it fails we will put you back and we will not cut your benefits off." He called these people drawing benefits "vegetables." They had to sit still and be sure they were not doing anything when the adjuster came around. So they very carefully avoided making any effort at returning to work.

Under this program they would go to the disabled policy holder and say, "Now, we will carry your benefits for so long in any event. You try to restore yourself." Or they might give them an advance payment to set them up in business or through one method or another to assist them in becoming rehabilitated. But they had to promise the individual that this was not going to cut off his benefits if it failed, in order to get his interest in the program. Otherwise he was afraid of letting go of this reed that he was hanging on to.

Senator MILLIKIN. How did that work?

Mr. MILLER. Very well, I am told. They were able to restore a good many people to active work.

The proponents of disability benefits in H. R. 6000 also argue that through this plan more people will be referred to the rehabilitation agencies. It seems to me that there are more direct methods of bringing the benefits of rehabilitation to people who can profit by it than through the process of declaring them permanently and totally disabled, a terrible and disheartening judgment to a person who needs hope and encouragement. It would seem better to attempt rehabilitation first, leaving the payment of a disability allowance as a final resort in the hopeless cases. If, today, there are needy disabled people who are not seeking the aid of the rehabilitation services, would they be any more likely to do so if in receipt of a disability income? If they have not sought rehabilitation because of ignorance of the program, the solution would appear to be a strengthening of the publicity and its relations with other agencies.

Chart C, taken from the latest annual report of the Office of Vocational Rehabilitation, shows the rates of rehabilition. This chart shows the rates of rehabilitation in terms of the number of people rehabilitated per 100,000 population. The United States average was about 39. Delaware led the list, with almost 150.

Senator KERR. Out of how many?

Mr. MILLER. Per 100,000. The actual numbers in Delaware were something over 400, out of a population of about 300,000.

Senator MILLIKIN. Do they have any special techniques in Delaware?

Mr. MILLER. I have been unable to find that, but from inquiries it seems that the program depends a good deal on the man in charge or the people in charge locally. It is something that is not self-energizing. You have to have somebody there who really sees the possibilities and is interested in making it work.

Senator KERR. That chart does not give the information as to the number of disabled, but only the number rehabilitated out of 100,000 total population?

Mr. MILLER. That is true. There may be some difference among the number disabled per 100,000 of population by States. There probably are. But I can't believe that it is enough to account for these deviations. The Delaware rate is nearly 4 times the national average, and it is over 10 times the Massachusetts average, which is at the foot

of the list. The States of Georgia, in second place, and South Carolina, in third place, also rate high in this comparison.

Senator MILLIKIN. Do you attach all that disparity to the personalities of those who are running that?

Mr. MILLER. Not all of it, but a very large part of it. I was talking yesterday with a professor at the Springfield College, who has interested himself in this problem. I asked him what the trouble was with Massachusetts, and he said, well, nobody was really getting behind it. And then he told me an instance.

Senator KERR. Now, you say that is the lowest. I have a chart here that I thought was similar to yours, which has a different location of the States.

Mr. MILLER. This is from the 1949 report of the Office of Vocational Rehabilitation.

The CHAIRMAN. That probably accounts for the difference.
Senator KERR. Yes.

The CHAIRMAN. What was it you were saying as to Massachusetts? Mr. MILLER. This professor at Springfield College gave me an example. He said that Dr. Kesler, who is one of the pioneers in this field, set up a very excellent center in New Jersey, and he was away during the war, and he came back and found that the center was not functioning as he had left it; that it needed revitalization. The plan seems to depend very largely on the administrator at the centers and on the facilities. Now, in the western part of Massachusetts, where we have a considerable population, from the information I was able to gather, there are just three men working on this program, and in Springfield we have no real center where people can come for training. We have men who can help them and advise with them, but no adequate facilities for the purpose.

The CHAIRMAN. Does the fact that you may have a large number of disabled people in a highly industrialized State have anything to do with it?

Mr. MILLER. I tried to figure out some other answers to this, but there are too many contradictions. Now, here is Connecticut, very high on the list, and yet Massachusetts, next door, is down at the bottom. And here is Michigan, highly industrialized, very near the top, and Illinois about halfway down, and Ohio next to the bottom, and New York rather low.

Senator KERR. Michigan and Montana are right together on this chart, and there could not be any two States with a much greater difference.

The CHAIRMAN. In character of population; that is, whether rural or industrial or agricultural or what have you.

Senator KERR. There seems to be a very, very definite improvement of the program each year.

