The CHAIRMAN. I have instructed the committee clerk to insert in the record at the end of the hearings, a copy of each amendment which has been introduced in the Senate to be proposed to H.R. 12580, accompanied by a brief analysis and a statement of views thereon by the Department of Health, Education, and Welfare.

(The amendments, analyses, and departmental reports thereon appear on pages 451 to 531.)

The CHAIRMAN. The first witness is the Honorable Arthur S. Flemming, Secretary of Health, Education, and Welfare.

Mr. Flemming, you may proceed, sir.

STATEMENT OF ARTHUR S. FLEMMING, SECRETARY OF HEALTH, EDUCATION, AND WELFARE, ACCOMPANIED BY CHARLES E. HAWKINS, W. L. MITCHELL, ROBERT J. MYERS, ROBERT M. BALL, SOCIAL SECURITY ADMINISTRATION; AND ROBERT A. FORSYTHE, ASSISTANT SECRETARY, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE

Secretary FLEMMING. Mr. Chairman and members of the committee, I appreciate very much having the opportunity of appearing before the committee in order to discuss H.R. 12580 and some of the issues that underlie it. The bill as you know was developed after long and careful consideration in the Ways and Means Committee of the House of Representatives.

It makes a substantial number of significant changes in the programs of old-age, survivors, and disability insurance, maternal and child welfare, public assistance, and unemployment compensation. It also would establish a new program for low income aged persons who need help in meeting their medical bills.

The changes that the bill would make in the OASDI provisions would accomplish some important basic program improvements. In addition, the bill would remedy some minor inequities that exist under the present provisions, and would make many technical improvements and administrative simplifications.

The program of old-age, survivors, and disability insurance provides basic protection to the American people against the risk of earning loss resulting from retirement, death, or permanent and total disability. Over 14 million individuals now receive benefits under this program. Nearly 900,000 additional persons would almost immediately become eligible for benefits under the provisions of this bill. In addition, some 400,000 children would receive increased benefits immediately and approximately 300,000 persons would be brought under the coverage of the system so that their earnings would count toward eligibility for benefits on retirement, death, or disability.

Among the most significant of the old-age, survivors, and disability insurance provisions are those concerned with disability. The minimum age of 50 for receipt of disability insurance benefits would be eliminated. This would result in immediate benefits for 125,000 disabled workers and approximately a like number of their dependents. I am very glad that experience under the disability insurance program indicates that this significant change can now be made without increasing the tax rates necessary to finance the disability benefit

program. Another change in the disability provisions would eliminate a second 6-month waiting period for disability benefits for persons who had had a prior period of disability within 5 years.

Under present law disabled persons who return to work pursuant to a State-approved vocational rehabilitation plan may continue to draw benefits for as many as 12 months even though they are engaged in work activity which is such that, without this provision, they would have their benefits terminated.

The bill would broaden this provision so that disability beneficiaries who work under other rehabilitation plans or are rehabilitating themselves would also be allowed a similar trial work period during which their benefits would be continued.

One of the important changes in the old-age, survivors, and disability insurance system would revise the present insured status provision to make the requirements that apply to people attaining retirement age in the next few years more nearly comparable to those that will prevail over the long run.

At present, an individual, to be eligible for benefits on retirement, has to have had coverage in a number of calendar quarters equal to one-half of the quarters elapsing after 1950 and before he attained retirement age.

For persons brought into coverage in 1954 and 1956 and reaching retirement age at the present time, almost all of the quarters that have elapsed since their jobs were covered have to be quarters of coverage.

Under the bill, a person would be fully insured if he had one quarter of coverage for every four quarters elapsing after 1950 (instead of one quarter of coverage for every two elapsed quarters as required by present law).

This change is consistent with the longrun requirement that an individual is permanently insured if he has 40 quarters of coverage— about one-fourth of a working lifetime in covered work. The change would make approximately 600,000 persons immediately eligible for benefits.

