My intent is to show that the proposal is a logical extension of the present social security program, that public assistance cannot meet the problem and would not be a satisfactory way to do so even if it could, and that private insurance-no matter how imaginatively conceived and energetically applied-cannot by itself meet the need of the aged for protection against the high costs of medical care. What are the dimensions of this problem?

It is widespread. The later years of life bring with them very high health costs on the one side and reduced incomes on the other. Few of the aged escape these pincers. Nine out of ten people are hospitalized at least once after reaching age 65. Almost two out of three will go to the hospital at least twice between age 65 and death. People over 65 use three times as much hospital care, on the average, as people under 65.

The facts about the income and assets of older people are no less disturbing. The aged have less than half the income of younger people in similar family situations. One-half the aged couples have less than $2,800 in annual income and little in the way of assets other than equity in their homes.

The average aged person living alone now has an income of not much over $1,200 a year. But averages do not tell the whole story. At least two-fifths of the aged-including wives as sharing in the incomes of their husbands have incomes of under $1,000 a year. Not more than 10 percent of the aged have incomes over $4,000, and most of them have not yet retired and will have much lower incomes when they do. Moreover, a national average does not reflect the situation in particular localities. Where wages and living standards are well below the national average, the aged too will have comparably lower incomes. The problem created by the combined effect of high health costs and low income in old age requires an approach that does not depend on payment of the cost after retirement but instead enables people to pay for their protection against these costs out of their earnings and over the course of their working lifetimes.

Why is hospital insurance under social security an important part of the solution?

The basic idea of social security is that people pay contributions over their working lifetimes (together with their employers) to provide benefits after retirement in old age. The proposal for hospital insurance for the aged is patterned after the same principle.

While earning, the worker would make small contributions to pay for protection against the high hospital costs that are a common occurrence in old age. He would have the protection at age 65 without need to make further contributions after retirement.

Protection against the cost of hospital care in old age is a logical and necessary extension of the retirement protection furnished by the present social security program. Monthly cash benefits can meet the regular recurring expenses of food, clothing, and shelter, but such benefits alone cannot give economic security in old age.

It is also necessary that older people have protection against the unpredictable and unbudgetable costs of expensive illness. A person may go on for a long time with little in the way of medical expenses and then, in a very short period, have a hospital bill running into thousands of dollars.

Cash benefits are not a practical way to meet this need. What is needed is a substantial measure of protection against the cost of major illness in addition to cash benefits. The administration's proposal, as embodied in H.R. 3920, does just this.

Why cannot the problem be solved through private voluntary insurance?

Briefly stated, the reason we believe private health insurance cannot do the job alone and I emphasize the word "alone," is that this insurance, if adequate and if paid for in old age, costs more than most older people can afford to pay.

Because old age is a time of life when health costs are high, therefore insurance costs are high. And as I have already pointed out, older people generally have low incomes. What makes matters more difficult is that older people usually are not in a position to obtain the cost advantages of group health insurance.

Let me illustrate the problem of costs to an aged individual by referring to the three main types of private, voluntary health insurance plans available to the aged.

Let us take first the four statewide plans being underwritten by groups of private companies. These plans have a basic portion and a major medical portion, which in combination cost an aged couple $456 a year in New York and Texas, $420 a year in Massachusetts, and $408 a year in Connecticut.

Premiums of this magnitude amount to about one-sixth of the median income of aged couples. And they would be still higher if benefit costs were not kept down through the exclusion of preexisting conditions, coinsurance, and other limitations.

Even so, all indications are that these premiums are bound to get higher. For example, the Connecticut plan, which went into effect in 1961, has already been forced by its substantial losses to ask for an 18-percent increase in premium rates.

Blue Cross plans for the aged represent a second type of approach. The premiums required under more than a third of these plans exceed $200 a year per couple. About three-fifths of the Blue Cross plans have dollar limits or coinsurance provisions on hospital room costs; only about one-half cover nursing-home care or visiting-nurse service.

Commercial 65-Plus plans represent a third approach. Two of the most widely advertised and best known plans of this type provide a hospital room-and-board allowance of $10 per day, which is only about one-half of average charges for room and board in a hospital.

One plan covers a maximum of 31 days, the other a maximum of 60 days. The premium for the more limited plan is $156 a year per couple; for the other, $204 a year.

Because of limitations in all these policies the average aged person who has one must, in addition to paying the premiums on his policy, be prepared to pay from 50 to 80 percent of his total medical bill. Although the percentage of aged persons with some kind of health insurance protection has risen, the absolute number without protection is nearly as large as it was 5 years ago. Despite the publicity given to the four State-65 plans and the new Blue Cross plans for the aged, less than half a million-about 3 percent of the aged-have been enrolled in these new plans.

Moreover, many have not been able to keep up their policies. Today there are over 8 million aged persons who have no health insurance protection at all. About 3 million more have inadequate policies of the $10-a-day type. Probably less than a million, 5 to 6 percent of the aged, have health insurance protection covering as much as 40 percent of average medical costs.

The best that private insurance has been able to do to solve the dilemma of high costs and low income is to offer either low-cost policies with inadequate protection or more adequate policies that are priced out of the reach of most of the aged.

Insurance companies necessarily use various devices to control the problem of risk selection, which together have the result of reducing protection available or, in some instances, denying it altogether.

The companies are understandably concerned lest a large proportion of their enrollment consist of those most likely to have high costs, such as those who are already very old or already ill or who have chronic conditions. Among the devices to control costs that are used in varying degrees, depending on the type of policy, are refusal of application on the basis of a health questionnaire or a physical examination, deductibles and coinsurance, cancellation provisions, and-in the case of major medical policies-annual limits and lifetime limits.

