The base has increased rapidly in recent years, and under existing law will increase automatically in the future. The future increases in the base that are provided for under present law will, of course, raise the social security contributions of covered workers who earn more than $15,300. For example, the estimated $1,200 increase in the base in 1977, raising it from $15,300 to $16,500, will raise the 1977 social security contributions of each worker who earns $16,500 or more by $70.20.

Under the administration's proposal for a modest increase in the social security contribution rates 0.3 percent for employees and employers each-the cost of providing additional funds for the social security program in the short range would be shared by all covered workers and their employers. This would minimize the impact of the increase on any one workers or particular group of workers. For the average worker, the increase would amount to only $30 for the year. The additional contributions that would be received in 1977 will arise from both the proposed tax rate increase and the expected increase in the base that is already prescribed in law. In other words, the proposed social security tax rate increase would build upon a wage hase increase already in place.

If the need for additional funds for the social security program in the short range were to be met through a further increase in the base, beyond that provided for under the automatic adjustment provisions of the law, all of the additional funds for the program would come from the small proportion of covered workers-about one out of seven--who earn more than the base amount. Such a change in the law would undoubtedly be questioned by them on the basis of fairness, since their social security contributions have increased more rapidly in recent years than those of lower paid workers.

Another consideration is the fact that any rise in the earnings base increases future benefit rights. Obviously, this would add to the longterm outgo of the present program, and we would question any action at this time that would further increase long-term expenditures. I would note that decoupling could correct this. In other words, further costs might not necessarily rise as a result of a wage-base choice under some decoupling models.

Mr. ROYBAL. You talk to us about decoupling, and you make the point that your objective is to stabilize replacement rates, not social security benefit amounts. Aren't you playing games with words?

Mr. CARDWELL. No; I do not think that we are playing games with words. We have been concerned that people might get the incorrect impression that decoupling would freeze benefit amounts for current workers and their families. Stabilizing replacement rates refers to assuring a constant relationship between initial benefits and preretirement earnings. This means that workers retiring in the future will have the same share of their preretirement earnings replaced as workers retiring today. It does not mean freezing social security benefit amounts and this is the point we are trying to make.

Mr. ROYBAL. Won't the benefit amounts be cut if we approve decoupling?

Mr. CARDWELL. It is, of course, true that future benefit amounts under a decoupled system would not be as high as those currently projected under present law. However, under present law and current

economic assumptions, future benefit levels for current workers and their families are affected by the automatic cost-of-living benefit increases as well as by the rises in wage levels that take place during their working years. Decoupling proposals are generally intended to correct this overadjustment in potential benefits.

MEDICARE PROPOSED LEGISLATION

Mr. ROYBAL. You are requesting that Congress pass legislation to establish a 7-percent ceiling on increases in reimbursable provider costs and a 4-percent ceiling on increases in reasonable charge levels for physician services under medicare. If this is passed, what will the additional cost be to the recipients?

Mr. CARDWELL. The 7- and 4-percent ceilings are designed to slow inflation in health care costs generally, not to shift costs from the medicare program to beneficiaries. The 7-percent ceiling would have no effect on out-of-pocket expenses for services covered under the hospital insurance plan, since hospitals and other institutional providers of services would continue, as at present, to charge beneficiaries only the deductible and other copayments prescribed in the law.

Whether the 4-percent limit on increases in medical fees will mean higher beneficiary payments for these services will depend on the charging practices of the individual physician or other supplier. If a physician raises his charge above the prescribed limit and does not agree to accept medicare's reasonable charge as his full charge, the beneficiary may have to make up the difference. However, this would not necessarily be a change from the present situation, since physicians have never been required to accept medicare's reasonable charge in every case. Presently, physicians accept assignment-that is, adhere to medicare's reasonable charge-in about one-half of medicare billings. We do not anticipate a significant change in this assignment rate.

Mr. ROYBAL. You indicate that the administration is proposing catastrophic medicare coverage but that recipients would have to pay more for basic health services. How much more will an average individual have to pay?

