earnings, numerous examples can be cited to 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 provisions of the work clause. The fundamental administrative problem of disability insurance is the impossibility of precise definition and objective determination. 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 provided under H. R. 6000 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" cannot be precisely defined. Thus, a man who has a high sense of responsibility to those dependent upon him and to his work will return to work as soon as possible, while the irresponsible individual will claim disability for a much longer period. The individual's pecuniary situation and whether he receives a disability income or allowance also exert a tremendous influence. The extent of disability is determined largely by incentives. It is sometimes asserted that proper adjudication of claims and competent administration of the benefits 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 disability for which compensation is paid will be substantially increased despite the best of claim administration. This fact is demonstrated by chart A prepared from a recent analysis of the disability experience of the Prudential Insurance Co. for the years 1946 through 1948 on three types of policies, none of which were issued before July 1, 1930.1 The first bar shows the number out of every 100,000 policyholders insured for income and waiver of premium benefits in event of total disability who are disabled at least 6 months. The second bar shows the corresponding number disabled where the policy provided waiver of premium benefits only. The third bar shows the corresponding number disabled under small policies providing waiver of premiums for 1 year followed by payment of the face amount in quarterly installments over a 10-year period. Unlike the first type of benefit, the cash payments under this so-called installment form reduce the amount subsequently payable on death. Under the income benefit the average cash payment was about $39 per month, under the waiver only benefit there was no cash income payable, and under the installment benefit the average cash payment was a little over $5 per month, the average payment being about $16 per quarter. In this connection, it should be observed that the average income benefit under the Prudential policies, $39 per month, is less than the average of about $50 estimated by the actuary to the House Ways and Means Committee for the disability benefits of H. R. 6000,2 although the former involves larger maximum benefits. The second set of three bars shows the respective numbers remaining disabled after 10 years. In each case it will be noted that the amount of disability claimed under the income benefit is more than double that under the waiver only benefit or under the installment benefit. Now this difference in experience among the three types of benefit cannot be the result of differences in selection of the risks, for all groups represent insured policyholders selected on the basis of health, habits, occupation, character, and other considerations. Indeed, it is probable that those insured for income benefits were the more carefully selected. It also seems implausible that the higher incidence of disability under the income benefits can be accounted for by lax claim administration. All three groups were handled by the same company and it is not reasonable to believe that more care was taken in the payment of claims involving the waiver of premiums averaging probably less than $50 a year or payment of installments of about $64 a year than in the payment of claims calling for substantial cash benefits. 1These comparisons were based on data from an advance release of a paper by Zehman I. Mosesson entitled "Prudential 1946-48 Disability Experience," which will appear in the Transactions of the Society of Actuaries for 1950. The comparisons shown are based on averages for ages 30 to 60 weighted according to the age distribution shown by July 1, 1946, estimates of United States population, as given in The Statistical Abstract of the United States, 1948. 2 Myers, Robert J., Actuarial Cost Estimates for Expanded Coverage and Liberalized Benefits Proposed for the Old-Age and Survivors Insurance System by H. R. 6000. mittee on Ways and Means, table 3, p. 8, Washington, October 3, 1949. Com NUMBER DISABLED AT INDICATED DURATION OF DISABILITY My interpretation of these data is that the payments under the waiver and installment benefits represent actual disability while the experience under the income benefit includes payments to those individuals who, but for the incentive of a disability income, might have become reestablished as productive members of society. I do not mean to state or imply that the difference is accounted for by deliberate malingerers who have deluded the insurance company. Rather, I believe they have deluded themselves. No doubt many have deluded their physicians as well. There is little argument today over the proposition that the mental attitude and the emotions of an individual have a profound effect on his physical well-being. These apparent malingerers are, for the most part, really disabled according to any practical criterion of disability, but would not have been if there had been no disability income to rely upon. I do not believe that a government administrator or a government rating board would be any quicker to terminate disability benefits in such cases than the insurance claim adjuster. Other examples can be cited to show how the disability rates are influenced by the attractiveness of the benefits provided. During the depression of the thirties disability losses increased enormously, and during the war years they dropped to levels far below normal, whereas the actual changes in general health conditions were not nearly so marked. Chart B shows the trend in experience under two forms of disability policies. The broken line indicates the loss ratios under noncancellable life-income disability policies. Some proponents of Federal disability insurance argue that this unfavorable experience is irrelevant to the consideration of social-security disability benefits because of the effects of individual selection and of benefits for very large amounts. However, the solid line, showing the ratio of actual to expected group disability claims during the same period indicates an even more adverse trend under small policies issued to the workingman under a plan that precludes individual selection. The dotted line shows the trend of mortality under industrial insurance, indicating that there was no substantial deterioration in general mortality during the depression. The record does not contain substantial proof or demonstration of Mr. Altmeyer's assertion that "to the extent that one is able to judge, the veterans' experience has been more favorable than the experience of private-insurance carriers, * * 994 In his testimony before this committee on January 18, 1950, Mr. Altmeyer stated the foregoing opinion after quoting the following from the recent book by Professor McGill. "The disability experience of USGLI has not been unfavorable. The combined experience of the two disability clauses appears to have been more favorable than commercial-insurance experience, although exact comparisons cannot be made because of differences in age limitations, qualification periods, and definitions of disability.' I would like to call your attention to the author's own qualifications in the quotation just made. I have carefully reviewed Professor McGill's analysis and have studied the reports of the Veterans' Administration and have been unable to find any published data which can be properly