Mr. MYERS. It would seem to me this is not an equal right in this particular provision because the widow gets a 100-percent benefit, and the man might only get an 80-percent benefit even though he has been the worker and the contributor.

The CHAIRMAN. What some of us object to in the equal rights amendment, as I understand it, is that in those cases where you would have to pay more to a woman than you would pay to a man, it would require you to pay the man more to bring hom up to what the woman gets, because if you didn't do that people might prefer to hire men because they could hire them cheaper.

Mr. MYERS. That is a possibility, Mr. Chairman. I think there is a partial solution for this provision, because, as you know, the widow gets a full benefit at age 65, and if she takes it earlier she gets a reduced benefit. However, there is no account taken of the fact if she had been drawing a wife's benefit from age 62 on; thus, the reduction should perhaps apply from when she first drew a wife's benefit, rather than merely when she first drew a widow's benefit.

I also suggest in my testimony four minor changes that I think would improve the benefit protection and would simplify the administration; namely, that family benefits for future claimants should be increased in the same proportion as for those on the roll. Now, there is a very considerable anomaly when you increase benefits; some people who come on the roll the next month get less than those in similar circumstances who were on at the time the benefit increase was given. This doesn't seem fair, and it has created some problems.

Another thing I suggest is that under present law a young worker who is disabled after the earnings base has been changed and who has been a high-paid worker might get a much larger benefit than somebody who has been in the program for 30 years at maximum earnings all along. This seems unfair to the long-time contributor as against a younger person who has just come into the system.

The third thing I suggest is changing the lifetime reserve provision in the hospital insurance program so that it is not on an elective basis, but rather everybody gets 150 days of hospital benefits in a spell of illness, with the coinsurance provisions that apply now. As it is now, many people have great difficulty knowing whether to elect these reserve days or whether to save them for some later time.

The fourth thing I suggest is to eliminate the 100-visit maximum for home health services under part B. I think this is just a complication in administering the program, and it affects so very few people that it doesn't seem worth retaining, especially since there is no maximum on the number of physician visits.

Finally, I point out, without taking a position for or against it, that the proposal to limit increases in reasonable charges for physicians will eventually lead to a flat fee schedule, as opposed to the present basis, which is reasonable and customary charges. I am not saying I am opposed to a flat fee schedule for reimbursement of physicians, but what I do say is that I think many people have not realized that this is the inevitable mathematical result of this provision in the House bill.

(Mr. Myers' prepared statement follows. Hearing continues on p. 348.)

STATEMENT OF ROBERT J. MYERS

SUMMARY

1. Principal purpose of testimony is to make myself available to answer question on actuarial cost estimates for pending Bill.

2. From an overall viewpoint, the originial Administration proposal was excellent and well-rounded, both as to benefit changes and the necessary financing. 3. All of the available actuarial surplus was used up by the 15% benefit increase enacted in December 1969. Therefore, there is a question whether other benefit proposals should be enacted since to do so means upsetting the financing proposals and results in an ultimate employer-employee tax rate for the cash benefits program of 11%, as compared with the present 10%, which had been maintained in the original proposal.

4. The proposal to increase widows' benefits is attractive from some standpoints but has disadvantages by favoring widows as against women workers and by producing significantly larger benefits for a widow in some cases than are available for the primary worker if he should survive his wife.

5. Four suggestions are made for minor but significant changes to increase benefit protection and to simplify administration and public understanding— namely, (a) increasing family benefits for future claimants so that they are on the same basis as for present beneficiaries, instead of being lower; (b) eliminating the inequity that younger workers receive much larger disability and survivor benefits in maximum or near-maximum earnings cases than do older, longtime contributors; (c) change the lifetime reserve provision in the Hospital Insurance program so that such days are available for each spell of illness rather than involving the undesirable, difficult elective situations under present law; and (d) eliminate the 100-visit maximum for home health services under the Supplementary Medical Insurance program, which rarely has an effect and complicates administration.

6. Discussion of how the change in the method of determining reasonable charges for physicians will eventually lead to a flat fee schedule for each procedure for a particular locality.

Mr. Chairman and Members of the Committee, my name is Robert J. Myers, and I am an independent consulting actuary and also, beginning in September, Professor of Actuarial Science at Temple University. As you know, until recently I was Chief Actuary of the Social Security Administration, a position which I had held since 1947.

I am appearing today primarily to make myself available to your Committee to answer any questions about the actuarial cost estimates for the pending Bill, since I had had the responsibility therefor up through the time that the House of Representatives enacted the legislation.

I should also like to take this opportunity to give my views on the general desirability of the pending legislation and to point out several relatively minor, although significant, points in the Bill and in the present Act where I believe that changes are needed to improve equity or to simplify public understanding. First, let me start with the proposal made by President Nixon last fall. In my opinion, this was an excellent, well-rounded proposal, combining both necessary and desirable benefit changes with adequate financing. Such financing involved tax rates that would not exceed those in present law. A substantial part of the liberalizations in the cash-benefits program were to have been achieved through the then-existing estimated acturial surplus. The action of the Congress in December 1969 in legislating a 15% benefit increase, as compared with the 10% increase recommended by the President, used up the entire actuarial surplus, part of which was to have been used for other benefit liberalizations. I support completely this legislative proposal of the President.

