of his imprisonment are the same whether or not the individual is found to be sane or insane. Presumably, if found to be insane and the prognosis of his insanity is unfavorable, monthly benefits would be paid. Truthfully, I am rather confused as to the intended purpose of these payments.

What is meant by "substantially gainful activity" as it is set forth in the bill? There is no definition of "any substantially gainful activity," nor are we enlightened as to congressional intent by any statement in the Ways and Means Committee report accompanying H. R. 6000. However, apparently, persons can qualify for benefits as "permanently and totally disabled" and still be able to engage in a considerable amount of work for pay. The effect of work on disability benefits is set out in section 220 (a) of the bill. This section states that when an individual earns more than $50 in a month as an employee, he shall forfeit a month's benefit.

One would normally think that when a person actually earned a hundred or so dollars in a month he would thereby have demonstrated that his disability did not render him "incapable of engaging in any substantially gainful activity." But apparently this is not the case, in view of the specific provision that earning in excess of $50 a month means loss of a month's benefits. It is not certain just how remunerative activities must be to be "substantially gainful." There are also provisions as to disability benefit forfeiture for earnings in self-employment. A month's benefit is lost by the disabled person when "net earnings" of more than $50 are "charged" to him. Net earnings in his taxable year in excess of $50 per month are "charged" only after his net earnings exceed $600. The first month is charged with the first $50 over $600, and so on. Whether or not a "permanently and totally disabled" person draws benefits during a year is thus dependent on his net profits from his activities-a kind of profit underwriting arrangement.

There is, however, one escape clause, permitting him to draw benefits regardless of his substantial net business income. No amount is charged for any month in which "such individual did not engage in self-employment." Apparently he will at least receive benefits during any vacation from his business.

Even the phrase "did not engage in self-employment" is made flexible. The individual does not so engage when "it is shown to the satisfaction of the Administrator that such individual rendered no substantial services." Here again we find the flexible and undefined term "substantial." The section directs the Administrator to "prescribe the methods and criteria for determining whether or not an individual has rendered substantial services."

Engaging in noncovered work presents an unexplained difference in forfeiture of benefits because of earnings in disability cases and benefit forfeiture in other benefit cases. In retirement and survivor cases, forfeiture because of earnings is dependent on whether these earnings were in employment subject to the OASI taxes. If not so subject, the individual's earnings are ignored, regardless of the amount. But in the case of disability, the fact that the work is in exempt work makes no difference.

I assume that the work test for the other benefits is limited to covered work because of the administrative impossibility of checking

on exempt work. I do not know how it is contemplated that in disability cases earnings in exempt work will be checked on.

H. R. 6000 in dealing with disability does so on the theory that the individual must be both disabled and retired. It awards disability benefits to individuals and then provides that work beyond $50 per month means loss of benefits. Obviously this means a very strong incentive for the disabled to stay disabled and retired. The bill, apparently in recognition of this, authorizes the administrative people to throw a person off the rolls who refuses rehabilitation. I don't like that kind of authority being vested in administrators. We have been telling people for 13 years that social-security protection is theirs as a matter of right. This tells them that it is a matter of administrative discretion if they are disabled.

The point I want to make is that H. R. 6000 itself recognizes that social insurance disability benefits are inherently inappropriate to principles of the social insurance concepts we have established over the past 13 years. Without a work test we lose justification of paying disability benefits under the program. With a work test we are defeating an important policy of persons working despite a disability. By giving administrative discretion in forcing people off the rolls we destroy the concept of "earned right" which is featured by proponents of the system.

Marginal workers can qualify for benefits larger than their annual earnings and continue to work. For example, a woman who picks up $200 for Christmas work and $200 for summer sales in some retail store, can qualify for $300 per year in disability benefits. She can thereafter earn up to $50 in any month without affecting her benefit. If she earned her regular $200 in December and $200 in August sales she could still collect $250 disability for the remaining 10 months.

A physically handicapped odd-job man who averaged $40 per month could qualify in 5 years and continue at his insubstantial work.