Mr. CARDWELL. The administration's proposal would require a beneficiary who has an average hospital stay of roughly 12 days to pay cost-sharing amounts totaling approximately $274 in 1976-a deductible of $104, as under present law, plus additional cost sharing of $170. This figure is based on average hospital charges of $150 a day. In exchange for responsibility for this relatively small payment at the beginning of an illness, when he more likely can afford it, the beneficiary would be provided with expanded benefits and catastrophic protection. We believe this trade-off to be not only desirable from the beneficiary's point of view, but essential for the guarantee of true protection against the cost of catastrophic illness.

Mr. ROYBAL. How can they afford to pay these additional costs?

Mr. CARDWELL. We believe most beneficiaries will be able to meet these additional costs. About one-half of all medicare beneficiaries have private health insurance which supplements the protection they have under medicare, and which we anticipate would cover the additional cost-sharing expenses. The additional out-of-pocket expenses for these beneficiaries would be in the form of adjustments in the premiums for

this supplementary protection. Also, about 10 percent of all beneficiaries are eligible for medicaid, which would continue to pay deductible and coinsurance amounts incurred under medicare.

SSA OUTLAYS

Mr. SHRIVER. Mr. Cardwell, you have had some bad press this year concerning administrative problems which I am convinced were largely the result of hasty congressional action on the supplemental security income program. I commend you for your restraint in your reactions to this criticism.

The total outlays under your jurisdiction for fiscal 1977, including the trust fund, are $109 billion, so again this year you will outspend the Department of Defense; is that correct?

Mr. ĈARDWELL. Yes, that is correct. In fiscal year 1977, the total outlays of the Social Security Administration will exceed the outlays of the Department of Defense by roughly $8 billion. Of course, almost all of SSA's total outlays are for benefit payments.

MEDICARE AND MEDICAID COSTS

Mr. SHRIVER. The General Accounting Office issued a report dated February 11, 1976, to the human resources task force of the House Budget Committee, on which I also serve, concerning the rising costs of medicare and medicaid. Are you familiar with that report?

Mr. CARDWELL. Yes, I am.

Mr. SHRIVER. I asked Mr. Wortman of the Social and Rehabilitation Service to comment on the GAO recommendations regarding medicaid. Would you give us your reactions on the criticism in the report that you may have been slow in implementing by regulation laws passed by the Congress to help control medicare costs?

Mr. CARDWELL. The promulgation of regulations to implement the cost control and other provisions of legislation enacted in 1972 and later has not been as prompt as we would have wished. This was caused by the need to become thoroughly familiar with new areas of responsibility and to assure, through compliance with the requirements of a complex rulemaking process, that the legitimate concerns of all affected public and private interests were adequately considered.

The Social Security Amendments of 1972 for example, have required the development and addition to the social security regulations of four entirely new subparts. Almost every other subpart had to be revised, many substantially. In several areas, notably with respect to health maintenance organizations and end stage renal disease, new and highly complex and, in many cases, controversial rules had to be formulated, discussed, tested and revised before final regulations could be issued. This process is necessarily time-consuming. In other cases, such as utilization review, litigation has interfered with issuing and implementing final regulations.

Of the 44 medicare regulations required by the 1972 amendments, 35 have now been published in final form; 18 of these by the end of 1974. Seven others have been published as notice of proposed rulemaking, of which two are almost ready for publication as final regulations. The remaining two are well along in preparation.

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Mr. SHRIVER. If you wish, you can provide a more detailed reaction statement for the record, since there were many recommendations in that report.

Mr. CARDWELL. Although we are preparing a detailed reaction statement to the GAO report, it is not yet complete. As soon as it is, we'll forward a copy of it to your office.

DECOUPLING PROPOSAL

Mr. SHRIVER. I'm not sure I understand this "decoupling" plan you say is necessary before any substantive changes are made in the social security program, even though you explained it in your statement. I certainly do agree with you that we should not allow a situation to develop wherein persons would get more by going on social security than they make on their jobs. No pension plan can operate long that

way.

My question regards your comments on page 4 where you say the decoupling plan could make future social security benefit levels "less sensitive" to fluctuations in wage and price increases. Then you say that current law will not be changed under which benefits will still be adjusted automatically to reflect increases in the cost-of-living. How can you have it both ways-will the benefits adjust the cost-ofliving changes; or will they not?

