The method of providing paid-up health insurance protection for retirement has not been followed on any large scale in private insurance, nor is it likely that it will be. The social insurance method, then, is the only practical way of enabling most people to pay during their working years toward meeting the health costs they will face in old age.

Moreover, the social insurance approach affords the best assurance of keeping program costs under control, for there is a direct and known relationship between increases in benefits and increases in taxes, and the State and Federal Governments are relieved of a considerable burden on general revenues.

I have mentioned that if we do not have health insurance for the aged under social security and if the State assistance programs were to provide better medical benefits than the ones in effect in the present initial programs, the cost of medical assistance for the aged could run as high as $1 billion a year or even more. With almost one-half of this coming from the States, the States would have to spend something like three times the $146 million they paid toward vendor payments for medical care under old-age assistance in 1960. Such a volume of expenditure, by some of the States, is almost impossible to envisage, but the need is there, and pressures to meet it will be great. Far better, surely, to look to meeting the major part of the costs through health insurance for the aged.

The social insurance approach, on a national basis, makes possible provision of basic protection for the aged regardless of where they may happen to live. As you know, the State programs of medical assistance for the aged can, depending on State action, be very narrow, both in eligibility and in benefits, or on the other hand can provide virtually comprehensive medical care to a substantial portion of the aged. New York, for example, has enacted a comprehensive program, providing a broad range of medical services and a relatively liberal definition of "medical indigence." Unmarried aged people with annual incomes of $1,800 or less and couples with incomes totaling $2,600 or less are eligible. Kentucky's program, on the other hand, is limited to individuals with annual incomes of $1,200 or less and couples with annual incomes of $1,800 or less, and it provides payments only for 6 days of hospital care for acute emergency and lifeendangering illness.

Variations such as these and the fact that most States have no program at all raise the very serious question of whether this country can long tolerate a situation in which health care is available to many of its aged citizens in New York and Massachusetts but not to people similarly situated in Kentucky and North Carolina. There is nothing fair or equitable in a situation of this sort. The problem is nationwide, and it should be dealt with nationally.

The social insurance approach would provide health insurance protection for the aged without limiting the patient's choice of doctor or hospital. In fact it makes possible greater freedom of choice than now exists, since the most important limitation for those who have not been able to pay-the financial barrier-would be removed. The only limitations on the patient's choice, for any beneficiary, would be what they are today for those who are able to pay: namely, that a hospital may be unable or unwilling to accept a patient and that one's physician

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may not happen to have hospital privileges at the hospital of one's choice. Thus, contrary to the argument of those who say that the plan would limit the patient's freedom of choice of doctor or hospital, it would in fact broaden freedom of choice for many and limit it for

none.

Finally, the social insurance approach means that those who qualify under it can be protected without having to undergo a means test. Requiring older people who have always been financially independent to undergo a means test, with its investigation of their personal circumstances, when serious illness strikes, denies them dignity and selfrespect in their days of retirement.

We have, then, in the social insurance approach these advantages: It is the only way in which people generally can pay during their working years toward meeting their health costs in retirement; it is sound and fiscally responsible; it makes possible provision of basic protection for the aged regardless of where they live; it preserves and increases freedom of choice of doctor and hospital; and it does all this in a way that is consistent with the dignity of the individual.

The cost of the President's proposal: When the administration bill was introduced in February, it provided for full financing of the estimated long-range cost of the program-0.60 percent of taxable payroll. This cost would have been met by an increase in the tax rate of one-fourth of 1 percent each for employers and employees and by three-eighths of 1 percent for self-employed persons, effective in 1963, together with the net gain to the program from an increase in the taxable earnings base from $4,800 to $5,000 a year effective in 1962. Since the introduction of the bill, the chief actuary of the Social Security Administration, in accordance with his usual procedure, has reevaluated the cost estimates. The estimate of the cost of the hospital services has been fully confirmed in this reevaluation. There is a great deal of information on hospital use under insurance programs, and our assumptions on use of hospitals under the President's proposal seem very safe.

