SOCIAL SECURITY AMENDMENTS OF 1960

THURSDAY, JUNE 30, 1960

U.S. SENATE, COMMITTEE ON FINANCE, Washington, D.C.

The committee met, pursuant to recess, at 10:20 a.m., in room 2221 Senate Office Building, Senator Harry F. Byrd (chairman) presiding. Present: Senators Byrd, Frear, Long, Douglas, Gore, Talmadge, Hartke, McCarthy, Williams, Curtis, Carlson, and Bennett. Also present: Elizabeth Springer, chief clerk.

The CHAIRMAN. The committee will come to order. I would like to announce that the Chair has written a letter today to the Director of the Budget to ascertain whether or not the Budget approves both the House bill and the so-called administration bill. There is some confusion as to whether the Budget approved both of them. I now insert in the record a copy of my letter to Mr. Stans. A copy of his reply will likewise be printed when received.

(The letter and the reply referred to follows:)

Hon. MAURICE H. STANS,

Director, Bureau of the Budget,
Washington, D.C.

JUNE 30, 1960.

DEAR MAURICE: In testifying before the Committee on Finance yesterday Secretary Arthur Flemming stated that the administration favored the medical aid program, title VI, of H.R. 12580, as passed by the House of Representatives. In addition to recommending enactment of the House health program, Secretary Flemming advocated the inclusion of the medicare plan which he had previously presented to the House Ways and Means Committee as the administration's proposal.

We do not have a report from the Bureau of the Budget on either of these proposals. Therefore, I shall appreciate your submitting the views of the Bureau of the Budget on H.R. 12580, as passed by the House of Representatives, and the medicare program advocated by the administration.

Specifically, I would like to have definitive answers to the following questions: (1) Does the Bureau of the Budget recommend enactment of title VI of H.R. 12580, as approved by the House of Representatives?

(2) Does the Bureau of the Budget recommend enactment of the medicare program advanced by Secretary Flemming as the administration's plan?

(3) Does the Bureau of the Budget recommend enactment of H.R. 12580 if amended to include the medicare program, as recommended by Secretary Flemming?

(4) What is the estimated cost (based on the first full year of operation) to the Federal Government and to the State governments of the medical aid program (title VI) contained in H.R. 12580?

(5) What is the estimated cost (based on the first full year of operation) to the Federal Government, to the States, and to the individual subscribers, of the administration's medicare program?

(6) Does one program overlap the other to such a degree that the overall cost of the combined programs would be affected? If so, what is the estimated cost (based on the first full year of operation) of the combined programs to the Federal Government, to the States, and to the individual subscribers?

May I respectfully request that you expedite the submission of these reports and replies to the above questions so that they may be incorporated in the record of the hearing which we hope to send to the printer the latter part of next week. With kindest regards, I am,

MY DEAR MR. CHAIRMAN: This is in reply to your request of June 24, 1960, for the views of the Bureau of the Budget on H.R. 12580, as passed by the House of Representatives, a bill to extend and improve coverage under the Federal old-age, survivors, and disability insurance system and to remove hardships and inequities, improve the financing of the trust funds, and provide disability benefits to additional individuals under such systems; to provide grants to States for medical care for aged individuals of low income; to amend the public assistance and maternal and child welfare provisions of the Society Security Act; to improve the unemployment compensation provisions of such act; and for other purposes. This will also acknowledge your letter of June 30, 1960, asking for answers to a number of questions regarding both title VI of H.R. 12580 as passed by the House of Representatives and the administration's proposal for medical aid to the aged.

H.R. 12580 as passed by the House of Representatives would make improvements in the old-age, survivors, and disability insurance (OASDI) programs and in the unemployment compensation program. It would also provide a new program of medical care for the aged. The bill incorporates many proposals recommended by the executive branch and also makes a number of other changes in existing law. In view of the fact that the Secretary of Health, Education, and Welfare has already testified at considerable length on this bill before your committee, we would like in this report to deal with the main features of H.R. 12580, and particularly to mention some points which might be helpful to your committee in considering certain changes which the Bureau believes are desirable.

