr. GRoss. Will the gentleman yield?
The CHAIRMAN. Mr. Gross.
Mr. GRoss. How do your benefits compare with those of Blue Shield
and Blue Cross?
Mr. EDDY. Basically our benefits are sufficiently different so that
there is no direct comparison possible, but we do have more than one
half the hospital and medical insurance in this country, so I would
think our rates and operations compare reasonably well.
Mr. Gross. Despite the fact that in some States Blue Shield and
Blue Cross are not taxed?
Mr. EDDY. That is right.
Mr. GRoss. That premium- tax is between 2 and 21/2 percent? Is
that what you said?
Mr. EDDY. Yes, sir.
The CHAIRMAN. How many insurance companies do you represent
here today? You represent the American Life Convention, the
Health Insurance Association of America, and the Life Insurance
Association of America.
Mr. EnnY. These three trade associations have a total membership
of better than 400 insurance companies and those insurance com-
panies have on their books better than 95 percent of the group acci-
dent and health insurance in force in the United States.
Mr. FoLEY. May I ask another question?
The CHAIRMAN. Mr. Foley.
Mr. FoLEY. Going back to the matter of the purchase of these vari-
ous categories of benefits for the dollars set forth in the bill, the in-
surance companies can provide benefits in every area for the fixed
dollars set forth in this bill, is that right? In other words, in the
plan you have submitted for the dollars set forth in this bill you
provide benefits in every area? - `
Mr. EDDY. Yes, sir, and we suggested a program which is of the
order of $228 million. We could suggest a program'of $300 million.
We are not inhibited from writing a very liberal program if the
money is there to spend.
Mr. FoLEY. In other -words, you can provide whatever benefits in
whatever category of benefits ' the Civil- Service Commission, in its
judgment, feels are beneficial overall for the Government employees?
Mr. FoLEY. So that for whatever amount of money, be it a dollar
or $10 a month, you can provide a. certain percentage of hospital.
care, a certain percentage of surgical; care, and so, forth? In each
category the benefit may be a smaller dollar benefit, but when the
Civil Service Commission sits down with you gentlemen they can say,
"We have decided we are going to spend 10 percent of these dollars
for hospital care, 15 percent of these dollars for surgical care," and
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 223
on down the line, they can decide for themselves how much of this
dollar they want to spend for each category, and you can provide
those benefits to the extent of the money available in all categories;
is that correct?
Mr. EDDY. Yes.
The CHAIRMAN. What kind of reserve does your company have,
,.The Eddy?
Mr. EDDY. Of course our company writes life insurance and pen-
sions as well as health insurance. We have capital and surplus funds
of $160 million. Under our health program, which is term insurance,
all of us carry reserves for known liabilities and for liabilities that
we know will develop, but above that I think your question is directed
to the contingency reserve, margin, and our goal is 50 percent of a
year's premium, but none of us reach that goal. I think on an aver-
age if you looked at all group insurance it might be on the order of
16 percent of a year's term premium.
The CHAIRMAN. Under this bill do you think the Civil Service
Commission should set up a reserve to take care of contingencies? Mr. EDDY. I think it is always important to have a contingency
reserve.
The CHAIRMAN. How much contingency reserve would you suggest?
Mr. EDDY. I think for that type of thing 2 or 3 percent a year is a
good program, but that is intended to take care of the normal fluctua-
tions that could come about from a mild flu epidemic or a mild polio
epidemic. But the 20 percent margin I suggested at the start was to
start the program less than maximum benefits so that it would not be
necessary to raise the contribution or reduce the benefits over a 4-year
or 5-year period. That was less of a contingency fund for fluctuations
than a contingency fund for. something that is almost certain to
happen.
The CHAIRMAN. Would you suggest that the Civil Service Commis-
sion set up a contingency fund or contingency reserve? And if so,
what would be a reasonable contingency reserve under this bill?
Mr. EDDY. I think they ought to start with a 20-percent margin.
The CHAIRMAN. 20 percent?
Mr. EDDY. Yes, sir.
Mr. JOIIANSEN. To clear up that point, I am wondering if the 20-
percent margin that the witness speaks of refers to the same thing
the Senate minority views on S. 2162 referred to in saying that a re-
serve of 3 percent of 1 year's contributions plus other refunds was an
inadequate reserve. I wonder whether the minority views of the
Senate were talking about the same thing as the 20 percent the
witness is talking about.
Mr. EDDY. They were addressing themselves to the same point.
Mr. JOHANSEN. Then you would agree that this 3 percent is totally
inadequate?
Mr. EDDY. It would not serve the purpose.
The CHAIRMAN. You may proceed.
Mr. EDDY. We have assumed that the precise benefits under a gov-
ernmentwide indemnity benefit plan would be determined through
negotiations by the Civil Service Commission with potential indem-
nity carriers and that the choice of a particular carrier would result
also from these negotiations. If the pattern of the Federal employees
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224
group life program is followed, the carrier selected as the principal
underwriter of the pro . ram would be required to reinsure with all
other qualified carriers desiring to participate in the program. If this
committee feels that the group life pattern is desirable-and we urge
that it reach such a conclusion-we suggest the followin amend-
ment to the bill so that there be no doubt about the intent of Congress :
After section 6 (b) insert the following :
(c) Any contract or policy under this act shall provide that, under conditions
approved by the Commission and a formula determined by it, portions of the
total insurance under such contract or policy shall be reinsured with such other
carriers as may elect to participate in such reinsurance.
Reletter the following subparagraphs of section 6 accordingly.
We have been asked to comment on the effect of extending the pro-
posed legislation to Federal annuitants already on the retirement rolls
and to their survivors. We are not in a position to offer recommenda-
tions as to whether this program should be extended to this group
because, although obviously such an action on the part of the Federal
Government would have very desirable and perhaps far-reaching ef-
fects, the ultimate determination will most probably be based upon
budgetary considerations.
It is quite evident that the average cost of benefits for annuitants
is considerably greater than for the much younger group of active em-
ployees. As we have indicated in our previous statements with re-
spect to future annuitants, we can expect benefits to be about two
and one-half to three times as great for annuitants as for active em-
ployees. Assuming that the 375,000 annuitants and survivors are
composed of approximately 280,000 annuitants and approximately
95,000 survivors, we would estimate the first-year benefit payments
under the program we have previously outlined, at about $74 millions.
In our earlier remarks we have pointed out the tendency of hospi-
tal-surgical-medical costs to increase in future years and these same
.forces will affect the benefits of annuitants. However, in the case of
the present group of annuitants and survivors, there will be the off-
setting forces of deaths, recoveries, and withdrawals. We would ex-
F ect that these two opposing forces would largely offset each other
or the next few years with the result that the cost would remain al-
most stable.
We trust, Mr. Chairman, that we have been responsive to the
questions you have addressed to us'and we wish to repeat our earlier
assurance of desire to be of all possible assistance to this committee.
The CHAIRMAN. Thank you very much.
Any questions?
Mr. REES. I have one question.
This bill has been submitted to us as having an approximate cost
of $304 million ?
Mr. EDDY. Yes, sir.
Mr. REES. If benefits were given as provided in this legislation, is it
your judgment that the cost of these benefits will be about $425
million?
Mr. EDDY. The maximum contributions provided by the bill are
estimated to be $304 million. The benefits outlined in this bill are
not specific in every category. They are not precise. There is a wide
latitude. The dollars available are going to control the decision as to
what the benefits will be. The benefits are not precise.
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HEALTH BENEFITS FOR FEDERAL' EMPLOYEES 225
It was brought out that by starting with reduced benefits one can
provide' a program costing $300 million. By reducing benefits still
further one could provide a program costing $200 million.
Mr. REEs. Blue Shield and Blue Cross estimated the cost at $304
}pillion.
Mr. EDDY. I do not think they were estimating the maximum benefits
provided by the bill.
Mr. REFS. Is it your opinion that for the maximum benefits under
this bill the cost would be about $425 million?
Mr. EDDY. Yes.
The CHAIRMAN. If the bill were amended to include only major
,medical benefits what would be the cost?
Mr. EDDY. The cost would necessarily depend on where the major
-medical started,, Mr. Murray. Would it pick up hospital bills after
70 days of hospital care or after 21 days of hospital care?
The CHAIRMAN. I am asking you as an expert. I know very little
-about it.
Mr. EDDY. A type of major medical could be provided for active
employees for $80 million.
The CHAIRMAN. Would that include hospitalization, too?
Mr. EDDY. That is based on the individual paying the first $300 of
cost.
The CHAIRMAN. Let us donate that $300. What would be the cost
of major medical and hospitalization under this bill, in your opinion?
Mr. EDDY. I think, sir, that is the type of plan we have suggested
for a total cost at the outset of $227 million.
Mr. JOHANSEN. Will the chairman yield?
The CHAIRMAN. Mr. Johansen.
Mr. JOHANSEN. I would like to get very clear the testimony of the
witness as to whether he deems it feasible or desirable or both to
-write into this bill any provision which would spell out for the first
5 years, or for an initial period, a mandate to the Civil Service Com-
mission to make no commitment for a program which failed to provide
this 20-percent margin.
Is it desirable and feasible to spell that out in the legislation?
Mr. EDDY. Yes, sir, and that very definitely would be our recom-
-mendation to you gentlemen.
The CHAIRMAN. To set up that much as a reserve in the beginning-
20 percent?
Mr. EDDY. Well, the cost of the program, both from the trend of
increased costs and from the addition of retirees, indicates that the
cost at the outset will increase, say, 10 percent a year. If you start
with a 20-percent margin, spending 80 cents of the dollar, the next
year you will spend 90 cents, the third year $1, the fourth year $1.10,
the fifth year $1.20, and you would come out even. That is very crude
.arithmetic, but I think it explains what is behind our recommendation.
Mr. CORBETT. A 20-percent reserve would amount to approximately
$60 million a year?
Mr. EDDY. The first year.
Mr. CORBETT. And in 5 years it would be $300 million?
Mr. EDDY. It would disappear. It would drop to zero at the end
of the fifth year.
Mr. WALLIIAUSER. You would be able to buy less benefits then?
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226 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. EDDY. You would contract for less than maximum benefits.
The. alternative is to spend 20 percent more year by year or 10 percent
more year by year.
Mr. WALLHAUSER. Unless you could arrange a longer term contract?
Mr. EDDY. If an insurance company were to contract for a .5-year
period and had the certainty of these figures as I am giving them to
you it would contract on essentially the basis I am suggesting. It
would have to or, it would go broke.
Mr. JOIIANSEN. I think the gentleman is to be commended for a
very sound, practical lesson in arithmetic, which this committee very
badly needs.
The CHAIRMAN. Are there any further questions? If not, your full
statement will be copied in the record.
Mr. REES. I would like to commend Mr. Eddy for his knowledge of
the subject matter as shown in the testimony this morning.
Mr. EDDY. Thank you, sir.
The CHAIRMAN. The committee will next hear from Mr. Charles
L. Massie, president, Federal Postal Hospital Association, of Kansas
City, Mo., accompanied by Mr. Doyle D. Bonewits, vice president.
STATEMENT OF CHARLES L. MASSIE, PRESIDENT, FEDERAL POSTAL
HOSPITAL ASSOCIATION, KANSAS CITY, MO.; ACCOMPANIED BY
DOYLE B. BONEWITS, VICE PRESIDENT
Mr. MASSIE. Thank you, sir. I will endeavor to be brief.
The CHAIRMAN. You may highlight your statement, and the entire
statement will be copied in full in the record.
Mr. MASSIE. Mr. Chairman, my name is Charles L. Massie. I am
president of the Federal Postal Hospital Association. Accompany-
ing me is Mr. Doyle D. Bonewits, vice president. This is a nonprofit
organization incorporated under the laws of the State of Missouri
governing benevolent corporations. We are furnishing service to all
branches of the Federal postal service at cost.
Allow me, Mr. Chairman, to express our thanks to this committee
for extending to us the opportunity of appearing at this hearing
and to voice our views concerning the proposed legislation.
Our association started in 1937 with fewer than 100 members for
the sole purpose of providing hospitalization to postal transportation
clerks and their families at cost. It has so remained all these years.
Today there are more than 14,250 members participating in hospital-
ization and 11,525 who have the surgical plan. We are national in
scope, operating in 48 States, and have paid benefits of approximately
$2 million. Over a period of 22 years we have continuously raised
old benefits and provided new ones as conditions warranted.
On January 1, 1959, because of service conditions instituted by the
Post Office Department it became necessary to protect our member-
ship and therefore we have expanded our organization to include all
Federal postal employees.
Our purpose in appearing before this committee is threefold : (1)
To state that we heartily endorse Federal health legislation; (2) to
offer proposals and suggestions of our own based on 22 years of ex-
perience in this field; and (3) to make suggestions with reference
to retired men not included in this bill.
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The benefits proposed in H.R. 82:10 usually referred to as fringe
benefits, are benefits which employers in private industry all over the
Nation have given to their employees in the last 10 years. Employees
of the Government, lacking great means, have in the past provided this
protection for themselves and their families through associations such
as ours. For years postal clerks have initiated organizations such as
credit unions, hospital associations, accident and fraternal companies
and life insurance plans known as immediate relief associations. All
of these things have been done with the idea only of furnishing as
much family protection to these Federal employees as possible at a
minimum cost. Therefore, we are very much pleased to see the interest
of the Federal Government in providing such services and benefits un-
der the Federal health plan and we are sure that after everyone has
been heard this committee will submit a recommendation satisfactory
to all Federal employees.
We are proud of the economic operation of the Federal Postal Hos-
pital Association. Our administrative costs over the past 5 years have
averaged only 10 percent,. reaching an all-time low in 1958 of 8 percent.
Federal employees, having modest incomes, are interested in a basic
plan of hospitalization furnishing the best coverage possible to obtain
where costs are not excessive and service is the prime factor. By the
Federal health plan of contribution, coverage will be much improved.
In previous testimony we have stated "it does not seem unreasonable
that a comprehensive medical, hospital and surgical plan including
major medical could be evolved embracing these objectives at a moder-
ate premium to the 2 million Federal employees, and that an all-in-
elusive standard plan covering all employees could be underwritten
by eligible associations such as ours. It is obvious that the variance
in hospital costs throughout the country strike an overall average and
of course costs must be based on that average." If major medical
is properly identified in a standard plan embracing full and compre-
hensive plans there need be no deductive features.
We are proud that virtually 100 percent of our members are postal
clerks including many retired postal employees who have been mem-
bers of our association for over 20 years, at the same rates as active
employees.
Probably ours is the only hospital association, nonprofit or com-
mercial, that employs a method of direct payment of the entire hos-
pital bill for the member to the hospital. We find this is in accord
with the recommendations as contained in U.S. Civil Service Commis-
sion report of April 8, 1959, page 3, paragraph 7. In conjunction with
this we feel it is the only method of truly reflecting all administrative
costs, since in most methods of handling claims the hospitals are re-
quired to perform various bookwork, breakdown of benefits paid for
.by insured or insuror, etc. Such service should be identified as part
of the insurors operating expenses for a true picture of administrative
costs. We have been highly commended by hospital administrators
over the Nation for this method of benefit payments.
We are interested in making some suggestions to this distinguished
committee which we think will be beneficial on some of the contro-
versial points.
1. There could be duplication of benefits to members under this bill.
There is no provision to exclude benefits involving third-party liability,
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or for State and Federal hospitalization wherein the recipient re--
ceives free benefits.
2. There should be a clarification of benefits for mental disorders and
psychiatric treatments.
3. Practically all Federal employees eligible to join the Federal
plan already belong to some kind of an organization furnishing hos-
pitalization and surgery benefits. Probably very few of them carry
any form of major medical coverage. The history of our association
discloses that over the past 5 years as a yearly average we would have
had 1 case of major medical for every 2,200 members in hospital bene
fits, and 1 case for every 725 members carrying surgical coverage. We
believe the rate structure could be provided and incorporated in a stan-
dard plan and would be at a much lower level than anticipated by the
Civil Service Commision. In any event, the whole rate structure
depends on what benefits are required of the carrier.
4. Every day 1,000 more Americans reach the age of 65, many of'
them Federal employees. The Civil Service Commission recognizes
neither legal nor moral obligation to former employees now retired.
Private interests do. New York State does. The Dominion -of
Canada recently adopted a hospitalization program and included those
already retired. We believe the interest of these retired men is of
vital concern not only to 500,000 senior citizens but to the whole Fed-
eral service. Whether this is done by amendment to H.R. 8210 or by
separate legislation it is our belief that there is as much responsibility
to the retired man as to those actively employed. We also believe the
30-percent additional cost for including retired men is grossly
exaggerated.
Our organization considers these senior citizens as having built up. -
a reserve sufficient to carry them and their families in their deelining
days. Therefore we have never discriminated against them in reduc-
tion of benefits or increase in rates. There is no justification for-it.
If New York State and the Dominion of Canada can afford to cover
present retirees certainly our own Government should take a closer
look at the humanitarian aspects of these senior citizens.
CONCLUSION
I. We. believe this is a workable bill and that it presents much needed.
legislation and reflects great effort on the part of this committee toy
protect Government workers with a suitable health, plan.
. 2. There should be formulated one standard plan for comprehensive
health benefits composed of all the factors of coverage.. Basic prin-
ciples of this health.plan should be in rendering services for the wel-
fare of Government employees, which of course means the greatest
possible benefits for the least amount of money.
3.. The. Federal Postal Hospital Association of Kansas City, Mo.,
is proud of the important role we have had in the past 22 years in the,
welfare of Federal employees, and it is our sincere belief that as a.
service organization we are fully qualified to continue in such service.
4. 'We believe that the term "National Employee Organization in
lines 3 and 4, page 5 of H.R. 8210 should be amended by the deletion
of one word. "labor."
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`5. Mr. Chairman, and members of this distinguished committee,
please accept our sincere appreciation for the privilege of appearing,
before you in support of this legislation.
Mr. Chairman, I would like to give just a brief resume of our organi-
zation in order to acquaint the committee with service organizations
that do exist with the Federal employee structure at the present time.
Our association, the Federal Postal Hospital Association, started in
1937 with fewer than 100 members for the sole purpose of providing
hospitalization to Postal transportation clerks and their families at-
cost.
It has so remained all through the years. Today there are more
than 14,250 members participating in hospitalization and 11,525 in.
the surgical plan. We are national in scope, operating in 48 States
and have paid benefits of approximately $2 million over a period oi
22 years. We have continuously raised old benefits and provided new,
ones as conditions warranted.
On January 1, 1959, because of service conditions instituted by the
Post Office Department it became necessary to protect our membership
and therefore we expanded our organization to include all Federal
postal employees.
The CHAIRMAN. In what year?
Mr. MASSIE. January 1 of this year, sir.
Mr. JOHANsEw. I did not catch the import of that. You say be-,
cause of service conditions instituted?
Mr. MASSIE. I will be happy to explain. The organization orig-
inally was founded for the railway mail service employees, which later
became the postal transportation clerks. Due to service conditions
within the Post Office Department-as an example myself, I was in.
one of the district offices of the Postal Transportation Service and
those offices all over the country were closed and the employees were
assimilated either in the other organizations or within local post offices
such as I was. Under the previous restrictions those persons could
not have continued their membership in our association, but by Chang
ing our constitution to expand it to all postal employees, we were able.
to retain and protect those persons. Does that answer it, Sir?
Mr. JOHANSEN. It does.
Mr. MASSIE. Our purpose in appearing before this committee is
threefold: to state that we heartily endorse Federal health legislation
to offer proposals and suggestions of our own based on 22 years ol
experience, and to make suggestions with reference to retired men
not included in this bill.
The benefits proposed in H.R. 3210, usually referred to as fringe
benefits, are benefits which employers in private industry -all over,
the Nation have given their employees in the past 10 years. Employees
of the Government, lacking great means, have in the past provided
this protection for themselves and their families through associ-,
ations such. as ours. For years postal clerks have initiated organ-
izations such as credit unions, hospital associations, accident and
fraternal companies, and life insurance plans known as immediate.
relief. All of these have been done with the idea only of furnishing
as much family protection to these Federal employees as possible at.
a minimum cost.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Therefore, we are very much pleased to see the interest of the Fed-
eral Government in providing such service and benefits under the
Federal health plan. We are proud of the economic operation of
the Federal Postal Hospital Asssociation.
I at this time wish Mr. Porter were here. He made reference to
part of our testimony in the previous hearing, and I would like to
expand a bit on the problem of administrative costs.
As stated in our testimony, our administrative costs over the past
5 years have averaged only 10 percent, reaching an alltime low of 8
percent.
Please bear in mind, gentlemen, our organization is comparatively
small as related to insurance companies or to Blue Cross.
Mr. REES. You are selective in your membership?
Mr. MASSIE. Yes; we are selective in our membership. In other
words, our organization was created originally in 1937 for the very
purpose that you gentlemen are contemplating today-gentlemen and
lladies; pardon me, Mrs. Granahan and Mrs. St. George. For that
reason, being restricted and being limited in our membership., we
have endeavored to provide a service organization with the best pos-
sible benefits for the lowest possible cost, being controlled by postal
clerks themselves.
It might interest you gentlemen to know that no officer in the Fed-
eral Postal Hospital Association has ever received one cent in salary.
It is merely their desire to do the responsibilities of management of
this organization as a service to their fellowmen.
The CHAIRMAN. Are you a Federal employee today?
Mr. MASSIF. I am a permanent employee in the Post Office Depart-
ment. I am president of the hospital association; I have never received
any salary for my work. Neither has Mr. Bonewits or any member
of the board. We have four paid women employees in our office at the
present time.
Federal employees, having modest incomes, are interested in a basic
plan of hospitalization furnishing the best possible coverage to obtain
where costs are not excessive and service is a prime factor. The Fed-
eral health plan of cocontribution coverage will be much improved.
In previous testimony we have stated that it does not seem unrea-
sonable that. a comprehensive medical, hospital, and surgical plan,
including major medical, could be evolved embracing these objectives
at a moderate premium to the 2 million Federal employees and that an
all-inclusive standard plan covering all employees could be underwrit-
ten by eligible associations such as ours.
Mr. JOHANSEN. May I interrupt at this point to clarify my own un-
derstanding and the record? How is your program underwritten?
Mr. MASSIE. Our organization is incorporated under the eleemosy-
nary laws of the State of Missouri, the same laws under which Blue
Cross is operating. We determine a percentage of our reserve to be
set aside. We have, fortunately, determined that on a very adequate
basis by the fact that in the 22 years of existence we have adjusted
our rates only twice.
Mr. JonANSEN. In other words, it is completely self-insurance in
the sense of being completely insured and handled by this organization.
Mr. MASSIF. That is right, sir.
Mr. JOHANSEN. Thank you.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 231
Mr. MASSIE. Having made that statement, I would like to explain
that in 1949, due to increased costs in hospitalization from 1937 to
1949, we made an adjustment in both benefits and rates and then last
year, 9 years later, we made the second adjustment.
Mr. JOIIANSEN. My point is, however, there are no outside under-
writers.
