the injury to the national economy would be held to the immediate increase in the cost of production of the affected products.

It goes without saying that transference of patronage may not be instantaneous. Obviously, too, industries benefiting from the transference of patronage may not expand immediately. Producers' goods industries may feel effects of declining orders from retrogressing customer industries before they feel effects of increasing orders from the industries that benefit from the transference of patronage. Whatever time interval there may be, maintenance of the Nation's substantially full continuous purchasing power holds the effects of the time interval to the minimum, keeping the effects from injuring consumers' goods industries altogether and giving assurance that a transference of patronage is in process which can be expected to replace the lost orders for producers' goods from the adversely affected industries with increased orders from other industries.

Some industries benefiting from transference of patronage might increase their prices and then refuse to expand for fear of having to revert to the old prices in order to sell the increased production. It is alway possible that monopoly conditions might enable these industries to maintain such a policy. There would, however, still be the same transference of patronage to industries that did expand in response to it. The monopolistic industries by means of their increased prices would obtain part of the purchasing power owned by the former patrons of the declining industries but this purchasing power would have moved only for the former patrons of the declining industries to the owners of the monopolistic industries. The purchasing power would be substantially undiminished and would be transferred on to industries that did expand in response to it. The owners of the monopolistic industries would have obtained a monopoly profit-which they might well find themselves forced to share with their workers-but this wou'd have been due to the existence of monopolistic conditions, not to full social security.

The CHAIRMAN. Mr. O'Connor?

You may be seated, sir. The committee will be very glad to hear from you on H. R. 6000. Will you identify yourself for the record, please?

STATEMENT OF EDWARD H. O'CONNOR, CHICAGO, ILL., MANAGING DIRECTOR, INSURANCE ECONOMICS SOCIETY OF AMERICA

Mr. O'CONNOR. Mr. Chairman and members of the committee, my name is Edward H. O'Connor and I am appearing today on behalf of the Insurance Economics Society of America, an organization devoted to the study of all forms of social insurance. My home is in Chicago, Ill.

I shall confine my statement to two provisions contained in this bill: lump-sum death benefit for all insured workers and permanent and total disability.

You will agree with me that the elements of personal security and family protection are very close to the heart of the individual and especially the head of the family, not to forget the housewife. Naturally, everything the Government is doing in a compulsory way to foster and promote that security and protection cannot fail to have profound repercussions within the American family life. That is the reason the most careful attention should be given to the possibility of undermining the moral fiber which is nowhere more precious than in the American family, and which may well be the effect of further compulsory extension such as you are considering in this bill. I respectfully urge you to exercise due care and reasoning in your deliberations on the establishment of a new level of social-security benefits, lest we create a commonwealth which no longer derives its strength and in

centive from the responsibility which it owes to itself and to its families, but which is dependent upon the state.

Payment of lump-sum death benefit: The existing law provides that a lump-sum benefit equal to six times the primary insurance benefit will be paid upon the death of an insured worker if there are no survivors immediately eligible for survivors' benefits. This provision was added to the Social Security Act by the 1939 amendments on the theory that the insured worker had an equity in the system, which system prior to 1939 was funded and on a reserved basis and therefore the benefit was equivalent to what is known in insurance parlance as a "surrender value." The new provision in this bill, however, provides that a lump-sum benefit equal to three times the primary amount will be paid whenever an insured worker dies, even though there are benefits payable to his survivors which are worth many times the amount of taxes he would pay into the system. This change is completely inconsistent with and contrary to the original purposes of the limited lump-sum death benefit.

In examining this specific proposal it is necessary to refer back to the original Social Security Act of 1935. That act contemplated that in effect the employee would be building a savings account which would be used at the time of retirement to pay the workers' retirement benefit. It was quite logical, therefore, under such a theory, that there be a provision for the return to the estate of the covered worker taxes which he had paid, if they were not used for their original purpose of providing a retirement income. We have, however, departed almost entirely from the philosophy of accumulation of taxes under the present Social Security Act. The philosophy of the present act is largely taxation of present workers to provide funds to pay pensions to those retired. Under this philosophy there is no accumulation of individual savings out of which a death or funeral benefit can be paid. Any present death or funeral benefit must be paid out of the contributions of surviving workers. There is now very little matching between contributions and benefits. Current contributions from nonclaimants provide funds to pay claimants. It is illogical, therefore, to even retain the concept that the employee should get his taxes back if he has no surviving dependents. The present benefit which was included as a matter of equity, is no longer justified, and it would be entirely proper and logical to eliminate it altogether from

the act.