The main changes in the OASDI programs which the bill would make are (a) the elimination of the age 50 requirement for disability benefits, (b) liberalization of the trial work requirement for disability beneficiaries who work under non-State-approved rehabilitation plans or are rehabilitating themselves, (c) increase in the benefit rates for each child of a deceased worker, (d) authorization of benefits for survivors of workers who died fully insured before 1940, (e) modification in the provision governing interest rates on investments of the trust funds, (f) broadening of coverage for certain groups, and (g) the liberalization of the insured status requirement to require one out of four instead of one out of two quarters of covered employment after 1950. In the main, these changes conform to proposals made by the executive branch, and although, in the net, they would somewhat worsen the actuarial status of the OASDI trust funds, they appear to be within the bounds of an acceptable actuarial balance and therefore do not require an increase in payroll taxes, which the administration would regard as undesirable at this time.

The one-out-of-four provision, in our opinion, raises the main question. This change was not recommended by the administration. Although consistent with the existing general requirement that an individual be covered only 10 years out of a potential working lifetime of about 40 years, the change would mean that during the next few years the coverage requirement for people reaching retirement age would be cut essentially in half-from 18 to 20 quarters to a very modest requirement of only 9 to 10 quarters. While the level premium cost of this change appears to be a nominal 0.04 percent of covered payroll, the change will add 600,000 individuals, including dependents, to the benefit rolls in the next several years and require payment from the trust funds of benefits averaging $250 million a year over the next decade. The extra cost entailed by this provision will thus contribute substantially to pushing projected payments from the OASI trust fund in calendar 1960 and 1961 above estimated receipts, with the result that

the balance in the fund under the bill would show a decline. The change also contributes to worsening the actuarial status of the OASI trust fund to a deficit of 0.23 percent, thus approaching the margin of the commonly accepted rule of thumb (0.25 percent) for a tolerable degree of actuarial deficiency.

We are pleased that title V makes a number of highly desirable changes in the Federal-State unemployment compensation program that were recommended by the executive branch. We regret, however, that the bill does not extend coverage to small firms and nonprofit organizations as proposed by the President. The increase in the effective Federal unemployment tax rate from 0.3 to 0.4 percent, while not following the administration's recommendation, will provide an increase in revenues of the same general magnitude as the President's proposal to increase the taxable wage base from $3,000 to $4,200. These increased revenues will be adequate to cover the full costs of administrative expenses and to build up the proposed loan fund to $550 million and the proposed administrative account in the unemployment trust fund with a reserve balance of $250 million. Improvements have also been made in the criteria for receiving loans from the loan fund when State reserves are depleted, and the Federal-State employment security program is extended to Puerto Rico.

Section 707 of the bill would amend title V to increase the statutory authorizations under grants to States for material and child welfare from $58.5 million to $70 million. In the 1961 budget the President has requested $48.5 million for these purposes, an amount below current authorizations. Under the orderly increases in requested appropriations for these programs being followed by this. administration, full authorizations under existing law will not be reached until fiscal 1966. Thus, in our view, legislation to increase such authorizations at this time is not needed and was not recommended by the administration.

Section 526 would authorize a new program of research and demonstration projects in the field of child welfare. Existing legislation already authorizes cooperative research or demonstration projects in social security, which covers the subject matter encompassed by the current proposal. Therefore, we see no reason for a special new program in the children's field.

Section 706 of the bill would further extend, for an additonal 3 years, special provisions permitting two States, Missouri and Pennsylvania, additional time in order to bring their programs for the blind under public assistance into conformity with Federal law. Since 1952 periodic legistive exception has been made for these two States extending the maximum transitional period provided in 1950 legislation. During the extended transitional period, Federal participation in the costs of operating these programs has continued even though the programs did not comply with Federal standards. This Office believes that ample time has been provided for these States to bring their programs into conformity with the requirements of the Social Security Act to which all other States are adhering. Accordingly, this Office sees no reason why exceptional treatment should be provided to these two States over an aggregate period of 14 years since 1950.