I might point out that when I speak of support of a particular proposal, I mean full support in the sense that I believe that anything significantly less would not be enough, and simultaneously, that significant further liberalization would be undesirable. Some people use "support" in the sense that they favor at least as much liberalization as contained in the proposal but, actually, much more. In my opinion, this is not really "support".

It seems to me that the prudent course of action when one spends more money than anticipated in the first store which is visited is to spend less in the next store. Such action, however, was not taken and all of the benefit liberalizations proposed by the Administration have been included in the pending Bill. This

can mean only that additional financing would have to be provided for the cashbenefits program. The Bill has properly done this by providing for an ultimate combined employer-employee tax rate of 11%, beginning in 1980.

This is the first time that the 10% ceiling has been breached. Although I do not believe that there is anything sacred about such a ceiling, there is some question as to whether all the major cash benefit changes are really necessary, even though individually they are attractive.

For example, the increase in widow's benefits claimed first at age 65 to 100% of the primary benefit has certain obvious appeal. However, it should be pointed out that, under present law, the average widow's benefit is at the same level as the average benefit for a woman worker (each at about $102 per month). Under the proposal, the average widow's benefit would be significantly higher than the average benefit for a woman worker. Accordingly, a woman worker could well complain about the inequity of the situation as against her non-working married sister; the latter will receive a higher benefit because she gets the full primary benefit of a male worker, who generally has a higher wage level than a female worker.

There is still another anomaly that arises when widow's benefits are increased in this manner. Consider a man retiring at age 62 with a wife the same age. If his primary insurance amount is $200, the total monthly benefit for his wife and himself will be $235. Then, if he dies after 3 years on the roll, the widow gets $200 per month, or 85% of the amount paid when both were alive. On the other hand, if the wife dies first, the worker's benefit is $160, or only 68% of the total family benefit and $40 (or 20%) less than the non-working widow's benefit under similar circumstances!

Now, let me turn to several small, but significant changes which I think should be made in the interest of equity and of understanding and administering the program.

First, in providing a 5% benefit increase for those on the roll in December 1970, the family maximum benefit limitation is waived, so that all beneficiaries should receive the full 5%. For future beneficiaries, the 5% increase applies to the primary benefit, but in most instances no change is made in the family maximum provision. This creates an inequitable situation for similar families who come on the benefit roll just before and just after the effective date, since the latter receive 5% lower benefits. I suggest that, in equity, the maximum family benefits shown in the benefit table should be increased by 5% for all average monthly wages up to $650 (except where the maximum of 11⁄2 times the primary benefit already applies) and that there be appropriate grading in between average monthly wages of $650 and the maximum in the Bill for an average monthly wage of $750.

In the same manner, the automatic-adjustment provisions as they relate to the benefit table should be modified so that, as cost-of-living increases are given, these will affect the maximum family benefit in the same manner as they affect the primary benefit. The objection may be raised against this proposal that the formula underlying the maximum family benefit at the lower end of the scale is based on 80% of average monthly wage and that, accordingly, this relationship will eventually rise to 100% or more of average wage.

This objection is not valid, however, because the procedure for computing benefits over the long range is such that the derived average wage is based on a long period, but it is really only a national average which is used to derive meaningful benefits when related to final wages. In other words, what the Congress has done in the past two decades by ad hoc adjustments and what the automatic adjustment procedure in the Bill would do in the future is to use the career-average method in such a manner that it is really changed to a finalaverage method through the across-the-board benefit increase method involved. This proposal would increase the level-cost of the OASDI program by about .02% of taxable payroll.

My second suggestion relates to the inequity in treatment as between workers who have been covered by the program for long periods as against young new entrants, when the maximum taxable and creditable earnings base is changed. Oddly enough, the young new entrant who has contributed for only a short time receives substantially larger benefit protection in the event of death or disability than does the middle-aged or older worker who has been contributing to the system for many years.

Specifically, under the pending Bill, a worker who has been covered at the maximum earnings ever since the program began in 1937 and who becomes disabled at the end of 1972 at age 61 or less will have a primary benefit of $213 per month. On the other hand, a worker with maximum earnings who similarly becomes disabled at the end of 1972 at age 23, but who was covered for 1971-72, would have a primary benefit of $283, or $70 more than the older worker who had been contributing for over 35 years. This is despite the fact that the young worker contributed in OASDI employee taxes only $756, as against the $4,325 for the older worker! Similar inequitable situations arise in survivor cases.