Marginal workers who collect both workmen's compensation and disability present a particularly unfortunate situation. For example, John Jones, who has been averaging $100 per month, under most State laws would receive two-thirds of wages for disability under workmen's compensation. Under H. R. 6000 he would also receive $25 or morehalf his $50 plus increment benefit-an aggregate of $91 per month. In addition, he has freedom to live where he wishes, do small odd jobs for extra money if he chooses, and a certain income of $91 in good times and bad. He is not subject to withholding taxes for income tax and social security, union dues, or other deducts. He escapes carfare and other work costs. What is his incentive to engage to productive work?

Gentlemen, in giving you these practical illustrations I am attempting to show what we get into when we try to provide and handle disability coverage. We have perhaps two important effects to consider: (1) the effect on the individual concerned and his family and those whose taxes must support OASI, and (2) the effect on the entire OASI system.

Using the statistics of the varous health surveys as the basis for estimation, the number of those in the labor force permanently disabled, plus those who would be in the labor force but for disability, total around 1,500,000 persons. The existence of such a class of unfortunates calls for an integrated system of dealing with the situation,

chief of which should be rehabilitation of the disabled and not cash benefits, which would result in a pension roll of huge proportions made up of individuals who would be compelled to surrender the dignity of self-support to the so-called peace of mind that comes to one who is the recipient of a monthly Government check. Have we in this country come so far that we no longer place any value on the intangibles of personal pride and individual self-determination, and the surrender of these and other rights to the physical comfort of a monthly stipend? Experience demonstrates that cash sickness benefits operate as a deterrent to rehabilitation, diminish the incentives toward rehabilitation, and self-support and is therefore socially undesirable. As the London Economist stated some time ago, the ultimate cost and waste of a disability program not geared to incentives to recovery is "locked in the subconscious minds of millions of hypochondriacs."

I have studied the very remarkable provisions that have been made in the Scandinavian countries for 70 and 80 years for the care of the aged and permanently disabled. Their system has the triple advantage of first, providing ideal care; second, reducing the cost to a minimum by changing it from a cash to a service basis; and third, by maintaining the pride and dignity of the individual. May I, at this point, make the suggestion that the experience in such countries as Denmark, Sweden, as well as Switzerland, and Holland, would provide many worth-while ways in which the problem of caring for the aged and permanently disabled can be solved without resorting to such radical techniques as a Federal compulsory system of cash benefits, which would blanket the country with a most expensive plan.

Senator KERR. What do you mean by "changing it from a cash to a servicę basis"?

Mr. O'CONNOR. At one time they had mostly all cash, and then they turned around to a service basis. They set up a home, where there will probably be six of them to take care of them, and they included medical care, and so forth.

The question of caring for and rehabilitating the disabled should be left to the States.

Senator MILLIKIN. Let me back-track. What was the net result of your observation of the Scandinavian systems?

Mr. O'CONNOR. It was less costly, maintained very well, and they all maintained their dignity and were very happy in their situation. Distribution of the disabled varies among the States, and flexibility of State systems will allow better adjustments to actual conditions. The States are administratively closer to the conditions and cases of the disabled.

Senator MILLIKIN. Let me back-track again. What Scandinavian systems did you study?

Mr. O'CONNOR. Those in Sweden and Denmark. Those were not studies conducted over there; they were studies made in this country. I was only in Europe once, and that was during the First World War. I have never been lucky enough to get back there since. The State public assistance systems are closer to the disabled in their homes, have medical facilities or arrangements for the same, possess case-work services for treating individual cases, can engineer the retraining and rehabilitation of the disabled as well as find work for them, and can render such financial assistance as befits each case. Where institutionalization is required, State and local institutions

already care for many of the disabled and this service can be expanded to meet additional needs.

The administration of permanent and total disability benefits is more akin to the administration of old-age assistance than to old-age and survivors insurance. Under OASI you are not confronted with the various degrees of eligibility; you do not have to follow through continually checking the progress of the disability. This surveillance is similar to what is required in administering public assistance, always on the alert for false claims, misrepresentation, and malingering. In these respects, old-age assistance and disability benefits follow the same patterns, and the administration should be at the local level where the costs of such a program can be controlled.