Mr. MASSIE. No, sir. We are underwritten strictly by the postal.
employees themselves. Should conditions develop that would necessi-
tate through depletion of our reserves an extra assessment could be im-
posed on our membership, but we have never as yet found that
necessary.
The CHAIRMAN. Your program only covers hospitalization; is that
right?
~1 Er. . MASSIE. We have a hospitalization plan and a surgical plan.
A little further in my testimony we will touch upon that, if it is agree-
able with you.
Mr. IIOLIriELD. Could I ask how your rates compare with Blue
Cross and Blue Shield, taking into consideration comparable benefits?
Mr. MASSIE. That is a difficult question to answer, sir, because
Blue Cross particularly is a service organization. In other words,
they endeavor to provide hospital service where it is possible.
In certain contracts with other hospital areas or Blue Cross areas
they do have a cash indemnity provision, I understand. Of course,
ours is more comparable to commercial insurance in that we provide
a cash indemnity plan. We allow so much for the various services
in the hospital and so much for the various types of operations.
Mr. HOLIFIELD. Give us, if you can, a comparison of your benefits
and the costs or charges, rather, with what you could get commercially.
Are they better, in your opinion? They must be, or you would not
keep your organization together. If so, percentagewise how much
better?
Mr. MASSIE. Of course, due to the variables in the Blue Cross plans
throughout the country and also the variance in their rates in certain
localities, I would estimate roughly that the rates we charge our mem-
bership for protection are between 20 and 30 percent lower than com-
mercial insurance or Blue Cross. That, of course, is a rough estimate.
Mr. JoI-ANSEN. That is for comparable benefits?
Mr. MASSIE. Yes, sir.
Mr. HARMON. Mr. Chairman.
The CHAIRMAN. Mr. Harmon.
Mr. HARMON. Do you get from the hospitals a 5 percent discount
for paying cash, as Blue Cross does?
Mr. MASSIE. Yes, sir; I have never heard of a hospital making a
refund. If they do, we certainly have never received it.
Mr. HARMON. Are you aware of the fact that Blue Cross gets it?
Mr. MASSIE. No, sir; I am not.
Mr. HARMON. I am.
Mr. MASSIE. I would like to expand further, Mr. Harmon, with
your permission, and say our organization, to the best of our knowl-
edge, is the only hospital plan in the United States that advises the
hospital to send the entire bill directly to our offices. We pay the
entire bill, due to the fact that we have a membership which are con-
sidered as preferred credit risks, being postal or Federal employees,
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232 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
we can take that chance. If there is a refund for services that are
not included or excessive under the hospital stay, we collect that re-
fund from the member ourselves. But the hospital has only one busi-
ness transaction, that in sending the complete bill to our office and
receiving the check for the entire amount to the hospital.
Mr. JOHANSEN. Will the gentleman yield?
Mr. HARMON. Yes.
Mr. JOHANSEN. In collecting that differential is it done on a single
payment basis or is the employee able to work it out in time?
Mr. MASSIE. In the majority of cases there is no question at all. I
remember that approximately 10 years ago we had one member in
Baltimore, Md., who had a very tremendous bill, a lot of oxygen and
the various services that were beyond the average hospital care facil-
ity. It was necessary for that member to make arrangements with
the Railway Mail Credit Union in Baltimore for the payment. To
my knowledge, that is the only one where there was a question of
financial stress involved.
Mr. FOLEY. Mr. Chairman.
The CHAIRMAN. Mr. Foley.
Mr. FOLEY. In how many States do you have members who partici-
pate in this program?
Mr. MASSIE. We have members in all 48 States, Mr. Foley.
Mr. FOLEY. Of course, the hospital bills vary State to State, as you
have already indicated; is that right?
Mr. MASSIE. Yes, sir.
Mr. FOLEY. For the same particular type of hospital service in one
State you, out of your self-insured funds, would pay a little higher
amount of money than in another State; is that correct?
Mr. MASSIE. No. We have two different plans under our organi-
zation designed for persons living in the more expensive areas such as
here in Washington or New York or Los Angeles, and the people
living in the Midwest or in smaller communities where hospital costs
are not as high as they are in the larger cities.
The same rate, whichever plan they belong to, plan A or plan B,
the same amount of money would be paid for the various services in
any of the 48 States.
Mr. FOLEY. The cost of plan A is a little higher than the cost of
plan B to the participating members; is that right?
Mr. MASSIE. The reverse. Our plan A is the less expensive.
Mr. FOLEY. Whichever is more expensive. In other words, plan
B, the more expensive plan, in that case the cost nationally is the same
in every location where plan B has participating members; is that
correct.
Mr. MASSIE. Yes.
Mr. FOLEY. And likewise the same for plan A?
Mr. MASSIE. That is right.
Mr. FOLEY. Plan B, then, because the participating member pays
more money into the fund, the bills which are higher in these areas
are covered to a, higher extent percentagewise and dollarwise ; is that
correct?
Mr. MASSIE. That is right.
Mr. FOLEY. Is your program to pay the full .hospital bill either
under plan A or plan B?
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 233
Mr. MASSIE. Eventually if the Federal health plan is enacted as
written-of course, there will have to be clarifications, as Mr. Eddy
pointed out-however, as the bill is now written the adjustment would
have to be made for assuming the entire hospital bill.
Mr. FoLEY. I was thinking only of your present operation under
your existing program. Do you today, either under plan A or plan B,
pay the full cost?
Mr. MASSIF. No, sir; we have the cash indemnity allowance for the
various services. However, our constitution is such that changes could
be made to provide for the entire coverage of hospitalization in the
basic plan and then reverting to the major medical.
Mr. FOLEY. Thank you very much.
Mr. HARMON. Getting back to this 5 percent, do you not think you
should have the benefit of that as well as Blue Cross?
Mr. MASSIF. I most certainly do.
Mr. HARMON. Would that not be a great help in your plan to have
this payment?
Mr. MASSIF. Because of the fact that we are taking the bookkeeping
out of the hospital and putting it into our office, where we feel it should
be, certainly if any organization is entitled to that 5 percent you. refer
to, we are.
Mr. HARMON. Perhaps you should look into it and see if you can
make that kind of deal.
Mr. MASSIE. We also could provide even higher benefits if we re-
ceived such allowance from the hospital for the discounting of their
bills.
The CHAIRMAN. Mr. Davis.
Mr. DAVIS. Mr. Massie, what effect do you anticipate that the pass-
ing of this legislation would have, if any, on the continued operation
of your group?
Mr. MASsiE. Mr. Davis, naturally that is of very serious concern to
us. That is why we felt it was most important that we be privileged
to appear before the committee to advise you in case you are not
aware of the fact that there are numerous service organizations such
as ours, nonprofit organizations. 1 am not speaking, of course, of
employee groups where they have a health program that is under-
written by commercial insurance, but I am speaking only of organiza-
tions such as our which maintain their own .protection. It maintains
its own reserve and provides its own benefits.
Mr. PEES. There must be quite a number.
Mr. MASSIF. Yes, sir; there are. It would be most interesting if
I could even determine the total number. Just this morning I learned
of the FBI having a similar group to ours. I know in the Kansas
City area there is a plan for the employees of the Kansas City Post
Office. There is one in St. Louis. and I understand one in Chicago.
There are pprobably many service organizations where the employees
themselves have provided something to protect themselves. Certainly,
they have successfully done so or they would not, be continuing in
existence today.
The CHAIRMAN. There is only one nationwide service plan under
this bill., and with that you would not exist much longer, would you?
Mr. MASSIF. No, sir ; on that basis we would not. However; I
would like to suggest to this committee that in their investigations
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234 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
they no doubt could determine the number of service organizations
such as ours. If those organizations could be combined into one
major service organization and set up on possibly a regional. structure
like the Post Office Department exists, it is not without possibility that
they themselves, the employee organizations themseslves, could man-
age and could operate most economically a Federal health plan.
Mr. JOHANSEN. I believe this is a fair question. I wonder if the
witness would agree that the interests and the stake which your organ-
ization and the other organizations of the type you have described
are of such a nature and such importance that this committee will
be well advised to take the time, without any unnecessary delay, to
consider that problem and attempt to deal in this legislation con-
structively with it and whether it is not advantageous in the terms of
the end result that we take that necessary time rather than that we
be crowded into a precipitate ending of these hearings.
Mr. MASSIE. Most certainly, sir, I sincerely hope that the committee
does weigh the fact of the existence and the place these organizations
have played in the many years in the things you are now contem-
plating.
Mr. JOHANSEN. In other words, while you are very much inter-
ested in and support the principle of this legislation, you nevertheless
feel you and your fellow employees in this and similar plans have a
very real stake in this legislation ; is that right?
Mr. MASSIE. Most certainly, sir.
The CHAIRMAN. I sent a letter on August 1 to the Chairman of the
Civil Service Commission which reads, in part, as follows :
Among these groups of employees of the Federal Bureau of Investigation-
talking about these companies operating like yours-
approximately 9,200 members and 28,000 dependents; National Security Agency
with 115,000 people affected ; Central Intelligence Agency with a considerable
number of employees participating in the program.
Most recently we have been informed of a similar situation in the Office of
Civil and Defense Mobilization in Battle Creek, Mich., with approximately 2,100
persons participating in the program. All these plans vary and their con-
tinuance is a major issue of the employees concerned as well as the local agencies
who are handling the insurance of these groups.
One of the main concerns of the employees is they have built up substantial
reserves in their existing payments in which they as participants have an
interest. I believe most important, before final decision is reached on this
legislation, that the committee have information as to how many similar groups
are in existence in the various Government agencies and just what will happen
to the program under the terms of S. 2162.
We will get that information from the Chairman of the Civil Service
Commission when he appears.
Mr. JOHANSEN. May I ask one further question, Mr. Chairman ?
Do you feel that competitively, in terms of costs to your covered
employees and in terms of benefits, that this program of yours might
continue and might survive by reason of those advantages if there were
some provision, of course, for Federal participation in such a program
so that you would not be losing that gain but could continue the
program with that added bonus?
Mr. MAssni. Yes; sir; I do. I see no reason why organizations such
as ours cannot continue, because economically, in spite of the fact of the
statistics that have been given relative to administrative costs, I believe
our organization's figures represent the only true figure.
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HEALTH BE
As I pointed out, the hospitals themselves at the present time are
performing administrative costs for both commercial insurance and
for other organizations.
Mr. JOHANSEN. Is it your impression that law as now written would
provide and include such arrangements whereby you could gain the
benefit of Federal participation?
Mr. MASSIE. Sir, we will make a recommendation at the end of my
statement that I feel confident will cover that justification for our being
considered as a carrier.
The CHAIRMAN. I am interested in seeing what kind of plan you
propose.
Mr. JOHANSEN. Can you not go directly to that recommendation?
Mr. MASSIF,. I will, sir.
We believe under H.R. 8210 that the term "national employee
organization" shown in lines 3 and 4 of page 5 should be amended
by the deletion of the word "labor." The reason we make that
recommendation for an amendment is that the words "national
employee organization" will cover service organizations such as ours
and such as the FBI and others.
This is meant with no reflection at all toward labor. Mr. Bonewits
and I both belong to labor organizations within the Federal employee
structure and we are proud of it. We feel the intent of this bill is
relative to a health program for Federal employees. By the deletion
of that word it specifically identifies these service organizations by
use of the words "national employee organization.'
The CHAIRMAN. Leaving out the word "labor?"
Mr. MASSIF. As not bona fide labor organizations; yes sir. If there
are questions, I would be happy to answer them.
Mr. JOHANSEN. If it were amended to read "labor or other employee
organizations," would it meet your requirements?
Mr. MASSIE. Yes, sir. I see no reason that that should not. It was
merely the shortest way to arrive at the Solution.
The CHAIRMAN. How many members do you have in your association
now?
Mr. MASSIF. In our hospital association we have 14,250. It is better
than that. Under our surgical plan we have 11,525.
The CHHAIRMAN. Are there any further questions of the witness?
If not, thank you very much, Mr. Massie.
Mr. Bonewits, do you desire to make any statement?
Mr. BONE WITH. No, sir.
Mr. MASSIE. Thank you for the privilege of appearing.
The CHAIRMAN. Mr. Bonewits is vice president of your association?
Mr. MASSIE. Yes, sir, and is a practicing attorney and retired rail-
way mail clerk.
The CHAIRMAN. We have a statement, which will be placed in
the record at this point, by Mr. Arthur Weissman, director of sta-
tistical information, Kaiser Foundation Health Plan, Inc., Oakland,
Calif.
Also, our colleague, Mrs. Granahan, desires to present a statement
from lion. Francis R. Smith, insurance commissioner, Commonwealth
of Pennsylvania.
Mrs. Granahan, the statement will be included in the record.
Mrs. GRANAIIAN. Thank you, Mr. Chairman.
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236 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
(The statements referred to follow:)
STATEMENT OF KAISER FOUNDATION HEALTH PLAN, INO.
On behalf of the Kaiser Foundation Health Plan, we wish to express our
appreciation for this opportunity to present our comments on H.R. 8210 (com-
panion bill to S. 2162).
The Kaiser Foundation Health Plan Is a California nonprofit corporation
which conducts a group practice prepayment medical care program. In June
1959, there were 350,000 Health Plan members in the San Francisco Bay area
and 264,000 members in the Los Angeles and Fontana areas in southern Cali-
fornia. In an associated program in Portland, Oreg., Vancouver, Wash., and
vicinity, there were approximately 33,000 members. Recently our health plan
began serving members on the Island of Oahu, Hawaii.
More than 10 percent of our members-some 70,000 persons-are Federal em-
ployees and their dependents. Our purpose in this statement is directly related
to the Federal employees and their families who voluntarily selected our plan-
who have chosen our approach to meeting their medical care needs.
HOW THE, HEALTH PLAN OPERATES
To arrange comprehensive medical, hospital, and related services for health
plan members, the Kaiser Foundation Health Plan contracts with groups of
physicians organized as medical partnerships which provide all professional
services to members. Hospital facilities and services are obtained by contract
with Kaiser Foundation Hospitals, a California nonprofit and charitable corpo-
ration, which provides hospital and emergency facilities for the general com-
munity, furnishes charitable care, sponsors programs in medical education and
research, and also meets the hospitalization requirements of health plan
members.
Participating in this direct service prepayment program are 12 hospitals with
a combined licensed capacity of more than 2,000 beds; some 40 outpatient medical
centers; approximately 650 physicians (in the autonomous medical partnerships
which contract with the health plan) ; and roughly 5,500 nonphysician person-
nel, including nurses, pharmacists, technicians, and other staff needed in hos-
pitals and outpatient medical centers.
From experience dating back to 1933, our organization has developed a set
of five principles governing the operation of the Kaiser Foundation Health Plan
program. These principles are: (1) Group practice, (2) prepayment, (3) em-
phasis on preventive medical care, (4) use of integrated medical facilities for
both inpatients and outpatients, and (5) voluntary enrollment in the health plan.
These principles are briefly described in exhibit A, an excerpt from a state-
ment recently presented by C. C. Cutting, M.D., executive director of the Perma-
nente Medical Group-the medical group which contracts with the health plan
in the San Francisco Bay area.
Federal employees in the Kaiser Foundation Health Plan comprise groups at
the Alameda Naval Air Station, San Francisco Naval Shipyard, Mare Island
'Shipyard, and the Hamilton, Travis, Norton, and March Air Force Bases;
post office employees, and groups in a wide variety of other Government agencies
including the Atomic Energy Commission, U.S. Public Health Service, Internal
Revenue Service, Veterans' Administration and Veterans' Administration Hos-
pitals, Federal Bureau of Investigation, and the customs service.
These Federal employees and their families have all enrolled in the health
plan voluntarily. From among many prepayment plans available to them, they
have consciously and deliberately chosen our health plan, which-
(a.) arranges, on a direct service basis, for extensive day-to-day medical
care services as well as services for catastrophic illness ;
(b) looks up services in the doctor's office as core services in prevention
and early detection of disease, and in diagnosis and treatment ;
(o) considers broad scope, out-of-hospital medical care services to be at
least equal in significance to a broad range of hospital services ; and
(d) regards comprehensive professional services, both in and out of the
hospital, and comprehensive hospital care, as basic health care benefits.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 237
Thus Federal employees in the Kaiser Foundation Health Plan have chosen,
'through the plan, to obtain medical care services to meet a broad spectrum of
family health needs ranging from health maintenance services to services for
catastrophic illness.
Our purpose in explaining the Health Plan's principles of operation and
approach to the problem of providing hospital and medical coverage on a pre-
payment basis is not to urge the superiority of this approach or to argue the
relative merits of this approach as compared with other types of plans or with
the coverage offered by commercial insurance carriers. Rather, we wish to
make it clear that a group practice prepayment plan, such as our Health Plan,
represents an approach to meeting medical care needs which is significantly
different from other types of available coverages and which is preferred by a
substantial segment of those persons to whom it is available, including a con-
siderable number of Federal employees.
FREE-CHOICE PROGRAMS ARE PRACTICAL
Numerous employers in commerce and industry, as well as local governments,
contribute part or all of premiums or subscription charges toward hospital and
medical care arrangements under which the employees have the opportunity to
choose among two or more carriers. In April of this year a Senate subcommit-
tee compiled a list of programs which offer choice of prepayment plans'
Our experience-with many programs providing for choice of plan indicates a
high degree of satisfaction with the free-choice arrangement by all parties con-
cerned--the employees and their families, the employer, the providers of services,
and the alternate plans or carriers. Mindful of this experience and of the
basic fact that Federal employees, like other employees, differ in their prefer-
ences among prepaid medical care plans, we strongly endorse the choice of plan
provisions of H.R. 8210.
In the hospital and medical-care field there is a place for several types of
plans. This is demonstrated by all instances within our experience in which
=dual or multiple-choice programs are available to employees. Some families
like our plan ; other families prefer alternate plans or coverage offered by
insurance companies. After the initial selection, an opportunity is afforded
periodically for each family to transfer from one plan to another, thus furnish-
ing all carriers with a competitive stimulus to maintain satisfaction among
their subscribers. Our experience with the periodic transfer feature again
.demonstrates that there is a place and a need for different types of plans in a
health benefit program for employees and their families.
We also note with favor that H.R. 8210 includes the language "informed
choice, indicating that, prior to their selection of plan, Federal employees will
be furnished information describing the benefits of the several plans; and that
the bill provides for an affirmative choice by each Federal employee prior to
enrollment in any of the alternate plans. -
Neither we who work in prepaid medical-care programs, nor the purchasers
of prepayment plan coverage have all the answers to the question of how best
to meet the health-care needs of workers and their families. Some of these
answers will not come from the experts ; they will grow out of day-to-day
comparisons made by employees and families who have different arrangements
for obtaining medical care, as in programs permitting choice of plans.
HEALTH PLAN COSTS
H.R. 8210 specifies the maximum contribution for the health benefits program
by an employee with no dependents ($1.75 biweekly) and by an employee with
dependents ($4.25 biweekly). Matching contributions by the Government bring
these biweekly totals to $3.50 and $8.50 respectively, which convert to a monthly
.total of $7.58 for an employee with no dependents, and $18.42 for an employee
with- dependents.
1 Pp. 207-210 of hearings before Subcommittee on Insurance of the Committee on Post
Office and Civil Service, U.S. Senate, 86th Cong., 1st sess., on S. 94 (Health Insurance
Program for Federal Employees), Apr. 15, 16, 21, 23, 28, and 80, 1950.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
In the San Francisco Bay area where our health plan enrollment includes
some 50,000 Federal employees and dependents, present subscription charges,
on a payroll deduction basis, for the coverage now carried by Federal employees
(as shown in exhibit B) would be:
Employee with no dependents
Employee with 1 dependent, Employee with 2 or more dependents________________________________________
Kaiser Foun-
dation health
plan BC
coverage
$6.55
11.95
15.55
H.R. 8210
maximum
$7. 58
18.42
The present coverage for Federal employees provides broader benefits for the
employee than for his dependents. We also offer a coverage in which benefits
for dependents equal those for employees. The subscription charges for this
plan (exhibit C) as compared with the H.R. 8210 maximum amounts, are as
follows :
Kaiser Foun-
dation health
plan B B
coverage
Employee with no dependents_________________________
Employee with 1 dependent
Employee with 2 or more dependents_____________---------------------------
$6.55
13.10
18.10
H.R. 8210
maximum
$7.58
18.42
Thus current rates for either of these health plan coverages are within the
maximum amounts provided in H.R. 8210. The specific benefits under these cov-
erages are described in exhibits B and C appended to this statement. Benefits
and subscription charges differ in the several regions in which the health plan
operates, reflecting differences in costs and other local conditions affecting direct
service medical care programs. However, the above subscription charges, appli-
cable in the San Francisco Bay area, are now somewhat higher than subscription
charges in our other three regions.
As stated in the Senate committee report on the companion bill (S. 2162)
"The bill provides a broad framework within which the Civil Service Commis-
sion can develop specific contracts for benefits * * *. The committee considers.
it unwise to tie the Civil Service Commission's hands by specifying dollar maxi-
mums or to spell out in detail the specific benefit structures."
Accordingly, we have provided information on our subscription charges for cer-
tain of our benefit structures. Although modification of these benefits or future
increases in costs of providing services would alter our subscription charges,
there is at present some leeway within which benefits could be increased without
exceeding the maximum amounts provided in the bill.
With respect to the adequacy of cost estimates for the total program contem-
plated by the bill, as presented in the Senate committee report, we feel that other
witnesses are better able to evaluate the accuracy of the assumptions and com-
putations involved in estimating costs.
In conclusion, we are gratified that H.R. 8210 provides for an informed choice
of plans; and especially that, under the proposed program, Federal employees
who so desire may join group practice prepayment plans.
EXHIBIT A
EXCERPT FROM A STATEMENT BY C. C. CUTTING, M.D., EXECUTIVE DIRECTOR OF THE
PERMANENTE MEDICAL GROUP, PRESENTED TO THE COUNCIL OF MEDICAL SERVICES.
OF THE AMERICAN MEDICAL ASSOCIATION AT A MEETING IN CHICAGO, ILL., ON
OCTOBER 17, 1958
The plan (Kaiser Foundation Health Plan) embodies five fundamental
principles.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 239
1. GROUP PRACTICE
With the greatly increased knowledge and technical developments taking place
in medicine, we find it most desirable-from the standpoint of both the patient
and the physician-to effect an integration of medical care through group prac-
tice. We further believe that physicians, working together, best know the type
of care their associates give, and are anxious, under good leadership, to provide
good care. Group practice brings into play one of the most potent controls of the
quality of medical care-namely, the judgment, by physicians, of each others'
work.
2. PREPAYMENT
It is well established that prepayment methods permit the individual family
to budget expenditures for medical care. When prepayment is merged with
group practice, it provides a relatively stable income to the providers of service.
In this way members of the plan can afford to pay for modern medical care of
high quality.
8. PREVENTIVE MEDICINE CARE
The fusing of group practice and prepayment with the prepaid funds going
directly to the group (not as a fee for service) focuses attention on the impor-
tance of. preventive medical care services. In such a plan it is both good medical
care and good economics to keep the members as healthy as possible. Preventive
medical care services, therefore, are an integral part of the basic services pro-
vided to members.
