The degree to which physicians can control unnecessary hospital admissions will always be somewhat less than perfect.

Turning back to the direct question of the cost of H. R. 4222, I want to point out that other factors operate to drive costs upward.

If this Committee is to consider what a bill such as H. R. 4222 is to cost, it must remember that the number of persons eligible for retirement benefits under the OASDI program will increase significantly in the future. Even if H.R. 4222's program were not liberalized, its cost would have to increase because we are adding 300,000 aged to our Social Security rolls each and every year. By 1970 there will be 20 million people over 65 who would be entitled to these benefits.

How would medical expenses of new beneficiaries be met? The answer is simple: taxes would be raised.

Thought should also be given, Mr. Chairman, to the general tendency of welfare programs such as the one proposed by H. R. 4222 to expand under political pressures. Indeed, the effort has already been made--even prior to the bill's consideration by this Committee--to reduce the deductibles specified, or eliminate them altogether if possible. Expansion means added cost, and added cost means higher taxes. It is as simple and inevitable as that.

Beleaguered by all the above financial complications--plus how many others we do not know--what will HEW do should the King bill become law?

I can think of only two recourses, both unpleasant. Either HEW would be back on your doorstep asking for more money--presumably in the form of higher Social Security taxes--or it would be required to curtail benefits.

For, as the officials themselves admit, an unexpected increase in any one component would require either a bigger income or a smaller outgo. The outgo, of course, means health services.

I suggest the Committee should also be mindful of its own experience in dealing with estimates of all sorts over past years. How often have costs been estimated as high as experience proved them to be? My guess would be that this has occurred seldom, if ever.

One example of an HEW miscalculation on the low side comes to mind at the moment. In 1958, a Social Security Administration study said that by 1965 disability benefit payments would be somewhere between $362 million and $735 million. The intermediate cost assumptions produced an estimate for 1965 of $548 million. In 1960, disability benefits paid were $568 million. In other words, disability benefits by 1960 were already larger than the intermediate cost assumption for 1965.

Even if allowance is made for an average increase in benefits of approximately 14 per cent, benefit payments in 1960 would have been almost 500 million dollars, or an amount approaching the intermediate estimate for 1965.

I contend, gentlemen, that estimates for public programs-particularly those of HEW--run almost consistently too low. They are pitifully too low for the most part; disasterously too low sometimes. H. R. 4222 cost estimates could easily fall into the disasterous category.

SECTION VII

EFFECT OF H.R. 4222 ON THE SOCIAL SECURITY SYSTEM

As I pointed out previously, Mr. Chairman, the proponents of national compulsory health plans invariably choose Title II of the Social Security system as their financing vehicle.

H.R. 4222 follows the same pattern. It seeks to take advantage of the widespread public acceptance which the Social Security system has gained. As a financing mechanism, the Act is often described as "time-tested" and "tried and proved." This is not quite the case. The Social Security system has not yet been tested by time, nor has it been proved invulnerable to all of the strains which may be placed upon it.

This is one of two points that I should like to discuss here. The second is the effect the passage of H.R. 4222 would have on the Social Security Act.

When Social Security was first introduced in this country, its generally accepted purpose was to provide a basic foundation of protection against want and destitution. On this "floor of protection," as it has been called, it was expected that individuals and employers would build additional security programs and retirement plans. Social Security's function was simply to represent a partial replacement for loss of wages.

Upon signing the Social Security Act on August 14, 1935, President Roosevelt said this:

"We can never insure one hundred per cent of the population against one hundred per cent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age..."

We realize that Title II of the Social Security Act has been changed, and frequently, since 1935. The tax rate has increased through the years, as has the benefit schedule; the groups within the working population covered have expanded; the retirement age has been lowered from 65 to 62 for men as well as for women. The program has grown to include permanent disability payments, as well as retirement income, first at age 50 and now at any age.