The bill provides a number of extensions of coverage recommended by the administration, including coverage for self-employed physicians, parents employed in a business by their sons or daughters, additional employees of nonprofit organizations, workers in Guam and American Samoa, and a few other small groups.

In addition, various provisions affecting nonprofit employees and State and local employees are liberalized and improved. Among other changes. the time within which ministers can elect coverage is extended, and further opportunity for retroactive coverage under State and local agreements is provided.

Under present law, the amount payable to a child of a deceased worker is equal to one-half of the benefit amount the worker would have been paid if he had lived, plus an additional amount derived by dividing one-fourth of the worker's benefit amount by the number of children getting benefits.

The bill would increase the benefits payable to children of a deceased worker so that each child would get an amount equal to threefourths of the worker's benefit amount, subject of course to the family maximum provision.

The bill would also provide benefits for survivors of workers who died fully insured before 1940. About 25,000 people-chiefly widows over age 72 would qualify as a result of this change.

The provisions relating to the investment of trust funds would be changed so as to make interest earnings on the Government obligations held by those funds more nearly equivalent to the rate of return being received by people who buy Government obligations in the open market. The changes would make for more equitable treatment of the trust funds and are generally in line with the recommendations that were made by the Advisory Council on Social Security Financing.

The long-run benefit cost of the old-age, survivors, and disability insurance system as modified by the bill is very closely in balance with contribution income, according to our intermediate cost estimate. This of course is true under present law and it would continue to be so after enactment of the bill.

Our latest long-range cost estimates show, on a level-premium intermediate-cost basis, a surplus of 0.15 percent of payroll for the disability part of the program.

H.R. 12580 would increase the level-premium cost of the disability provisions by 0.21 percent of payroll. The resulting net insufficiency of 0.06 percent of payroll would be small enough so that the disability part of the program would still be in actuarial balance.

The old-age and survivors insurance part of the program now shows an actuarial insufficiency of 0.20 percent of payroll on the intermediate-cost basis. The estimated level-premium cost of the provisions increasing children's benefits and the provision liberalizing the insured status requirements total 0.06 percent.

The provisions for extending the coverage of the program and the provisions relating to the investments of the trust funds would provide increased income equivalent to 0.03 percent of payroll.

Therefore, the present actuarial insufficiency of 0.20 percent of payroll would be increased to 0.23 percent. An insufficiency of this size is small enough so that the old-age and survivors insurance part of the program would continue to be on an actuarially sound basis.

Income and expenditures of the old-age and survivors insurance trust fund are estimated under the bill to be in close balance during calendar year 1961, and it is expected that expenditures will be somewhat larger than income during 1962.

Beginning in 1963, income is expected to exceed disbursements, and the long-range upward trend in the size of the trust fund will be resumed.

An important result of the changes in the OASDI program made by the bill is an estimated savings in public assistance costs of about $85 million in calendar year 1961 and larger annual savings in future

years.

The old-age, survivors, and disability insurance provisions would contribute substantially to the protection afforded under the program and would be a desirable step at this time.

MATERNAL AND CHILD HEALTH AND WELFARE PROVISIONS

The bill would increase the amounts authorized to be appropriated for maternal and child health and for crippled children's services to

$25 million each. They are presently $21,500,000 and $20 million, respectively. Provision is made for direct grants for special projects to public and nonprofit institutions.

The appropriation ceiling for child welfare services would also be increased from $17 million to $20 million. The bill also contains an authorization for grants to public and nonprofit institutions of higher learning, agencies and organizations for research, and demonstration projects related to child welfare consistent with a recommendation of the Advisory Council on Child Welfare Services authorized by the Senate as a part of the 1958 amendments.

MEDICAL CARE PROVISIONS

The bill contains a number of provisions concerned primarily with medical care for older persons. It instructs the Secretary of Health, Education, and Welfare to develop guides or recommended standards as to level, content, and quality of medical care for the use of the States in evaluating and improving their public assistance medical care programs and the new program authorized in the bill.