4. INTEGRATED MEDICAL SERVICES
When physicians in group practice use common facilities, both inpatient and
outpatient, direct advantages accrue to the patients and to the physicians, and
many economies in the costs of medical care are achieved.
5. VOLUNTARY ENROLLMENT
The Kaiser Foundation Health Plan adheres to the principle of voluntary en-
rollment. Each person who joins the plan does so as a result of his own individ-
ual choice. Since the bulk of the membership pays the subscription charges on a
monthly or quarterly basis, each period they exercise their freedom of choice
in determining whether to continue or discontinue their membership.
To insure this freedom of choice, when health and welfare fund groups apply
for health plan coverage, it is a firm policy of the Kaiser Foundation Health Plan
to urge the health and welfare fund to offer the employees a choice of plans--
i.e., a choice of joining the direct service group-practice prepayment plan (Kaiser
Foundation Health Plan) or joining a fee-for-service type of plan (e.g., Blue
Cross, Blue Shield, commercial insurance company plan, etc.). Dual choice
programs of this type provide the individual worker with prepaid medical care
arrangements of his choice. The health plan does not accept the enrollment of a
health and welfare fund unless such choice of plans is offered to the beneficiaries
of the fund. Thus, the population served by Permanente Medical Group is com-
posed exclusively of persons who voluntarily join and retain their membership
in the Kaiser Foundation Health Plan.
EXHIBIT B
KAISER FOUNDATION HEALTH PLAN, INC., OAKLAND, CALIF.-GROUP MEMBERSHIP.-
BC COVERAGE
The Kaiser Foundation Health Plan is a nonprofit medical service plan. Aflili-
ated with it are Kaiser Foundation hospitals and medical centers, and teams of
doctors representing the major specialties in medicine.
The benefits of the plan are described in this pamphlet. Medical care is pro-
vided not only for serious illness, but for prevention of disease as well. Members
of the plan are urged to have periodic checkups, seek medical advice, and get
prompt attention at the first sign of illness.
You are encouraged to choose a personal physician from the large staff, and a
doctor for your children from the pediatric department. The doctor who treats
you directs your medical care. He orders X-rays and laboratory tests, prescribes
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 Ap r ved For I REALTH BEOOFFIO~/0O- C ARF6 g2glUO0300030001-2
medicines and physical therapy, and arranges hospitalization when medically
required.
To see a doctor, phone or visit the doctors' offices listed below for an appoint-
ment. If you cannot wait for an appointment, explain why your need is urgent
and the doctor or his secretary will help you get prompt service.
To call a doctor to your home phone the house call department at the doctor's
offices.
In case of emergency phone or report immediately to the emergency depart-
ment at the nearest Kaiser Foundation Hospital. An ambulance will be sent if
WHO IS E AOIBLE TO BE A -MEMBER
.The subscriber to the health plan may subscribe for himself alone, or for him-
self, his spouse, and unmarried dependent children under 19 years of age. It a
spouse has reached the age of 60, his or her acceptance for membership is subject
to medical review. Children upon reaching age 19 or upon becoming married
must apply for separate membership if they wish to enjoy further benefits.
Newborn children become eligible for membership at birth, provided application
for membership is made.
CONVERSION PRIVILEGE
If membership through the group is terminated, a member may apply within
30 days for conversion membership under an individual account. Full details may
be secured at any of the health plan offices.
TERMINATION OF MEMBERSHIP
If membership is terminated because of nonpayment of membership fees, all
rights to service cease as of the date of termination.
Monthly membership fees
Subscriber alone------------------------------------------------------
$6.55
Subscriber and 1 dependent-------------------------------------------
11.95
Subscriber and 2 or more dependents-----------------------------------
15.55
Subscriber, age 65 or over, additional----------------------------------
1.80
'
Dependent, age 65 or over, additional--------------------------------
1.20
A registration fee of $2 is added to the first month's fee.
THE AREA OF SERVICE Services are provided only by the doctors and hospitals associated with the
plan. Ambulance service is provided within 30 miles of the nearest Kaiser
Foundation medical facilities. Home calls are provided within the home call
service area. A definition of the home call service area surrounding each Kaiser
Foundation medical facility will be furnished on request to the facility.
CARE OUTSIDE THE AREA OF SERVICE
If a member requires emergency care more than 30 miles from th.e nearest
Kaiser Foundation medical facility, the health plan will pay tip to $500 for the
cost of such care. This allowance is for medical expenses incurred before the
member's condition permits him to travel to the nearest Kaiser Foundation
medical facility, and for special transportation arrangements, such as ambulance
service, if such arrangements are necessary.
The allowance is made for accidental injury. In case of emergency illness,
reimbursement is made only for direct medical expenses to the member and only
when all of the following conditions are met : The member must be more than 30
miles from his home when he becomes ill ; he must be a registered hospital bed
patient ; and the hospital in which he is treated must be more than 30 miles from
the nearest Kaiser Foundation hospital or doctor's office. Reimbursement will
be made only to theextent that the services would have been covered in a Kaiser
Foundation hospital. The health plan should be notified within 48 hours of
admission to the hospital in all cases of out-of-area illness.
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 Approved F4fiR 3ggNQ2 A :lqQP JR000300 J0001-2
The following conditions are excluded from coverage under the plan : Mental
illness or disorder; attempts at suicide or other intentionally self-inflicted injur-
ies or illnesses ; tuberculosis ; alcoholism ; conditions covered by workmen's-com-
pensation; service-connected conditions ; dental care ; corrective appliances ; con-
ditions resulting from a major disaster or epidemic; contagious diseases and
diseases requiring isolation.
Treatment and rehabilitation for polio is provided only after the acute and con-
tagious state, and only at the California Rehabilitation Center in Vallejo, for a
maximum period of 1 year or a. maximum value of $2,500, whichever is reached
first.
If a member is paid for medical expenses for. an injury by the party responsible
for the injury, the member may be charged for medical care, at private rates, up
to the amount paid for such care by the responsible party.
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sonably close to the population it attempts to serve. By and large, the United
States is a Nation of small towns and this means its hospitals must be a system
of small hospitals. Out of its total of 5,212 general hospitals open in 1954 there
were over 18 percent with fewer than 25 beds. There were 3,492 hospitals, or
67 percent of the total, with less than 100-bed capacity. The effects of these
facts on the occupancy rate of hospitals are very evident. During 1954 those
hospitals with less than 25 beds averaged 51.6 percent occupancy while those
with over 300 beds averaged 78.1 percent occupancy. The factor of size meant
a difference of 51 percent in the respective abilities of the two groups of hos-
pitals to utilize their personnel and facilities. Unfortunately for the sake of
occupancy the picture as regards size is not improving. In 1946 all general hos-
pitals of the Nation averaged 106.5 beds per hospital. In 1954 the average
was slightly less, having decreased to 106.3 beds. Certain forces, such as the
flight of the population from the center of large cities to small suburban towns
and the emphasis given to constructicn of hospitals in rural areas by the Hill-
Burton grants-in-aid of the Federal Government, will probably work against
any increase in average number of beds per hospital during at least the next
decade. The implications of size on hospital costs has been obscured because of
the lack of correlation between small size and high per diem costs. In general
the correlation is the other way and the higher costs are found in the larger
hospitals. This fact must be interpreted in the context of two other facts. Small
hospitals are most often located in small towns and to this extent have the ad-
vantage of the lower wage rates paid in smaller communities.
The report of the Commission on Financing of Hospital Care offers consider-
able evidence on another fact. In examining the question of variation of costs
between individual hospitals, it demonstrated close correlation between the
size of hospital and the number of special diagnostic and therapeutic services
provided. The same correlation was demonstrated between the per diem costs
and the number of those services provided. The following statement is from
that report: "The relationship between the level of per diem expense and the
scope of hospital service was apparent when per diem expense was determined
for groups of hospitals classified according to the number of selected services
they offered. * * * In all sections of the country, expense per patient day was
directly related to the number of services. * * * In fact, the increased per diem
expense in larger hospitals appears to be almost entirely a reflection of the
more comprehensive service programs usually offered by these institutions."
Another of the major problems constantly testing the disposition of hospital
administrators is also rooted in the fact that hospital care is a personal service.
This is the problem of personnel recruitment and its effect on hospital costs.
Some idea of the underlying causes of this problem can be gained from an ex-
amination of the personnel requirements of hospitals. In 1946 all hospitals, both
general and long term, employed 829,571 full-time employees. In 1954 this
number had grown to 1,245,669, an increase of approximately 50 percent. During
the same period the total number of employed civilians for the entire Nation
increased from 55,250,000 to 61,238,000, an increase of only slightly over 10
percent. Actually, during this period hospitals had to recruit five times the
average for all other employers. It will be demonstrated later in this paper
that this rapid recruitment was accomplished in large part by rapidly increasing
the rate of pay. It is interesting to note that during 1954, 1 out of every 50
of the Nation's civilian workers was a hospital employee.
The problem of adequate personnel, and the cost of personnel for hospitals,
is compounded because of the high percentage of professional and technical per-
sonnel required. Approximately one out of every three hospital employees meets
the definition of a skilled employee. The burden of this requirement is demon-
strated by a comparison with the automobile industry. A recent news item
stated that only 200,000 out of the total of 1,251,000 members of the United Auto
Workers Union were classified as skilled. As of May 1954, hospitals were em-
ploying 231,000 graduate nurses alone.
The problem of hospital personnel supply and personnel costs are further
complicated because of professionalization and legal lieensure of most skilled
personnel in the hospital. Even though the hospital is the major user and in
some instances the only user of these skills, the hospital has less and less to say
about the qualifications and training that is required. These standards are set
by national organizations which represent each of these groups of hospital
personnel. The desire on the part of these national organizations to develop
status for their membership causes them to work toward upgrading the in-
dividual as a person as well as a worker.
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274 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
State licensing bodies have supported this movement to upgrade the quality
of training offered in hospital schools and at hospital expense, while State
legislatures, as well as private philanthropy, have shown a studied reluctance
to pick up the tabs for any part of these educational expenses.
Without entering into the debate as to the social necessity for professionaliza-
tion and legal control of a large segment of the hospital's personnel structure,
it is pertinent to point out the implications these practices have on hospital
staffing and hospital costs. Any standard that is extraneous to the job to be
done is an inhibiting influence in that it decreases the number eligible and
increases both the length and cost of preparation for entry into the job. All of
these elements must be recognized in the salary offered after entry on the job,
if the particular career is to compete successfully with alternative careers.
The inevitable tendency of professional associations and State licensure bodies
to insist on lengthening the period of preprofessional training represents a double
burden to hospital costs. It not only increases the salary requirements of the
professional when she, or he, is finally ready to enter the field but also increases
the time lag between demand and the preparation of the supply. The effect of
the time lag has been an almost unrestrained bidding by hospitals for the serv-
ices of the existing supply of trained personnel.
A rough indication of results of this bidding over the past 9 years can be
seen from the following. Between 1946 and the end of 1954 total civilian em-
ployment increased from 55,250,000 to 61,238,000. The total yearly compensa-
tion paid all civilian employees in the United States in each of those years In-
creased from $117.7 billion to $207.9 billion, an increase from $2,130 to $3,395 in
average annual compensation per employee, or 59.1 percent.
Over the same period, total employees in all U.S. hospitals increased- from
829,571 to 1,245,669 while their total compensation was increasing from $1.10
billion -to $3.35 billion, an increase from $1,338 to $2,689 in average annual com-
pensation per employee, or 101.5 percent. Hospital employees have gained
salary increases at fairly close to twice the average rate for the rest of the Na-
tion's work force during the 9-year period. To the extent that these increases
were required to bring the traditionally lower hospital salaries into competitive
alinement with salaries offered by all other employers, it can be expected that
the tide is pretty well turned. To the extent that future increases are given
to maintain stride with salary increases offered by those same employers, it
appears from the nature of hospital costs that the only result must be a con-
tinuing increase in hospital costs.
Whatever answers there are to the problem of hospital costs must be found in
the area of personnel budgets. From the evidence it looks as if gains in this
direction will be slim in even the best administered hospitals unless new pat-
terns can be developed for hospital service that permit more ambulatory care
and which entail less personal service at the beside for these patients admitted
for inpatient care. Ultimately, it might also be that the hospitals will secure a
higher degree of cooperation from the public as regards the problem of fluctuat-
ing occupancy of hospital facilities.
Like most other problems requiring public. cooperation, however, this one appar-
ently must wait until the public's ability to secure adequate hospital care is endan-
gered by the mounting costs of that care. This one last set of statistics is
given as evidence that this time has apparently not arrived and to the contrary,
that the public's ability to utilize hospital care seems to have more than kept
pace with hospital costs. In 1946 there were 10.3 persons out of each 100 of
the country's population admitted to a hospital. In 1954 this had increased to
12.6 out of each 100 of our population. Whatever they may have thought about
hospital costs, during 1954 one out of every eight persons in our population had
a reason to think about them. Computed another way, 1 out of each 120 in-
dividuals in the Nation was in a hospital bed on an average day throughout the
entire year. However you figure it, hospitals are an important and intimate
part of the average American's life. They perform an essential community
service and their boards and administrators must accept a responsibility for
producing that service in the most efficient manner possible. At the same time
the community must accept the reciprocal responsibility of understanding the
nature of hospital costs and the necessity for judicious use of the hospital's sere-
ices. Even with the best efforts on the part of all concerned hospital care is
inevitably going to become increasingly expensive.
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 Approved FHEALTIHaBENEOFOITSOF/OR FED RRDP 1-003 EMPLOYEES
(By Ray E. Brown)
This paper is concerned only indirectly with hospital operating costs. It
is rather an effort to examine the forces that set the total hospital bill of the
community. By forces, we mean causes that are beyond the control of the
hospital itself, causes that grow out of the changing environment in which the
hospital exists. These forces are cultural, economic and medical. They de-
termine the demands the community makes upon its hospitals. Most of them
are cumulative in their impact, and in the long run will more significantly
affect the community's total expenditures for hospital care than will the pre-
dicted increase in costs per patient-day of care.
One indication of their combined effect is the fact that in the 10-year period,
1948 through 1957, the number of inpatient admissions per 1,000 Blue Cross
members increased from 117 to 136, or 16.2 percent. During this period the
average length of stay for admission decreased slightly from 7.6 days to 7.5
days. But nevertheless, the average number of days of care utilized per 1,000
Blue Cross members in this country increased from 883 to 1,021. Even if
hospital operating costs had remained completely static, Blue Cross subscribers
would have had to ,pay almost 16 percent more in 1957 than 10 years earlier.
The manner in which most hospital care is now being financed makes it
important that everyone understand these forces. The spread of hospital pre-
payment coverage to more than two-thirds of the population means that the
hospital bill is becoming largely a community bill, and that it is increasingly
being underwritten by the well rather than by the sick.
It means that the public will increasingly visualize hospital costs in terms
of the monthly cost of prepayment rather than as charges for services received
Under such circumstances, what they are getting will not be related to what
they are paying.
It also means that the hospitals of the Nation are becoming increasingly de-
pendent upon the community understanding that these forces are beyond the
control of prepayment plans and hospitals and that they evolve out of the
community itself. Voluntary hospitals are community agencies and must be re-
sponsive to the forces which the community exerts upon them. Voluntary
prepayment plans are community mechanisms utilized by the community to
collect from the community and disburse to the hospitals those funds necessary
to underwrite the obligations imposed by the community on its hospitals.
Neither the voluntary hospitals nor the voluntary prepayment plans can sig-
nificantly alter these forces, generated by the community, which promise to
continue to rapidly push the community's hospital bill upward. This writer is
not at all certain that most of these forces could or should be altered, nor
that the community would want to alter them. It is urgent, however, that the
community understand the source of these forces and their effect on the com-
munity's hospital bill before irreparable harm is done to the prepayment move-
ment and to the voluntary hospital system through public misconceptions and
misdirected intervention by state regulatory bodies.
One set of forces that will importantly influence the community's hospital
bill are those involved with the rapid population growth anticipated for this
country. It is estimated by the Bureau of the Census that the total popula-
tion of the Nation will exceed 220 million by 1975. Using 1956 as a base,
this will represent an increase of 50 million, or approximately 29 percent dur-
ing the 18-year period.
As great as this expected growth is, however, it is not the size of the increase
that is most significant. If the characteristics of the population remained the
same, it could be presumed that the hospital costs per thousand of the popula-
tion, and the monthly prepayment per subscribed, would not be affected. Under
such circumstances the capital expenditures necessary to provide the additional
facilities would be the chief complicating feature of a large population increase.
Parenthetically, it must be said that those capital expenditures will represent
a considerable item. Using current hospital construction costs of at least $20,000
per bed, and ignoring the inevitable inflation that will occur in these costs, it
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276 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
will require approximately $4y2 billion to provide the 225,000 new general hos-
pital beds required just for this added population. Defined in terms of the local
community, and at the risk of chilling the enthusiasm of local chambers of com-
merce, this means that almost $100 for new hospital construction must be found
for each new entrant into the community.
It is the changing characteristics of this population growth that will impor-
tantly complicate the community's hospital bill. The slowest growing group of
population will be the age range 25-64 years-the segment which bears the
major responsibility for the maintenance of families and the payment of Blue
Cross. Compared with about 81 million in 1956, their number will rise to 96
million by 1975, or by somewhat less than 20 percent. At the same time the
dependent child population, those under age 18, will increase some 20 million or
about 35 percent. (The above estimates are taken from a report of the Bureau
of the Census.)
This one aspect of the population change means that the number of dependents
covered under prepayment family certificates will be increasing by 35 percent,
while the number of family prepayment certificates will be increasing by only 20
percent.
This increasing expense per prepayment certificate can be stated another way.
We will soon reach a point where the average family will have three children as
compared with an average of 2.4 children per family in 1958. In other words, the
monthly charge to the subscriber with family coverage will have to reflect the
fact that he has 25 percent more children covered under his prepayment certifi-
cate than he did 10 years before.
The increased size of the family means also that there will be more births per
prepayment subscriber. And the record shows an increasing percentage of these
will be born in the hospital. In 1957, 95 percent of all births in this country
occurred in hospitals as compared with 85 percent in 1947. This trend means
that almost all births will be hospital births and the community will have In-
creased its hospital expenditures for this one particular hospital service by
one-tenth since 1947.
It can be argued with some logic that the increased percentage of the popula-
tion in the younger aged group will tend to reduce the number of hospital admis-
sions because of the lower incidence of hospitalized illness in that group. This
advantage will be many times offset, however, by the changing characteristics of
the population at the other end of the age scale. The experts say there will be
22 million people at ages 65 and over by 1975, compared with less than 14.5 mil-
lion in 19,556; an increase of 7.5 million or 52 percent. This compares with the
previously mentioned increase in the total population of 29 percent for the same
period. At present 1 out of every 12 persons is over age 65. This ratio will
increase to 1 out of every 10 by 1975.
Without going into all the complex problems that the aging present to the
community, one can determine pretty quickly the implications of the rapid
growth of this group on the community's hospital bill. There have been several
studies to examine the hospital usage of persons over age 65. One of the most
recent and perhaps best documented was that reported by the national Blue Cross
Commission in 1957.
This report states "the excess cost for ages 65 and over measured in days of
hospitalization would be most probably somewhere between 2.5 and 3 days per
year per person. This is equivalent to saying that the cost of hospitalization of
persons 65 and over is from three to four times that for those under age 65."
Another study was reported recently by the Health Council-of North Carolina.
It covered all hospitals in that State. This study found that "hospital usage
by persons over 65 year of age is over three times greater than for persons under
65 because of both the higher admission rate and the longer length of stay."
Approximatelythe same findings were made on a national basis in a survey
conducted in 1953 by the American Medical Association. This was a special
1-day survey of the age and sex of all patients in the hospitals of the Nation
on that day. The survey disclosed that on the survey day persons over age 65
made up more than 20 percent of all hospitalized patients. In 1953, persons over
age 65 made up less than 8 percent of the total population.
If one accepts the findings of these two studies, which are in general agree-
ment with other studies of this problem, it is apparent that those over age 65 on
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
the average require more than three times the hospital care of the population
under age 65.. Relating this fact of dramatically higher usage to the increasing
ratio of the over 65 age group to the general population, we have no alternative
but to expect an increasing cost for prepayment over the years ahead from this
one factor alone.
Increasing life expectancy will also increase hospital usage for those in the
age bracket immediately below age 65. A study reported by the Metropolitan
Life Insurance Co. in 1956, covering insured male personnel of that company,
shows the close correlation between increased hospital utilization and age once
the individual reaches middle age.
The study showed that the age group 35 to 44 had an admission rate of 7.3 per
100 individuals and a length of stay of 8.8 days. The age group 55 to 64 had
an admission rate of 13.8 per 100 individuals and a length of stay of 14 days.
This means that, in terms of hospital days used, the age group 55 to 64 used 193
days per 100 individuals as compared with a usage of 64 days by the 35 to 44
age group-or a ratio of 3 to 1.
FAR-REACHING IMPLIOATIONS
This finding has far-reaching implications for hospital usage. It means that
the rate of hospital usage for the upper middle aged apparently is not very much
less than that of the aged. This fact has not been given sufficient recognition
in the planning we have done up until now to meet the health problems result-
ing from increased life expectancy. Our attention and statistics have been
riveted on the mounting number of those over age 65 rather than at the major
breaking point, medically speaking, of those reaching age 55. More importantly,
it has seemingly been ignored in the free-swinging charges of overuse of hos-
pitalization leveled at members of prepayment plans. There might be some
connection between the increased utilization year by year and the increased
number of individuals in the medically critical age group of those over 55.
It is interesting to reflect on the fact that average life expectancy in the
United States was about 55 years when the first prepayment plan was founded
in 1929. Ever since that date a larger and larger number of individuals have
occupied the age group 55 to 65 and consequently a larger and larger utilization
has been made of hospitals by the same individuals. In those intervening years
average life expectancy has increased steadily year by year and is now at the
Biblical promise of threescore and 10.
The population has been changing in many other ways than in age. These
changes have affected, and will further affect, the utilization of hospitals, and
consequently the amount of the community's expenditures for hospital care.
The movement of the population from the farm to the cities has been a natural
result of the mechanism of farmwork and the improvement of farm technology.
In 1940, approximately 20 percent of the total labor force of the Nation was
employed on farms. Currently, only about 10 percent of the. total labor force is
thus employed.
Population experts predict that by 1975 the proportion will have been reduced
to as low as 6 percent of the total labor, force. The labor released from the farm,
and their families, have little alternative other than moving to the urban centers
where jobs are to be found. The fact that they do move is shown in the follow-
ing statement by the U.S. Bureau of the Census; "Of the 14.7 million increase
in the civilian population between 1950 and 1956, 85 percent was accounted for
by the increase in the population living in the metropolitan areas." That this
further urbanization will be an influence for further utilization of hospital care
is evidenced by the significantly higher rate of usage of hospital care by urban
dwellers over the farm population.