Title VI of H.R. 12580 would establish a new Federal-State program of assistance for medical care to the aged. This new program, together with the related five-percentage-point increase in the Federal matching ratio for medical vendor payments under public assistance, which the bill also provides, has been estimated by the Department of Health, Education, and Welfare to have an approximate Federal-State cost of $341 million the first full year of operation with all States participating. The Federal share of this cost would be about $176 million. (In fiscal year 1962, however, the program would not yet be in full operation and the Federal cost might be in the neighborhood of $65 million.) These cost estimates depend upon many assumptions and, in our judgment, could be greatly understated. One of the principal assumptions was that the House Ways and Means Committee intended, as we understand it, that the new program of medical benefits for aged individuals should be restricted to those who are medically indigent but at the same time are not able to meet the requirements of need under the public assistance medical vendor payments program. However, the language relating to eligibility standards in H.R. 12580 and in the accompanying House committee report is rather general in nature and in the final analysis the setting of eligibility standards would be left largely to the discretion of the States. Unlike in the administration proposal, the benefits for eligible individuals which would be provided by the States under title VI, and in which the Federal Government would share, could cover all expenses. There is no requirement in the bill for specific deductible amounts of $250 or $400 nor for 20 percent coinsurance in costs above these amounts. 58387-60-14

Thus, if many States should establish tests of need deviating substantially from public assistance standards so that full costs would be covered for a large number of people, as is quite possible under the bill, costs under the program might greatly exceed the above estimates.

The foregoing estimates for title VI of H.R. 12580 are considerably below the $1.3 billion estimated as the full operational Federal-State cost in fiscal year 1964 of the administration's proposed medical care program. The Federal share of the administration's program would be somewhat under $700 million, including about $600 million for the new medical care program and about $65 million for augmented medical vendor payments under the old-age assistance program. Individuals enrolling under the program would also pay a total of about $182 million a year in fees. (As in the case of the title VI program, the cost for fiscal year 1962 would probably be considerably less than full operational cost-with a Federal share in the neighborhood of $200 million.)

The medical care program under title VI would authorize assistance for medical care for a large number of people who now lack such protection and it would follow the principle of giving States and their localities the primary role. However, the new program would not follow the desirable principle of the administration's proposal that primary attention should be given to providing aid to our elderly citizens in meeting the heavy expenses of catastrophic illness. Hence, we strongly urge that any program outside the present public assistance category which is to cover first-dollar costs should be strictly limited. If your committee adopts the approach incorporated in title VI of H.R. 12580, we would recommend, in order to avoid the uncertainties as to scope of program as cited above, that at a minimum a clear statement of legislative intent be provided in the committee's report that strict eligibility standards are intended under the program. Unless the intent of the House bill is made clear, there would be a risk that a large proportion of the billions of dollars which are now being spent annually for medical care for persons over 65 might ultimately be shifted to Federal-State agencies. Moreover, if great variation in eligibility standards and in benefits is permitted among States, greater unevennesses in the program will arise from State to State. This can be seen from the cost estimates in the House committee report on title VI (p. 11) which show that nearly 60 percent of the estimated expenditures under the House bill would be in four States. In contrast, the requirement in the administration proposal specifying certain benefits would promote uniform benefits among the States entering the program.

In short, the Bureau's position is to support the administration proposal but to indicate that, if the administration proposal is not approved, it would accept title VI of the House bill. However, if the Congress should determine to enact both the House bill and the administration proposal, it should be clearly understood that there would have to be an application of the needs test in the House bill so as to insure that first-dollar costs of those eligible would be paid only for persons who qualify as indigent under the present public assistance medical vendors program. There might also be other adjustments needed in order to avoid unnecessary overlapping. If the Congress should enact both programs without the indicated adjustments, the added Federal cost at full operation would probably be increased more than $100 million above the administration program.