Senator KERR. Mr. Chairman, may I ask a question?

The CHAIRMAN. Yes, Senator Kerr.

Senator KERR. Do you think that that should be eliminated from the act, or that the act should be reformed to be consistent with the original concept?

Mr. O'CONNOR. Well, I think it would have to be examined and rearranged in some way to be in line with the original concept, if we are going to retain it at all. But now that that concept no longer exists as it did in 1939, some adjustment should be made in the theory. Otherwise, I can see nothing but illogical reasoning there to follow through on it. Because we have changed the theory, changed the situation.

The introduction of death or funeral benefits to all, as provided by H. R. 6000, regardless of the payment of survivors benefits, becomes

simply an additional benefit for which a substantial charge must be included and affords relief to a worker in an area which cannot be considered within the insurance system. Any death or funeral benefit should be paid subject to a means test under the State assistance program. This would eliminate a tax on low incomes for benefits to individuals of all income brackets.

Senator MILLIKIN. Would you mind stating that again?

Mr. O'CONNOR. Any death or funeral benefit should be paid subject to a means test under the State assistance program. This would eliminate a tax on low incomes for benefits to individuals of all income brackets.

Today over 80,000,000 persons-more than the entire number that would be covered even under this bill-now have life insurance policies with total protection exceeding $213,000,000,000. Four out of five families are protected by one or more policies. One billion five hundred million dollars paid out in death benefits in 1949. This proposal appears to me to be an attempt by the Federal Government to directly invade a field now being adequately served by a form of private enterprise, a field that by no stretch of the imagination can be termed "neglected" and necessitating the benevolent and financial assistance of Government.

The argument for this proposal in H. R. 6000 is based presumably on cases where no lump-sum benefit is due because survivorship benefits were called for and paid for 1 or 2 months, with the result that the so-called insured's family received less money than would have been paid had there been no survivors. There is no merit to that argument. The liability so-called has been discharged. Why be solicitous of a certain class of beneficiaries when the act contains so many inequities of greater importance. May I mention, for example. the inequity which deprives a young girl who has been working and paying old age and survivors insurance taxes for 5 years and then gets married and les all rights. Another example is that of depriving a man over 65 of any incentive to work by increasing his monthly benefits.

No purpose would be served by the Government entering into this field in which private enterprise has demonstrated its ability to fulfill the needs of our people. I urge this committee to reject that provision of H. R. 6000 which provides for the payment of a lump-sum death benefit for all insured workers.

Permanent and total disability insurance benefits: This is the most dangerous proposal contained in H. R. 6000 considering the aspects of administration, costs, and the future of the system insofar as the covered workers are concerned. In my humble opinion it is in this bill cloaked with the hidden motive and desire to pave the way at an early date for compulsory medical care for all, a slow inoculation and softening up of the American people for the imposition of socialized medicine.

In a recent statement on H. R. 6000 the board of trustees of the American Medical Association made this significant observation:

To initiate a Federal disability program would represent another step toward wholesale nationalization of medical care and the socialization of the practice of medicine. The program as now proposed would not accomplish the entire nationalization of medical care but the inevitable expansion and liberalization of the program which would surely follow makes probable its eventual accomplishment.

At this point, Mr. Chairman, I would like to say that the Ways and Means Committee is to be congratulated upon the position they took as to this original bill, when they were thinking about temporary disability. I think there were many arguments brought up, there, which amply justified their throwing out that provision of temporary disability.

This provision as written in the bill contains restrictions for benefits that could not be continued by any stretch of the imagination. Hardship cases, not within the restrictions, would crop up in ever-increasing numbers eventually forcing a literal interpretation of the restrictions. It would be subject to later liberalizations like those now being considered for OASI.

You have been told by some of the witnesses appearing before you that the administration of this provision would not add a great deal of expense or increase in personnel. Unfortunately these witnesses lack the experience in this field and they fail to recognize that disability insurance cannot be administered as simply as the OASI program. And this point is rather well elaborated upon in the latest study by the Brookings Institution.