For nursing-home and home-health-care services, the chief actuary is now using assumptions that are more conservative than those he originally used. In the original estimates a moderate increase in the use of these services had been assumed. In the course of his reevaluation, he decided to allow for a substantial increase in the use of the kinds of nursing-home and home-health services that would be covered under the bill. A change of this magnitude may not occur, but we propose to provide sufficient funds to make possible payment for increased use of the services, if the change does occur, without further increases in the contribution rate.

Based on the new assumptions on use of services, the long-range cost of the program is now estimated by the chief actuary at 0.66 percent of payroll rather than 0.60 percent. In accordance with the longestablished practice of fully covering the cost of any new benefits that are added to the program, I am recommending that the financing provisions of the proposal be changed so as to keep the program on a sound financial basis.

Specifically, I recommend that the taxable earnings base be increased to $5,200 instead of to $5,000 in order to fully meet the cost of the benefits provided in the bill. Although our most recent esti

mates indicate that, even with the previously recommended financing provisions, the income earmarked for health insurance benefits would have exceeded the outgo in every year until after 1980, we believe the prudent and advisable course is to make provision now for the additional income that would be required over the very long run.

Incidentally, an increase to $5,200 would not only be desirable to provide the necessary financing, but at the same time, since raising the maximum wage base also raises the benefit amount payable at the maximum, it would improve the benefit structure of the social insurance program. As was brought out in this committee when the recent social security amendments were under consideration, the maximum wage base is now out of date in view of the increase in wages since 1958, the last time the maximum was raised. And the recent increase in the minimum benefit amount from $33 to $40 is an additional reason for raising the earnings base.

It is important, as this committee has always recognized, in a program in which benefits are related to prior earnings, to maintain a reasonable spread between the minimum and the maximum benefit. If the minimum benefit becomes too high in relation to the maximum benefit, the wage-related character of the program is weakened. The increase in the minimum benefit to $40 reduced the spread of benefits from $94 to $87. Since the maximum benefit amount payable under the $5,200 earnings base would be $134, the spread between the minimum and the maximum benefit would be restored to $94.

How would the President's plan work? President Kennedy proposes a fiscally responsible method of financing hospital care and certain related health services for the aged in a way that protects the dignity of the individual. There are differences in the method of collecting the funds and in the population groups affected, but what the plan would do would be very much like what Blue Cross plans have been doing for many years: it would pay hospital bills without interfering with hospital operations.

The people who would be protected: About 95 percent of today's workers will have this protection when they reach age 65. Only 5 percent of all present workers would not be protected under the plan, and they would be largely Federal employees, who will be protected under their own system, self-employed physicians, and those State and local government employees who are not brought under social security. At a given point in time there are always also some irregularly employed farm and household workers and low-income selfemployed who are excluded from coverage, but most of these people will acquire protection over a working lifetime.

Even among those already retired, the great majority will be protected immediately under the plan. At the beginning of 1963, the first full calendar year in which the plan would be in operation, of the 1734 million people who will then be age 65 and over, 144 million would have health insurance protection-1334 million as old-age, survivors, and disability insurance beneficiaries, and one-half million as railroad retirement annuitants. Among those not protected immediately by the new plan are people who have protection under other programs-retired Federal employees, veterans eligible for care under the special program for that group, and people in institutions.

This pattern of immediate protection for those who had worked under the program in the past, with growth in the proportion protected in the future until ultimately practically all are protected, is the tradition that has been followed from the beginning of the social security program. When cash benefits for the aged were first payable in 1940, benefits were made immediately available for those who, though already old, had demonstrated attachment to covered work after the program started in 1937.

When cash disability benefits were first paid in 1957 to people age 50 and over, those already disabled who were between the ages of 50 and 64 and who previously had worked substantial periods in covered jobs were made eligible for benefits. In this way the work-related character of the benefits was established and maintained, while at the same time the provisions were given immediate effect to the extent that it seemed practical to do so within the framework of a workrelated program. At the same time, both at the very beginning of the program and with its extension to the additional risk of disability, assistance programs, put into operation before the insurance provisions, have been relied on to meet the needs of those who had not earned eligibility under social insurance.

