May I point to the Supreme Court, that very recently specifically stated:

The social security system may be accurately described as a form of social insurance enacted pursuant to Congress power to spend money in the aid of general welfare.

May I also point out that Congress refers to the benefits of the law as insurance benefits.

Rather than to go into a lengthy debate, Mr. Chairman, I ask unanimous consent that at this point in the record the statement of Mr. Wilbur J. Cohen, Assistant Secretary of Health, Education, and Welfare, dealing with the question of whether this is or is not insurance, be included in the record.

The CHAIRMAN. Without objection, it may be included. (Mr. Cohen's statement follows:)

THE OLD-AGE, SURVIVOR'S, AND DISABILITY INSURANCE PROGRAM IS INSURANCE (By Wilbur J. Cohen, Assistant Secretary of Health, Education, and Welfare) The old-age, survivors, and disability insurance program, established under the Social Security Act and referred to by many simply as "social security," is too important to the American people to let attempts to discredit it go unchallenged. Right now a well-organized campaign is being carried on to discredit the program and shake the people's confidence in it. What we have in the current campaign is an attempt by some practitioners in private commercial insurance to lay exclusive claim to a term which properly and historically applies to both commercial and social insurance. Governmental programs like old-age, survivors, and disability insurance are in existence in countries all over the world and in some countries have been in effect for generations. Social insurance, recognized as one branch of insurance, is the term used traditionally and properly to describe these programs. As the article on "Insurance" in the Encyclopedia Britannica says, "*** the modern institution of insurance is divided into the two broad categories of voluntary or commercial insurance and compulsory or social insurance, both relying on the same basic principles but differing in many details of philosophy and organization ***."

The old-age, survivors, and disability insurance program is income insurance. The risk insured against is loss of family income because of severe and extended disability, because of retirement in old age (at age 72 the payment is a straight annuity without a test of retirement), and because of the death of the family earner. While people are at work they pay a small part of their earnings into the social security funds. Employers match these amounts. When the earnings stop because of disability, retirement, or death, insurance benefits are paid from the funds to partially replace the earned income that has been lost. The loss occasioned by the occurrence of the risks is averaged among the insured group. The cost of meeting the risks is actuarially evaluated and contributions sufficient to cover these costs are provided for. Benefits are paid from those contributions on a predetermined basis when and if the risks covered eventuate. The right to these insurance benefits is a legal right enforcible in the courts. These are the characteristics that make social insurance "insurance"; they are the same as, or similar to, the characteristics that make private voluntary insurance "insurance."

The two branches of insurance of course differ in some respects. One way in which they differ is the nature of the right to the payment. The terms of the legal right to social insurance are spelled out in a statute, which can be amended as any law can be amended; the rights under private insurance are spelled out in a contract, which for the duration of the period of the contract can be changed only by agreement of both parties to the contract.

The fact that the right to social insurance is not a contractual right is made much of by those who seek to discredit social insurance, yet actually the fact that Congress can change the law is an advantage in social insurance. The contractual nature of private commercial insurance gives it an inflexibility in comparison with social insurance, since the latter can be changed from time to time to keep pace with changing conditions. As the Supreme Court has said. in the case of Flemming v. Nestor, "To engraft upon the social security system a

concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to everchanging conditions which it demands." To illustrate this point: the social insurance program has been amended several times in recent years to raise the benefits in order to compensate for rising prices and to allow the beneficiaries to participate to an extent in the increase in the general level of living enjoyed by the country as a whole. The private insurance

approach does not lend itself readily to this type of adjustment.

In this respect it is quite unrealistic for those who contend that the program is not insurance to assert that the right of Congress to amend the law may be used to deliberalize the program rather than to improve it. Those who are trying to make people feel that the right to amend the law constitutes an element of insecurity in the program are, in my judgment, very shortsighted in trying to stir up an uneasiness about contributory social insurance. Moreover, I am sure they do not really believe that the Congress will take away the benefits of millions of people who have contributed toward the cost of those benefits from their earnings.

Incidentally, the Supreme Court, in the recent decision already referred to, very positively indicated that the right to benefits under the social insurance program is protected by the due process clause in the fifth amendment to the Constitution against denial and diminution by arbitrary governmental action. Thus although, fortunately, the Congress can modify rights granted under the statute, it cannot do so in an arbitrary manner. Both the majority and minority opinions support the concept that the right to old-age, survivors, and disability insurance benefits is an enforcible valuable right which cannot legally be arbitrarily diminished. The truth is, of course, that the power of Congress to amend the law has been used and will continue to be used to improve the program and keep it up to date in terms of changing prices and wages.

