grams, and to demean potential recipients of MAA benefits with meaningless redtape used under the guise of the means test. How could any program work perfectly with this kind of hamstringing at every turn on the part of the people charged with administering a program enacted by the Congress. Given a reasonable chance Kerr-Mills can and will develop into a mechanism which will answer the health care problem for every needy aged person in this country. But time must be allowed. Since the act was passed in 1960, only 3 years ago, 28 States and 3 other jurisdictions have implemented the act and have it in operation. Ten other States have enacted laws which will become effective shortly or which are awaiting approval of the Department of Health, Education, and Welfare. I have given you the case history of 1 of those 10 in South Dakota and the obstacles which have been presented before our State. Of the 12 States which have not passed cooperating legislation, 5 will meet in regular session early next year with the opportunity of acting. In the State of Texas, the electorate voted on the 9th of this month to remove constitutional barriers so the legislature can act in its next session to implement Kerr-Mills in that State. As a matter of record, only 3 of the 50 States have done nothing at all in this short period of time. This is a highly enviable record when it is realized that since 1960 Congress has always had legislation before it which would establish the social security oriented program and the possibility has thus existed that any State medical assistance program with its committed State funds might quickly be superseded. I urge the committee, therefore, to consider this problem carefully before enacting a compulsory program of compulsory health insurance attached to the social security program. "Medicare" is a gross misnomer for this approach because it provides no medical care at all. It is simply a very inadequate and partial program of hospital insurance and certain other limited services. It does not give the aged or the needy the kind of care that they require. The Kerr-Mills Act, on the other hand, recognizes that after retirement one may have a variety of ailments and so it provides for doctors and surgeons and hospitalization and nursing and drugs and dental benefits. The reason Kerr-Mills can give a more adequate protection against a compulsory universal program is simple and obvious. The medicare. program, being compulsory, requires that it be available to everybody so it is available to the wealth as well as to who don't need it at all instead of limiting to those people who require assistance at the time of an ailment in old age. Another reason the compulsory medicare concept is wrong is that it does nothing whatsoever to protect the young family during its working years. It required them to pay a tax sometimes as long as 45 years on the gamble that maybe after age 65, and not until then, they will need some health benefits and on the improbable hope that nothing will happen to the family until that time, before they get to the age of 65. In addition, past history assures us that social security taxes will continue to rise sharply. No one can foretell with any degree of accuracy the upper limits of that increase and I have been intrigued by the test money and the interrogatory here this morning dealing with that very significant and salient point. Originally, the social security tax was set at 1 percent each on the employer and the employee on the first $3,000 of annual wages. Now it is 35% percent each on income up to $4,800 a year. The tax on the self-employed has risen during the same period from 21⁄4 percent of the first $3,600 of income to 5.1 percent on the first $4,800. For many taxpayers, the social security tax has already taken a bigger bite out of income than the Federal income tax. Even without the enactment of medicare, the tax rate must be increased to provide for an actuarially sound trust account. By 1968, the employee-employer total tax will be 9.25 percent. Estimates based on actual claim experience of insurance companies indicate that within 6 years the estimated cost of the program will require a joint tax on a $5,000 income of 11 percent. This estimate is based on present benefits provided by the pending legislation, ignoring all the potential and possible new benefits about which advocates of King-Anderson already speak. Once enacted there is little question that pressures would be engendered to expand the scope of the program, increase the benefits, provide for longer periods of time, and to lower the age limit. All this would, of course, substantially increase the wage tax and the employers tax for all American workers. There is another feature of the compulsory wage tax that I would like to mention and the corresponding tax upon employers for the limited health services proposed by the King-Anderson bill which I strongly dislike. That is the fact that this would be a system of regressive taxation for health purposes entirely violating the concepts of progressive taxation which have so long served us so well in the field of income taxes, and which your committee which I am now addressing has done so much to keep on an equitable basis. In short, the health tax would entirely ignore and violate the abilityto-pay concept of taxation. It would in fact tax the very poor and the very rich at precisely the same tax rates on that first important segment of their annual income which serves as the tax base. For some Americans, for example, their entire income would be subject to this new tax grab while for the wealthy and the well to do by far the larger percentage of their income would be exempt from any healthtax assessments or payments whatsoever. In many ways, this proposed Federal health tax is far more unjust to those with marginal incomes than would be a Federal sales tax which some are now proposing in lieu of Federal income taxes. Another important consideration which seems to me to argue against the compulsory social security approach is that in establishing such a program we are taking an irreversible step. I say irreversible because we will be requiring people to pay taxes to a program from which they cannot benefit until age 65, so, once started, it would be exceedingly difficult to