We propose that this time-tested pattern be followed for health insurance benefits, with 80 percent of the aged protected immediately, with 95 percent or better to be protected in the long run, and with medical assistance for the aged becoming increasingly available to those not protected by social insurance.

The benefits provided: The proposed legislation would provide for the payment, through the social security program, of certain health costs for people who are aged 65 or older and entitled to old-age, survivors, and disability insurance or railroad retirement benefits. A person would have the health insurance protection at age 65 even though his monthly cash benefits are being withheld because of earnings from work. In general, the following health services would be paid for under the proposed program:

(1) Inpatient hospital services, including bed, board, drugs, and other supplies and services of the kind customarily furnished by the hospital.

(2) Followup skilled nursing home services provided to a patient after his transfer from a hospital, including bed, board, nursing services, drugs, and other services and supplies which are customarily provided by skilled nursing homes.

(3) Home health services furnished by or through a public or nonprofit agency under a plan prescribed by a physician, including nursing care, physical, occupational, and speech therapy, medical supplies (other than drugs) and appliances for temporary use, and certain part-time or intermittent homemaker services.

(4) Outpatient hospital diagnostic services of the kind customarily furnished by or through the hospital to its outpatients for diagnostic study.

Hospital and home health services that are furnished on and after October 1, 1962, and skilled nursing-home services furnished on and after July 1, 1963, could be paid for under the program.

In essence, what this program adds up to is payment of the cost of hospital care and of economical substitutes for hospital care.

There are two reasons why the proposal focuses on hospital services. First, the hospital is the center of modern medical care, and hospitalization is required in a large proportion of major illnesses. Second, hospital care is very expensive; people who need hospital services generally face a heavy financial burden. Medical expenses for older people who are hospitalized are about five times as great as the medical bills of older people who are not hospitalized.

The chief reason why certain services other than hospital inpatient services are covered is to promote economical use of the latter. Thus the efforts of the health professions to reserve hospital beds for the care of the acutely ill who need the intensive care that only a hospital can furnish would be reinforced by the proposal. The provision for payment of the cost of skilled nursing-home care after a hospital stay, for example, would relieve the hospitals of the problem of caring for patients in the postacute stage of illness. Pressure for hospital care of such patients could be expected to develop if only hospital care were covered by the proposal. Similarly, because the plan would pay the costs of outpatient hospital diagnostic tests, there would be no incentive to use inpatient hospital services in order to obtain coverage of the cost of diagnosis. In addition, of course, payment of the costs of outpatient diagnostic services would promote early detection of disease. Payment of the cost of home health services, too, would encourage the use of these less expensive services, where medically appropriate, rather than those of a hospital.

We recognize that there is a great need for an increase in the number of physicians, medical schools, community health facilities, and skilled nursing homes to fully meet the health needs of our growing population. The administration has recommended to the Congress legislative proposals to accomplish these objectives. The proposed Health Professions Educational Act of 1961 (H.R. 4999) and the proposed Community Health Services and Facilities Act of 1961 (H.R. 4998) are part of a total program to improve the health and well-being of the American people. Enactment of these programs is of great importance to the success of the proposed insurance program. On the other hand, passage of the insurance program will do much, in and of itself, to encourage the development of new facilities and services and thus to assure the success of these Federal-State programs. This is because adequate operating funds from patient income must be reasonably assured before a building project can be undertaken, before standards can be raised, or before new service programs can be put into effect. Social insurance financing would help to furnish these operating funds by its payment of the full reasonable costs of the covered services they will provide.

In short, these several programs would work in a coordinated way to increase the availability to the aged of the health services and facilities they need.

The bill would not cover all health services. Much would be left for coverage under private insurance contracts and other voluntary arrangements. As is true of the basic protection provided by the cash benefits, the health insurance protection could be supplemented by the individual as he saw the need to do so and could afford it.

Physicians' services would not be covered except for services in the fields of pathology, radiology, physical medicine, anesthesiology, and services rendered by interns and residents in training, and those serv