Under private insurance, of course, the only possible basis for the arrangement between the insurer and the insured is a contractual one. And there are advantages in private insurance to a long-term contractual arrangement; such an arrangement eliminates the kind of insecurity that can occur when a policy is written to cover a relatively short period of time-1 year, for example-and can be continued in the following year only on conditions that suit the company. The deficiencies of health insurance policies that are cancelable when the insured has proven to be a bad risk are well-known. Increasingly, health insur. ance policies are being made uncancelable and guaranteed renewable. Yet, because the contract is written to protect the insurer as well as the insured, only too often these guarantees are not as meaningful as they seem. Primarily, this is because there is no guarantee that the premiums will not be increased and often they have risen sharply. In other instances the protection afforded to the aged has been reduced below that available to persons insured as members of employment groups. These underwriting practices are proper in private insurance to prevent the insurer from being wiped out by increasing costs that he cannot meet; but they result in a very insecure situation for the people involved.

Another point at which social insurance differs from many branches of private insurance is in the nature of the reserves. Because compulsory social insurance is assured of new entrants into the program, it does not have to build up the kind of reserves that are necessary at all times in an institution that might have no new customers and might be forced out of business. Private insurance is required to maintain the type of reserves that will meet the threat of dissolution. Social insurance is actuarially sound, on the other hand, as long as its schedule of income is sufficient to meet all benefit costs as they fall due.

It is because there are differences between private and social insurance that we need both branches of insurance. The characteristics the two branches have in common are what give them claim to the common term "insurance," and the differences are what define the two branches. Yet these differences are cited by those who wish to discredit social insurance and discourage improvements in it in support of their contention that social insurance is not insurance. They seems to reason as follows: "The American people have accepted the idea of insurance; they think insurance is a good thing. If we can convince them that social security is not insurance, that it is unsound, that the benefits can be taken away at any time, and even that this is likely to happen, they will be afraid to press for improvement of the program."

Much of the current propaganda on this subject is based on statements in a brief filed by the Solicitor General under the last administration in the case of Fleming v. Nestor. This brief was unfortunate in its general slant and emphasis; several of the statements in it are quite misleading. And although the

Supreme Court arrived at the same conclusion as the Government brief, it did not endorse the arguments in the brief, nor base its conclusions on those arguments. The Supreme Court specifically stated, "The social security system may be accurately described as a form of social insurance, enacted pursuant to Congress power to 'spend money in aid to the "general welfare."'

Finally, it should be noted that Congress has referred to the benefits in the law as "insurance benefits" (see, for instance, sec. 202 of the law) and has entitled the part in the Internal Revenue Code that levies the taxes the "Federal Insurance Contributions Act" (sec. 3126 of the Internal Revenue Code).

To summarize: the program established by title II of the Social Security Act-the old-age, survivors, and disability insurance program-is an insurance program. The Congress has recognized it to be an insurance program. The right to social security benefits is a valuable and enforcible legal right that cannot arbitrarily be denied or diminished. The program is soundly financed. It is a compulsory, statutory social insurance program, and in my opinion it has just as much right to be called "insurance" as has voluntary private contractual insurance.

Mr. CURTIS. Mr. Chairman, inasmuch as that refers, I am sure, to my interrogation, I want to emphasize I did not use the words "social insurance." I used the word "insurance." And there is where the difference lies. Social insurance has one connotation, while insurance has another. And there is where the area of disagreement lies. The CHAIRMAN. Are there any further questions?

Mr. Knox?

Mr. Knox. Mr. Hayes, I should like to ask you a question relative to the financial responsibility that would be enforced under the provisions of H.R. 4222. It was my opinion, and I think it was the opinion. of the Congress a year ago, when they enacted the Kerr-Mills bill, that it was their judgment that it was in the best interest of those who would need assistance as far as hospital and medical care was concerned. What is your opinion?

Mr. HAYES. I wonder if you would repeat the question part of it first.

Mr. KNOX. I will ask the reporter to read the question.

(The question referred to was read by the reporter.)

Mr. HAYES. Well, I think that to the extent that it goes, I think it is all right. I would like to see it go further.

Mr. KNOX. Following that up, may I ask you, then, your opinion relative to the financial responsibility as far as contributions are concerned, relative to the program that was enacted and the proposed program. The workers' contribution would be based on the first $5,200, in accordance with the provisions of the bill, of the individual's earnings, leaving all earned income in excess tax free.

I think that we have to look at the segment of our country today that are in the category of high salaries and covered by social security; that they would pay only on the first $5,200. And of course the average workingman would be paid upon his total income.

Under the Kerr-Mills bill, the Federal Government participates at the rate of about 50 percent with the States that enact the enabling legislation. It would seem to me that those who would be forced to make contributions under the provisions of the King bill would be paying a greater share of the cost of the care than they would under the Kerr-Mills bill, would they not?

Mr. HAYES. I really do not know. I really do not know whether they would or not. But it seems to me that the potential for good under the King bill is a lot greater than under the other bill.

And I think that we are coming to grips with the problem more realistically under this bill than under the Kerr-Mills bill.

