law combined with the taxable wage base increase. Under such circumstances why should employers and employees in New Jersey be asked to pay a tax on a $4,800 or $6,000 wage base when a $3,600 base is adequately supporting its present benefit level? Experience in the past 30 years has shown that New Jersey has never failed to act, nor have many other States, when their unemployment compensation benefits costs indicated a need for additional revenue.

Consistently argument is made that in 1939, 98 percent of wages were subject to the Federal unemployment tax whereas only 50 percent is taxed today. No one seems to consider that in 1939 with unemployment levels in excess of 20 percent that the need for substantial taxes to establish and maintain any kind of unemployment compensation system was imperative. That need does not exist today. It may tomorrow but not today. If need did arise tomorrow, I would unhesitatingly say that we in New Jersey would actively support additional sources of revenue, provided our present system of increasing tax revenue was shown to be inadequate.

We have another compelling reason for objecting to the taxable wage base increase. Such increase is said to be for Federal unemployment tax purposes. New Jersey under the $3,000 taxable wage base provides the Federal Government with substantial taxes in excess of the State's administrative expenses. A brief review of New Jersey data for the past several years will show that amounts ranging from $1.6 million to $5 million annually have never been returned to New Jersey. New Jersey, consistently, over the past 30 years has been subsidizing the administrative expenses of other States.

The CHAIRMAN. We will have to suspend momentarily, Mr. Tobin, so that we can go to the House floor. Just remain where you are. We will be back in a few moments.

Mr. TOBIN. OK, sir.

(Whereupon, a brief recess was taken.)

The CHAIRMAN. The committee will resume.

You had completed page 6 of your statement?

Mr. TOBIN. That is right, sir.

The CHAIRMAN. You may continue.

Mr. TOBIN. I would like to introduce into the record the experience for the last 5 years on employer taxes versus administrative expenses. Experience of the last 5 years is as follows:

If the Federal taxable wage for 1968 had been $3,600, as it is currently in New Jersey, the excess of taxes over expenses would have been $4,198,952.

Thus, we can see no reason why "the Federal unemployment tax should be at a level reasonably related to the average annual wage in

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covered employment." The Federal unemployment tax is simply a device for raising money to pay costs of administering unemployment compensation programs, State and Federal. We do not object to adequate financing of costs of administration. If such is the purpose we believe a more modest increase in wage base, not beyond that currently in use in New Jersey, and/or a modest increase in tax rate would supply sufficient funding for costs of administration.

If there is to be an increase in the Federal unemployment tax, we would hope your committee would seek and obtain sound fiscal information showing not only the financing sought and the purposes for which it is to be used, but also whether alternative suggestions such as 50-50 Federal-State financing would not suggest a substantially modified tax proposal.

We are opposed to the establishment of this extraordinarily high taxable wage base which, we believe, is not needed currently at the State level and is unreasonably high for Federal purposes.

JUDICIAL REVIEW

Part C, section 131 and section 3311 enables State employment security agencies to petition the Federal courts for review of conformity and compliance decisions of the Secretary of Labor. The Secretary of Labor is required to notify the Governor of a State of any nonconformity or noncompliance actions taken. Under both of these sections "the findings of fact by the Secretary of Labor, if supported by substantial evidence, shall be conclusive";

It would appear to be an exercise in futility to contest the decisions of the Secretary under such a perfunctory review. It gives the Secretary and his department considerable latitude for interfering in the decisionmaking processes of each State agency. In resolving any conflicts which may arise between the State and Federal agencies, in effect State and Federal Government, we would anticipate that the fairest and most equitable method would be for a third party, the courts, to hear the testimony from the disputants themselves, have adequate opportunity to resolve questionable issues, and independently decide. Since the issues are between two sovereign governments, it would be a mockery of justice to have one of the disputants sitting as complainant, judge, and jury over its adversary. We believe that slight differences should not be sufficient to find against an alleged offender. The differences should be of major import. We believe that either a de novo hearing or at the very minimum a "weight of evidence" rule should be established to provide a reasonable protection against arbitrary or prejudicial rulings.