Mr. MILLER. Yes. That is very encouraging and shows up in almost every case. Nearly every State has made advances.

If the national average had been equal to the Delaware rate, the number rehabilitated in 1949 would have approached Mr. Ewing's estimate of 250,00 men and women becoming disabled every year.

At best, the proposed insurance plan can aid in the solution of only a part of the problem of disability, since many disabilities arise in childhood and others occur before the minimum employment qualifications are met.

That statement might be enlarged upon by reference to the cost estimates, which show that for 1955, a minimum of 190,000 or a maximum of 594,000 people are expected to be benefiting from the proposed disability insurance plan, and either figure is a rather small percentage of the 2,000,000 estimate that we have heard.

The rehabilitation services, on the other hand, are available to all citizens, regardless of age, occupation, or wage records. Therefore, inasmuch as the insurance plan cannot meet the entire need, and as there is danger that it may impede or inhibit full use of the rehabili tation services, would it not be better to rely on rehabilitation as the first line of attack, and secondly upon assistance by voluntary private agencies, supplemented where needed by public assistance at the local level?

The objection usually raised to such an approach is the necessity of the means test. However, since it is manifestly impossible to give everyone all that he considers to be his needs, the only apparent alternative to the means test is a system of benefits paid as a matter of right according to an arithmetic formula involving wage histories, employment records, and dependency. Now, in providing a basic floor of protection payable to the worker in his old age or to his widow and orphans, a benefit determined by formula and paid as a matter of right may be satisfactory. However, in dealing with disability with its varying degrees of severity, its varying consequences, and its varying possibilities of termination by recovery or rehabilitation, we have a most intricate problem that can best be handled through individual consideration. No formula can recognize the many elements that enter into a disability case.

Since disability insurance benefits will not help those who have not established adequate earnings or employment records, will deal very inadequately and imperfectly with many other cases, and may act, despite the best intentions to the contrary, to impede or discourage rehabilitation, it does not seem wise to adopt this system with all of its dangers.

Mr. Chairman, with the exception of the written appendix, which elaborates on some of these points, that completes my prepared testimony.

Following the testimony here last Friday, I was asked by Mr. Linton to request your permission to introduce for the record a statement answering Senator Myers' question as to the stand of the life insurance companies in 1945 regarding permanent total disability benefits. The CHAIRMAN. Have you attached that to your statement? Mr. MILLER. That follows, on page 12.

The CHAIRMAN. I see. Your whole statement will appear in the

record.

Mr. MILLER. Yes. Shall I read this?

The CHAIRMAN. You may if you wish to.

Mr. MILLER. Mr. Linton, chairman of the companies' committee, has authorized the following statement:

In 1945 the Life Insurance Social Security Committee felt that it might be well to include a provision for total and permanent disability for those who became disabled after age 55. The discussion resulting from that recommendation and the statements about disability in the Calhoun report led to a modification of that position a year later.

In testifying before the Ways and Means Committee on April 3, 1946, Mr. Linton mentioned the Calhoun report and stated that in the judgment of the life insurance committee it would be unwise for the Government to enter the difficult administrative field of total and permanent disability. However, if after due consideration it should determine to do so, then the recommendation would be that provision be made for premature aging as represented by total and permanent disability at age 55 and over, with the amounts and condition of benefits on a basis which would discourage abuse and malingering.

Still further consideration of the problem in succeeding years convinced the committee that the issues involved were so fundamental and the hazards so great that no middle position with respect to cash disability benefits under the OASI system is tenable. Our belief that the Federal Government should not include disability in OASI has been greatly strengthened by the results that have been achieved in the field of rehabilitation. As a consequence, we are full convinced that it would be unwise for the Government to enter this field.

(During testimony on Feb. 10, 1950 (part 2, page 951), Mr. Linton was requested to furnish a further memorandum. The information. requested is as follows:)

DATA RELATING TO QUESTIONS DIRECTED TO M. ALBERT LINTON DURING HIS

TESTIMONY ON FEBRUARY 10, 1950

Senator Byrd requested information about the rate of disability on workers. He made the request after the statement had been made that group insurance disability rates had gone up during the depression to the same extent as those under regular policies. In order not to burden the material to be included in the record I believe it will be sufficient to refer to the testimony presented on that subject by John H. Miller on March 2 in which the second chart confirms the statement made.

Senator Kerr asked about the disability experience of the companies, and what it had cost them. Investigation of the reports made to the State insurance departments indicates that the total was about $600,000,000, and that the cost was more than double the premiums.