Wisconsin since 1945 has provided a special program of public assistance for permanently and totally physically disabled persons. This is the first specific law making aid available to the totally incapacitated as a separate group. A maximum cash aid of $80 per month is provided and the local administration is in the hands of the county agencies which carry on under the supervision of the State department of public welfare.

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The State, and not the Federal Government with a cash-benefits gram, is the answer to the problem of permanent and total disability. The State could balance the incentives to cash benefits and to rehabili tation since these two incentives may conflict. When benefit payments are readily available as a matter of right, there may be a reluctance to enter a process of rehabilitation and also a temptation to drep it after once started. The disabled person should be encouraged to again stand on his own feet. We should not make his bed too soft. Rehabilitation is to the ultimate benefit of both the individual and society.

The Federal Government should be kept out of administering such a program because it would lead to outright political control and tremendous abuse while political interests in the States would be held to a minimum, with better care organized on a State or even on a community basis.

In the light of the fact that no one can predict just what a perma nent and total disability program as called for in H. R. 6000 would cost, and in view of the many facts and arguments submitted oppos ing such a development in social insurance, it would seem that the most practical approach is a public assistance program for the needy disabled-a program which is provided for in other sections of H. R. 6000 through the sounder and less costly Federal grants-in-aid to the States.

I urge you therefore to remove the permanent and total disability insurance provision from the bill since it will not result in the denial of benefits to the needy permanently disabled. At the same time it will continue the responsibility in the public-assistance program where it rightfully belongs. I can visualize only confusion and grief by the adoption of the proposed permanent and total disability provision in H. R. 6000.

The CHAIRMAN. Thank you very much for your appearance.
Mr. O'CONNOR. Thank you, sir.

The CHAIRMAN. Mr. John H. Miller?

You may identify yourself for the record, Mr. Miller, and we will be glad to hear your statement.

STATEMENT OF JOHN H. MILLER, VICE PRESIDENT AND ACTUARY, MONARCH LIFE INSURANCE CO., SPRINGFIELD, MASS.

Mr. MILLER. Mr. Chairman and members of the committee, my name is John Miller. I am a vice president and actuary of the Monarch Life Insurance Co. of Springfield, Mass.

I have a written statement, which I will summarize, if I may, omitting some sections.

The CHAIRMAN. You may put your entire statement in the record if you desire to do so, and then you may refer to it, as you wish. Mr. MILLER. I will do so, briefly, if I may.

Two years ago I served as a special consultant on disability insurance to the staff of the Advisory Council of this committee. Subsequently, I have followed the legislative developments in social security with keen interest.

My study of H. R. 6000 has been devoted primarily to the provisions for disability benefits. The advocates of these provisions contend that the qualifying requirements and the definition of disability are sufficiently strict to keep the cost at a moderate level. These requirements and definitions may possibly operate as intended in the case of a steady worker responsible for his family support, or at least for his own, but when we consider that our labor force includes millions of single men and women, many living with relatives and not wholly dependent on their own earnings, numerous examples show that even the minimum benefit proposed would often be a strong temptation to make improper claims. This is particularly true because of the possibility of supplemental earnings under the work clause.

Examples of situations which invite abuses of the benefit system. fail, however, to illustrate fully the really serious issues involved. A more fundamental consideration of the disability benefits proposed requires a careful analysis of the condition of disability. How an individual reacts to an injury or disease depends upon his character and upon his circumstances. The area between good health and absolute incapacity to do any physical or mental work is so broad that the term "disability" can not be precisely definied. Thus, a man who has a high sense of responsibility will return to work as soon as possible, while the irresponsible individual will claim disability for a much longer period.

It is sometimes asserted that proper adjudication and administration of claims will avoid the abuses I have mentioned. Competent claim administration will prevent a great number of potential abuses, but it will not overcome the fact that human behavior is largely determined by incentives. If the incentive to remain disabled is strong enough, the duration of the disability will be substantially increased despite the best of claim administration.

This fact is demonstrated by the recent disability experience of the Prudential Insurance Co., which I have summarized on this chart A. This experience covers the period of 1946-48 and therefore is free from depression or wartime influences.

It shows the differing experience under three types of policies. The first bar is based upon policies providing monthly disability incomes, which in this case averaged about $39 per month. The second bar shows the experience for a similar group