Some idea of the comparative usage of hospital care can be developed by taking
the 10 States with the highest percentage of urban population in 1956, and com-
paring the average number of days of general hospital care used per 100 persons
in that year with the same figure for the 10 States with the lowest percentage
of urban population in that year. It will be found that the more urban States
used 31 percent more general hospital care. The comparable usage was 121.3
days and 93.3 days.
How much the increasing urbanization and industrialization of the population
is influencing the growing accident rate of the country is not computable from
available data. How much the accident rate is affecting hospital usage, how-
ever, was demonstrated in a survey by Frank G. Dickinson, Ph.D., of the Ameri-
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278 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
can Medical Association. For November 1955, Mr. Dickinson secured from the
hospitals of the United States information on all accident patients discharged
from the hospitals during that month.
This survey disclosed that accident cases represented 6.9 percent of the total
patients discharged and 8.1 percent of the total inpatient days of care for the
survey month. It showed that in addition to the 1,370,000 days of care provided
during November to the 127,800 inpatients admitted because of accidents, the
emergency rooms of those hospitals also examined and treated 390,000 accident
cases. These are significant percentages of the general hospital's total load and
it would be difficult to blame their admission on the doctor or the hospital.
Who does the working is also changing rapidly. A survey in 1956 by the
Bureau of the Census showed that the number of working wives had increased by
5 million, or about two-thirds in the last 10 years. All women made up 31.2
percent of the Nation's total civilian labor force, and married women, living with
their husbands, totaled 131/3 million, or more than 60 percent of this group.
Two million of these working wives also had small children at home. The impact
of the working wife on the utilization of hospital care can be easily imagined.
It means most often that there is now no one at home to take care of the sick
husband or child in over 25 percent of the 50 million families in this country.
The fact that the working wife chooses to send the sick individual to. the
hospital isn't altogether concerned with her possible loss of wages when absent.
She also realizes the hesitation of employers to employ individuals who have
family responsibilities that cause absenteeism. The increasing number of posi-
tions open to women in industry has a further effect on the availability of help
to care for the sick at home. Female servants are disappearing rapidly as
higher salaries paid by industry beckon.
Even wealthy families find it impossible to match these salaries. The per-
centage of families with full-time help in the home, has decreased an estimated
60 to 80 percent since the start of World War II.
THE VANISHING EXTRA BEDROOM
The high price of household help, plus the high cost of construction, has
brought about another cultural change that works against the individual being
sick at home. We are now in the era of the one-bedroom home and the utility
apartment. An increasingly large segment of our population has no extra bed-
room at home in which to be sick. Before we talk too much of overuse of our
hospital facilities, we should seriously examine the economies involved in this
one factor. The purpose of the hospital is to centralize those facilities. under
one roof that the individual cannot afford to provide for himself, or that can be
more economically provided for the individual if he shares their use with other
members of the community when they become ill.
From a dollars and cents standpoint it would seem that the community is
much better off if one hospital room is constructed for the use of the 30-odd
different individuals who can use the same hospital bed each year and who
represent only one out of eight of the population annually. A little bit of arith-
metic shows the tremendous savings to the community of pooling the sickrooms
in the hospital rather than constructing dwellings that provide that sickroom.
The level of education of the individual apparently has a good bit to do with
the readiness with which people enter the hospital. The extent to which this
is true is difficult to measure from available published data. In an effort to get
an idea as to the effects of educational levels on hospital utilization, the author
secured from the Blue Cross plan of one of the Nation's largest cities the payout
ratios over a period of 4 years on two sets of the population having identical
Blue Cross contracts. One set was made up of the personnel of the several
universities and secondary school system of that city, and the other was made
up of personnnel employed in the electronics industry. The sets had about an
equal number of individuals covered and the distribution as to sex is estimated
as being approximately the same. Average annual income per individual is
estimated to be fairly similar with the school group being the higher.
The only major difference between the two sets is believed to be the difference
in educational level. One set can be described as composed primarily of college
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graduates and the other as composed of individuals primarily not college gradu-
ates. The payout ratios for the 4-year period are dramatically higher for the
primarily college graduates group.
Most any allowance can be made for other factors, and still usage by the
group with higher education will be significantly higher. The payout ratio was
98.8 percent for the group with higher education as compared with 68.8 percent
for the electronics industry group. This variance must be attributed to dif-
ferences in educational levels between the groups.
Whatever significance educational levels have to hospital usage will be in-
creasingly felt in the next several years. We seem to like to criticize our
educational institutions in this country but the facts show that more and more
of us are using them for longer and longer periods of study. The average
schooling of all adults in the Nation has risen from an average of 9 years in
1950 to an average of 10'1/2 years in 1.957. During that time the number of
high school graduates in the population has increased by 31 percent and the
number of college graduates in our population has increased by a resounding
32 percent. In 1957 there were 7.6 million people with at least a college edu-
cation. as compared with only 5.7 million people in 1950. In 1957 some 2,269,000
of the population had done 1 or more years of graduate work. Some idea of the
pressures on the population to improve its level of education is given in an
article in the May 1958 issue of Fortune. This article states, "Since 1947 the
number of professional and technical personnel in industry has increased an ad-
ditional 43 percent, or two and a half times as fast as the labor force as a whole."
To meet the demands of industry and society for a better educated level of per-
sonnel, the colleges and universities of the Nation are gearing up to handle more
than double the present number of students by 1970. Prepayment plans may as
well begin gearing their budgets to the increase in hospital utilization that will
follow.
NEW KIND Or SOPHISTICATION
Another sort of education is having perhaps a stronger influence on the pub-
lic's use of its hospitals. This is perhaps better described as medical and
hospital sophistication. Through the press, radio, and television, the public
learns quickly of each of the medical discoveries that have been pouring out in
an amazing stream for the past two decades. They also learn to know that
their hospital is a necessary element in the doctor's use of his new tools and
knowledge. The more they learn of medical progress, the more likely they are
to go to the hospital. After they go to the hospital for the first time, they are
more likely to go again. There is evidence to support this tendency toward
the increased use that comes with familiarity. Through the cooperation of
the division of hospitals of the Illinois State Health Department, the author did
a study of nine hospitals constructed in Illinois, with Hill-Burton support, in
counties that had previously had no hospitals. These hospitals had been open
for an average period of 5 years at the end of 1957. The percentage of occu-
pancy experienced by each hospital during its first year of operation was com-
pared with the percentage of occupancy during 1957. After correction for pop-
ulation changes, the percentage of occupancy of the nine hospitals showed a
growth from an average of 39.9 for the group during the first year of operation
to an average of 63 percent for the group during 1957. Another study cover-
ing the experience of the Saskatchewan Hospital service plan, illustrates the
effect of the factor of repetitive admissions upon hospital utilization. The
study covered 27,764 male patients who were admitted to Saskatchewan hos-
pitals during 1954, and reviewed their hospital experiences. It was found
that 11,009 of the patients had not had a previous hospital admission. The
remaining group, those who had been to a hospital before, of 16,737 patients was
found to have had 61,187 admissions during the 5-year period-an average of
almost 4 admissions each during the period.
Full and adequate hospital care is becoming an accepted component in the
average American's standard of living. It is an economic axiom that as na-
tional income rises increased demands are made for personal service. This
simply reflects the fact that people have a great, proportion of their income
left for discretionary spending after the purchase of food, clothes, and shelter.
All of us are aware of the dramatic increases in national personal income dur-
ing the last 20 years. Consumer income, after taxes, appears to have hit a new
peak of almost $300 billion.
The dramatic change in income has not been so much in the total, however, as
in the manner in which this total has been distributed. This country is ap-
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G2S HEALTH BENEFITS FOR FEDERAL EMPLOYEES
parently undergoing the greatest economic and social revolution of all time.
Figures released recently by the U.S. Census Bureau show that 48 percent, or
almost half, of the country's families had total incomes last year of between
$5,000 and $15,000. Fifteen years ago only 5 percent of a smaller number of
families had an income of more than $5,000. The median income per family
(half the families earned more ; half less) in 1957 was $4,971 as compared. to
a median of $3,890 in 1952, just 5 years earlier.
In the meantime, the portion going to those at the top of the income ladder
slipped again. Only 1.9 percent of the Nation's families had an income of more
than $15,000 in 1957. The correlation of income level of the general population
with hospital usage can be demonstrated in a general way.
A comparison of average days of general hospital care for the 10 States with
the highest per capita income in 1956 and the 10 States with the lowest per
capita income in 1956 shows that the first group of States used an average of
123 days of care per 100 members of the population as compared with only 89
days for the second group.
This represents a difference of over 38 percent in hospital usage by the pop-
ulation in those States with the highest per capita income. It is the author's
opinion that this comparison is not so much a measure of the difference in
ability to pay for hospital care as it is the increased demand for hospital care
that goes along with higher income and a consequent improved standard of
living.-
The rising standard of living of the American public has not only incorporated
adequate hospital care as a usual and expected part of living, but it has also
caused a demand for a nicer and more attractive sort of hospital service.
Hospitals have been asked by their patients to match the niceties of the motels
the motorist finds along the highways. This calls for air conditioning, piped-
in radio, perhaps television, and certainly drapes at the window. It also calls
for a telephone at the bedside and some choice as to the entree served at meal-
time.
Hospitals have been forced to add these and other niceties as they became
commonplace in motels, shops, restaurants, and other establishments serving
the general public. Their effect on the patient's recovery is debatable and cer-
tainly not highly significant. Their effect on the hospital's unit cost, however,
is significant.
Their provision has resulted from the demand of the community that hos-
pital service be at least as attractive and convenient as the standard of liv-
ing to which the community has otherwise become accustomed.
The community has added perceptibly to the operating costs of the hospital
from another direction. During the early years of the hospital's development
in this country, its service was largely confined to the poor who lacked the
means to provide in their homes the minimum needs of the sick in the way
of food, linens, and a sanitary environment. Because hospitals were serving
the poor, at no charge or at most a nominal charge, the hospitals were granted
immunity from public liability and malpractice claims. The idea was that
the hospital was a charity and any recovery against the hospital was actually
a recovery against a charity.
The attitude of the community toward hospital immunity started under-
going a change when the advances of medicine made it necessary that every-
one use the hospital. The doctrine of immunity became a barrier against the
claims of the citizens who were paying as well as the claims of those who
were not. In recent years this change in attitude on the part of the com-
munity has caused a rapid erosion of the immunity doctrine.
This erosion is aptly described by the following comment from a recent opinion
handed down by the Supreme Court of Ohio when it reversed that State's former
rule of immunity : "The immunity of charities is clearly in full retreat in this
country. And it may be predicted with some confidence that the end of an-
other decade will find a majority of the American jurisdictions holding that
it does not exist."
A few months later, New York's highest court decided, "Hospitals should
shoulder the responsibilities borne by everyone else--liability is the rule, im-
munity the exception." .
The New York court is probably correct, and hospitals should shoulder the
same responsibilities borne by everyone else. What everyone else must real.
ize, however, is that they are paying the cost of this new burden placed upon
the hospital. It is not a small burden. Because of the nature of hospital
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,service, the hospital's exposure to liability claims is much greater than that
of other types of enterprise. Also, perhaps because of the mystery surround-
ing medical and hospital activities, juries have shown a strong sympathy for
those who bring reasonably plausible claims against the hospital.
This set of circumstances forces liability underwriters to charge almost
prohibitive rates for hospital liability coverage. Many liability underwriters
will not even accept hospital business. The added cost to hospitals represented
in liability insurance, or court awards, in these States where immunity has
been removed is sizable. Inevitably, this added cost becomes a part of the
prepayment subscriber's monthly premium.
Community attitudes will affect prepayment rates in another connection.
Traditionally, the community has forced the hospital to pass a part-and in
many communities all-of the cost of the medically indigent on to the hospital's
pay patients. For some reason it has been left up to the hospital to recover
the cost of care of those who could not pay by "taxing" the sick through their
hospital bills rather than by a tax on the whole community. Prepayment plans
have not as yet permitted hospitals to include this cost as part of the reimburse-
ment the prepayment plans make to the hospital for service to members. Further
spread of prepayment coverage over a large segment of the population will
make this burden so intolerable to the few remaining pay patients that hospitals
will be forced to compel the prepayment plans to cover the cost of service ren-
dered to the medically indigent.
Much has been said about the effect of medical advances on the daily operat-
ingcosts of :hospitals. Indeed, much can be said in that regard, and the full
story of the effects of those medical advances would still be only half-told.. The
mushrooming discoveries of medicine are the reason the modern hospital has
developed. The effects of these discoveries on the operating costs of the hospital,
however, tell only half the story so far as their influence on the community's
total hospital expenditures are concerned.
The effect on the utilization of hospitals is increasingly as important. In the
first place these medical advances now permit doctors to offer treatment to
patients whose condition was classified as hopeless and incurable a few years
ago. These patients represented no expense to the prepayment plans because
there was no treatment for them. If one reviews the average hospital's census
today it is likely that a goodly percent of the patients will be undergoing therapy
`that Was unknown just a.few. years ago. Much of this new therapy is difficult
and of long duration. The effort on behalf of these patients consumes an in-
creased number of more costly hospital days that represent a net addition to the
pay-out total of the community's prepayment plan.
Hospitals and prepayment plans think it very doubtful that the community
would want this work stopped. They hope that the community is equally willing
to understand the financial consequences.
The rapid advances of medicine have been necessarily accompanied by a rapid
increase in specialization by the doctors. They have been forced to restrict
their study and work to smaller areas of medical science in order to keep
abreast of the rapid developments in that science. Specialists are in general
the largest users of hospital facilities for the same reason they are specialists.
The'rate of increase in medical specialists can therefore serve as a sort of index
to the rate of increase in the utilization of hospital facilities.
Training for a medical specialty is secured through hospital residences ap-
proved by the American Medical Association. As late as 1951 there were a
total of 15,851 residents in training. In 1956 their number had increased to
23,012. The number of different medical specialties recognized by the AMA in
1951 was 27. In 1956 these specialized branches of medicine had increased to
30. Some idea of the magnitude of this need for specialized knowledge by doc-
tors, and the extent to which they are seeking it, can be gained from the fact
that the number of doctors in residencies in 1956 equaled more than three times
the number of medical school graduates for that year.
Medical advances will increase the burden of prepayment plans in another
and somewhat paradoxical way. Prepayment plans are chiefly concerned with
general hospitals. Two major diseases, tuberculosis and mental disease, have
been an accepted responsibility of government and special hospitals for these
diseases have traditionally been operated at government expense and without
charge to the patient. Important. medical advances in both those diseases, how-
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ever, are causing a shift of many tuberculous and mentally ill patients into-
community general hospitals. This consequently shifts the expense of their
care to the prepayment plan.
Developments in chemotherapy for the treatment of tuberculosis have reduced
the death rate in that disease no less than 70 percent between 1949 and 1956.
The decrease was from 25.5 to 7.6 per 100,000 population. This has meant the
closing of many governmentally operated tuberculosis hospitals because of
greatly reduced censuses.
In each community, however, there remains, and will remain for many years,
a number of tuberculous patients. Such cases will require intensive chemo-
therapy treatment and followup care in their private physicians' offices. The
doctor and each patient's family will quite properly insist that the local com-
munity hospital provide hospital care for these patients and that their repay-
ment plan finance such care. The result will be an increase in the number of
days of care utilized in the general hospital and a. consequent increase in the
cost to the prepayment plans.
Already an increasing number of general hospitals and prepayment plans are
taking over such patients in their communities. A similar development is
occurring in mental disease. The discovery of the tranquilizing drugs has not
provided a cure for mental disease, but it has provided a means for safely
hospitalizing most of those patients in the open floors of the general hospital.
R. A. Chittick, M.D., superintendent of the Vermont State Mental Hospital,
stated recently that due to the use of tranquilizing drugs, "physical restraint
and seclusion have been practically eliminated" in the treatment of mental
patients. Families of those patients will rightfully insist that they now be
treated, as the other sick of the community, by private physicians in local
community hospitals. They will likewise insist that the cost of such hospital-
ization be paid by prepayment plans. To the extent this happens the taxpayer's
burden will be decreased, but the prepayment subscriber will discover monthly
prepayment rates have taken up the slack in his taxes.
EFFECT OF PREPAYMENT
One of the most important forces affecting the use of hospital care is the
prepayment movement itself. The spectacular growth of this movement is well
known. Over two-thirds of our population now have some form of hospital
coverage. The effects of prepayment coverage on hosiptal utilization are, in my
opinion, clear.
In the report of a nationwide survey made in 1953, the Health Information
Foundation states "the admission rate to hospitals for all persons was 12 per
100 of the population. For persons with (hospital) insurance the rate was 14;
for those without insurance the rate was 9. The number of hospital days per
100 persons for all persons per year was 90. For those with insurance there
was 100 days per 100 persons, and for those without insurance, 70 days per 100
persons."
Somewhat similar findings can be demonstrated by comparing the 10 States
with the highest percentage of population enrolled in Blue Cross in 1956 with
the 10 States with the lowest percentage enrolled in that year. The 10 highest
enrollment States in 1956 used an average of 128.2 days of general hospital care
per 100 of population as compared with 101.1 days for the lowest enrollment
States.
Because those with prepayment coverage utilize more hospital service than
those without such coverage there has been a tendency to criticize the prepay-
ment movement. The terms "abuse" and "overuse" have been used and some-
how the hospitals and the doctors have been associated in a conspiracy to foster
this supposed misuse of prepayment.
The question as to whether certain individuals may have gone to the hospital
too often and stayed too long has no easy answer. There are no concrete stand-
ards by which to determine appropriateness of hospital usage. The question
involves a complex of medical, economic, and cultural factors as related to the
well-being and convenience of the individual patient. The essential question
in this connection is not concerned with whether those with prepayment cover-
age used more hospital care. If prepayment is serving any social purpose at
all it would be expected that its members would have had better financial access
to hospital care.
The more practical question is : Do patients utilize hospitals' and doctors'
services because they have prepayment, or, on the contrary, do patients have
prepayment because they want to use hospitals' and doctors' services?
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES `283
There is some evidence that the latter is the case and that prepayment cover-
:age is a characteristic of those individuals who have built adequate medical
and hospital care into their standard of living. In the study by the Health
Information Foundation referred to previously it was found that "on the basis
,of the median, families with insurance incur charges exceeding twice that of
uninsured families. If the amount paid by insurance is deleted, leaving out-of-
,pocket expenses of $117, this is still twice the (total) charges incurred by un-
insured families."
The uninsured themselves present strong evidence that demand for hospital
,care is increasingly a part of the way of life in the United States and coincidental
to prepayment. This past year the uninsured segment of the population had
,.an admission rate to the hospital more than twice that of all the population 25
years ago.
Another way to demonstrate that the public is not after a free ride at the
,expense of prepayment plans is to examine public usage of medical items which
are not covered by prepayment. One such item is prescription sales in drug-
stores. Such prescriptions give a good index since they can be obtained only
from a doctor, are almost never a benefit of prepayment, and occur outside the
hospital. The American Druggist magazine reports that in 1957 prescription
sales by drugstores totaled $1.7 billion, nearly four times the -total for 1947.
Such a fantastic increase in the out-of-pocket expenditures for one aspect of
medical care should offer some proof that the American people are primarily
-concerned with health care for its own sake and not as a means of beating the
prepayment game.
Prepayment is only one of several forces motivating, and making possible, the
public's increased utilization of hospital facilities. As mentioned earlier, for
example, the average number of days of care used per 100 population was 128.2
in those 10 States with highest Blue Cross enrollment, 121.3 in those 10 States
with most urban population, and 122.9 in those 10 States with highest per capita
income.
Four States fell into all three categories mentioned above. The average num-
ber of days of care per 100 population used in these four States was 132.2. The
three forces together exert a combined influence of dramatic proportions.
TIIE PREPAYMENT ORBIT
The percentage of the population covered by prepayment continues to increase
and apparently will continue to do so. Currently, the number with prepayment
coverage is increasing about three times as rapidly as the population growth.
The increasing urbanization and industrialization of the population will bring
a larger percentage of the Nation's population into the natural orbit of pre-
payment.
The effects of these changes can be seen in a statement in the report of the
Health Information Foundation referred to earlier : "In urban areas 70 percent
of the families have some sort of insurance, and on farms, 45 percent. Seventy-
seven percent of the families with health insurance obtained it through their
place of work, or through another employer." Prepayment plans are employee-
group oriented, but are working toward developing means and experience in
providing coverage for the self-employed and other nongroup individuals.
The influence will be further increased in another way. The quality and
scope of benefits continues to grow. Today's prepayment contract is no more
comparable to that of 10 years ago than today's automobile is comparable to
one of that vintage. Neither is its cost and no one ought to expect it to be.
The number of days of coverage per year has had a rather dramatic increase
in those years. Many Blue Cross plans have increased the days of coverage
provided annually from 30 to 120 in this period. The restrictions as to diseases
covered, as well as the items of service covered, has decreased each year.
There is still much room for improvement of scope of coverage, however.
This is especially true of commercial insurance coverage which is often tailored
to meet competition rather than health needs. Currently, it is estimated that
those with prepayment coverage, on the average nationally, have less than 70
percent of their basic hospital bills covered.
There is a strong feeling on the part of many persons and organizations that
prepayment should become fully comprehensive and provide hospital services to
ambulatory patients. Some repsonsible individuals believe that providing pre-
payment plans for hospital service on an ambulatory basis would remove any
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financial incentive to enter the hospital as an inpatient in order to have pre-
payment cover the services.
Support for such thinking was provided recently in a study made under the
direction of Paul M. Densen of the Health Insurance Plan of Greater New York
and published by the American Hospital Association. This study covered the
usage of hospital days of care by two large groups in New York City that were
comparable in most all respects. One group, however, had Health Insurance
Plan coverage providing full hospital and doctor service on an ambulatory basis.
The other group had Blue Shield for inpatient doctor service only. Both groups
had the same Blue Cross coverage. During 1955 the group with full hospital
coverage on an ambulatory basis utilized 17 percent fewer hospital days than
did the group without such coverage. This study does not cover dollar costs
and comparisons of total expenditures under the two schemes are not given.
The findings are such, however, as to argue for further study of the extension
of prepayment benefits to include hospital services for ambulatory patients.
The cost of the prepayment mechanism itself does, of course, add to the total
of the community's expenditures for hospital care. The overhead expenses of
prepayment plans run from a minimum of slightly over 6 percent of the subscrib-
ers' payments for the Blue Cross plans to as much as 30 percent for a good. many
of the commercial insurance plans. This is not to say that the opportunity to
budget for the costs of hospital care is not worth the overhead. Prepayment
plans have more than demonstrated their social worth through placing ade-
quate hospital care within the economic reach of the majority of our population.
It is to say, however, that care must be taken by the community in the sort of
prepayment mechanism it. desires and the sorts of things it asks its prepayment
mechanism to do.
This study has attempted to point out some of the forces that are affecting
the total expenditures of the community for hospital care. These forces are
generated within the community and are not within the control of hospitals
nor prepayment plans. The precise influence of each of the forces cannot be
determined. Doubtlessly these forces are interdependent and interacting.
