HEARING - U.S. Senate Special Committee on Aging

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Senator PRESSLER. So your company is a nonprofit company?
Mr. SHAPLAND. Right. A mutual company is owned by its policyholders
and is not in the business to make a profit.
Senator PRESSLER. So the companies that you are representing
today, are they nonprofits?
Mr. SHAPT AND. Yes, if it is a mutual. Anytime you see a name
like Mutual of Omaha, Mutual of New York. Prudential is also a
mutual company, and so on.
Senator PRESSLER. OK. So if you start making a profit, then you
pay a dividend; is that right?
Mr. SHAPLAND. Life companies pay dividends. But health insurance
dividends are very rare compared to-like you are used to
dividends on life insurance-and that is because health insurance
companies have a different operating philosophy regarding health
insurance than life insurance. In life insurance, you normally put
loadings in your premiums so that you have margins and then
return some of those margins in dividends. Health insurance is
usually run on a basis where you try to price it exactly right so
that you do not have margins.
Senator PRESSLF.R. Before you can offer an insurance policy to
someone, there has to be some law of averages. If you started writing
insurance policies for all these catastrophic cases, you would be
losing a good deal of money; is that correct?
Mr. SHAPLAND. No. The insurance industry has sold milliondollar
major medical policies to almost every employer and individuals
who want to purchase it. We run that risk, and right now,
most of us are surviving. There are some companies that have had
problems with it.
Senator PRESSLER. But if you begin to provide full insurance coverage
for all the situations and expenses we have heard this morning,
you would lose money; is that not true, unless you raised your
premiums substantially?
Mr. SHAPLAND. Well, the formula is that if you charge a premium
that is adequate to cover your expenses and claims, then you
do not lose money, and if you do not charge that much, you will
lose money.
The insurance industry presumes that it can sell long-term care
insurance and be okay. Otherwise we would not be doing it.
Senator PRESSLER. So if these witnesses that you have heard this
morning had purchased that at the right time, they would not be
having the problems they are having today?
Mr. SHAPLAND. Right. And if you are talking specifically about
long-term care and the insurance companies now developing those
policies, that is right.
Senator PRESSLER. Do you feel that the three witnesses who testified
before us today are the exception rather than the rule?
Mr. SHAPLAND, No. I thought they sounded like average cases.
They are the ones that were faced with the catastrophic costs in
areas not covered by Medicare and Medicare supplement policies.
When Medicare was designed, I do not know if it was on the basis
of what the Government knew that they could afford and not
afford to cover, and cost containment rationale and so on, they
chose not to cover out-of-hospital drugs, they chose not to cover
long-term care, and so on. And that is why you are here today.