We have considerable objection to provisions which would nullify the Knowland amendment. This amendment requires available State administrative and judicial remedies to be exhausted before the Secretary of Labor may make a finding that such State has not conformed or complied with Federal law. This amendment was obtained many years ago to protect the States from Federal interference in regular claims operation. H.R. 12625 would permit the Secretary to enter into any proceeding where any claimant chose not to make any further appeal. It permits the Department to intervene in the lowest level of claims decisions. Supported with the statutory proposal of conclusive

decisionmaking the Department could in short order create chaos among all the State employment security agencies.

We respectfully request you reject this proposal.

COVERAGE

We do not oppose extension of coverages to additional employees. New Jersey recently extended its coverage to any employing unit of one or more employees and where remuneration has been paid for employment during any calendar year in the amount of $1,000. We question the wisdom, however, of the test to effect coverage in H.R. 12625 of requiring only $300 in any calendar quarter, which could also be the only wages earned for the calendar year. It would appear that this would attempt to bring under coverage many small employers who, as a rule, do not have regular employees. In many instances persons so employed are not interested in attachment to the labor market other than for a short period. Such short periods of work would not enable a person to qualify for benefits but it would add additional overhead costs to an employer, assuming, of course, he would comply with the filing requirements of the law.

Since New Jersey expanded coverage to employers of one or more. employees and a payroll of $1,000 a year, the total number of new employers added to the unemployment compensation system has not reached the estimates predicted. This may be indicative of either an overestimation of employers to be covered, a potential reduction of work opporunity for short- or part-time work, or an administrative enforcement problem. As this is only the first year for such expanded coverage perhaps future experience and collected data will enable a more accurate evaluation.

We believe a provision for coverage of employers of one or more employee on any day in 20 or more calendar weeks would be more reasonable. Additionally, it would make use of the present provisions of the Federal Unemployment Tax Act and be least disruptive administratively.

Thank you, sir.

The CHAIRMAN. Thank you, Mr. Tobin, for bringing these views

to us.

Are there any questions of Mr. Tobin? If not, we thank you very much.

Mr. TOBIN. Thank you, sir.

The CHAIRMAN. Our next witnesses are representing the Kaiser Foundation Health Plan.

If you will identify yourself for the record, we will be glad to recognize you.

STATEMENT OF GIBSON KINGREN, GOVERNMENT RELATIONS REPRESENTATIVE AND MICHAEL PARKER, CONSULTANT, ON BEHALF OF THE KAISER FOUNDATION HEALTH PLAN, INC.

Mr. KINGREN. Mr. Chairman, gentlemen of the committee, I am Gibson Kingren, representing Kaiser Foundation Health Plan, and accompanying me is Michael Parker.

The CHAIRMAN. You are recognized.

Mr. KINGREN. We hope that the additional information will be of assistance to the committee.

We are appearing on behalf of the Kaiser Foundation Health Plan which conducts the largest prepaid comprehensive group practice health care program in the United States. We also appear on behalf of the California Hospital Association, which represents 254 nonprofit hospitals, employing approximately 100,000 hospital workers.

At present the KaiserMedical Care program provides most of the hospital and medical care services for approximately 2 million persons through 19 hospital-based health centers and 47 outpatient facilities. These facilities are located in the metropolitan areas of San Francisco, Sacramento, Los Angeles, and San Diego, Calif.; Portland, Oreg.; Cleveland, Ohio; Denver, Colo.; and in the State of Hawaii.

Hospital services to health plan members are provided primarily by 19 self-supporting Kaiser Foundation hospitals. These nonprofit hospitals which serve the general community as well as the prepaid health plan membership have nearly 4,000 licensed beds and employ over 7.300 persons with an annual payroll of more than $40 million. In addition to providing direct hospital care, including charitable care, Kaiser Foundation hospitals sponsor research and educational programs in medicine and related fields.