Mr. KNOX. Well, sir, I am concerned about the Congress levying a tax on the working force who are less able to meet the requirements. We have a segment of our population under social security who would be able to come under the provisions of this bill, but are perfectly able to pay for their own medical and hospital care.

Mr. HAYES. Of course, that does not necessarily follow at all, because somebody has got to determine, then, who is cabable of doing it and who is not capable. And we are opposed to this type of means test. And I think probably the best testimonial for this kind of proposal as proposed under the King bill is the fact that many people who can afford to live well still buy insurance, and they still buy quite a bit of insurance. So they believe in this kind of proposition insofar as their future is concerned, but when it comes to a health bill to help the needy, then they are opposed to this, because they do not like this idea of the insurance principle; where those who have will help the others.

Mr. KNOX. Well, Mr. Hayes, there is no provision in the bill that would provide for those that would be covered under the provisions of this bill, as far as eligibility is concerned. Is it your opinion that the people who were not attached to social security, that could financially pay for their own hospital and medical care, would not come under the provisions of this bill?

Mr. HAYES. No, I am not under that impression, at all. I am under the impression that they would come under, and I think they must come under, because spreading the cost reduces the cost, and this makes this kind of program feasible for our kind of society.

Mr. Knox. Of course, we have this other factor, also, of continuing with increased cost of the social security program.

I know if my memory serves me correctly, in 1969, with the enactment of this bill the social security tax would be approximately 10 percent of the $5,200, the employer paying 50 percent and the employee paying 50 percent.

Is that correct?

Mr. HAYES. I think so, yes, but I think this is bound to happen, Congressman, in any growing and advancing society. I think this is bound to happen, and I think this has happened throughout the entire history of our society, and I think it is going to continue to happen.

Mr. KNOX. Well, we have no experience rating that we can look to as far as additional costs are concerned, have we? I now recall the statement which was made here this morning that the cost of hospital care would be determined by the hospital, and not regimented by the Federal Government or the social security program. Is that correct? Mr. HAYES. Yes. I think so. But what I am concerned about, Congressman is: When we talk about cost, I think that the cost to our Nation of not taking care of the health needs of our people is so great that we are actually saving by passing a bill like this to take care of the needs of our people, because certainly we are sacrificing a great deal in our Nation when we permit hundreds of thousands of our people to die prematurely and to lose millions and millions of mandays of work due to unnecessary sickness and disease. This is a terrific and staggering price that we as a nation are paying for this

luxury of permitting people the right to be sick, to be diseased, and to go without treatment and care.

Mr. KNOX. Well, sir, I have made some inquiries relative to this bill and its operations in Michigan, and I was somewhat amazed at the great progress that has been made under the provisions and the recent amendments to the enabling legislation which Michigan enacted this year.

After Michigan put it into operation, they found, then, that there had to be amendments made to the enabling legislation because, in the first movement, the cutoff of earnings was placed at $2,000 on a married couple. The Michigan Legislature this year increased that to $2,500.

I do not think we can have a complete evaluation of the great impact that the Kerr-Mills bill is going to have on those who are in need of assistance until it is in operation. Michigan was one of the first States that passed the enabling legislation, and it went into effect last October, and since last October, until July 1, there were 9,574 people that qualified.

Sure, there were over 12,000 that had made applications, but there was a percentage of them that were denied, because of the fact that they did not come within the provisions of the enabling legislation. Have you looked into any of the States operations that have enacted the enabling legislation under the Kerr-Mills Act?

Mr. HAYES. No; we have not specifically done so. However, I remind you again of the statement made, the statement presented this morning, and that is that this requires what we consider to be a means test. We think this is unfair. We think this is improper in our kind of society. We are opposed to a type of legislation that requires a means test of a citizen of our country in order to get needed health care, after many, many years, after a lifetime contribution, to our society.

Mr. KNOX. Then you are of the opinion that the Congress should tax a segment of our population in order to hand out certain benefits, regardless of the needs?

Mr. HAYES. I think that the need is there. I think that the principle of taxing the population when the population is in a position to pay, so that they may benefit at a later date, is a very good principle, and I think it is the best alternative that we have in this situation.

Mr. KNOX. We do have a segment of the population which has been discussed here this morning that are not covered under the Social Security Act, and that is the medical profession.

Still it is claimed that the AMA is opposed to this legislation.
What is your opinion?

Mr. HAYES. I certainly have no objections to covering the members of the medical profession, just like we do anyone else. I have no objection to it at all. If Congress or the committee feels that they have a particular problem there, I think it is a problem that ought to be worked out.

Mr. KNOX. You leave me, then, with this conclusion: that it is your firm conviction that the Congress should move into a field of taxing people to make a distribution of funds to people, regardless of their need.

Mr. HAYES. Actually not. I think that it is proper for Congress to tax people in order to take care of needs that, on the basis of our past