Characteristically, private insurance policies, including Blue Cross non-group-enrollment plans for the aged, have special provisions relating to preexisting conditions. They may impose waiting periods of from 6 to 24 months before covering costs resulting from such conditions, or they may permanently exclude costs arising from such conditions.

The effect of such exclusions is to limit the protection significantly in the case of the aged, since a considerable proportion of the conditions requiring hospital care among the aged are conditions that existed prior to enrollment in the plan.

As indicated, the only way to really meet the problem is through insurance paid for during working years. But the paid-up type of private insurance policy is used very little. Only 6 carriers out of more than 850 commercial companies writing health insurance have offered this type of policy, and even these few companies have not found a market.

The number of people who own such a policy is very small. The cost is prohibitive for most people nearing retirement age. For most people who are young, the paid-up-at-retirement policies are hopelessly impractical. The fixed dollar payments that they provide become more and more inadequate if, as is very likely to be the case, health-care costs increase substantially between the time a person buys the policy and the time, after 65, when he has occasion to use it.

In our opinion, private insurance alone will not be able-in the foreseeable future to meet effectively the needs of the aged. Most of the aged who are covered by private health insurance are those who are still working, those in better health, and those in the higherincome groups.

Extension of any kind of insurance coverage even a poor and inadequate kind-to the remaining aged becomes increasingly difficult to achieve because these people are more likely to be in the low-income and poor-health-risk groups.

The industry and the nonprofit organizations have been imaginative and energetic in seeking solutions to the problems. But the dilemma created by high health costs and low incomes in old age cannot be solved by any plan that puts the full cost on the aged and tries to cover that cost through premiums paid in old age.

The Blue Cross Association-the organization whose members have sold half the health insurance policies held by the aged-and the American Hospital Association have jointly announced their belief that voluntary insurance alone and unsubsidized cannot meet the need.

Yet private insurance has a significant role to play in helping to meet the medical-care costs of older people. A large number of older people, slightly over half, have indicated a willingness and ability to pay something in old age toward health insurance protection by purchasing various types of policies.

We believe that with basic protection furnished on a paid-up basis under social security, additional people will want to buy complementary private insurance protection.

Why can't we rely on the program of medical assistance for the aged to solve the problem?

The welfare programs such as medical assistance to the aged and old age assistance do have an important supplementary role, but they cannot and should not play a primary role for the great majority of retired people.

Our objective should be to prevent poverty and dependency to the extent possible rather than try to provide relief for these unhappy conditions after they have occurred. We should do better than say to an aged person that, when he has become poor enough and when he can prove his poverty to the satisfaction of the appropriate public agency, he may be able to get help.

We should take into account the pride and independent spirit of our older people-the pride and independent spirit that lead many of them to suffer their illnesses in silence and to put off needed medical care rather than ask for help. What is required as the first line of defense is protection furnished as a right and in a way which fully safeguards the dignity and independence of our older people.

The aged person does not know how long he is going to live and how many emergencies will arise during the rest of his lifetime. When a trip to the hospital has forced him to deplete his savings before he can get help through the means-test programs, he has lost heavily in his sense of security and independence.

Unlike the younger person whose savings are gone, the older person usually has no way of building them up again. His ability to meet later emergencies and the security that this ability gives him are gone, without hope of ever being restored.

This committee has taken the lead again and again in seeing to it that the Nation's attack on poverty is hinged on prevention and on the idea that people should contribute to their own security through social insurance.

It is of great importance that we continue our main reliance on social insurance and that the role of public assistance be one of a backstop, a last resort, not one in which it is made to serve as a primary defense.

MAA has another kind of deficiency which likewise cannot be overcome: An adequate MAA program that is intended to be the main attack on the health-cost problem of the aged cannot be financed without a very large fiscal drain on the States as well as on the general revenues of the Federal Government.

A major problem in a program financed jointly by the Federal and State Governments is that the Federal offer of funds is meaningful only if the States are able to provide sufficient matching funds. Low-income States may not be able to afford a program at all. Other States may be able to establish only inadequate programs. The wealthiest States will be able to establish the most comprehensive programs and will receive the lion's share of the Federal funds.

For example, 73 percent of the funds expended in September 1963 under MAA went to just five States-five of the industrialized, financially better off States-which have within their borders only 33 percent of the Nation's aged population.

So far the MAA program has not brought medical care to any large number of people with higher incomes and assets than old-age assistance receipients have. Actually, the majority of those receiving help under the MAA program could have met the eligibility tests under old-age assistance and are on MAA only because of the more liberal Federal matching formula. MAA does not help at all many of the aged who need help; and for many of those who do get some help, the help is very limited.

As indicated, there are inherent limitations in the Federal-State welfare programs that make them an undesirable and ineffective way of dealing with the problem we have before us.

On the other hand, there is a continuing function for MAA, and we hope that every State that has not done so will adopt an MAA program and that States which now have limited or inadequate programs will improve them.

With a basic program of hospital insurance under social security, many additional States, relieved of what would otherwise be a very heavy burden on their general revenues, would be able to afford an MAA program as a supplement to social security, and the States which now have inadequate medical programs will be able to improve them. Why is social security hospital insurance the best answer to the problem of health costs in old age?

By allowing medical expense deductions for income tax purposes, the Government helps those among the aged who are relatively well off. The very wealthy person has 91 percent of his medical bills taken care of this way.

But only one-fifth of the aged have high enough incomes to pay income taxes and be helped at all by this provision-even at the 20percent income tax rate. Governmental action has also been taken to help the very poor. It is the great majority of people, who are neither wealthy nor very poor, who have been left out. These are people who have been self-supporting all their lives and want to continue to be who do not want welfare even if it were adequate. What is needed is a system under which all workers can, during their productive years, pay contributions toward protection against the high health costs that will beset them in later years.