SUPPORT FOR NONPROFIT PROVISIONS OF BILL

We support section 104 of H.R. 12625 which brings most employees of tax-exempt nonprofit organizations under unemployment insurance coverage and directs the States to give nonprofit organizations the option of making payments into the State unemployment fund on a reimbursement basis, to pay for claims actually made, rather than requiring them to establish reserve accounts as is required of profitmaking industries.

The primary reasons for our support are as follows: First, we believe that the benefits of unemployment insurance should be available to all employees. Second, we believe that section 104 represents a vast improvement over present law which makes unemployment insurance coverage optional in the cases of nonprofit organizations but requires organizations which voluntarily elect coverage to pay the same rates and build up the same reserves as other employers.

In earlier years, some nonprofit organizations expressed the fear that providing coverage to their employees would be too costly. The method of payment allowed by section 104 would not result in any undue financial burden on nonprofit hospitals or their patients. We can demonstrate that this is so. We have compiled information on our own experience and that of some of the other representative hospitals in California which voluntarily participate in the unemployment insurance system. That information, included as an exhibit to our statement, shows conclusively that hospital employment is stable and that participation in the unemployment insurance system on a reimbursement basis will not result in excessive costs.

In our judgment, the basic considerations which call for unemployment insurance coverage for most of the Nation's working force are

applicable to most nonprofit organizations. Except for limited and special classes which are exempted under section 104, we see no valid basis for distinguishing a nurse, laboratory technician, maintenance man, or similar hospital employee from his counterpart in industry, both from the viewpoint of the individual and the viewpoint of the economy as a whole. The detrimental effects of unemployment are similar and equally deserving of the relief provided by an unemployment insurance system. The reality of our conviction in this regard is demonstrated by the fact that in 1959 we elected voluntary coverage under the California unemployment insurance law.

Data on this subject that is current and firm is very difficult to come by. However, in California we have figures which show that, for the 10 years that we have been in the unemployment system, each dollar paid in taxes 15 cents went to benefits for our employees. The balance of it went to the balancing account and to build up reserves. Credits to the balancing pool which covers negative reserve balances, extended duration benefits and nonchargeable items such as favorable rulings siphon off nearly 40 percent more than the amount paid as benefits to the employees of these hospitals.

It is clear that nonprofit organizations subsidize the unemployment insurance system and hence the profit-making industry.

Currently in California the tax rate applicable to the balancing account is 1 percent. The Kaiser Foundation Hospital tax rate for 1969-70 is 2 percent. So 50 percent of what we pay into the unemployment insurance system goes to pay the socialized costs.

Since nonprofits are recognized to be in a special category and their funds are used for services to the community, we believe strongly that the funds of these organizations should be used for community purposes rather than to subsidize the unemployment insurance system. By that same token, however, we believe that the nonprofits should pay their full share of the costs as well as provide the full scale of benefits for their employees. This principle was accepted by Congress in

1966.

The basic issue of coverage for employees of nonprofit organizations was settled in 1966 when both Houses of Congress approved substantially the same provisions which are now included as section 104 of H.R. 12625. In that year the bill (H.R. 15119, 89th Cong.) never emerged from the conference committee; it faltered on issues totally unrelated to the provisions with which we are concerned here. Thus, the principles established by section 104 have already been accepted by the Congress and are now embodied in the administration bill.

TRANSITIONAL PROVISIONS

There is one new concept embodied in the provisions of section 104. It would provide a transitional period during which those organizations which have been in the system prior to the adoption of this legislation, and which have accumulated reserves, would have an opportunity to utilize these reserves to pay unemployment compensation claims. This is a logical addition to the earlier bills, and one for which we argued in 1966. In the absence of such transitional period, those