and low income, no one was unaware of the insecurity facing elderly people.

Now, in this connection, and because this has been my input to the task force, I am going to just talk about medical care and its effects.

The other members of the task force have so much to contribute on the income aspects.

I want to make just three points relative to the health economics of the older members of our affluent society, rather than review the material on this subject in the task force report.

Point one: Medicare does not do all it should. There is no question that Medicare has been and will continue to be a great boon to persons aged 65 and over in spreading the financing of medical expenses over a normal working lifetime. Chart E (see p. 168) shows this, in the brown or dotted section.

LIMITATIONS OF MEDICARE

But Medicare does not go far enough. As Chart F shows (see p. 170), hospital expenses account for nearly half of the health expenditures of people past age 64. When doctor costs are included, nearly $3 of every $5 old people spend on the average goes for these two kinds of expense. Medicare is meeting its original objective of helping to finance the major wreckers of peace of mind and financial security in old age. However, we all recognize that averages conceal as much as they reveal. Only about one in five social security beneficiaries will need the Medicare hospital benefit in a given year-though nearly all will make use of it before the curtain falls on their time on earth. Terminal illnesses almost ensure that this benefit will be used. Medicare does a good job with the big bills that raise the average, but it leaves gaps.

By the same token, nearly every aged person in the course of a single year will have occasion to visit the doctor's office, buy prescribed drugs, have his eyes checked and his glasses changed.

So, most older people almost daily incur out-of-pocket medical expenses that do not qualify for Medicare reimbursement nor are they covered by any private insurance they may have purchased. These "minor" expenses can mount up and really compete for the small amounts of cash available to the elderly for food and shelter, et cetera. Sometimes hard decisions are forced on people and they do not buy necessary medicine or see the doctor when they should. Medicare should be broadened.

INFLATION OF MEDICAL COSTS

My second point is that inflation of medical prices must be halted. As the inflation of medical costs outpaces any other price rises or cost of living adjustments, those whose physical status makes them require more than average amounts of medical care are hardest hit.

In turn, the taxpayer who is also helping finance Medicare is being called on to pay a higher tax. Some of the inflation in medical prices. appears to be a direct consequence of Medicare.

At the same time a beneficiary is called on to pay more from his limited income for part B benefits because utilization has risen and doctors are charging more, the aged person has to pay more for the coinsurance-20 percent of $10 is more than 20 percent of $5.

Let me illustrate the eroding effect another way: For the past few years, both Mr. and Mrs. Jones have found it necessary to see Dr. Smith about 16 times a year. At $5 a visit to Dr. Smith's office, it cost the Jones $80 annually.

Now Dr. Smith is charging $8 a visit an increase of 60 percent in his fee; $80 will pay only for 10 visits instead of the 16 the couple

had before.

Ah, you say, but there is Medicare to help. But does it?

Eight visits for each of the Joneses will cost $64 each. Under Medicare, Mr. Jones will pay out $52.80 for each of them and Medicare will pay $11.20. Inflation has shrunk Mr. Jones' purchasing power. For the same amount of service the Jones family now pays out-ofpocket $105.60 instead of $80.

ACTION NEEDED NOW

My third point is that, no matter how comprehensive Medicare may ultimately become, and how successful we are at curbing medical prices both essential steps-measures to restore and maintain the purchasing power of the elderly at the level it was when they retired are urgently needed now.

The types of measures suggested in the task force report are overdue and should be put into effect while we grapple with the complex issues involved in the problems of medical care supply and demand that are behind much of the inflation in the field. Life should not become increasingly difficult for those in need of more than sympathy.

In summary, (1) Medicare provides great peace of mind, both to older people and to their children but it does not go far enough. It meets at best 46 percent of the personal consumption expenditures for medical care of the aged (excluding from the numerator and denominator other public programs), (2) inflation, including that induced by Medicare, must be curbed, both in the interest of the aged and of the taxpayers generally; part of this objective can be achieved by improving the delivery and financing of the services, (3) more immediate remedies for inflation's impact, such as those suggested in the task force report are in order to restore and maintain purchasing power after retirement.

Thank you.

The CHAIRMAN. Thank you very much, Mrs. Brewster.

We would like to now go to the statement of Commissioner Robert M. Ball of the Social Security Administration.

I would like to say that the members of the task force who have given us these most helpful opening statements will remain available and will be part of the panel after we get into that part of our hearings following Commissioner Ball.

Commissioner Ball, we are honored to have you with us on what has already proven to be a very important series of hearings on the economics of aging and you are a vital part of our deliberations.

A lot of elderly people are in the auditorium. I would say 200 or 300, maybe more, of our constituents are here with us today in this auditorium hearing room.

32-346-69-pt. 1-2

STATEMENT OF ROBERT M. BALL, COMMISSIONER OF SOCIAL SECURITY; ACCOMPANIED BY MRS. LENORE E. BIXBY, DIRECTOR, DIVISION OF RETIREMENT AND SURVIVOR STUDIES; AND MRS. DOROTHY P. RICE, CHIEF, HEALTH INSURANCE RESEARCH BRANCH

Mr. BALL. Mr. Chairman, I have with me Mrs. Lenore Bixby and Mrs. Dorothy Rice, who are members of the research staff of the Social Security Adminstration, who can contribute, I am sure, by helping to respond to the questions that the committee may have.

I also would like at the beginning to express the deep regret of the Secretary that he was not able to be here and to convey to you his great concern for the problems that the committee is going into.

I have talked with him many times about the social security program and he has a great interest in it and a great interest in the economic situation of older people.