These pressures continue and almost certainly will continue in the years ahead. However, without arguing the advisability of the individual liberalizations, we feel it has been most important that, throughout this quarter-century, Congress has retained the basic principle

that this program is to provide a floor of protection.

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H.R. 4222 calls for a change in this principle from a floor of protection to a service benefit, provided through the Social Security mechanism.

I have discussed the philosophical aspects of this suggestion earlier in my testimony. At this stage, I should like to comment on some of the lessons we may learn from experience abroad.

The addition of service benefits to Social Security is, as I pointed out before, a dangerous deviation from the original concept of the Act. If H.R. 4222 were adopted, it would set a precedent of farreaching importance and one whose implications for the future are grave indeed. Pass this Bill, and the floodgates are opened for countless other proposals to be financed through the Social Security mechanism. Not only is this political realism, but it is also borne out by the experience of European countries.

Most of them started out modestly. But most of them at present have become veritable Christmas trees of benefits, staggeringly costly, and far removed from the concept or purpose of the original plans.

For example, in France the employer now must pay Social Security taxes for the national pension system, for the supervisor pension plan, for employees' income tax relief, for work accidents, for apprentice education, plus an allowance for the employees' houses or apartments and for the employees' families.

Taking just four basic categories of social insurance abroad (old age survivors-disability, health and maternity, family allowances, and work injuries), we find that the French employer pays 27.25 per cent of payroll and the employee six per cent. In West Germany the respective figures are 13.65 per cent and 11 per cent, while in Italy the breakdown is 32 to 70 per cent for the employer, according to the type of industry, and 5.25 per cent for the employee.

The Social Security system cannot, as the Committee knows, withstand a limitless burden. Let us see how it looks at the moment and how it is regarded by the general public.

Time and again, the public has been told that Social Security is "insurance." It has heard this from government officials and from many others presumed to be well-informed. The public, believing what

it has been told, equates the Social Security system with private insurance, and translates this relationship into terms of its own experience. In this "translation" process, the worker comes to think of the money deducted from his paycheck as an insurance premium. He assumes that the Federal Government handles that "premium" in the same way a commercial insurance company would. In his mind, he sees his premiums

accumulating in his own personal reserve fund, bearing the label, "Hold for the retirement of John R. Smith."

"

In other words, he believes that he has a contract; that he is purchasing an equity in the Social Security system; that he is buying benefits on a quid pro quo basis; and that they will be made available to him upon retirement.

I needn't point out, Mr. Chairman, that this is a highly inaccurate description of the Social Security system.

Far from being insurance, Social Security is actually a program in which a gross payroll tax is imposed upon active workers to pay for the retirement benefits of their elders. Somewhat misleadingly, this is called "pay as you go" financing. This is taken to mean that the worker pays as he goes. Actually, pay as you go financing means that the government raises currently, through taxes, funds to pay the cost of benefits currently due.

To bear this out, for the years 1956 through 1965, tax collections for OASDI are expected to total $115.1 billion, while OASDI benefits and expenses will total $114.5 billion. This does little to ac

cumulate reserves; and it is a far cry from prepayment.

Private insurance, on the other hand, involves full reserve financing. It is a prepaid system. And the dollar sum of all payments into the fund, together with the interest income earned from its investment, are sufficient to pay off all liabilities for guaranteed or promised benefits.

Commercial insurance is actuarially sound, whereas Social Security can stay in business only because of the government's power to collect taxes. If the government suspended Social Security taxation, the system would collapse.

Should taxes cease in 1965, it is estimated that only 20 per cent of the benefits for those then on the rolls would be covered with no provision for those not on the rolls.

And if this were to happen, those citizens who believed they had built up an equity in the system would have no claim whatsoever against the United States Government.

This is true because the Social Security Act was a measure enacted pursuant to the power of the Congress to tax and to spend money in aid of the general welfare. This was restated in an opinion handed down on June 20, 1960, by the Supreme Court of the United States.

It is evident, therefore, that Social Security encompasses no contractual relationship between the individual and his government. The individual's potential benefits under the Social Security program are