discontinue without breaking faith with those who have to pay the tax. To take such a step at this stage strikes me as very unwise. We are venturing into an entirely new area so far as the Government is concerned. We cannot predict with accuracy at this point what problems and difficulties will be encountered. This being the case it seems to me that any program established should be highly flexible so that it can be easily modified to meet unexpected problems which are bound to arise. From this standpoint the pending proposal would be most unsatisfactory because I repeat it is an irreversible step. I urge the committee, therefore, to ponder well this extremely important and far reaching and irreversible decision and I strongly urge sufficient time for the Kerr-Mills Act to be tested in the laboratory of life so that its true worth can be examined and exaluated. Until that is done, I strongly urge this committee and the Congress not to take the irreversible step of approving the King-Anderson bill. I ask unanimous consent, Mr. Chairman, to insert in the record as part of my remarks some correspondence and some news stories which set out in detail the situation as it developed in South Dakota from the standpoint of public officials of the HEW coming to our State to address closed meetings of people who support the King-Anderson bill and meetings which are used to attach the Kerr-Mills program. (The data referred to follows:) DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, REGION VI, Mr. MATTHEW FURZE, Director, Department of Public Welfare, Kansas City, Mo., August 21, 1963. DEAR MR. FURZE: The proposed plan for medical assistance for the aged is under review within the bureau of family services and several questions have been raised and discussed with the office of the commissioners of welfare, and the office of the general counsel. The questions require clarification and additional information before further action can be taken to the plan. The first question relates to the nature of the contracts between the Department of Public Welfare and the supplies of the medical services. The central office comment on this question is as follows: "Our first question relates to the State agency's medical contracts with Associated Hospital Service, Inc., and with South Dakota Medical Service, Inc. It is not clear whether these contracts are insurance contracts or whether they merely establish a relationship under which the two contractors act as fiscal agents for the State agency with the obligation of making arrangements whereby eligible individuals will be provided specified medical care at cost. In the former case, the capitation payments are 'premiums' and would be matchable as medical assistance. In the latter case, only actual expenditures to hospitals and physicians for medical care would be matchable as medical assistance while the administrative expenditures of the contractors would be matchable only as administrative costs and only to the extent that they are found necessary for the proper and efficient administration of the MAA program. The condition which seems unclear in both contracts (general condition No. 8) provides that: 'Payment of the premium by the department to medical service (hospital service) shall constitute full discharge of all responsibility of the department under this contract, except as provided by law ***' (italic supplied). Section 2 of chapter 330 of the State law provides 'that no profit or loss shall accrue to the contractors and when such corporation or company anticipates a loss *** immediate renegotiation to decrease levels of services or utilize the * * * contingency funds *** shall be initiated and completed within thirty (30) days of notice by the contractor' (italic supplied). The question that needs to be answered is whether the State agency will be liable to cover losses suffered by the contractors during the period prior to renegotiation or cancellation. For example, if the contractors ask for renegotiation and the State chooses to cancel the contracts as of the end of the 30-day period, will the State agency be obligated to cover losses sustained by the contractors prior to cancellation? If the State agency is so obligated, the contracts are not, in our opinion, true insurance contracts. If, on the other hand, premiums are adjusted only with respect to future periods, the contracts would seem to be insurance contracts." The second question relates to medical direction of the program and the central office makes the following comment upon this matter: "The plan does not provide for medical direction and supervision as set forth in the handbook supplement, M-3530, nor is there provision for the reporting of data from the carrier to the agency needed to make necessary reports." The third point relates to the manner of determining and considering the amount of income in relation to eligibility, and is as follows: "While the consideration of income on the basis of the 12-month period preceding application is a generally accepted method of determining financial eligibility the plan must recognize situations where the income available and that anticipated for the year following application will be within the established limitations. It is conceivable that applicants might have had higher income in the year prior to application than that available to them at the time they apply. In such situations the applicant must be found eligible in terms of income." The regional office interprets the above quoted statement, in effect, to mean that in determining eligibility as related to income, the plan will have to provide that past income, income at the time of application, and prospects of future income when related to the applicant's particular situation will have to be considered in determining eligibility on this point. You are aware of the fact that "coverage" would begin under the contracts from the first of the month following the month of application. You are also aware of the problems which undoubtedly will arise because of the inability of the State, under the program, to meet the medical needs of individuals who are seriously in need of care at the time of application. The central office comment upon this issue is : "We share your concern that under both contracts 'coverage' will begin on