The measurements in this paper probably are also reflections of still other
factors in addition to the particular ones examined. This is not consequential
so long as the existence of such forces is recognized and their influence is ap-
preciated. The important issue is that recognition be given to the fact that hos-
pitals and prepayment plans must be responsive to the changing characteristics
of the community and to those demands which the community itself makes.
Increasing hospital costs and hospital utilization can be rationally explained.
There are quite likely some inefficiencies in hospital operations and some ineffi-
cient utilization of hospital services. It would be quite surprising if an industry
spending over $36 annually for every member of the population and providing
a half billion days of care per year did not have some of both occur. Hospital
and prepayment plans must of course continue their efforts to minimize any
inefficiencies that do exist.
Inefficiency is not, however, an Important factor in the increasing total of the
community's expenditures for hospital care. Increasing quality and increasing
demand are the two really important influences.
The basic question confronting the American people is what sort and amount
of hospital care they want. There are no objective standards as to what they
should have. How much hospital care is largely a question of how much hospital
care the public wants and is willing to pay for.
The amount of care the public is using does not presently represent any sizable
allocation of annual income. During 1956 the total expenditures of all general
hospitals of the Nation represented only 1.8 percent of the national disposable
personal income, after taxes. The manner in which the Nation's income is being
increasingly spread across the population, and the increasing use of the prepay-
ment mechanism for averaging the cost of hospital care among the total popu-
lation, means that there are increasingly fewer individuals for whom hospital
care represents in any way a financial problem.
The important thing is that the American people themselves understand the
issues and make the decision for themselves. The quality and quantity of hos-
pital care should not be determined by political debate nor through arbitrary
rate setting by State regulatory agencies. Such intervention can only lead to
deterioration of quality since the public is pretty well demonstrating that it will
not decrease the quantity.
The CFIAIRMAN. As Z understand it, the American Hospital Asso-
cii tion o vns Blue Shield ? is that correct?
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 285
Dr. BuERKI. No.
The CHAIRMAN. Blue Cross then?
Dr. BUERKI. They do not own Blue Cross. The group you would
be dealing with in buying this insurance is National Blue Cross. They
have set up a special organization that the hospitals accept-
The CHAIRMAN. I am talking of the American Hospital Association
and I thought they controlled the operations. .
Dr. BUERR:I. We control standards and in Michigan the costs of
operation of Blue Cross are less than 4 percent of the dollar taken in.
The CHAIRMAN. Did your association set up these various Blue
Cross plans over the country?
Dr. BuERKI. Our association did not set them up. They spon-
sored them.
The CHAIRMAN. Who did?
Dr. BUERKI. The hospitals did in the various communities.
The CHAIRMAN. I thought that the American Hospital Association
had charge of the sponsorship of the entire program. Is that not
correct?
Dr. BuEInci. Sponsorship, yes, but not direction and control of set-
ting them up, sir. If they had done so, there probably would not be
as many variations in the plans as you mentioned earlier, where there
are some 87 plans and with varying benefits.
Mr. WILT,IAMSON. When the idea of prepayment started down in
Texas in the first Blue Cross plan, the association studied that, and
various committees did over a period of time and felt this was some-
thing, looking into the future, that was an essential element for the
purpose, and therefore they stimulated and urged hospitals nation-
wide to get busy and study it in every community and State and de-
velop these plans. It is that kind of sponsorship that the association
undertook.
Mr. GROSS. Are there any other national hospital associations in
addition to yours?
Dr. BuERIiI. There is a Catholic Hospital Association and a Prot-
estant Hospital Association, but their hospitals as individuals, almost
without exception, belong to the American Hospital Association.
This is the association.
Mr. GROSS. You were not fooling at all when you said that hospital
costs are likely to go up 5 percent.
Dr. BuuRlcl. No.
Mr. GROSS. Because you say in your statement that they went up 9
percent in 1957 and 1958.
Dr. BUERKI. But over the years it has been an average of about 5
percent.
Mr. GROSS. Up to this point.
Dr. BUERKI. Yes.
Mr. GROSS. You have not said anything about inflation this morn-
ing. I will not go into that.
Dr. BUERKI. It scares us too.
Mrs. ST. GEORGE. Doctor, in looking over the report from the other
body on S. 2162, I notice in one of the minority reports they say some-
thing that I would like your opinion on.. They say :
To stave off frequent increases in contribution rates S. 2162 should explicitly
provide for setting aside an adequate reserve. The reserve of 3 percent of 1
year's contribution, plus income derived from any dividend, premium. rate credit,
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286 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
or other refunds which S. 2162 relies on to provide necessary reserve is totally
inadequate for the purpose.
Dr. BUERKI. I do not see how I can comment on that because that
is primarily in the field of actuarial ability and experience. In that
I am very naive. I fight with the actuaries at times, but I am naive.
Mr. CUNNINGHAM. Do you set up a reserve in your own hospital?
Dr. BUERKI. Yes.
Mr. CINNINGIIAM. How much does that run as a percentage?
Dr. BUERKI. Two and a half percent of the cost of the building. I
am setting up a reserve for replacement of buildings, sir, and a reserve
for the replacement of equipment. It will average out about 3 percent
for the total equipment on which the average life will run from 5 to 15
years and the building life from 40 to 60 years.
Mr. CUNNINGHAM. Do you set up any reserve for future con-
tingencies?
Dr. BUERKT. Only for bad debts, and during the last year that has
had to be increased because people have not had quite the money to
pay.
Mr. GROSS. I thought you said this is a period of prosperity.
Dr. BuERxT. You were talking about today. People still came to
the hospital and we had to write off a few more bills than we did prior.
Mr. GROSS. It has been borrowed prosperity on the part of the Gov-
ernment and on the part of an awful lot of people. That is what it
has been, so when you say "prosperity," you do not mean prosperity
in the true sense of the word, do you?
Dr. BUERKT. A willingness to spend and a desire to spend.
Mr. GROSS. Go into debt.
Dr. BUERIiT. And we carry some of that.
The CHAIRMAN. Do you have any figures comparing the ratio of
patients in the hospital 65 years of age and over and those under 65?
Mr. WILLIAMSON. Yes, there have been studies made on a day. The
percentage of people 65 years and over, in relation to the number of
aged of the total population, is very much. higher. We have exact
figures that we can give you on that.
The CHAIRMAN. I wish that you would supply those figures for the
record. You do not have them available right now?
Mr. WILLTAMSON. No. As I remember the figures, it is almost three
times. I think that is a fair figure of aged people in hospitals, if you
take a day and see what the census is on that day.
Dr. BuERxT. Sixty-five is a pretty arbitrary line to draw. The
people from 55 to 65 use the hospital much more than people from 20
to 30. It is not a sudden step-up. It is a growing line. That is
another reason we are using more hospitals today, because of the aging
population and this again is reflected in Blue Cross costs.
Mr. CUNNINGHAM. The witness referred to the advisory council.
Dr. BuERxi. That is called for in the bill. There are three people,
one medicine, one public health, and one hospital. Our suggestion is
that this man should be an active hospital administrator chosen from
the field who could bring-and I do not think this is quite clearly
spelled out-to the advisory council his day-to-day background in the
hospital field.
Mr. CUNNINGHAM. The language is, "Who shall be representative
of hospital administration?"
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES Aff
Dr. BUERiii. We would like for him to be an active administrator
chosen from the total field, wherever you can get the best man, but a
man who is an active administrator.
Mr. CUNNINGHAM. In your study of this advisory council, since you
have been so specific about it, what do you envision as the duty of the
advisory council, or what benefits does the proposed plan derive from
the advisory council, and have you studied the makeup of the rest of
the council other than just the one?
I)r. BuEIIKI. Yes. Their primary interest, of course, is in the Fed-
eral Government point of view, and it brings to the committee three
different points of view that will be of value in finally determining
policy.
Mr. CUNNINGHAM. They have no authority. The council has no
authority.
Dr. BUERKI. I know.
Mr. CUNNINGHAM. It seems that the Civil Service Commission has
full authority.
Dr. BTJEPKI. But the Civil Service Commission could ignore them,
but I wonder if they would.
Mr. CUNNINGHAM. It is not a question of ignoring them. I think
the Civil Service Commission has full authority to make the plans,
and your authority that this Advisory Council would be beneficial to
give advice to the Civil Service Commission?
Dr. BUERICI. That is right.
Mr. CUNNINGHAM. Do you think it is an important part of the
bill?
Dr. BuE-Riii. Yes.
Mr. WILLIAMSON. If I may comment : we have at various times in
the association in terms of legislation recommended Advisory Coun-
cils and suggested that they be given authority except for an instance
we have always found the Congress to be reluctant to tie the adminis-
tration's hands. They are willing to set up a body to give advice, but
to tie administration's hands by giving an advisory committee au-
thority they have been reluctant to do. The only time that they have
done this was in the I-Iill-Burton grant-in-aid program, where they
did give the Advisory council authority.
The CHAIRMAN. How many hospitals belong to the American Hos-
pital Association?
Dr. BUERKI. About 6,200 of the 1,000 hospitals.
The CHAIRMAN. What percentage of the hospitals are privately
owned?
Dr. BUERKI. Five percent, and that may be high.
The CHAIRMAN. That is what I was thinking. Do you see many
new private hospitals being built today?
Mr. WILLIAMSON. In some areas. In California, Florida and one or
two other States. Primarily in California there is a development of
proprietary hospitals. For many years in those areas where there was
a high percentage they bowed out of business, but in recent years there
has been a change in that direction.
The CHAIRMAN. I thought they were getting fewer.
Mr. WILLIAMSON. In most places they are.
The CHAIRMAN. In the last 25 or 30 years.
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Mr. WILLIAMSON. You are right. Nationwide, historically, they are
getting fewer and fewer.
The CHAIRMAN. And they are in the metropolitan areas mostly.
Mr. WILLIAMSON. Generally speaking, you are correct.
Dr. Burnlu. They are very small, 15 to 25 beds..
Mr. WILLIAMSON. In some communities they perform a very impor-
tant service because they are the only hospitals-especially in small
communities.
Dr. BUERKI. But they are very small in number.
Mr. BARRY. Could you shed any light on that recent hospital strike
in New York? You will recall several large hospitals struck and the
public was aghast.
Dr. BUERKI. Yes.
Mr. BARRY. But later on when the facts came out the reasons for
it were quite evident.
Dr. BIrSEKI. $33 a week salaries for a lot of their employees, yes.
This is one of the problems that we have been talking about, the need
to increase salaries. The hospitals in New York knew this, but they
tried to push the city government to pay more for the charity patients.
They were pushing Blue Cross to get higher rates and were not win-
ning, and to keep in business they washed one hand with the other and
took it out on the employees, and this we deplore.
Mr. BARRY What was the average salary rate paid those who struck
in New York?
Dr. BuERKI. I do not know. I only know the figure of $33.
Mr. BARRY. That is a dramatic incident of what you have been
talking about.
Dr. BuERKI. Of what I have been talking about.
Mr. BARRY. And what you have been trying to describe to the com-
mittee.
I)r. BUERKI. Yes.
Mr. BARRY. How many hospitals struck?
Dr. BUERILI. Sixty-seven.
Mr. BARRY. How many beds did that come to?
Mr. WILLIAMSON. They would average 700 beds or more.
Mr. BARRY. You know what settlement was reached? Do you
know what they got out of the strike?
Mr. WILLIAMSON. They agreed upon a salary increase for the work-
ers. They agreed upon the establishment of an arbitration group
made up of six citizens appointed. I believe the chairman is to be one
of the presiding judges in one of the courts, and six chairmen of the
hospital boards of trustees, and that group is to continue. I think that
they will have to have a staff. Somebody will have to finance it. They
will have to continue to study costs and salaries in relation to costs
and the needs of the workers and recommend changes in the future,
and they are also, I understand, a body to which the workers can bring
complaints, or questions they have for arbitration.
Dr. BuERKI. I am correct, am I not, that in agreeing to increase
the salaries, first the city had to agree to raise the rates they were
going to pay in hospitals, and Blue Cross agreed to arrange the in-
crease in rates to pay the hospitals.
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Mr WILLIAMSON. That is right.
Mr. BARRY. Would you say that a strike is an indication of what
could be expected in other communities?
Dr. BuImaiI. Provided that we do not continue to raise salaries, yes,
more nearly equivalent with what industry is paying.
The CHAIRMAN. Thank you very much for your statement.
We will insert in the record at this point a letter from Mr. John
S. Warner, Legislative Counsel, Central Intelligence Agency, ad-
dressed to me as chairman.
(The letter referred to follows:)
CENTRAL INTELLIGENCE AGENCY,
Washington, D.C., August 5, 1959.
Hon. Tom MURRAY,
Chairman, House Post Office and Civil Service Committee,
Washington, D.C.
DEAR MR. MuRRAY : On July 29, 1959, Mr. Dulles indicated that as suggested
in your letter of July 23 I would contact Mr. Frederick C. Belen, chief counsel
of the committee, regarding the committee's hearings on S. 2162 and similar
House bill to provide a health insurance program for Federal employees. I have
discussed briefly with Mr. Belen the Agency's health insurance program as it
relates to the proposed legislation. I believe this letter will provide further
information as well as several suggestions for the committee's consideration.
As you know, our Agency faces certain security problems in conforming to
general legislation providing employee benefits. We are, for instance, precluded
from adhering to any procedures which require the disclosure of the names,
number, or location of our employees. This prohibition arises out of the man-
date to the Director of Central Intelligence under section 102(d) (3) of the
National Security Act to protect intelligence sources and methods and the exemp-
tion in section 6 of the Central Intelligence Agency Act from any provision of
law requiring such disclosures. To avoid security breaches in remitting pre-
miums and, settling claims, this Agency established a hospitalization insurance
program which could be administered within the Agency in conformity with
Agency security requirements. This program has operated successfully in
various forms through an organization of Agency employees since 1948. Over
$600,000 was paid in health insurance claims last year under this program.
It is important to the operation of this Agency that, in any health insurance
legislation which may be enacted, provisions be included which would permit
the Central Intelligence Agency to make appropriate arrangements with the
Civil Service Commission concerning the administration of the Agency's health
insurance program. While we do not wish to obtain an exemption from this
legislation, it is imperative that the Agency have sufficient latitude to resolve its
security problems within the general framework of the bill.
We have discussed the Agency's security requirements with representatives of
the Civil Service Commission who feel that S. 2162 and the similar House bills
do not provide such latitude. They have suggested that section 4 of S. 2162 or
similar House bills be amended to add a subsection (5) which would read:
"(5) Central Intelligence Agency plans-Group plans for employees of the
Central Intelligence Agency."
Similarly, section 5 should also be amended to add a subsection (5) to read:
" (5) Central Intelligence Agency plans-Benefits of the type specified in this
subsection under paragraph (1) or (2)."
This Agency is in agreement with the Commission's recommendation or any
similar amendment and we shall be pleased to make appropriate representations
to the committee to this effect. Accordingly, it is requested that the committee
give favorable consideration to this recommendation based on the above.
Sincerely,
JOHN S. WARNER, Legislative Counsel.
The CHAIRMAN. Subsequent to the hearing of August 6, 1959, the
following letter was received from Dr. Buerki.
(The letter referred to follows:)
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HENRY FORD HOSPITAL,
Hon. TOM MURRAY, Mich., August 12, 1959.
,
Chairman, House of Representatives,
Committee on Post Office and Civil Service,
House of Representatives, Washington D.C.
DEAR MR. MURRAY. Thank you for your letter of August 8, 1959. It was a
privilege to have an opportunay to testify before the Post Office and Civil Serv-
ice Committee.
Your question regarding the possible acceptance by the hospital of identifica-
tion of a Federal employee under an indemnity health insurance plan in lieu
of payment at the time of discharge is not an easy one to answer. You would
probably get a different answer from each hospital administrator to whom
you put the question. Basically the problem is as between the service benefit
plan (Blue Cross) approach and the indemnity (insurance company) approach.
The nonprofit Blue Cross plans have been developed as community organiza-
tions with hospital sponsorship. Their approach, in the main, has been to
provide whatever hospital services the patient requires to get well through
a direct contractual relationship with the voluntary hospitals in the area served
by that Blue Cross plan. Blue Cross does not customarily limit the amount of
service in terms of dollars and since no "assignments" are necessary and pay-
ment is made directly to the hospitals and not to the individual patient, the
hospitals have traditionally accepted the Blue Cross identification card in lieu.
of either cash deposit or payment at the time of admission or discharge.
Indemnity insurance, on the other hand, if of a different nature. Instead of
dealing with one local Blue Cross plan, a hospital finds itself dealing with
literally dozens of different insurance carriers, each with a variety of benefit
programs. These insurance benefit schedules run the gamut from inadequate
dollar allowances to good coverage. There is a wide variety of claims handling
procedures among various insurance carriers.
The result is, therefore, that the great majority of hospitals know the Blue
Cross benefits and procedures and because the Blue Cross settlement is made
directly with the hospital, the hospital is usally able to compute the Blue Cross
payment at the time of discharge. In the case of the insurance carriers, the
hospitals will usually accept identification in lieu of payment only after there
has been sufficient experience with a particular company and a particular set
of benefits to justify the hospital's faith that the bill will be promptly paid.
My answer to your question, therefore, is that the extent of acceptance by the
hospials of identification of Federal employees under an indemnity plan will
doubtless be determined only after such a plan is put into operation. If the
established dollar allowances cover comprehensive services, if the insurance
company is prepared to honor such assignments, and if rejections are minimal
and if payment is prompt, I believe that most hospitals will go along with such
a program. It would be difficult to make arranagements in advance for such
acceptance by all or even by any substantial number of hospitals.
To the extent that deductibles, coinsurance or other limitations might be
imposed in an indemnity policy for Federal employees, the patients would of
course have to make payments in cash. If the amounts were substantial it is
likely that hospitals, which commonly have none too much working capital,
might insist upon some deposit at the time of admission.
Again, thanks.
Sincerely,
ROBIN C. BUERKI, M.D.,
Executive Director.
The CHAIRMAN. The committee will stand adjourned and the hear-
ings will be resumed tomorrow morning at 10 o'clock.
(Whereupon, at 11:45 a.m., the committee adjourned, to reconvene
Friday, August 7,1959, at 10 a.m. )
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HEALTH BENEFITS PROGRAM FOR FEDERAL
EMPLOYEES
Housi OP REPRESENTATIVES,
COMMITTEE ON POST OrrICE AND CIVIL SERVICE,
Washington, D.C.
The committee met at 10 a.m., in room 215, House -Office Building,
Hon. Tom Murray (chairman) presiding.
The CHAIRMAN. The committee will be in order, please.
The hearings will be resumed on S. 2162 and similar House, bills
on health insurance for Federal employees.
I will call first on Mr. Dan Jaspan, legislative representative of the
National Association of Postal Supervisors.
Mr. PORTER. I have been looking over some of the statements here
and some do contain new material but there is also a good deal of
the testimony that is repetitive. I wonder if the witnesses would
confine their testimony to that which is new in the interest of ex-
pediting the hearings.
The CHAIRMAN. They can highlight their statements. It will not
be necessary for them to read them line for line, but their whole
statements will be included in the record.
STATEMENT OF DANIEL JASPAN, LEGISLATIVE REPRESENTATIVE,
NATIONAL ASSOCIATION' OF POSTAL SUPERVISORS
Mr. JASPAN. Mr. Chairman and members of the committee, I ap-
preciate the fact that I am called first. I do have to go out of town.
My name is Daniel Jaspan. I am the legislative representative of
the National Association of Postal Supervisors, composed of more
than 23,000 supervisors in the postal field service.
We are deeply grateful. to the members of this committee and other
Members of Congress who have sponsored various bills providing
for health insurance for Federal employees. We appreciate the in-
terest of the chairman in this subject and take this opportunity to
thank him for scheduling these hearings. This proposed legislation
is extremely important to our members, most of whom have had
more than 25 years in the postal service and many of whom are ap-
proaching the time of life when the necessity of medical treatment
and hospitalization is continually increasing. On the other hand,
the salaries received do not permit a liberal budget for medical treat-
ment and hospitalization. The costs of hospital and medical insur-
ance have increased to such an extent that they impose a financial
burden on our members and they cannot afford any prolonged hos-
pital and medical services.
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292 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
The Federal Government, which had lonm been the leader in fringe
benefits, is gradually surrendering that leadbership to private industry.
Most of our members can well remember that, when they entered the
postal service, the Government fringe benefits were far ahead of those
in industry and that was one item that made Federal service more
attractive, even though actual salaries were often less than in indus-
try. According to the U.S. Chamber of Commerce survey "Fringe
Benefits 1957" the following industries at that time practically
equaled or surpassed the Government in the percentage of payroll
spent for fringe benefits : banks, finance and trust companies, 31.7
percent of its payroll for fringe benefits; petroleum industry, 27.3
percent; insurance companies, 26.7 percent; miscellaneous nonmanu-
facturing (including coal mining, warehousing, and laundries), 25.5
percent; chemicals and allied products, 24 percent; public utilities,
23.5 percent. The average for all industries at that time (1957) was
21.8 percent of the payroll for fringe benefits. Undoubtedly those
averages have increased sand others have moved into the upper ranks
in the intervening years. The passage of health insurance legisla
tion will once more place the Government among the leaders, even
through it won't be the leader.
The "Digest of One Hundred Selected Health and Insurance Plans
Under Collective Bargaining, Early 1958," published by the Bureau
of Labor Statistics in October 1958, illustrates very well how much
progress has been made in health and insurance plans in private in-
dustry. Here, for example, is what the American Sugar Co. offers
its employees, according to its April 1958 contract. It must be re-
membered that the company assumes the full cost, with the employee
contributing nothing, either for himself or his dependents. The em-
ployee is given life insurance coverage ranging from $500 to $2,000
according to his length of service; he receives free insurance cover-
ing accidental death and dismemberment; accident and sickness bene-
fits begin the first day and he is entitled to 365 days of hospitalization
in a semiprivate room and the full cost of specified services is covered.
Required outpatient care is provided, as is surgery according to a
specified table. The contract covers medical bills of $3 per day for
home or office visits and up to $10 the first day of hospitalization,
with 21 home visits or 365 daily office visits per year. Seventy days
of hospitalization are covered per illness or disability. For maternity
benefits there is coverage for 7 days in the hospital, plus $75 for
delivery. This plan also covers diagnostic X-rays and laboratory
allowance for nonhospitalized cases up to $100 per year. This plan
grants practically the same benefits to the employee and his family
after retirement. It cannot be emphasized too strongly that the com-
pany assumes the total cost of the whole program.
Another company listed in the same publication is the American Can
Co., according to its contract of February 1958. This company, too,
assumes the full cost of life insurance, as well as health insurance for
its employees. The life insurance ranges from $7,900 for an employee
with a salary of less than $76 per week to $13,200 for an employee
with earnings of more than $115 per week. It is interesting to note
that, after retirement or age 65, the face value of this insurance is
reduced only 50 percent for employees with 25 or more years of service,
as compared with a reduction of 75 percent in our own Federal in-
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 293
surance, and the company finances the policy; there is no employee
contribution either while the employee is active or after he retires, or
reaches age 65. The American Can Co. insurance plan also provides
for 120 days of hospitalization in a semiprivate room and pays the full
cost of specified services per disability or illness. It provides required
outpatient care for emergencies. There is a specified schedule, with
a maximum of $300, for surgery, plus a medical allowance of $4 for
each day of hospitalization, both for the employee and dependents.