Senator MILLIKIN. Is it your contention that there is no pressing need for the Federal Government to enter the field?

Mr. O'CONNOR. Not on a cash benefits program. I have another solution to present later on, sir.

Senator MILLIKIN. All right.

Mr. O'CONNOR. In 1948 two members of the Senate Advisory Council on Social Security, the only two members of this council having had experience with this type of insurance, submitted a report opposing permanent and total disability insurance and their report indicated that permanent disability insurance cannot be provided safely by the Government on a compulsory basis, either from a political, an economic, or social point of view.

In considering "permanent and total" disability benefits let us cease wishful thinking and be practical. Most of the life insurance companies some years back included "permanent and total" disability clauses in their policies and the clauses were written in tight and restrictive language. Yet with their efficient operation, and I state that knowingly, the claim situation could not be controlled and they suffered the loss of hundreds of millions of dollars; in fact the total is between one half and a full billion dollars.

The unfavorable experience of the insurance companies with permanent and total disability was greater under group insurance where the rates of disability during the depression rose to greater proportions than did the rates under ordinary insurance. This is significant when considering total disability on a contributory basis in a social security program because group insurance was directly tied to wage earners, issued on a wholesale basis without underwriting selection, and it was free from the hazard of overinsurance.

Senator MILLIKIN. Assuming it to be correct, it would answer the proposition that the insurance companies overweighted their risks by taking in too many big rich people for big fancy policies; is that not correct?

Mr. O'CONNOR. Well, that may be, to a certain extent, but the spread was pretty well set, Senator Millikin. There were some in

there that would probably have as much as $500 or $1,000 monthly total disability if they were disabled. But then there were thousands and thousands covered under group policies, which would offset that. Senator MILLIKIN. I am not talking about that. To me what you say about the group policies is significant, because if correct it tends to offset the argument that the reason insurance companies fell on their faces was because they put out too many policies calling for large fancy payments to persons who could afford big expensive policies.

Mr. O'CONNOR. That may have had an effect on it. I will go along with you on that thought also.

Disability is an intangible, subjective concept, it differs materially from the definite fact of death or old age. The attitude of the indi vidual when suffering a particular condition invariably governs to some extent the degree of disability. For example, it was the depres sion of the 1930's that created the heavy losses that forced the insurance companies to withdraw from this field. It is also recognized that the payment of disability benefits for any length of time, even in modest amounts, undermines human personalities, destroys incentive and the will to seek work fitted to one's capabilities.

Senator KERR. Did you say that later you do have a suggestion to make?

Mr. O'CONNOR. Yes; I will come to that in a moment, sir.

At this point I would like to present a few concrete practical illustrations of what H. R. 6000 actually proposes in the field of disability. And I do this having in mind that you gentlemen probably will receive many requests from your constituents as to why this fellow isn't being paid, and so on. Because in the bill it all looks very simple as to how it might be administered.

Now, the definition of disability set forth in the bill reads:

inability to engage in any substantially gainful activity by reason of any medic ally demonstrable physical or mental impairment which is permanent. Let us consider mental disability. Mental impairment brings up squarely into the psychiatric field. Some idea as to the importance of this field is indicated by the statistics for 1947 that in State hospi tals for mental illness alone there were over 450,000 inmates. I think the latest figures are about 470,000. In 1946 there were over 120,000 psychiatric first admissions to hospitals on account of general paresis alcoholic, cerebral, arteriosclerosis, senile, manic-depressive, dementia praecox, and other causes. Commitment to a mental institution has economic consequences to the individual, the individual's family, if any, and the taxpayers supporting the institution, which differ in degree only dependent upon whether the mentally ill person is insane a few months, a few years, or the remainder of his life. H. R. 6000 apparently would provide or deny benefits, however, dependent upon whether the prognosis as to his eventual recovery is favorable or unfavorable.

A very interesting situation is presented by persons who are com mitted to institutions for the criminally insane. Apparently these persons would be entitled to benefits if the prognosis for their recovery is unfavorable. Thus, where an individual is charged with a crime, if the jury verdict is that the individual is sane, neither the criminal nor his family would receive benefits, though the economic consequences