the first of the month following the month of application. We agree that such a provision may fail to meet the purposes of the MAA program as it does not provide assurance of coverage at the time medical need arises in new cases. We hope that the agency will make every effort to revise the material to provide assistance in meeting medical costs for eligible persons at least from the point of application." Information is necessary with respect to the above points in order to give further consideration to the plan for medical assistance for the aged. If we can be of help in discussion of the above questions or in developing materials to clarify or amplify the plan do not hesitate to call upon us. Sincerely yours, ALFRED E. POE, SOUTH DAKOTA STATE MEDICAL ASSOCIATION, Re MAA. Mr. MATTHEW FURZE, Director, State Department of Public Welfare, DEAR MR. FURZE: I have reviewed your letter and the copy of the letter from Mr. Poe of the regional office of Health, Education, and Welfare concerning the South Dakota MAA proposals. Regarding the matter of the State agency's contracts with South Dakota Medical Service, Inc., the following is presented: "The contract does establish an insurance relationship between the Department and South Dakota Medical Service in that prepayment is made on behalf of a group that by virtue of its income level becomes an insurable group. State law indicates that no profit nor loss shall accrue to the contractors, but the purpose of this phraseology was not to eliminate the insurance feature but to protect the State against inordinately large profits paid from welfare funds to insurers as well as to protect the contractor who is unable in this case to select his own risks. The predictability studies and renegotiation provisions of the program build into the program the possibility of the no profit-no loss concept embodied in the law. It is my understanding that renegotiation of rates would apply to future periods that would compensate for current or expected losses." Regarding the matter of medical direction and supervision of the program as set forth in the handbook supplement, M-3520, and the reporting of data, the following is presented: 1. Not having seen the Handbook Supplement M-3520, I am unable to determine what "medical direction and supervision" is being discussed. Public Law 86-778 does not include a stipulation of this nature. Medical supervision of the services provided, is available through the board of directors of South Dakota Medical Service, the Review Committee of the South Dakota State Medical Association, and the medical director of South Dakota Medical Service, Inc. 2. The reporting of data is covered in the contractual arrangement between the Department and South Dakota Medical Service, Inc., as follows: A. Medical Service shall compile and furnish to the Department routine financial and statistical reports on its operations under this contract, in such form and containing such information as the State director of the Department may reasonably request, while this contract is in effect and for a reasonable period thereafter; and the information so reported shall become the property of the Department for any lawful use that the Department may see to make of it. B. Medical Service shall likewise furnish to the Department all special reports, in such form and containing such information as may be requested by the State director of the Department during the time this contract is in force and for a reasonable time thereafter; and the information so obtained shall become the property of the Department for the purposes directly connected with the adminis tration of the medical assistance for the aged program. C. At all times during the period that this contract is in force and for a reasonable time thereafter; Medical Service shall accord any representative of the Department designated by the State director full access to such of its records as have a direct relationship to the subject matter thereof and permit authorized representatives of the Department or the State comptroller to inspect and copy such records in the home office of Medical Service; provided, however, that such inspection and copying is done for the express purpose to insure the Department that it is fully accountable for the expenditure of public funds and to insure the integrity of any reports furnished in compliance with the request for information by the State director. We are rather surprised that the matter of reporting data was missed by the authorities reviewing the contract material. Regarding the third point on eligibility, the medical association is hesitant to make a recommendation on a matter that is purely administrative within the Department. However, it appears that the quotation from the letter developed by Health, Education, and Welfare in Washington answers its own question when it says, "The consideration is a generally accepted method of determining financial eligibility * *." It would also appear that greater administrative problems would be encountered if welfare staff were to become involved in predicting future income. Regarding the fourth point which has to do with the starting date of coverage: 1. If this program is to be insurance, as indicated previously, it cannot provide for a starting date for coverage other than in the manner provided in the contract. 2. If an applicant applies early in a month and is determined to be eligible and then becomes ill prior to the effective date of the contract, the contingency fund could be utilized for assistance in that case. It is suggested that an addendum might be made to the contract that would allow the contractor to pay for the few services involved in this situation, and be reimbursed by the Department. The association respectfully submits the above material as the basis of discussion with the welfare commission. Sincerely yours, JOHN C. FOSTER, Executive Secretary. [From the Argus Leader] CARE-FOR-AGED WORKSHOP NOT PUBLIC MEETING Dick Gaikowski said at Huron anyone interested in supporting the program of care for the aged under social security is welcome to attend a workship meeting at Sioux Falls Saturday. Gaikowski responded to a statement by John Foster, executive secretary of the South Dakota Medical Association, who said in Sioux Falls Thursday that |