Mr. CARDWELL. Under virtually all decoupling plans that have been advanced thus far, cost-of-living benefit increases would continue to apply to the benefits of all beneficiaries on the rolls at the time of the increase. Under present law, automoatic cost-of-living increases apply not only to the benefits of current beneficiaries, but also to the potential future benefits of people who have not yet qualified for retirement, disability, or dependent's or survivor's benefits. The decoupling models would not apply these increases to the potential future benefits of current workers and their dependents. Instead, there would be a new method of figuring the initial benefit amount when the worker retires, becomes disabled, or dies. Since the application of the automatic cost-of-living increases would be restricted as I just described, the sensitivity of future benefit levels to future interaction of wage and price increases would be reduced.

Under present law, potential benefits for current workers and their families are affected not only by the automatic cost-of-living benefit increases I mentioned, but also by the rises in wage levels that take place during their working years. The effect of these two factors is that, under current long-range economic assumptions potential benefit levels will generally rise faster than wages. Decoupling proposals are generally intended to correct this overadjustment in potential benefits.

Mr. SHRIVER. Bringing this to a personal level, how will this decoupling affect the average beneficiary, if at all?

Mr. CARDWELL. As I mentioned in responding to your last question, decoupling would not alter the provision now in the law to automatically adjust benefits to increases in the CPI once a person comes on the benefit rolls. Any beneficiary on the rolls, including one who becomes entitled under the new system, would continue to receive this adjustment to maintain the purchasing power of his or her benefits.

In this respect, the average beneficiary-once on the benefit rollswould not be affected by decoupling.

Under decoupling, the way initial benefits are computed would be changed so that future benefit amounts would not rise faster than earnings rise. In general, under a decoupled system, a person who retires in the future would be treated the same way as a person retiring now. That is, the relationship of benefits for the future retiree to preretirement earnings would generally be the same as this relationship for the worker who retires in 1976 or so. After retirement, benefits would continue to be adjusted for changes in the CPI.

MEDICARE COVERAGE

Mr. SHRIVER. As you mention, like most health insurance plans, medicare reimburses on the basis of actual costs or customary charges. If a physician presents a bill which is above customary charges for the service rendered, and medicare refuses to pay, the beneficiary is still liable for that part of the bill not reimbursable, is that correct? Does the beneficiary have any recourse in that case?

Mr. CARDWELL. Under part B of medicare, the reasonable charge on which payment for a physician's service is based is generally the lowest of (1) the physician's actual charge for the service; (2) his customary charge for the service; or (3) the prevailing charge in the locality for the service. Also, the reasonable charge for a service may not exceed the charges applicable for comparable services, and under comparable circumstances to the policyholders and subscribers of the

carrier.

Medicare payments for physicians' services may be made either to the beneficiary or directly to the physician when he accepts an assignment. When a physician accepts assignment, he agrees to accept the amount determined to be the reasonable charge by the medicare carrier as his full charge for the service. However, if he does not accept assignment, he may collect from the patient any difference between his fee and the amount allowed as reasonable by the program.

The beneficiary may, of course, discuss the matter of fees with his physician. Also, he or the physician, if he has accepted an assignment may ask the carrier for a review of the claim. Such a request should be made in writing and be filed with a social security office or with the carrier which made the initial determination within 6 months after the date of that determination. The claimant or the physician may submit any relevant and material information and evidence. The review made by the carrier in such instances is a completely new, independent, and critical reexamination of the claim, by persons other than the employee who made the initial determination.

The claimant is mailed a written notice of the results of the review by the carrier. The notice describes the basis for the review determination, and advises the claimant of his right to request a hearing before a hearing officer if he is still dissatisfied with the carrier's determination, and if the amount in controversy is $100 or more.

The purpose of the hearing is to give the dissatisfied claimant an opportunity to present the reasons for his grievance, and to afford him a further impartial review based on the substance of his claim. The claimant is given an opportunity to appear in person, and if he wishes,