He also asked about current practices as compared with what had been prevalent before. At present only about 40 of more than 300 United States life insurance companies listed in the Spectator Year Book as writing ordinary insurance issue the disability income benefit in conjunction with life insurance. The coverage provided is severly restricted as compared with that granted during the 1920's and the benefit is issued only to very carefully selected risks. The result is that only a small proportion of the life insurance issued by these 40 companies includes this benefit.

An analysis of the premiums and benefits of some 38 United States companies which have continued to issue the disability income benefit reveals the following: (1) As a rule only disabilities commencing before age 55 are covered. This is a very important limitation as the rate of commencement of disability rises sharply in the late fifties. Benefit payments generally terminate at the maturity of an endowment policy. Even with these limitations, premiums per dollar of income are from three to four times those charged in 1925.

(2) The benefit is conditioned on continuous total disability lasting 6 months. This is a "presumptive” clause-it is not necessary for the claimant to show that his disability is of a truly permanent nature but only that it has lasted continuously for 6 months. H. R. 6000 requires not only that total disability continue for 6 months, but also that it be of a permanent nature. The use by the companies of the more liberal presumptive clause is due to the tremendous dissatisfaction and litigation which arose from the use (prior to 1932) of the other type of clause which attempted to cover only disability of a truly permanent nature.

(3) The majority of these companies issue a benefit of only $5 a month per thousand dollars of life insurance. This restriction has an important effect both on the absolute size of the disability benefits provided and on their relation to the applicant's income. To illustrate, suppose a man age 35 with an income of $5,000 a year, decides to purchase such a disability benefit. What constitutes a reasonable amount of money to devote to life-insurance premiums would vary, of course, with individual circumstances. The average that is actually used by families with family income of $5,000 (excluding families that pay no life

insurance premiums) is about 32 percent of the family income.' The premium for whole life insurance at age 35, including the $5 disability income benefit, varies from company to company, but averages around $32 per thousand of insurance. A premium of $175 per year would therefore buy only about $5,500 face amount of such insurance, with a disability income benefit of only about $27.50 per month.

(4) Of the 11 companies which issue benefits of $10 per month per thousand dollars of life insurance, all but four either terminate payments or reduce them to $5 per thousand when the disabled individual reaches age 65. This termination or reduction was written into the policies because the companies believed that it would have a powerful psychological effect in reducing both the number and duration of claims. Even on the scale of $10 per thousand of life insurance a substantial life insurance premium is required in connection with any sizeable disability benefit.

An analysis of the current underwriting practices of some 16 companies issuing disability-income benefits indicates that:

A. The benefit is issued only to the highest-class risks in nonhazardous occupations requiring steady attendance at a place of employment other than the home, and characterized by a steady income. Salaried people with regular income and steady employment appear to be the only satisfactory risk. Even business and professional men are viewed with caution because their income fluctuates and is not readily established. Women are usually not considered eligible.

B. Agents are apt to be quite selective in suggesting disability-income coverage to applicants for life insurance since if the company rejects the applicant for disability coverage, such action may prejudice the sale of the life-insurance policy.

C. The result of this double screening is that the companies which write this disability benefit do so on only a small proportion of the life insurance which they issue. The proportion varies in the different companies and is typically in the range from 2 percent to 10 percent.

It is of course too early to say whether in the long run the companies now writing disability-income benefits will have a satisfactory financial experience, Whatever may be the outcome in this respect, it is clear that the attitude of these companies toward disability-income benefits reflects in its own way the same healthy respect for the difficulties and dangers of disability-income insurance that prompted the great majority of companies to withdraw from the field altogether.

The CHAIRMAN. Any further questions.

We thank you for your appearance.

Mr. MILLER. I thank you for the opportunity, Mr. Chairman. (The prepared statement of Mr. Miller follows:)

STATEMENT ON PERMANENT AND TOTAL DISABILITY INSURANCE BENEFITS IN H. R. 6000

(By John H. Miller, vice president and actuary, Monarch Life Insurance Co.)

Mr. Chairman and members of the Senate Committee on Finance, my name is John H. Miller. I am a vice president and actuary of the Monarch Life Insurance Co. of Springfield, Mass. 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 connection with social security with keen interest.

My study of H. R. 6000 has been devoted primarily to the provisions for permanent and total disability benefits. The advocates of these provisions contend that the qualifying requirements and the definition of disability are suffi ciently 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's 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 their parents or other relatives and not wholly dependent on their own

1 See Life Insurance Ownership Among United States Families, 1949, prepared by Survey Research Center, University of Michigan.