compared with insurance companies' experience. Moreover, I question the bearing which the experience under benefits payable to veterans has on the question at hand since the veterans comprise a select group not representative of the labor force of the Nation. This rather technical problem is discussed in greater detail in the written appendix to this statement. Cash benefits for extended disability generally have the effect of prolonging disability and deferring the return to productive activity. Chart A shows to what extent the amount and value of the benefit affects the disability rate, while chart B shows how greatly the need, as between periods of low and high employment, affects the disability rate. As this variation occurs rather uniformly under very different methods of selection and administration, there can be no doubt but that an assured disability income exerts a powerful influence on the behavior of the disabled person. In fact, there is reason to believe that, in many cases, a permanent disability benefit, by reducing or destroying the incentive to return to useful activity, has done the disabled individual more harm than good. The noncancellable disability experience data were taken from History and Present Status of Noncancellable Accident and Health Insurance, by John H. Miller, vol. XXI of the proceedings of the Casualty Actuarial Society, p. 246. The group life disability experience data were taken from a report entitled "Combined Group Mortality Experience, 1922-34," Committee on Group Mortality Investigations, E. E. Cammack, chairman. The industrial mortality experience is presented in the form standardized mortality rates for ages 1 to 74 according to the experience of the Metropolitan Life Insurance Co. under its industrial insurance as reported in Twenty-five Years of Health Progress, by Dr. Louis I. Dublin. Committee on Finance, United States Senate: Hearings on H. R. 6000, pt. I, p. 52, Washington, 1950. McGill, Dr. Dan Mays, An Analysis of Government Life Insurance, p. 102, Philadelphia, 1949. This is a ratio chart drawn on a logarithmic vertical scale, CHART B Therefore, I would count the cost of this extra disability shown in chart A not just in claim dollars paid out by the insurance company, but in wasted lives and prolonged disability suffered by people who should have been making a greater effort to return to their jobs or to find a new role of activity. Precedents for disability experience from foreign plans should not be followed without an examination of the alternatives and a thorough appreciation of the advances made by medicine and other sciences in dealing with the problems of the disabled. Permanent-disability insurance is an old institution dating back to the earlier days of the British friendly societies. Its inclusion in the social-security plans of foreign countries has been cited as a reason for our adoption of these benefits and as proof of the feasibility of doing so. In my opinion, these arguments lose whatever force they might have when we find, as is shown in the appendix to this statement, that typical benefits of foreign plans, in effect before World War II, have been equivalent to only a few dollars a week. Although the British benefits, and perhaps those of other countries, have been increased subsequently, there has not been sufficient time to appraise the results under such liberalized benefits. However, in considering the problem of the disabled, it seems to me that the history of past attempts at paying cash benefits, whether successful or not, is of less significance than the tremendous gains which have been made in the past few decades in elimination of disability or its unfortunate consequences by cure or treatment on the one hand and by vocational rehabilitation on the other hand. Before accepting disability pensions as a desirable objective, it will be well to examine the developments in these fields. The Vocational Rehabilitation Service established by Congress in 1920 and 1943 have accomplished much and offer great promise for our disabled citizens. Two of the most important steps ever taken by Congress in promoting social welfare were the passage of the Vocational Rehabilitation Act of 1920 and the 1943 amendments to that act. A part of the Federal Security Agency, the Office of Vocational Rehabilitation has worked with State agencies, with the physicians. of the Nation, and in cooperation with industrial medicine, in returning disabled and handicapped people into useful endeavors. The opportunities in rehabilitation have been well stated by Mr. Michael J. Shortley, Director of the Office of Vocational Rehabilitation, in the following words: "Most disabled persons can work efficiently if prepared for jobs compatible with their physical condition, aptitudes, and abilities. A man with a leg amputation can do anything at a bench or desk that an able-bodied man of equal skill can do. A man with an arm amputation may be a competent salesman, draftsman, or lawyer-to mention but a few occupations open to him. The deaf person is handicapped only in communication and not in the skilled use of mind and hands. Tuberculosis ex-patients and persons with heart defects are limited only in performing heavy manual labor and not in the duties of lighter-skilled vocations. The blind compensate their loss of vision by quickened perception, power of concentration, and manual dexterity. In fact, nearly every disabled person has far more vocational assets than are lost through his impairments, and it is only needed to develop his remaining skills and capacities, through physical restoration and vocational training, to the point of economic usefulness." Mr. Oscar Ewing has asserted, "Our disabled civilians generally are capable of becoming self-sustaining and contributing citizens of their communities; * The proponents of permanent and total disability benefits "as a matter of right" point out that the proposed law (H. R. 6000) requires termination of disability benefits upon refusal without good cause to accept rehabilitation services. Unquestionably, the Administrator can, under threat of termination of benefits, force the disability pensioner to register at a rehabilitation center. But forcing a man into a rehabilitation center will not assure his rehabilitation any more than forcing a man to attend church will guarantee his conversion. His heart must be in the project. If his mind is fixed on the security of disability pension payable so long as rehabilitation is not successful, his doubts as to the outcome of rehabilitation and as to his future self-sufficiency will erect a psychological barrier to the success of the program. When you hold out a reward for failure, can you expect success? If, under these circumstances, the attempt at rehabilitation fails, after the disabled person has passively gone through the motions of compliance with instructions, it will be very difficult for the Administrator to remove him or her from the disability roll. Furthermore, because of the human tendency to follow the line of least resistance, not only the patient but also the administrative official or worker in charge may be less impelled to strive for rehabilitation, if a disability pension is available as a matter of right. The proponents of permanent and total disability benefits also argue that through the disability insurance 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 Shortley, Michael J., Independence Day for Disabled Civilians, Office of Vocational Rehabilitation, Federal Security Agency, pp. 7-8, Washington, July 1947. Office of Vocational Rehabilitation, Federal Security Agency: Brass Tacks-Vocational Rehabilitation for Civilians, Washington, June 15, 1949. |