"gain" to the OASDI system resulting from increasing the maximum earnings base from $4800 to $5000 (effective in 1962). The gain from increasing the earnings base is estimated to be equivalent to the effect of a rise in the combined employer-employee contribution rate of .1% of payroll. This income would be channelled into the Health Insurance Account of the Federal Social Insurance Trust Fund, which would also include the existing QASI and DI Trust Funds as two separate accounts. This Study sets forth in Section B the basic data utilized, the assumptions made, and the computation procedure. In Section C, the cost estimates are presented, along with discussion of changes made in them in the past year. Finally, Section D outlines the problems involved in making actuarial cost estimates for the proposal. B. Data, Assumptions, and Procedures The various cost factors involved for each of the types of benefits have been developed by the Division of the Actuary in collaboration with the Division of Program Research. These factors have been applied to the estimated numbers of OASDI eligibles, which are available from the long-range actuarial cost estimates for the system. The latter are summarized in the 21st Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, pages 27-32 and 37-44 (H.Doc. No. 60, 87th Congress, January 18, 1961). The general assumptions and procedures for these estimates are described in Actuarial Study No. 49. Factors Affecting Hospitalization-Benefit Costs The elements affecting costs in each year may be itemized as follows: (1) Number of eligible beneficiaries and their age-sex (2) Rates of hospital admission; (3) Average duration of hospitalization; (4) Average daily per capita hospital charges; and (5) Effect of maximum-duration and deductible provisions. Hospitalization-benefit costs for various future years are obtained by multiplying the estimated number of eligibles by a factor representing the average annual per capita cost of hospitalization (after taking into account any maximum-duration and deductible provisions). This is done separately by sex and by age groups (65-69, 70-74, and 75 and over, in connection with the cost estimates for H.R. 4222) since duration of hospitalization varies significantly by age and sex. Likewise, the age-sex composition of the eligible group will vary over the years. The per capita hospitalization-cost factor is derived in relation to all eligibles in the age-sex group, including those who are not hospitalized. The per capita hospitalization-cost factor consists of two elements, the average length (in days) of compensable hospitalization (considering all eligibles, and including the effect of any deductible, as well as any maximum-duration provisions) and the average daily cost of hospitalization (including both room and board, and all other hospital services, averaged out on a daily basis). 76123 0-61-pt. 1——6 Average Length of Hospitalization First, considering the element of average length of hospitalization, the basic procedure is to make the detailed calculations for a 60-day maximum provision and then to modify the overall results for differences in the provisions of the particular proposal. The basic data are presented in Table 1, which shows hospital utilization rates on both low-cost and high-cost bases. The "hospital utilization rate" is defined as the average number of hospital days experienced per person exposed to risk. In other words, they are the result obtained by multiplying the proportion of persons experiencing hospitalization by the average duration of hospitalization for those hospitalized. The basic data are from the BOASI Survey of Beneficiaries, but with modifications to recognize that the availability of benefits will result in greater utilization than that reported in the Survey. In addition, the basic data have been corrected to allow for hospitalization of persons who died during the year, who of course would not be reported in the Survey. The corrections for the availability of hospitalization benefits were made in the following manner (described in more detail on pages 77-78 of the Department's 1959 Hospitalization Report). For the highcost estimate, the admission rate was assumed to be the same as the rate reported in the Survey for those with insurance (approximately 60% higher than the reported rate for those without insurance). The average duration of hospitalization was taken to be the same as that reported in the Survey for those with insurance and those without insurance combined (the average duration for the latter category was about 50% higher than for the former); this assumption is, of course, a "conservative" one. For the low-cost estimate, the hospital utilization rate was obtained by weighting such rate for insured persons in the Survey by the proportion of insured persons and by weighting such rate for those in the Survey without insurance by the average hospital utilization rate for all persons in the Survey (about 5% higher than the actual experience for the uninsured group). Also, an adjustment of the hospital utilization rate was made for men aged 65-69 to reflect the fact that utilization is substantially lower among employed persons than among retired persons. In connection with the latter point, it should be noted that the beneficiary group surveyed consisted of retired persons; thus, making no such downward adjustment in the high-cost estimate added an element of conservatism. Operating in the other direction, however, is the factor that utilization of the proposed health benefits by persons with insurance in the past may be somewhat increased because of the greater protection available in many instances (where the deductible does not have an offsetting effect). Table 1 HOSPITALIZATION UTILIZATION RATES FOR PERSONS AGED 65 AND OVER, a/ Obtained by weighting the rates by age and sex by the estimated OASDI "eligible" population as of the beginning of 1960. Note: The figures shown above for "corrected rates" are the same (except The assumptions in the low-cost estimate produce costs only slightly above the Beneficiary Survey experience. This seems plausible for the near-future. For the long-range future, this low-cost assumption may be said to give recognition to the probable success of current efforts for progressive patient care, for reductions in hospitalization costs resulting from development of outpatient-hospital-diagnostic facilities, and for progressive cost-reducing trends in medical practice. As yet unpublished hospital utilization data from the National Health Survey, for July 1958 to June 1960, have been used to develop utilization rates comparable with those obtained from the Beneficiary Survey data. In the aggregate, the hospital utilization rates derived from the NHS data confirm those developed from the Beneficiary Survey (used for the purposes of this Actuarial Study), being in fact somewhat lower. The hospital utilization rates derived from the Beneficiary Survey, modified as described above to allow for the effect of benefits being available as a right, must be corrected in respect to hospitalization used by persons dying during the survey year, who would not have been included in the Survey. For both cost estimates, this correction was obtained for each age-sex group by applying to the estimated proportion dying in a year an assumed average number of days of hospitalization for decedents (8 days for the low-cost estimate and 10 days for the high-cost estimate). As indicated by Table 1, the relative size of this correction naturally varies considerably by age and sex. For both cost estimates, the correction amounts to about 24% of the rate derived from the Beneficiary Survey for all ages combined, but it is as little as about 15% for women aged 65-69 and as much as 35% for men aged 75 and over. The absolute amount of the correction for decedents averages .53 days for a cost estimate intermediate between the low-cost and high-cost ones. Since the basic work was completed on these cost estimates, there has appeared a more extensive study on the general subject of correcting hospital utilization rates derived from surveys so as to allow for decedents ("Hospital Utilization in the Last Year of Life," Health Statistics from the U.S. National Health Survey, Series D, No. 3, January 1961). This report presented a preliminary study using data for the Middle Atlantic states (New Jersey, New York, and Pennsylvania) for 1957. On the whole, after modifications to obtain comparability, the results of this survey agreed reasonably well with the adjustments made in the cost estimates for the effect of the exclusion of decedents from the Beneficiary Survey. The NHS report showed that for persons aged 65 and over, the unadjusted utilization rate was 1.67 days per person per year and that |