The maternity benefits provide up to $90 for normal delivery and 6
days in a semiprivate room. Other benefits include anesthesia (out
of the hospital) diagnostic X-rays up to $75 per year (in or out of
the hospital) ; diagnostic examination (in or out of hospital) up to
$75 per year; and radiation therapy treatment of $7.50 per treatment,
with a maximum of $200, in or out of the hospital.
The Firestone Rubber Co. also signed a progressive contract with
its employees in February 1958. They also provide free insurance
ranging from $2,000 to $4,500, and this insurance, too, reduces to only
50 percent of face value after retirement or age 65. There is an equal
amount of insurance for accidental death or dismemberment. IIos-
pitalization of 120 days in a semiprivate room is provided, with the
full cost of specified services per illness or disability. There is a
surgical schedule, covering cases in the home, office, or hospital, with
medical payments beginning with $5 and then reduced to $3 per day,
with a maximum of $364 and 120 days per disability. This same
schedule applies to dependents. Maternity benefits are included as are
diagnostic X-rays for employees and dependents for nonhospitalized
cases. Provision is made for the same benefits for retired employees,
with the company assuming the whole cost. The United States Rub-
ber Co. is operating under practically the same contract and assumes
the full cost of the plan.
There are many other plans covered in the publication. Some are
less liberal than the above; some are even more liberal, such as the
plan for which the Sperry Gyroscope Co. pays the full cost. This
liberal contract even provides for electro-shock treatment as well as
radiation therapy. The majority of the companies listed pay the full
cost for the employee, and a very high percentage pay the full cost for
dependents.
We realize that examples of plans in private industry should not be
the sole basis in our request for similar treatment. But we also feel
that, if these companies can grant such liberal plans, including in-
surance and hospitalization, with little or no cost to the employee, the
Government should not expect the employee to assume the major cost,
as he has done in the case of the life insurance plan.
We appreciate the introduction of so many bills on the subject. At
this late date, inasmuch as the Senate has passed a bill covering the
subject, and generally an excellent bill, acceptable to various insurance
carriers and plans, as well to employee groups, we feel that considera-
tion should be given to S. 2162 which has been referred to this com-
mittee after passing the Senate, and H.R. 8210, introduced by Mr.
Morrison; H.R. 8211, by Mr. Porter; and II.R. 8222, by Mr. Davis;
since they are in agreement with the Senate bill and would enhance
our chances of having health insurance legislation enacted during this
session. We would like to offer one amendment and that is, on page 2,
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294 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
line 22, to strike the word "involuntary." There are employees who
have reached the optional retirement age, many of whom will need the
provisions of these bills. They will retire as soon as they can be as-
sured of coverage after retirement. Some of them are not in the
best of health and are unable to perform their duties at maximum ef-
ficiency. Unless this change is made in the bill as reported out by
this committee, they will probably try to stay on the rolls until after
July 12 1960-and no one can blame them when we realize that their
annuities will not permit the payment of large medical and hospitali-
zation bills.
Since the cost of medical care and hospitalization is increasing so
rapidly-much more rapidly than our salaries and the general cost of
living-and since all forecasts point to an increased cost of living, it is
essential that a health insurance plan be enacted into law as soon as
possible. Although we were disappointed when the effective date of
this proposed legislation was changed from January 1, 1960, to July 1,
1960, we realize that it takes time to put such a plan into operation.
For the same reason, we urge immediate action by this committee in
agreeing on a bill and reporting it out and the full support of each
member so that enactment will come in time so that everything will be
in readiness on July 1, 1960. Any delays will mean that more Federal
employees will find themselves in insurmountable debt on account of
prolonged illness and hospitalization, and we hear of more and more
such cases all the time.
The enactment of health insurance legislation is long overdue.
There have been a number of unfortunate delays in previous years.
We are glad that this committee recognizes the necessity of bringing
Federal employees and their dependents the benefits of health insur-
ance, as has been expressed by the chairman and most members of the
committee at various times. Benefits will be reaped not only in im-
proved morale, but in the improved health of the employees who are
unable to afford such essential medical and hospital care due to pro-
hibitive costs. This is an item that is difficult to measure in the over-
all picture of the cost to the Governmet. It is difficult to measure
health, morale, and peace of mind in dollars and cents. We honestly
believe that the dollar cost to the Government-which will be matched
by the employee-although it is a significant amount, will result in
much better productivity and will be money well spent.
We believe, too, that the Government should lead, and not follow,
private industry in fringe benefits. In these times, health insurance
is fast becoming one of the most important, and one of the most essen-
tial, fringe benefits.
We would like to see legislation enacted providing for similar cover-
age for employees who, after many years of faithful service, have al-
ready retired and are finding it most difficult to assume the greatly
increased costs of medical, surgical, and hospital bills.
We are very appreciative of the opportunity of appearing before
this committee and are hopeful that the pleas of our members for
adequate coverage at the lowest possible cost to the employee-and we
do not even ask that the Government assume the total cost as is being
done in much of industry-will be answered by the quick enactment
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
of health insurance into law. We thank the members of this com-
mittee for permitting us to state our views.
The CIIAIRMVMAN. In the fourth paragraph of your statement you
say:
The contract covers medical bills of $3 per day for home or office visits and
up to $10 the first day of hospitalization.
Is that the limitation on the hospital costs?
Mr. JASPAN. That is $10 for the doctor's visit in the hospital.
The CHAIRMAN. You say for the first day of hospitalization.
Mr. JASPAN. I mention that the payment is the doctor's. That is
either at his office, home, or in the hospital. In the hospital they pay
$10 for the doctor's visit.
The CHAIRMAN. You mentioned the American Can Co. and the
American Sugar Co. I am sure that both the American Can Co. and
the American Sugar Co. are in much better financial position than the
Government today. The Government is very much in debt and there
is this ever-increasing deficit that we are piling up here all the time.
I guess that future generations will have to pay for it. I am wor-
ried about what is going to take place in this country in the future.
Mr. JolANSEN. I may have missed it, but going back to the early
part of your statement where you list the percentage of payroll spent
for fringe benefits, what do you show as the percentage for Federal
employees?
Mr. JASPAN. Mr.Johansen, that seems to be a figure that is hard
to get. I remember when we were having a hearings on pay about 3
years ago one of the members of the Cordiner Committee testified
then and he said it would be about 27 percent if the Government made
the total contribution they were supposed to for the retirement plan.
But the Government has not made the total contribution and I believe
he said that it would be about 23 percent or 24 percent, taking that
contribution off.
Mr. JoITANSEN. Of course, the presumption is that the Government
stands back of its guarantee whether it actually votes the contribu-
tion or not.
Mr. JASPAN. We certainly hope so.
Mr. JOHANSEN. We hope so, too. That is one of the reasons, as-
sociating myself with the chairman, I hope we do not get in the habit
of making commitments down here that we are not prepared to per-
form on because in that manner, ust as in the debt, it goes to the
question of the good faith and credit of the U.S. Government.
Mr. JASPAN. We are certainly concerned with the cost of this, too,
and we are also concerned about the cost to our members who are hit
hard and cannot afford to carry full coverage under their own plan.
The CHAIRMAN. I think that the Government has been very fair
and liberal to its employees, generally speaking.
Mr. JOIIANSEN. You say on page 2:
We realize that examples of the plans of private industry should not be the
full basis in our request for similar treatment. But we also feel that, if these
companies can grant such liberal plans, including insurance and hospitalization,
with little or no cost to the employee, the Government should not expect the
employee to assume the major cost, as he has done in the case of the life insur-
ance plan.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
These statements seem to be balancing opposing views. Would you
care to elaborate just a moment on that first statement where you
say :
We realize that examples of plans of private industry should not be the sole
basis in our request for similar treatment.
Would' you care to elaborate?
Mr. JASPAN. The important point there is that word "sole." I do
not think we should be treated in a manner that is completely differ-
ent from people in private industry. Usually we can get benefits
much later than people in private industry. Everything came later.
The 40-hour week work log came later, time and a half for overtime
came later, hospitalization is coming much later. Practically every-
thing, every benefit, came much later than to private industry. We
certainly feel that for many reasons we should be entitled to some of
the benefits that those people have, if not the complete benefits.
Mr. JOHANSEN. Do you anticipate within a very short time, if this
program is adopted, there will be a move to make the Government's
share of the group hospitalization and medical coverage 100 percent?
Mr. JASPAN. That is a pretty difficult question to answer, Mr. Jo-
hansen. Of course, if the trend in industry is for all to pay 100 per-
cent, we would want 50 percent at some future date.
Mr. JOHANSEN. I respect your position and I realize the light that
I place myself in by asking that question. Some people are very
eager to give the impression that I am against progress, the employees,
and humane treatment. I am not against any of those.
Mr. JASPAN. Your past actions have shown that.
Mr. JOHANSEN. I share the chairman's very great concern that we
are going to have to start facing up to the fiscal situation of the coun-
try. If I said that only with respect to employees' legislation, I could
be properly criticized, but I do not. My voting record shows that.
Mr. JASPAN. We realize that. You voted for many of our benefits.
Mr. JOHANSEN. And I voted against a lot of squandering and other
activities of the Government.
Mr. JASPAN. Of course, this is a relatively small amount.
Mr. JOIIANSEN. Most of them are.
Mr. JASPAN. We really believe there are other ways of cutting down
some of the waste.
Mr. JOHANSEN. So do I. But I do not see my colleagues doing it.
I do not want to punish the Federal employeees because my colleagues
do not have the wisdom to do what I think they ought to da, but I
have to deal with the net result of that folly.
Mr. PORTER. Mr. Jaspan, I notice that your statement is very much
in favor of the enactment of the bill, but you do propose an amend-
ment. I suppose that you are talking about page 2, line 21, of the
bill.
Mr. JASPAN. That is right.
Mr. PORTER. Actually you are in favor of the bill. You think that
it ought to be enacted this year. You think it is fair in terms of
private industry. I would like to understand your proposal a little
better.
Mr. JASPAN. Here is the amendment that we propose in S. 2162,
as passed by the Senate, on page 2, line 22: Strike the word "invol-
untary." As it now reads, the employee who is now on the rolls and
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who would retire before the -effective date, would only be included if
he were separated involuntarily between the enactment of the bill and
the effective date. There are a lot of people who would like to retire
or leave the service voluntarily. Some of them who may have illnesses
would like to leave, but they feel they should be here until there is
some hospitalization. I feel many of those people would leave if
the bill were passed. I believe that it would be better for the service
and those people.
Mr. PORTER. Do you have any figures on the number of people that
retire? I realize that you do not know how many are thinking about
retiring, but how many are eligible to retire and have that choice?
Mr. JASPAN. I have the figures at the office, but I do not have them
with me.
Mr. PORTER. I do not suppose that you have figured out what the
additional cost would be, if any?
Mr. JASPAN. No; I do not have the figures on that.
Mr. PORTER. If we had the basic figures we might be able to figure
it out; that is, how big a chunk this would mean.
Mr. JASPAN. I believe that there would be relatively few people be-
cause it would affect mostly those who are ill to a certain degree, but
not enough to retire on disability.
Mr. JOHANSRN. I wonder if the witness heard the testimony on
Wednesday regarding some of these voluntary health medical and
hospital plans within the postal service. I wonder if the witness
would care to comment on the possible effects of this legislation on
those and whether he feels there should be some provision to protect
the interests of such voluntary plans.
Mr. JASPAN. I had to miss Wednesday's session. If possible, I be-
lieve that there should be some provision made for those people. I
have heard of the testimony, though I have not read it. It seems as if
some of those companies would be pretty hard hit if they were not
included in this plan.
Mr. JOHANSEN. These are private employee groups, self-insured.
They do not involve an outside underwriter. Some of us feel it is
rather important that the initiative that they have shown and the
stake that they have in those plans should be recognized. Would
you agree to a suggestion made by the witness that either the word
"labor" be stricken from the bill, or the words, "labor and other
organizations" be inserted?
Mr. JASPAN. To me, that latter suggestion seems as if it would cover
those pe261 e. I know when the insurance bill was passed there were
.some of organizations caught in the squeeze similar to that. There
was provision made for them later. Such coverage would seem to be
in the best interests of those groups.
The CHAIRMAN. Under the life insurance program the Government
only contributes one-third of the cost; is that correct?
Mr. JASPAN. That is right.
Mr. PORTER. I am not quite sure that I understand the effect of the
amendment. As it is now, between the date of enactment of this
act and the effective date next June 30, if someone retired, not because
he had to retire--
Mr. Mr. JASPAN. For optional retirement, without reaching the man-
datory age. People of 55 and up.
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Mr. PORTER. Under the present provision of involuntary that would'
not apply?
MVIr. JASPAN. No. That would be an optional retirement.
Mr. PORTER. It would have to be someone mandatorily retired?
Mr. JASPAN. Either by reaching the age limit, or for some other
reason.
Mr. PORTER. What you want to do is to take out the "involuntary"
so that an optional separation would not disqualify an employee?
Mr. JASPAN. Yes.
The CHAIRMAN. After how many years of service?
Mr. JASPAN. Of course, they would have to have 30 years and be age
55 under the present conditions, with a reduction in their annuity, of
course, at age 55.
Mr. PORTER. What is the effect of the phrase "after 12 or more,
years of service?"
Mr. JASPAN. That is in the bill. They must have been in the service
12 or more years before they can come under the benefits of this plan,
Mr. PORTER. Actually they would not be able to retire by option
unless they had considerably more?
Mr. JASPAN. Under the present conditions they need 30 years of
service to retire optionally except under certain circumstances-dis-
ability separation, and some involuntary separations. And you prob-
ably realize our group, the supervisory group, are mostly in the upper,
grade brackets because most of our people have 25 years of service
or more.
The CHAIRMAN. On the last page of your statement you say :
We would like to see legislation enacted providing for similar coverage for
employees who, after many years of faithful service, have already retired and
are finding it most difficult to- assume the greatly increased cost of medical,,
surgical, and hospital bills.
How much would that coverage cost?
Mr. JASPAN. Apparently no one has any figures on that. That is,
why we would like it explored, and if anything could be done we,
would appreciate it.
The CHAIRMAN. Where do you think the money is coming from
for the Government to provide all these benefits?
Mr. JASPAN. As I suggested to Mr. Johansen, one of the ways, I.
believe, and I think most of you people will agree with me, would
be lopping off some of the spending, and particularly the wasteful
spending. There is quite a bit of that. I believe that it would
amount to much more than the amount that would cover these
benefits.
The CHAIRMAN. Perhaps you should confer with Mr. Stans of the
Bureau of the Budget and give him the benefit of your sound fiscal
advice.
Mr. JASPAN. I do not believe that he controls the actions of the.
Congress.
Mr. JOHANSEN. Would the gentleman favor an increase in taxes,
to meet the additional cost?
Mr. JASPAN. Yes, I would be opposed to it, but I believe before.
taxes are increased there should be some examination of the present:
spending with a view to reducing what I call waste,
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Mr. PORTER. Not to get into a time-consuming self-serving
declaration about the budget, but if you will look at the appropria-
tion bill for the first session you will see this year we are something
over $166 million under the budget estimate, and also there are re-
ports that we are going to have a very substantial surplus because
of more money from taxes. That is a little on the optimistic side.
I want to balance the budget and pay off the national debt. I am for
taxes necessary to do these things we should do, and I think this is
one of them. So much for my self-serving declaration.
Mr. JOHANSEN. I am happy to hear the testimony
Mr. PORTER. I thought that we were through with self-serving
declarations.
Mr. JOHANSEN. We have had testimony that the prosperity is such
that the Federal revenues might be increased.
Mr. JASPAN. We certainly do appreciate the opportunity of express-
ing our opinion here and we hope there will be adequate coverage at
the lowest possible cost to the employees. We do not ask the Govern-
ment to assume the total cost as is being done in much of industry
today. We are willing to pay what is considered a. fair share, and
apparently most of the witnesses have considered 50 percent a fair
share.
Thank you very much, Mr. Chairman, for this opportunity, and
especially for letting me appear earlier.
Mr. RE, Es. Do you have any insurance plan of your own in your-
organization?
Mr. JASPAN. No, sir, we do not have any. All of our people have
to provide their own plan..
Mr. REES. Do nearly all of them belong to the Blue Cross?
Mr. JASPAN. From what I understand, a very large percentage of
.our members do belong to the Blue Cross plan because that is about
the only thing open nationwide. Some of them belong to the Kaiser
Foundation on the west coast and some to the HIP in New York, but,-
generally speaking, most of them belong to the Blue Cross.
Mr. REES. Is it your opinion that these other plans, the Blue Cros&
and others, will merge into one big insurance plan?
Mr. JASPAN. I doubt it very much. I think that they are all very
jealous of their own plans.
Mr. REES. You think that they. will continue to carry an as they-
are?
Mr. JASPAN. Except to cover these provisions.
Now, Mr. Chairman, in regard to the cost, we were discussing the
cost of the bill. Of course, I am not an actuary by any sense of the
imagination, but I was wondering when they figured the cost of this..
and each employee would contribute half and the Government cone
tribute half or a total of $221 each year, most of the Blue Cross plans
and the service plans, I understand, could be covered for about $100 a
year. I have asked some people that I know that are in the insurance
business to get some figures about what major medical costs for groups
would be, and it seems that about $40 a year would cover much smaller
groups than ours which means that a hospital plan like Blue Cross, or
the service plan, or an indemnity plan for $100, plus $40 for major
coverage, would be plenty of money, and it may be much less to covet
the cost than anticipated.
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EFITS FOR FEDERAL EMPLOYEES
Mr. JOHANSEN. Pursuing the question of the gentleman from
Kansas, you say that quite a few of the members of your organization
are under the Blue Cross plan. You mean under a group basis?
Mr. JASPAN. Yes.
Mr. JOHANSEN. Are they local groups?
Mr. JASPAN. Yes.
Mr. JOIHANSEN. So they do get a group rate?
Mr. JASPAN. Yes.
Mr. JOHANSEN. It is not individual participation?
Mr. JASPAN. For Blue Cross generally they are under the group
rate. I carry Blue Cross and Blue Shield. The Blue Shield I had
to get in as an individual because we do not have enough for a group,
but for Blue Cross we have the group coverage.
The CHAIRMAN. Thank you, Mr. Jaspan.
The committee will hear next Mr. James Riddell, counsel for the
underwriter of several Government employees' plans.
STATEMENT OF JAMES W. RIDDELL, COUNSEL FOR THE UNDER-
WRITER OF SEVERAL GOVERNMENT EMPLOYEES' PLANS; AC-
COMPANIED BY FRANK CARBO, ASSOCIATE MANAGER OF THE
JOSEPH E. JONES AGENCY OF WASHINGTON, D.C.
Mr. RIDDELL. My name is Dick Riddell, I am a partner in the firm
of Dawson, Griffin, Pickens & Riddell, of this city. I appear today
as counsel for Joseph E. Jones, an underwriter of this city who, since
1942, has been instrumental in negotiating with and establishing for
Government employee associations, programs for hospital, surgical
and medical insurance.
The number of Federal employees and dependents currently insured
under health insurance programs pioneered by Mr. Jones now num-
bers approximately 100,000. Specifically, the associations having
plans in force negotiated 'by Mr. Jones include the American Foreign
Service Protective Association (foreign service offices of the Depart-
ment of State and other agencies), the Government Employees Bene-
fit Association (employees of the National Security Agency), the Gov-
ernment Employees Health Association (the employees of the Central
;-;-~/,Intelligence Agency), and the American Federation of Government
Employees.
Because of the unique requirements and challenging problems pre-
sented by the health insurance needs of the employee members of
these associations, coverage normally available to them in the insur-
ance market would be inadequate to fulfill their needs. It is my
understanding that, in fact, the failure of these employee groups to
secure adequate protection and administrative convenience with the
standard coverages provided by carriers who were unwilling to experi-
ment and pioneer in the field of insurance led them to negotiate with
Mr. Jones and his carrier.
The unique health insurance problems referred to above, which I
will spell out later, also presented a major challenge to the carrier rep-
resented by Mr. Jones because of the pioneering nature of the coverage
required and the major challenges presented together with the lack of
actuarial and morbidity data available at that time.
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Before a satisfactory solution from the point of view of the employ-
ees involved could be reached, each of these cases required pioneering
in the field of health insurance and a willingness on the part of the
carrier to depart from the then normal and accepted underwriting
practices of the health insurance industry. In each case, experience
has proven that a willingness to approach a challenging problem with
a flexible point of view and a desire to achieve a successful result can
provide liberal benefits for employees at a premium rate that is practi-
cal for the employee and for the carrier. These plans have been suc-
cessful from the date that they were first negotiated.
In referring to the past, I do not intend to imply that the fruit of
experimentation has been static, for the original plans have been con-
tinually improved until today the original concepts with which we
began have been so expanded and so Tiberalized that the employees
who enjoy their benefits have some of the finest insurance now
available anywhere in the world in these plans.
The benefits now enjoyed by the employees of the associations to
which I have referred would not be possible had not attention been
given to the equally important facet in health insurance of planned
administration. These plans have been premised on the assumption
that an employee who is able to present a claim for benefits with a
minimum of inconvenience to himself is a happier employee. With
this in mind, Mr. Jones has developed an administrative staff that
processes claims originating' all over the world in such countries as
Arg?ntina, Canada, Australia, Ireland, Finland, France, Israel, Italy,
Japan, Switzerland, England, India Ceylon, Republic of Philippines,
Mexico, the Netherlands, South Africa, Norway, Chile, Peru, Ger-
many,L e ban on, Turk e y, and my others.
Both he and his carrier have every reason to be proud of the effi-
ciency and dispatch with which claims for benefits are handled. The
Government employee associations who enjoy the benefit of these plans
appear to be equally proud and most satisfied with the results achieved.
In discussions concerning this bill, each of these associations have
indicated a strong desire to continue with their present insurance
carrier.
For security reasons, it is not possible for me to know of or to discuss
many of the problems presented by some of the plans to which I have
referred. However, all of them involve some employees who are
without the United States in the various countries of the world. This
fact alone creates many problems. For example, the overseas aspect
of these insurance programs have made it necessary to develop tech-
niques of administration which are not normally confronted in. the
administration of the ordinary health insurance program. Claims
which are filed from overseas areas involve the conversion of foreign
currency, the translation of foreign languages, and require an under-
standing of the variety of hospital licensing requirements found
throughout the world. Hospital accounting and other peculiarities
of hospital administration in the various areas of the world also differ
widely and present their problems. To cope with these problems it has
been necessary-as I have stated above-to create a staff of adminis-
trative personnel to administer these programs. This staff is qualified
to translate the languages of the world and otherwise able to cope with
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
the problems presented in a manner which renders a maximum of
service to the employees who enjoy their services.