At this time I would like to indicate that there are several technical aspects of the administration proposal to which we are giving further study. The first relates to the eligibility requirements as they pertain to nontaxpayers and to taxpayers with incomes of $2,500 for single persons or $3,800 for individuals with dependents. We want to be sure to avoid any possible inequities which may arise under the income eligibility standards which are outlined for this plan.

A related point has to do with the enrollment fees which are charged for individuals who qualify in 1 year for participation in the program but whose incomes rise above the specified income limitation in subsequent years.

We have also been considering whether, under the administration proposal, Federal facilities which provide medical care to individuals who would otherwise qualify under the proposed new program should be reimbursed from the program on the same basis as State or municipal hospitals are to be reimbursed. If, upon further study of these points, we deem a change to be desirable, we will advise you accordingly.

The Bureau of the Budget has not had time to review a number of the numerous proposed amendments to H.R. 12580 or various substitute bills for title VI which have been introduced in the Senate and on which your committee has requested reports. Insofar as these proposals would expand the OASDI system and increase payroll taxes to provide medical care for the aged, they would not be in accord with the program of the President. We will proceed with our study of these proposals in the next several weeks and will endeavor to make such additional comments as we believe will be helpful to your committee.

Sincerely yours,

MAURICE H. STANS, Director.

The CHAIRMAN. The Chair has been requested to insert in the record a statement from Senator John F. Kennedy expressing his views on the pending bill.

(The statement referred to follows:)

STATEMENT BY SENATOR JOHN F. KENNEDY (DEMOCRAT OF MASSACHUSETTS) UPON H.R. 12580 BEFORE THE SENATE FINANCE COMMITTEE

Mr. Chairman, I appreciate the opportunity to appear before your committee. I know of no domestic issue of greater concern to the American people than the one you are now considering. It is my hope that despite the lateness of the session the Senate will substantially improve the social security bill adopted by the House, and that that body will agree to the Senate changes.

The House bill contains some useful provisions which should be included in any bill passed by the Congress. It fails completely, however, to meet the problem of health insurance for our older citizens.

Mr. Chairman, the need to take affirmative steps in this field is urgent. On January 26, I introduced S. 2915, a bill based on the Forand bill, which had earlier been introduced in the House. Later, after hearings on this subject were completed by the Subcommittee on Aging, on which I have served as vice chairman, I joined with Senator McNamara and more than 20 other Members of the Senate in cosponsoring another bill with a similar objective.

All of these bills-the Forand bill, the Kennedy bill, the McNamara billhave in common health protection for our retired citizens as part of the social security system. I am convinced that only by use of the social security system can we have true health insurance. Only in this way can we achieve protection with dignity. Only in this way can we avoid the humiliating means test for benefits.

Approximately 12 million out of the 16 million Americans 65 or over are now part of the social security system. In years to come, the proportion in the social security system will be even higher. Some day, almost every single person over 65 will be in the system. By means of the Forand-Kennedy-McNamara proposals every working person will be able to finance a program which takes care of the millions of people already retired and which assures his or her own future retirement.

But I should like to caution against acceptance of the administration proposal in the field. I have four major objections to that plan.

First. It will cost the Federal Government $600 million out of general revenue, and it contains no provision for raising this money. It rejects the social security approach, which would automatically raise the money needed to finance the benefits. Social security is built-in fiscal responsibility.

Second. The administration proposal requires 50 State legislatures to act and to appropriate from already depleted treasuries. It would require, in the aggregate that the States provide an additional $600 million. It is difficult to imagine enthusiastic support from the States under these circumstances.

Third. The administration plan is confined to those with limited incomes. This is only a step removed from the undignified, humiliating means test. And it would require that even these low-income persons pay more than they can afford toward their health care with enrollment fees, large deductibles, and coinsurance.

Last but most important. The administration plan departs from the tried, tested, and universally accepted social security system. Our older people do not want charity. They do not want to be dependent upon charity. They do not deserve to be treated like charity cases. They should be eligible for health