The Secretary is also required to secure periodic reports from the States on items included in, and quantity of, medical care for which expenditures are made under these programs.

This is in accord with a recommendation made by the Advisory Council on Public Assistance which was established pursuant to an amendment made by this committee in the Social Security Amendments of 1958. The House Ways and Means Committee, in its report on this bill, has asked the Department to undertake a study of other medical resources available to public assistance recipients.

The bill also provides for somewhat increased Federal participation under the old-age assistance program in increased expenditures to suppliers of medical care under State plans which make significant improvements in assistance for medical care.

The Ways and Means Committee, in its report on the bill, stated: In order to further encourage the States, particularly those which have made but limited efforts in the medical area, to increase their effort, the bill includes a provision giving each State an additional amount of Federal funds for oldage assistance where its expenditures are increased through vendor payments for medical care.

The stated objective is a desirable one, and while there is some question whether the provision in the bill would produce the intended result, it is probably worth trying.

Title VI of H.R. 12580 would establish a new Federal-State grantin-aid program intended to assist in meeting the acute problems of medical care encountered by aged persons. The program would permit States to pay for the medical expenses of low-income aged persons who are not so needy as to require old-age assistance but whose income and resources, after taking into account amounts needed for current living expenses, are insufficient to meet their medical bills. States would have broad latitude in determining who needed such assistance and in determining what medical expenditures would be made under the plan. Such a program looks in the direction of attempting to meet a part of the problem of medical care for older persons by dealing with crises after they arise. It puts the State government, with the assistance of Federal funds, in a position to

deal with these crises. It does not, of course, put the individual in a position where he can obtain protection in advance against the hazards of long-term illnesses.

In view of the fact that the title would put States that take advantage of it in a better position to deal with illnesses incurred by low-income aged persons, we favor its inclusion in the bill.

HEALTH INSURANCE FOR THE AGED

In addition to the issues I have just discussed, the Congress has before it the question of what the Federal Government should do in order to help the aged make provision in advance for meeting the costs of illness.

The members of this committee are aware that tremendous efforts have been made by various groups and individuals to bring to public attention the problems faced by many of our aged in meeting the costs of health services and medical care.

A considerable segment of this effort has been directed to the Members of the Congress-with assertion of the virtues of one method of meeting the problem over another.

The executive branch of the Government fully recognizes and accepts the fact that the Federal Government should take additional action in this field. A careful consideration of facts such as the following can lead to no other conclusion:

1. There are 16 million persons aged 65 and over. Four million pay income taxes. Of the 12 million who do not pay income taxes, 2.4 million are recipients of public assistance.

2. A 1958 study identified 60 percent, or 9.6 million, of the aged as having incomes of $1,000 or less, and 80 percent, or 12.8 million, as having incomes of $2,000 or less.

These figures should be discounted, because they include situations where a wife has an income of less than $1,000 and the husband has a substantial income, and because they include situations where other members of the family have substantial resources. Nevertheless, we are dealing with a group in our population which contains an unusually large percentage of persons with very limited resources.

3. A 1957-58 study shows that the average annual expenditures of this group for health and medical expenses was $177, not including nursing home care, as compared with $84 for the rest of the population. But it is important to note that 15 percent of the persons 65 and over, or 2.25 million, had total medical expenditures, on the average, of $700 per year, not including nursing home care.

The expenditures for this group represented 60 percent of the total medical care expenditures of the aged. Since 1957, costs for medical care have increased at least 20 percent. Also, it should be noted that the high average expenditures for the aged is attributable to the fact that $6,000, for example, is a conservative estimate of total medical expenditures incurred by persons who are continuously ill for an entire year.

4. According to the Health Insurance Association of America, approximately 49 percent of the persons in this age group have some kind of health and medical insurance.

But, only a comparatively small percentage of this group have policies that protect them against long-term illnesses. This is true