I would like to congratulate the committee on the excellent report, "Developments in Aging 1968" and also on the testimony of your consultants on this panel. I might say that some members of the panel are people that we also have called on for information and help in studying this area and we think a great deal of them, Mr. Chairman. The working paper, "Economics of Aging: Toward a Full Share in Abundance," prepared for the committee, in my judgment, has identified the key factors in this problem of the economics of aging-that is, the basic question of income security and an equitable sharing by the aged in our increasing national output.

To my mind, all of the other problems-and there are many other problems of older people are really secondary to the question of an adequate continuing income paid as a matter of right and under conditions which contribute to human dignity. What we are struggling with in this county is to develop a series of arrangements that will guarantee on into the future that older people will have the income necessary to support an acceptable level of living.

We know that a part of this problem is the problem of rising pricesthe problem of inflation in general-and particularly the problem of the disproportionate rise in medical prices.

We agree fully with the conclusions of the panel that much more needs to be done to achieve the objectives that your committee has outlined.

There is one factor in this matter of income for the aged that makes the problem in this particular area, in my judgment, more amenable to early solution than are many of the other social problems that we have in the country. This factor is that we now have a structure of a nearly universal basic Government program insuring people against the loss of income on account of retirement in old age.

The existence of the social security program as an accepted program with popular support and the fact that it is in existence means that we can build on a going popular institution for the solution of many of these problems rather than having to invest something entirely new. This is a big asset.

1 See app. 2, p. 229, for letter from Secretary Finch.

Now it might be worth a minute just to say why I regard this program as an asset which is so valuable. First, it is generally accepted, primarily because it is consistent with the basic ideas of our economic and social life. The protection that people get under social security-whether we are talking now about the cash benefits or whether we are talking about the hospital insurance benefits-grows out of the work that people do. The fundamental idea of the program is that while you are working you are earning not only wages but you are earning also protection against the possibility of loss of wages because of retirement, protection against the loss of income because of the death of the breadwinner in the family, and protection against the loss of income arising from total disability.

AN EARNED RIGHT TO BENEFITS

So the protection grows out of work that people do and they consequently feel that they have an earned right to the benefits.

Secondly, there is no test of need in the program. Thus the individual is encouraged to add to this basic protection whatever he can save on his own, and private pension plans can build additional protection on top of what the program provides. If we approach this matter in any other way-for instance there have been proposals from time to time to put a bigger emphasis on income determined programs when you relate benefits to how much a person has in other income, then unless an individual can save a great deal-so much that he is no longer eligible at all-there really isn't any incentive for him to save for retirement, because you deduct from his Government payment whatever he has on his own.

In the same way private employers and unions would not be encouraged to build private pensions on the base of the Government protection, because the private pension would be deducted from the Government payment under an income determined program.

This institution of social insurance is now the major approach to the problem of earnings loss throughout the world. Every major country bases their plans for the income protection of older people, disabled people and widows and orphans on a social insurance program. Such a system is geared to economic incentives. It relates whether you get a benefit and the amount you get to work and contributions and it serves as a base to which people are encouraged to add other protection.

In the United States the protection is just about universal. This has been a very fast growing program. If you look back one generation before social security went into effect, there was very little coverage under any kind of pension program, very few people were working in jobs where there were provisions leading toward retirement

income.

There were pension systems for Federal employees for the Armed Forces, and for a very small number of employees of private employers. Now, today, when you combine social security with civil service retirement and railroad retirement, well over 95 percent of the jobs in the country have coverage for retirement benefits, so that just about all people are now working toward a retirement income.

Our problem is no longer the establishment of a system; it is not primarily extension of coverage. That has been accomplished. The problem has become one of the adequacy of the amount of the payments and the design of the system so that benefits are reasonably related to people's income when they retire, so that they are kept up to date as prices or wages rise in the future.

I want to point out that the disability features of the social security program are of great importance to the individuals just below 65 who, of course, are also of concern to the committee. The problems of aging do not start at 65. The total disability benefits are paid much more often to people 55 and above than they are to younger workers. At the upper ages below 65 the rate of disability is much higher than for younger people. So this is also a very important part of income security protection for older people even though not for people past 65.

PRESIDENTIAL RECOMMENDATIONS

Now, Mr. Chairman, I would like to point out that the recommendations that the President has made for improvement in the social security program are for a 7-percent* across-the-board increase in social security benefits and for changes in the so-called retirement test-that is he has recommended an increase in the amount that people may earn without having their retirement benefits withheld and in addition one. very fundamental reform in that test has been recommended that I would like to discuss with the committee in a moment.

It is understood that these proposals are ones that are needed primarily to bring the benefits up to date from the time that the last changes in the program were made, and that more fundamental and important long-range improvements in the social security program will be needed. A major statutory advisory council that is provided for in the law will be appointed in the very near future; that council will be going into the much more fundamental questions of restructuring the program and evaluating possible changes in a much more comprehensive way.

In addition to this statutory council which is charged with reviewing the adequacy of benefits, the financing of the program, and all other aspects of the program-both the health insurance benefits and the cash benefits-as you know, there is also a commission on income. maintenance of which Mr. Ben Heineman is the chairman. That commission will also, no doubt, make some recommendations in the social security area when it reports in the not too distant future. Beyond that, we are looking forward to getting from the 1971 White House Conference the many suggestions that will come out of that conference from individual citizens and groups.

MAJOR SOCIAL SECURITY ISSUES

Mr. Chairman, with your permission, I would like to sketch in broad form some of the major issues related to in the social security benefit structure that I believe this new advisory council will have to grapple with and make recommendations on.

As your panel has pointed out, social security benefits are the major source of income for retired people. It is still true that in total amount even for people over 65, a major source of income is work.

pt 17, 1969, President Nixon announced he would seek a 10-percent increase.