Additionally, efficient handling of these insurance programs requires
flexibility in administra.ion and policy interpretation. Since the in-
sured employees are often in transit or residing in overseas areas, it is
not convenient, practical, or even possible for them to repeatedly con-
tact the insurer for clarification of claims material or to gain an under-
standing of their rights and benefits under their policy. This fact
alone requires highly trained and competent personnel whop given a.
policy of insurance providing an unusual degree of flexibility and
freedom of interpretation necessary to comply with the special needs
of the employee, must often lean over backward to construe any doubt
against the carrier and in favor of the employee.
Unless these programs can be continued under the provisions of
the bill, the employees involved will no longer have available to them
this quality of service, flexibility of administration, and liberality of
interpretation. This follows because no carrier will have an incentive
to provide service which caters to their needs. The bill in its present
terms permits but one carrier who, having acquired the business, may
be tempted to rest secure in its position and who, free from all com
petition, will have no incentive to attempt to continue to improve
service or even to continue those now in effect.
In many respects our plans are more liberal from the point of view
of coverage than is the plan envisioned under the bill. For example,.
the bill fails to recognize that tuberculosis, nervous, and mental con-
ditions can require as prolonged and expensive treatment as many
other types of illnesses. As a matter of fact, recovery from these-
dreaded diseases is oftentimes more expensive and time consuming
than other diseases. Under our plans, the same coverage is provided"
for these diseases as for any other. The employee is not limited to,
an aggregate of 30 days of protection.
In the same class with the plans to which I have already alluded'
is the plan provided by the Panama Canal Company and the Canal
Zone Government for both Panamanian and U.S. citizens who are-
employees of the Canal Company. This plan which was first con-
tracted in December of 1956 and which has been renewed on an annual'
basis since that time, covers approximately 28,000 employees and
their dependents. It is designed to dovetail with the official tariff
of the Panama Canal Company and is keyed to the seven salary classi-
fications of the various groups of employees. Today we maintain in
Panama an office staffed by eight employees trained to meet the health,
insurance problems of the employees of the Panama Canal Com-
pany. These employees are, of course, required to speak both Spanish
and English in order to provide adequate service. If this plan is:
not continued, a new carrier will have to be qualified to underwrite it
in Panama and the expenses of enrolling employees, together with,
the initial start-up expenses of a service office in Panama will have to%
be incurred again.
If we read S. 2162 correctly, it would appear that the 100,000 Gov-
ernment employees currently insured and enjoying benefits under our
individually negotiated and administered insured programs would'
be deprived of their free choice of insurance coverage. Let me assure
you as members of this committee that were it not for the free choice
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
of insurance coverage available up to now to employee associations
the plans which we now underwrite would not have become available.
We have the business and 100,000 Government employees have the
benefits because-and only because-of competition.
It provided the incentive to Mr. Jones and his carrier to depart
from the then generally accepted practices and standards of the
health insurance industry in a pioneering endeavor which has re-
=dounded to the benefit of the employees involved and Mr. Jones and
his carrier.
Without the prod of competition our plans would not have reached
their high state of development and service. It is our sincere hope
that the committee will give serious consideration to amending the
bill to provide that the Government employee association plans now
in effect may continue under the bill on a competitive basis. We do
not ask that we be given a patent to continue as the underwriter and
the carrier with respect to these plans. We only ask-and in this we
think we are joined by the employees involved-that we may con-
tinuo to compete for the business and that the employees may con-
tinue to enjoy the fruits of their negotiation. Attached to this state-
ment are copies of the two amendments which would achieve this
purpose.
(The two amendments referred to follow:)
On page 8, line 11' strike out "organizations," and insert in lieu thereof "or-
ganizations, or agency employee associations".
On page 5, insert at the end of section 2, the following new subsection :
"(1) The term "Agency Employees Association" means an association of two
thousand or more employees of any department, agency, or instrumentality of
the United States which, on July 1, 105, had in force a plan providing benefits
for health services to members of the association, contracted for by the associa-
tion."
On page 8, add at the end of section 4 the following new subparagraph :
"(5) CITIZEN Diir,LOYSES OF THE PANAMA CANAL COMPANY.-A plan con-
tracted for by the Panama Canal Company and the Canal Zone Government pro-
viding benefits for health services to employees of the Panama Canal Company
who are United States citizens."
Mr. PORTER. The first part of your statement is somewhat repeti-
tious, and then you get to the matter of competition.
Mr. RIDDELL. I have not had the privilege of attending the hear-
ings, Mr. Porter, but if I understand correctly, we are the first wit-
nesses who have been here to advocate specifically that employees have
gone out and had the initiative to negotiate their own plans and to
be allowed to continue under this bill to keep the fruits and benefits of
those plans.
I will simply state that long before 1942 Mr. Jones began to nego-
tiate with the employee associations named on the first page of my
statement. Ile was aware at that time these people were not receiving
the services that they wanted; that they had some unique and partic-
ular problems confronting them, and he thought that he could per-
suade his carrier to help the employees solve them. Now, as you no-
ticed, one of the associations is the Government Employees' Health
Association representing the Central Intelligence Agency and another
represents the employees of the NSA. I cannot discuss with you
the unique problems of these people because of the security implica-
tions involved. I will say this, that each and every one of the plans
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304 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
that Mr. Jones has set up involves overseas employees. Just this fact
alone, gentlemen of the committee, creates some severe, problems.
On the very day a claim arrives from overseas, Mr. Jones' agency
pays the claim. He has to convert the payment into foreign curren-
cies? He has to translate foreign languages. He has to be familiar
with all the various hospital licensing practices of the world. He
has established a staff that is capable of doing that and coping with
all the other problems, including the security problems, of the groups
that we have here.
Now, on a competitive basis, he has gone out and satisfied these em-
ployees that he can take care of their needs. He has been doing so,
and what he is asking for on behalf of himself and his carrier is
that this bill be amended to save whole to these groups of employees
their continued free choice of a plan of health insurance.
Now, in many respects the benefits offered by Mr. Jones' plans are
more liberal than those contemplated under the bill.
Mr. JOHANSEN. I notice in your statement that you refer to Amer-
ican Federation of Government Employees.
Mr. RIDDELL. They are taken care of under the bill. Our remarks
here with respect to the amendments are not applicable with respect
to them. Under section 4(3) of the bill, employee organizations, na-
tionwide in scope, are taken care of.
Mr. JOHANSEN. I was referring specifically to page 1 of the asso-
ciations having plans in force negotiated by Mr. Jones, 'and the last
of those you list is the American Federation of Government Em-
ployees. In other words, you have plans that relate, outside of these
other agencies, to members of the American Federation of Govern-
ment Employees ; is that correct?
Mr. RIDDELL. Yes.
Mr. JOIIANSEN. About how many of those do you have?
Mr. RIDDELL. Are you asking for the number of employees?
Mr. JOHANSEN. What I am trying to clarify is whether your ref-
erence to the American Federation of Government Employees is a
category apart from those other federations or Federal agencies.
Mr. RIDDELL. Yes.
Mr. JOHANSEN. How many Federal employees are in that category?
Mr. RIDDELL. Well, in total for all the associations that we list here,
including the American Federation of Government Employees, we
have about 100,000 governmental employees and their dependents.
The CHAIRMAN. how many Government employees without de-
pendents?
Mr. RIDELL. I am informed there are about 10,000 employees 'and
dependents under the American Federation of Government Em-
ployees.
Mr. JOHANSEN. Not included in these other categories?
Mr. RIDDELL. That is correct.
Mr. JOHANSEN. That. is the point. You have been able to enlist
that much interest by the American Federation of Government Em-
ployees in the program.
Mr. RIDDELL. Yes.
Mr. JOHANSEN. I want to say to the witness that I am very sym-
pathetic with the problems he is presenting, and I am sure that I will
do all in my power to see that he is considered very carefully.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. RrDDELL. Thank you, sir.
Mr. PORTER. I do not see in the Senate hearings that this informa-
tion was presented. Did you appear ?
Mr. RIDDELL. No, sir. We had no opportunity to appear at that
time. We were under the distinct impression the bill would extend
to, and permit, our associations, or our agency associations of em-
plo ees, to procure the benefits of their plans for the future.
Now it is true we were laboring under a misapprehension, but we
do not want to pass up this opportunity to make our point.
Mr. PORTER. Do you anticipate opposition to this proposal?
Mr. RIDDELL. No, sir. Taking into account the questions here this
morning, I can see no reason why the bill would not be amended to
cover our point. You gentlemen are concerned about the costs. We
have a proven record of handling extremely difficult cases at very,
very low administrative costs. We have a, proven record of granting
a unique and unsually good service to a large block of Government
employees, and we are convinced that they want to continue with us.
They would like to have the privilege of having their own plans con-
tinued.
When I say "with us", we would hope we would get their business,
but we are not here asking this bill be amended to give us a patent
on the business for the future. The only thing that we are asking for
is that it be amended to give us a chance to bid on it. We are very
much in favor of competition under this bill. We got our business,
Mr. Porter, because we are competitive; because in a headon fight
with other companies for the business we were able at the lowest cost
to provide the most service and to meet these problems when nobody
else really wanted to solve them.
Mr. PORTER. I am sure that this committee wants to get the most
service for the least cost. I do want to inquire about your amend-
ment. I notice it is limited to employees and associations in existence
and having 2,000 or more. You would not want the field to be so open
to competition that new agencies could be formed?
Mr. RIDDELL. Well, sir, I will have to answer you in this way. We
are not unaware of the fact that the Civil Service Commission has
stated that for administrative reasons they want the number of plans
limited. Now, I admit this amendment was drafted taking into
account the point of view expressed by the Civil Service Commission's
representative. We would like to have the bill as competitive as pos-
sible, but if there is validity to the point that the availability of too
many plans would cause administrative inconvenience, we would like
to have it cut out this way.
Mr. PORTER. To afford competition we might as well leave out your
second suggestion.
Mr. RIDDELL. I quite agree.
Mr. PORTER. And just strike out organizations and insert in lieu
thereof organizations or agency employee organizations and not limit
it to those already in existence.
Mr. RIDDELL. I agree with you 100 percent.
We think that we have been able to do a good job up to now. We
would like to be in a position where we can continue to do a good job
for those employees who today have the benefits provided by our
services. I think the two amendments here do the job.
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306 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
I have not mentioned the Panama Canal Company case, and I would
like to take just a second to cover that.
Today there is in existence a plan negotiated by the Panama Canal
Company and the Canal Zone Government on behalf of its employees.
It presently covers both citizens and noncitizen employees. We are
aware of the fact that the decision has been made within the bill to
cover only citizen nonresidents of the United States, and we do not
quarrel with that premise at all. However, today in Panama we have
established a branch office, staffed by people who speak both Spanish
and English, who are intimately familiar with the health problems
confronted in the Panama Canal Zone who are prepared as a practical
matter to give service, and we would like to be in a position to con-
tinue to bid on and operate that plan for citizen employees under this
bill.
The amendment simply serves the purpose of adding a new category
to the number of plans that may be authorized by the Civil Service
Commission.
Mr. GRoss. Under the American Foreign Service Protective Asso-
ciation you insure aliens as well as Americans; is that correct?
Mr. RIDDELL. No, sir, only under the Canal Zone plan. That is a
separate plan from the American Foreign Service Protective Associa-
Mr. GRoss. You spoke of the classified nature of some of these
plans you have, or something to that effect. I do not recall your
words. What is so secretive about the hospital and medical care plans
from that standpoint?
Mr. RIDDELL. I hope you will appreciate that I am not in a position
to answer that question.
Mr. GRoss. Give me a hypothetical case.
Mr. RIDDELL. Let us take a hypothetical case.
Mr. GRoss. I do not want to mention individuals.
Mr. RIDDELL. For example, sir, we could not identify individuals
by name, and the only thing we know about some of our insured is
their numbers. We may not even know their age or their sex, or their
medical history.
Mr. GRoss. In the Foreign Service, do you mean?
Mr. PORTER. The CIA.
Mr. GRoss. I am talkinm about the Foreign Service.
Mr. RIDDELL. The chief problem with respect to the Foreign Serv-
ice, and one of the reasons we have had unique problems with them,
is that about 90 percent of their personnel are overseas.
Mr. GRoss. I am talking about this classified angle, this super-
secrecy that attends so many things around here.
Mr. RIDDELL. It is principally with respect to the employee asso-
ciations for the Central Intelligence Agency and the National Security
Agency.
Mr. JOHANSEN. In other words, this problem of secrecy does not
relate to the Foreign Service?
Mr. RIDDELL. No, sir.
Mr. JOHANSEN. But to these other agencies, who, by the very nature
of their operations, must be secret ?
Mr. RIDDELL. Yes.
Mr. JOHANSEN. Even to the identity of the employees involved?
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 Approved Fo A is%la9P#19;/9 R 9J M Q 79000300989001-2
Mr. RIDDELL. Yes. I am sorry that I confused you.
Mr. PORTER. I would think that the gentleman from Iowa would
join me in open admiration for any company that insures CIA em-
ployees overseas against their health problems.
Mr. GROSS. Why?
Mr. RIDDELL. We found that we could do it when other people were
not willing to try.
Mr. Gross. I can remember when the CIA came before the Man-
power Utilization Subcommittee and said that they could not even
give us the number of supergrades in that Agency. I am sure that
the chairman of the subcommittee will substantiate what I am saying.
We had to go after them in order to get merely the number of super-
grades. I am a little fed up with all this supersecrecy.
Mr. JOIIANSEN. I am perfectly willing to be critical of the CIA,
but I do not think the criticism of the CIA justifiedly extends to the
restrictions of the insuring agency who has been subjected to those
restrictions.
Mr. Gross. I did not mean to imply in any way criticism of your
operations, Mr. Riddell.
Mr. RIDDELL. I understand that.
Mr. DAVIS. Unfortunately, I could not be here at the beginning of
your statement, but I have read it through. I gather that the em-
ployees to whom you refer in your statement are practically all over-
sea employees?
Mr. RIDDELL. Many of them are.
Mr. DAVIS. Are there any here in the United States?
Mr. RIDDELL. Yes.
Mr. DAVIS. How many in the United States?
Mr. RIDDELL. I cannot give you the breakdown, sir. I do not know
it now.
Mr. DAVIS. Can you say approximately how many?
Mr. RIDDELL. With respect to one agency, the Foreign Service
group, 90 percent, I am informed, would be overseas.
Mr. DAVIS. Do you have approximately 100,000 employees covered
under this system ?
Mr. RIDDELL. And dependents, yes.
Mr. DAVIS. And dependents?
Mr. RIDDELL. Yes.
Mr. DAVIS. Now, with regard to those who are overseas, do you
merely provide an indemnity for them, a cash payment, or do you
provide hospital and medical services?
Mr. RIDDELL. We provide indemnity, sir.
Mr. DAVIS. You do not undertake to provide the hospital and medi-
cal services, though?
Mr. RIDDELL. No, sir.
The CHAIRMAN. I have received a letter from the Central Intelli-
gence Agency and also one from J. Edgar Hoover, of the Federal
Bureau of Investigation, concerning their health insurance plans.
The letters have been previously inserted in the record.'
A portion of Mr. Hoover's letter reads as follows :
SAMBA provides a comprehensive hospital, surgical and major medical ex-
pense policy underwritten by the Prudential Insurance Co. of America. The
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association nas enjoyed a history of improved benefits each year since it was
organized in 1948. There are approximately 9,200 members, and including
dependents about 28,000 people come under the protection provided through
SAMBA. During the last fiscal year claims paid totaled approximately $830,000.
In reviewing the Federal Employee Health Benefit Act of 1959, S. 2102, it
appears that SAMBA satisfies the language therein as an employee organization
except for the restrictive definition of such an organization as a "bona fide
labor organization" in section 2(h). I am taking the liberty to bring this to
your attention with the hope that if amendments are made in the bill it may
be possible to include such wording as would make it possible for SAMBA to
qualify as an employee organization under the bill.
Mr. RIDDELL. The amendment I propose would cover that case as
well as our case.
The CHAIRMAN. As well as the Central Intelligence Agency?
Mr. RIDDELL. And the Foreign Service case, the NSA case and any
other case of a similar nature.
The CHAIRMAN. Judge Davis?
Mr. DAVIS. As to these employees who are here in the United States,
do you furnish any hospital and medical services for them?
Mr. RIDDELL. Indemnity, Sir.
Mr. DAVIS. I notice that you gave a list of those employees you have
insured and you also include in that list the American Federation of
Government Employees.
Mr. RIDDELL. Yes, sir. They are not apropos of our present discus-
sion. They are already covered by the provisions of the bill.
Mr. DAVIS. How many AFGE employees did you say you have?
Mr. RIDDELL. Including their dependents, sir, around 10,000.
The CHAIRMAN. You say that this bill as passed by the Senate would
put you out of business?
Mr. RIDDELL. No, sir; the carrier and the agent will continue in
business. We are right scrappy people and we have always managed
to do business, but it would preclude us from continuing to provide
services to these associations in the manner we have in the past., and
since there will be only one indemnity carrier allowed under the bill,
who will then reinsure with the other companies, it would preclude
us from handling them as an individual case.
We have the machinery all set up and the experience, the operating
advantages that these people have need for and think to be desirable.
We simply like to be in a position to continue to bid for their cases.
Mr. JOHANSEN. Would the chairman yield?
The CHAIRMAN. Yes.
Mr. JOHANSEN. I think the import of the chairman's question was
whether this legislation, without the amendment proposed, would
put you out of business with respect to these Federal employees?
Mr. RIDDELL. Yes, sir. It would put them out of business as
employee associations for the purposes of taking care of their own
health problems.
Mr. JOHANSEN. So this would put you out of business so far as they
are concerned?,
Mr. RIDDELL. Yes, Sir.
Mr. REES. Mr. Chairman?
The CHAIRMAN., Mr. Rees?
Mr. REES. I understand that you want to amend the bill on page 8,
line 11, by adding the words "or agency employee associations"?
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Mr. RIDDELL. Yes, sir; plus the addition of a defined term which
would define agency employee associations to mean an association of
2,000 or more employees of any department,. agency, or instrumentality
of the United States which, on July 1, 1959, had in force a plan.pro-
viding benefits for health services to members of the association, or
contracted for by the association.
As I pointed out to Mr. Porter, the limiting factors of date and
the number of employees were added for the purpose of attempting
to meet the statements in the Senate report or those made heretofore
by members or representatives of the Civil Service Commission to
the effect that they wanted to narrow administrative problems as
much as possible.
Mr. Gross. Mr. Chairman?
The CHAIRMAN. Mr. Gross?
Mr. Gross. This is very interesting. You provide medical and
hospital plans for the CIA or the Foreign Service, take any of
them, on the basis of numbers? You just have numbers? You do
not have names? You just deal in numbers?
Mr. RIDDELL. We do not have any of that information.
Mr. Gross. That is very interesting. I do not quite understand
how it is done, that you can get by with a plan of this kind on the
basis of numbers, period.
Mr. PORTER. Do you make money on this?
Mr. GROSS. Why, sure they make money on it.
Mr. RIDDELL. Initially, I do not know that that was the case, Mr.
Gross. It is simply that, confronted with the problem, we were
willing to take the case on. Standard underwriting practices of the
industry would have caused us to throw up our hands and say,
"Goodness, we cannot do this business."
Mr. GROSS. If that is the way we are operating this Government
on a blind check basis
The CHAIRMAN. That is what happened in the Central Intelligence
Agency, is it not?
Mr. GROSS. The Foreign Service is listed here, too.
Mr. RIDDELL. Mr. Gross, may I add an addenda to my answer?
Mr. Gross. Sure.
Mr. RIDDELL. The plan today is paid for by the employees.
Mr. Gross. I understand that.
Mr. RIDDELL. They evidently have found it possible for us to handle
their cases
Mr. GROSS. But under this bill a Federal contribution is to be made,
is it not?
Mr. RIDDELL. Yes, sir.
Mr. GROSS. We are going to be picking up some of the check from
here on out if we pass the bill with the amendment that you suggest?
Mr. RIDDELL. Yes, sir.
Mr. GROSS. Still we are going to be dealing only in numbers, are
we not?
Mr. RIDDELL. From our point of view we are the people taking the
risk with the lack of information.
Mr. Gross. I do not know how it is done.
Mr. RIDDELL. On the basis of the integrity of the association we
are dealing with. We know from experience that when they send in a
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3 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
claim to us it is a valid clai.m. We have never had any reason what-
soever to doubt the integrity of the association.
Mr. GROSS. It would be interesting to know how you issue a check.
How do you pay a claim? That is a new one on me.
Mr. CHAIRMAN. Is Mr. Jones present? Maybe he can explain the
modus operandi of this organization.
Mr. RIDDELL. Mr. Chairman, may I state that it would be most
embarrassing to Mr. Jones to have to go into the details of this oper-
ation here. It would possibly impinge upon security considerations
and we would prefer, if possible, not to have to give this information
in a public hearing.
Mr. PORTER. I do not see how it is relevant.
The CHAIRMAN. How about the Federal Bureau of Investigation?
Mr. RIDDELL. We do not have that case.
The CHAIRMAN. You do not have the FBI?
Mr. RIDDELL. No, sir.
Mr. GROSS. You have the same thing in the Foreign Service?
Mr. RIDDELL. No, Sir.
Mr. JOHANSEN. Mr. Chairman, in view of the fact that the witness
has been asked a question, whether the firin makes money-and I
understood the witness to answer in the affirmative-I assume, and I
hope, that the record will show that neither the company nor the
witness is apologizing for that fact.
Mr. RIDDELL. No sir.
Mr. JOITANSEN. I do not think we have reached the point in this
country yet where we apologize for making a profit. If we have, we
are further down the drain even than I fear we are.
The CHAIRMAN. How long have you been underwriting the CIA
employees?
Mr. RIDDELL. Since 1948, sir.
The CHAIRMAN. Any other questions?
Mr. PORTER. I take it that there is no proposal that you under-
write 2 million Government employees on the same basis?
Mr. RIDDELL. No, sir.
Mr. JOHANSEN. Mr. Chairman, just one further question.
The CHAIRMAN. Mr. Johansen.
Mr. JOHANSEN. I realize that from the standpoint of the problems
of administration there has to be a minimum cutoff.
Do you have any knowledge as to whether the 2,000 minimum pro-
posed in your amendment would still preclude any similar arrange-
ments?
Mr. RIDDELL. None to our knowledge, sir.
There may be, somewhere in the United States, one that we have
not heard about, but not to our knowledge; none.
Mr. JOHANSEN. I do want to say one further word, the fact that
there have been employee groups that have had the initiative-and
this applies to the testimony we had the other day, as well as to yours-
to develop programs of these types an a private initiative and private
enterprise basis, is most commendable and I shall do everything I
can to see that there is a reasonable safeguarding of their interests
in this matter.
Mr. RIDDELL. Thank you.
The CHAIRMAN. Mr. Davis?
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Mr. Davis. Mr. Riddell, how many similar organizations to yours
do you know of that are in business today and would be covered under
this amendment?
Mr. RIDDELL. The FBI is the only one we know of that is on the
same basis that we are, sir.
The CHAIRMAN. That will be referred to the Civil Service Commis-
sion when their representative appears here.
Any other questions?
Do you wish to make any comment, Mr. Carbo?
Mr. RIDDELL. He is the associate manager of the agents.
The CHAIRMAN. He is with Mr. JonesT
Mr. RIDDELL. Yes, sir.
The CHAIRMAN. That is an individual business, is it not? Is it
incorporated?
Mr. RIDDELL. It is an underwriting agency, sir; yes, sir.
The CHAIRMAN. It is not an incorporated insurance agency in the
District of Columbia?
Mr. RIDDELL. It is an incorporated general agency of an insurance
company.
The CHAIRMAN. All right.
Thank you, sir.
We will next hear from Mr. John D. Bremsteller, independent in-
surance broker, Association Group Insurance Agency.
STATEMENT OF JOHN D. BREMSTELLER, INDEPENDENT INSURANCE
BROKER, ASSOCIATION GROUP INSURANCE AGENCY, ACCOM-
PANIED BY JOHN P. MILLER
Mr. BREnrsTELLER. Mr. Chairman, this is my father-in-law, Mr.
Miller.
My statement takes 6 minutes, Mr. Chairman. Thank you for
allowing me to testify.
My name is John D. Bremsteller, 500 Walker Building, Washing-
ton, D.C. I am an independent insurance broker licensed under the
laws of the District of Columbia. My chief source of income is de-
rived from selling "association" health and accident coverage to Fed-
eral employees. If Senate bill 2162, before your committee, is en-
acted, its effect will essentially wipe out my present source of liveli-
hood. I therefore feel that I have a valid right to testify before your
forum. My chief objection to the bill, as now written, is section
4, provisions 1, 2, 3, and 4. This section will distribute the business
to a select few insurance carriers; completely ignoring the fact that
there are programs now existent in Government agencies and as-
sociations which are not only lower in cost, but which are more
definitive and comprehensive in benefits than those standards set forth
in S. 2162. I have one such program now in effect in the Geological
Survey of the Interior Department which after 6 months of active
solicitation has reached a participation rate of better than 65 per-
cent. I believe that if you and the members of your committee are
sincerely interested in adding employee fringe benefits and at the
same time holding Government expenditures to a? minimum, it is in-
cumbent upon the committee to hear testimony that purports to do
both.
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312 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
I request that section 4, provisions 1, 2, 3, and 4, be amended to
include those programs now available to Government agencies and
associations which meet the standards to be set down by the Civil
Service Commission.
The program attached to this statement is the health plan-there
have been some revisions made since the printed brochure-now
in effect in the Geological Society of Washington. This society is
more than 50 years old ; over 80 percent of its members are Federal
employees in one or more departments of the Government.
(The program referred to follows:)
GEOLOGICAL SOCIETY OF WASHINGTONPRESENTS YOUR GROUP INSURANCE PRO-
GRAM INCOME REPLACEMENT AND MAJOR HOSPITAL INSURANCE DESIGNED EX-
CLUSIVELY FOR MEMBERS AND THEIR DEPENDENTS
You gain these advantages after your coverage is validly in force :
Your insurance cannot be terminated or restricted by the company so long
as the group plan remains in force, you remain a member of the society or until
you retire.
Full policy benefits payable for successive periods of sickness disability when
such periods are at least 90 days apart.
Every active member in good standing under 70 and who is not disabled, is
eligible to apply for the insurance.
Coverage is worldwide. There is a free choice of physician or hospital.
Each member can tailor the monthly indemnity to meet his needs.
The cost is low because of being purchased on a group basis.
Premium waived if total disability exceeds 6 months.
The only exclusions are pregnancy, intentionally self-inflicted injury, war,
military service and flying other than commercial scheduled.
House confinement is never required to obtain your benefits.
When your insurance is validly in force, the benefits are payable regardless
of any other insurance you may carry.
31 days of grace are allowed for payment of premiums.
Administered by John D. Bremsteller, Silver Spring, Md. Underwritten by
American Casualty Co., of Reading, Pa.
Plan
AAA
Plan
AA
Plan
A
Plan
B
Plan
C
Monthly indemnity, accident:
A monthly indemnity for total disability beginning with
the lst day and payable for life, if disabled for so long a
period---------------------------------------------------
A monthly indemnity for partial disability beginning with
$500
$400
$300
$200
$100
thelstdayandpayable for3months ----------------------
250
200
150
100
50
Actual medical expense up to the amount of Ye month's
indemnity in case ofnondisablinginjuries ----------------
Monthly indemnity, sickness: A monthly indemnity begin-
125
100
75
50
25
ning with the 1st day of hospital confinement or the 8th day
of total disability (whichever occurs first) and payable up to
24 months. (House confinement notrequired) ---------------
Accidental death, dismemberment and loss of sight indemntiy:
500
400
300
200
100
Loss of life-------------------------------------------------
Loss of any 2 of the following: Hands, feet, or eyes-----------
5,000
5,000
5,000
5,000
5,000
5, 000
5,000
5
000
5,000
5
000
Loss oflhand or1foot -------------------------------------
Loss of entire, sight of1eye- _____________________------------
2,500
1,625
2,500
1,625
2,500
1 025
,
2,500
1,625
,
2,500
1
625
Thumb or index finger ofeitherhand_____________
1,250
1,250
1,250
1,250
,
1,250
NOTE.-Loss must occur within 180 days after the accident. The above amounts are payable in addition
to any other indemnity, if any, up to the time of loss of limb or sight. In the event of more than 1 loss, only
1, the greater, is payable.
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 313
Plan
AAA
Plan
AA
Plan
A
Plan
B
Plan
C
PLAN 1-1sT DAY ACCIDENT-8TII DAY sICItNE88
Age of member:
-----------------------------------------------
18 to 39
$142.00
$115.00
$88.00
$61.00
$34.00
..----
-----------------------------------------------
40 to 49
164.50
133.00
101.60
70.00
38.50
-----
------------------------------------------------
50 to 69
202.00
163.00
124.00
85.00
46.00
----
60 to 69---------------------------------------------------
223.00
184.00
145.00
99.00
53.00
PLAN 2-91sT DAY ACCIDENT-918T DAY SICPNE3s
Age of member:
79
50
00
65
50
50
36.00
21.5(
18 to 39----------------------------------------------------
-----------------------------------------------
40 to 49
.
92.00
.
75.00
,
58.00
41.00
24.0(
----
------------------------------------------------
-
50 to 59
109.50
89.50
68.50
48.00
27.6(
-
--
60 to 69----------------------------------------------------
124.50
101.00
77.60
54.00
30.5(
Note.-Premiums apply at age of entry and at attained ago upon renewal date. semiannual premiums
are~i above amounts.
MAJOR IIOSPITAL SPECIFICS
Coverage
The benefits to be gained are many. The plan provides payment of hospital
and nurse expenses incurred as a result of any one accident up to 2 years
from occurrence or any one period of sickness up to 2 years from first day of
hospital confinement which are in excess of the deductible, up to a maximum
of $10,000 for each covered person.
1. One-hundred percent of hospital room and board.,
2. One-hundred percent of charges made during hospital confinement for nec-
essary miscellaneous hospital care and treatment.
3. Seventy-five percent of the expenses incurred for the services of a regis-
tered nurse while hospital confined.
4. Doctor's visits or treatments while hospitalized up to $5 per call not to
exceed two calls per day for the first 3 days and one call per day thereafter.
(Excludes surgical procedure and post operative care).
5. Up to $1,500 for confinement or treatment within an institution operated
especially for mental or senile patients.
Surgical benefits
Pays in addition to the above amounts and not as part of the $10,000 limit
of payment and not subject to the deductible. Benefits from $5 to $500 ac-
cording to a comprehensive schedule.
Recurrent sickness
After you have incurred no expense for a period of at least 12 months from
a condition for which benefits were paid under this policy, a recurrence of
such condition shall be deemed a new sickness, subject to a now deductible
and a new $10,000 limit of payment.
Renewability
Major hospital is renewable each year and cannot be terminated by the
company so long as the program remains in force, unless you cease to be a
member of the society, retire from your profession, fall to pay premium when
due, or until the premium due date following your 70th birthday.
Tax deductibility
Major hospital premiums qualify under the Internal Revenue Code as Medi-
cal expense.
Dependency coverage
Major hospital can cover spouse and dependent unmarried children between
ages of 14 days and 20 years.
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314 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
Es?clusions
Pregnancy, childbirth or miscarriage, except complications other than surgical
procedure, military service, war, confinement or treatment in a U.S. Govern-
ment institution or agency thereof ; intentionally self-inflicted injury.
Eligibility
All active members under age 70 in the full time practice of their profes-
sion are eligible to apply. They may also include their spouse if under age
70 and all dependent unmarried children 14 days to age 20 for coverage. If
a participation of 50 percent of the eligible members is attained during the
charter enrollment period, all applicants will be insured regardless of medical
history. After the charter enrollment period the company reserves the right
to accept applications on the basis of applicants' insurability.
Age of member
Member
Member
and
spouse
Member,
spouse and
all children
Plan A ($100 deductible, $10,000 maximum):
18 to 39---------------------------------------------------
40 to 49
$28
$62
$91
---------------------------------------------------
50 to 59---------------------------------------------------
44
64
91
141
121
168
60 to 69---------------------------------------------------
Plan 13 ($500 deductible, $10,000 maximum):
92
202
229
18 to 39---------------------------------------------------
40 to 49
11
24
35
---------------------------------------------------
50 to 59---------------------------------------------------
16
26
36
56
47
66
60 to 69---------------------------------------------------
Surgical benefits (optional):
43
93
104
18 to 39--------------------------------------------------
40 to 49
9
24
36
---------------------------------------------------
50 to 59---------------------------------------------------
12
15
32
40
48
60
60 to 69---------------------------------------------------
18
48
72
NOTE.-Premiums apply at ago of entry and at attained age upon renewal date. Semiannual premiums
are 34 of above amounts.
Mr. BREMSTELLEI0. With statistical data available to me as of July
1, 1959, I have made the following survey relevant to the program :
(1) 433 members are covered under the mayor hospitalization portion
of the program; (2) average age of these 433 members, 40.9; and
(3) average yearly premium of these 433 members, 83.52 and a fraction
per member; or a total yearly premium of $36,073..
Assuming that the maximum premium was charged under S. 2162,
the total premium for the 433 members above mentioned could be
$83,083 broken down as follows :
Per year
97 single members at $1.75 biweekly---------------------------------- $8,827
336 family members at $4.25 biweekly--------------------------------- 74,256
Total cost----------------------------------------------------- 83,083
With these same 433 members in my program-and assuming each
member took the maximum program, i.e., the $100 deductible with
surgery-the total premium would be $53,824 per year. It is ex-
tremely unlikely however, that all members would select the maximum
coverage, even if the Government would subsidize one-half of the cost;
therefore, the $53,824 is an unrealistic figure-but it is my intent to
spell out maximum as well as minimum costs.
Though my actual program is before you, I would like to make a
brief synopsis of its coverage in this statement. Each member-
meaning everyone in his family-is entitled to a hospital expense
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HEALTH BENEFITS FOR FEDERAL EMPLOYEES 315
account of $10,000 for each separate accident or sickness, with only
the following significant limitations :
(1) The first $100 or $500 of hospital expense must be borne by
the member.
(2) Only 75 percent of the expenses incurred for the services
of a private nurse will be reimbursed.
(3) Doctor's visits or treatments while hospitalized, up to $5
per call not to exceed two calls per day for the first 3 days and one
call per day thereafter (excludes surgical procedure and post-
operative care).
(4) Up to $1,500 for confinement or treatment within an insti-
tution operated especially for mental or senile patients.
(5) Benefits from $5 to $500 for surgeon's fee (this is not a part
of the $10,000 limit of payment and therefore not subject to the
deductible).
(6) No benefits for maternity.
I am not opposed to the Government paying 50 percent of the health
insurance premium for Federal employees. I am not opposed to Fed-
eral unions. But I am opposed to the Government legislating out of
business the agent and independent broker; when he can compete
successfully with the big insurance carriers. In my judgment, the
evil in erasing this small businessman from participating in Govern-
ment distribution of business far outweighs the argument that his
inclusion in it would add to the workload of a Government agency.
If the committee sees the merit of my position, I request that section
4, provision (3), be amended to include those associations consisting
predominantly of Government employees which already have in prac-
tice a program of health insurance which meets or will meet the
requirements of the Civil Service Commission; further, that section 2
paragraph H, be revised to include the type of association mentioned
herein.
I now am ready to answer your questions.
The CHAIRMAN. Any questions?
Mr. PORTER. You are supporting the amendment offered by your
predecessor?
Mr. BREMSTELLER. With one exception, the 2,000 minimum.
Mr. PORTER. You want to take that out? That would mean more
plans and more competition?
Mr. BREMSTELLER. Yes, sir; but the bill has a cutoff date of July 1,
1959.
In other words, an association could not be formed now to have an
insurance program. It would only include those in effect as of July 1.
Mr. PORTER. My own opinion is that as of now it is just the first
amendment; namely, changing that language and leaving out the
second amendment completely unless the Civil Service Commission
deals with all people who want to compete, whatever their source and
whatever the date of their formation.
Mr. BREMSTELLER. I would say that they would save quite a bit of
money if they did that, sir.
My statistical data points out a difference of almost $50,000 between
the Government cost and what the cost is on our program.
Mr. DAVIS. How do the benefits compare?
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Mr. BREMSTELLER. We think they are wider.
Mr. DAVIS. Your plan is more beneficial?
Mr. BREMSTELLER. Yes, sir.
A person who plans his insurance well will insure for those big
things. One of the evils of high premiums and high hospital costs
today is the fact that everybody gets a carte blanche when they goo
to the hospital for the first few hundred dollars. We discourage
unnecessary hospital care by saying, "You pay the first $100," or "You
pay the first $500."
We say, "We will take care of the big things and you take care
of the small things."
The most you would spend under our program is $100 or $500,
whichever program you select.
Where we take it off the front, other programs take it off the
back. You know what we are going to charge you; you know what
you are going to pay.
I heard the testimony of the American Hospital Association wit-
ness the other day that Blue Cross pays about 80 to 90 percent of the.
total bill. I would rather pay the first $100 than pay 10 or 20 per-
cent of the balance. That is the principle of our program and our
benefits go to $10,000.
In other words, we do not care what hospital you go to, anywhere'
in the world. We do not care whether you take a private or semi-
private room. We do not care how much you spend for X-rays,
oxygen, and so forth. We pay up to $10,000 for each hospital stay or
sickness.
Mr. PORTER. After a deduction of the first $500?
Mr. BREMSTE, LLER. Yes, except for surgery. We do not deduct for
surgery.
For example, if your hospital bill were $50 and your surgical bill
$300, we would not pay any of the $50 but we pay, if it meets our sur-
gical schedule, all of the $300.
The CitAIRMAN. You have a surgical schedule for different types
of operations?
Mr. BREMSTELLER. Yes, Sir. We have one here if you would like,
to have it.
The CHAIRMAN. Do you have any Government employees with you
How many Government employees are covered by your plan?
Mr. BREMSTELLER. Better than 500, sir. Probably close to 600.
Mr. RTES. All in one agency?
Mr. BREMSTELLER. I would say that 95 percent of them are in the
Geological Survey at the Interior Department.
Mr. REFS. Do you have a proposed amendment?
Mr. BREMSTEr LER. Yes, sir. I have proposed one.
Mr. BEES. It is attached to your Statement?
Mr. BrEi4MS'rE1LLER. It is incorporated in the statement, Mr. Rees.
The CHAIRMAN. You recommend that section 4, paragraph 3, be
amended to include those associations consisting predominantly of
Government employees which already have in practice a program of
health insurance which meets, or will meet, the requirements of the
Civil Service Commission?
Mr. BREMSTELLER. Yes, sir.
The CIIAIR-MAN. You also suggest that section 2, paragraph IT, be.
revised. to include the type of association mentioned here?
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Mr. BREMSTELLrR. Yes, sir. That latter paragraph defines what
an employee association is and that definition would have to be
changed as well as the first, section 4.
The CHAIRMAN. Do you have the two amendments drafted?
Mr. BRCMSTELLER. No, sir; but I can draft it for you, sir.
The CHAIRMAN. How long have you been in the insurance busi-
ness?
Mr. BREMSTELLER. 5 years.
The CHAIRMAN. You represent various insurance companies ?
Mr. BREMSTELLER. Yes, sir.
The CHAIRMAN. You area broker, are you not?
Mr. BREMSTELLER. Yes, sir.
The mechanics would be simply this : The Geological Survey ap-
points me as their broker and I go to Continental Casualty, the Mutual
of Omaha, or American Casualty, and other companies, and submit
their bids. That is where your competition comes in. That is why
we can do it cheaper than one carrier. We get the benefit of compe-
tition each time, and we also have the benefit of being closer to the
case.
With all due respect to Mr. Jones, we do not identify people by
numbers. We go after people personally.
The CHAIRATAN. But you do not cover any CIA employees, do you?
Mr. BREMSTELLER. No, sir. We do not.
Mr. JOIIANSEN. That is the reason they do identify them in that
2
w Mr. Bi.raisrrLLER. Yes, sir. They must do so under the .security
code. We have a personal touch with our association members and
in that respect we feel that our premiums will never rise for the rea-
son that if our claim ratio gets out of proportion to premium income,
we will go out and get fresh people to offset that-meaning, in the
way of new members.
The CHAIRMAN. Has your coverage of Federal employees been. in-
creasing or decreasing over the last several years?,
Mr. BREMSTELLER. Have the benefits been increased?
The CHAIRMAN. No; the coverage of those Federal employees.
Has the number been increasing or decreasing?
Mr. BREMSTELLER. You mean the number participating in the pro-
gram?
The CHAIRMAN. Yes, sir. You say that you deal principally, with
the Geological Survey in the Department of Interior and no -other
agency except the Geological Survey of the Interior Department is
included in your contract?
. Mr. BREMSTrLLER. No, it could be a geologist in the Agriculture De-
partment or in the Army, or in the Bureau of Mines, if they are
eligible for the association. If they are eligible for the association,
they are eligible for our coverage.
The CHAIRMAN. Geologists, principally ?
Mr. BREMSTELLER. Yes, sir. It might be a geologist at Johns Hop-
kins University would be eligible for the program; as long as `he be-
longs to the society.
Mr. JOHANSEN. Mr. Chairman?
The CIIAIRMAN. Mr. Johansen.
Mr. JOHANSEN. I am ,,v little disturbed about this. I wonder whether
there is a potential problem posed by this proposed language in the
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318 HEALTH BENEFITS FOR FEDERAL EMPLOYEES
amendment to include those associations consisting of predominantly
Government employees.
I am wondering what constitutes "predominantly Government em-
ployees" and whether the fact that it involves a commingling in cover-
age of non-Government and Government employees mig it pose a
problem.
Mr. BREMSTELLER. No, sir.
To answer your second question first, the benefits under the Govern-
ment program would only inure to those who are Federal employees
as far as the subsidy is concerned. In this case, for example, we had
better than 80 percent of Federal employees in the society and I say
that falls within the definition of predominant. I could not pick an
arbitrary
Mr. JOHANSEN. Is it my understanding that you are now proposing
that the cutoff date that was referred to earlier be eliminated and that
hereafter new organizations and associations of this type would be
formed? Is that what you are proposing?
Mr. BREMSTELLER. I would not say one way or the other, but I would
say that if it is removed that the Government will save a good bit of
money. With more people competing in this program it may throw
a workload on the Civil Service Commission but it will save money
and it will more than offset the added administrative costs.
Mr. DAVIS. That cutoff date was not proposed by him. It is al-
ready in the bill.
Mr. JOHANSEN. I realize that, but I say to the gentleman that, off-
hand, I am not absolutely sure whether we may not be creating very
serious problems if this is going to be open in the future to a, large
crop of these associations or private brokers who spring up because
of the availability of Federal funds.
Mr. BREMSTELLER. If that is a fear, that cutoff date could be kept
in the bill. In overall philosophy, I still believe there is a greater
evil in legislating a bill, or enacting a bill, which says to four or five
companies, "Here are 2,400,000 customers for you," and cutting out
every agent and broker who makes his living selling to those people.
I think it is a greater evil in the latter case than in the former.
Mr. JOHANSEN. I think the gentleman heard my remarks earlier.
Mr. BREMSTELLER. Yes, sir; and I appreciate that.
Mr. JOHANSEN. Established associations, and so on?
Mr. BREMSTELLER. Yes.
Mr. JOHANSEN. I want to be sure we strike a balance here that is,
as far as possible, fair and yet recognizes practical problems that the
Government has in the matter.
Mr. BREMSTELLER. If the cutoff date is kept there, I do not think
you will find many associations-
Mr. JOHANSEN. You would not object to the retention of that?
Mr. BREMSTELLER., No, sir; I would not, sir.
The CHAIRMAN. Any other questions?
If not, thank you very much, Mr. Bremsteller.
The committee will next hear from Mr. Vaux Owen, president, Na-
tional Federation of Federal Employees.
You may proceed, Mr. Owen.
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STATEMENT OF VAUX OWEN, PRESIDENT, NATIONAL FEDERATION-
OF FEDERAL EMPLOYEES; ACCOMPANIED BY LELAND M.
WALKER, SECRETARY-TREASURER
Mr. OWEN. Mr. Chairman and members of the committee, my
name is Vaux Owen and I am the president of the National Federation
of Federal Employees. I am accompanied by the national secretary-
treasurer, Mr. Leland M. Walker.
The National Federation of Federal Employees is an independent
organization and is the largest and oldest in its field. It has members
in all departments and agencies and in virtually all categories of em-
ployment and in all graces. Its members serve the Federal Govern-
ment in all of the States, the District of Columbia, the Territories and
possessions, and at many stations and installations throughout the
world.
I wish to express the strong support of the National Federation of
Federal Employees for the medical and health legislation now under
consideration by this committee.
The objectives of this legislation long have been sought by our
organization.
Successive national conventions of the NFFE have gone on record
unanimously in favor of such legislation.
The need for this kind of a program has been increasingly apparent
and with a mounting degree of urgency.
Costs of medical care have been growing rapidly. Extended ill-
nesses have had catastrophic economic effects upon the individuals and
families concerned.
In progressive business and industry, the need for the kind of medi-
cal and hospital insurance protection contemplated in the pending
legislation has been recognized for many years. That recognition has
had tangible results in the establishment of health benefit programs
for employees at an accelerated rate.
Progressive employers have not only recognized the imperative need
for this kind of protection for their employees but they have found
by experience that it is the soundest kind of personal policy to provide
it. In other words, it is good business practice that returns dividends
in both tangible and intangible ways.
It is the considered view of the National Federation of Federal Em-
ployees that the enactment of a medical and hospital insurance pro-
gram not only would benefit the employees but would be highly useful
to the Government in the more efficient conduct of the public business.
The enactment of such a program would have positive and construc-
tive effects in helping