I suggest that the way to eliminate the foregoing inequity under which higher benefits are possible for short-term participants as for long-term ones with the same earnings level is to provide that, for death or disability in a particular year, the primary insurance amount shall not be larger than that which is possible for a worker attaining age 62 in that year (except that this provision would not result in a lower PIA than that payable on an average monthly wage of $650, since otherwise benefit protection would be reduced for some present participants). This reduction in benefits for young workers with very high earnings is not inequitable to them, since the benefits payable in these cases will greatly exceed their contributions, and the benefit amounts involved will still be quite sizable.

My third suggestion is to change the lifetime-reserve days provision in the Hospital Insurance program so that, for each spell of illness, the entire 60 days will be available (with the present coinsurance provision). This will provide slightly better benefit protection for catastrophic long-term hospitalization. More importantly, however, this change will greatly simplify administration and public understanding, because there will no longer be the undesirable and difficult situation of the beneficiary having to decide whether or not to use lifetime-reserve days now or to save them for the future when they might be more valuable. The increase in cost for this proposal when expressed in terms of a percentage of taxable payroll is negligible.

The fourth suggestion is in connection with the limitation of 100 home health visits per year under the Supplementary Medical Insurance program. Such a limitation is present under the Hospital Insurance program and is desirable because no cost-sharing on the part of the beneficiary is involved. Under SMI, there is no limitation, for example, on the number of physician visits per year, and there seems no logical reason to have such a limit on home health visits. Such a limit complicates administration and public understanding. Moreover, this limit affects only relatively few persons (an estimated 3,000 individuals each year out of the approximately 19 million persons covered).

The few who are affected by this maximum have serious financial consequences that should be eased by its elimination. The maximum does not really serve as a control of utilization since it applies in so few cases. I estimate that if this change were made, the monthly premium rate payable by the enrollee would be affected costwise by only about 4 to 2 cent per month, an amount which is easily absorbed in the margin of contingency that had been included in the premium rate.

There is one other point in the pending Bill which I think should be more clearly called to the attention of all persons concerned-namely, the fact that the change involved in determining reasonable charges of physicians will eventually lead to a flat fee schedule for each procedure for a particular locality. This is in contrast with the situation under present law, under which the vast majority of physician charges are reimbursed on a customary-charges basis.

As you know, under present law, the basis for reimbursement of physician fees is the customary fee of the physician, unless this exceeds the prevailingcharge limit in the locality. Under present law, generally only about 17% of the cases involve the prevailing-charge limit instead of the customarycharge amount; under the Bill, this proportion would be increased to 25% for fiscal year 1971. However, in later years the prevailing-charge screen would be increased by an economic index, rather than by the general movement of customary charges in the locality. It seems certain that this economic index will move upward much more slowly than customary charges generally. Accordingly, as time goes by, the proportion of physician fees which are reimbursed on the prevailing-charges limit will rise from the initial 25% until ultimately becoming 100%. At that time, all reimbursement of physician fees will be at a fixed amount for each procedure each year in the given locality. Personally, I see nothing wrong with this procedure just as long as all parties involved fully realize what is being done.

47-530-70-pt. 2- -2

The CHAIRMAN. Mr. Myers, you explained to us when you testified previously in February why the cost of medicare greatly exceeded all the estimates, and I think that you said that it was, a matter of increased utilization and also inflation in prices. There was much greater utilization than you anticipated and also much greater price increases than you anticipated, is that correct?

Mr. MYERS. That is correct, Mr. Chairman.

The CHAIRMAN. Now those two caused this program to exceed the costs by almost a hundred percent, is that right?

Mr. MYERS. By about a hundred percent.

The CHAIRMAN. If you are advising us how to get the genie back into the bottle what would your advice in general terms be to us? How can we get what we were hoping to get for the money?

Mr. MYERS. Well

The CHAIRMAN. If you have some doubt about that let me ask you what your reaction is to the recommendations of our staff, based on the study they made of this matter.

Mr. MYERS. I think that I would concur with the vast majority of the recommendations made by your staff when they looked into this problem. I don't think there is any way possible to get the costs decreased to the level of what the original estimates were, because hospital costs have just risen so much there is no way of legislating them downward. The main thing to do is to try to control these costs in the future. I think the bill has made many good changes in this direction, and we can only hope that, on examination of the future experience, they will have had the desired effect. I think this is a problem that has to be continually worked on and studied and given close supervision the way your staff has done.

The CHAIRMAN. Yes.

Now, before you left the Government you wrote an article to the effect that there were two different philosophies in the Department of Health, Education, and Welfare; one was the expansionist philosophy, and the other was a philosophy that you adopted yourself. What would you call your philosophy as compared to expansionist?

Mr. MYERS. I used the term "moderate," Mr. Chairman.

The CHAIRMAN. Moderate.

And your thought of the moderate philosophy, I believe, was that you would try to provide for a person's essential needs, and not try to provide for all their needs. That was about it, if I understand it correctly.

Mr. MYERS. Yes; that was about it, or to use another term the "floor of protection" concept upon which economic floor people could build and which would take care of the vast majority of the people without their needing supplementary assistance. I also think it is the philosophy that, on the whole, the Congress has adopted, and has continued to put into practice over the 30 years of operation of the program, and I want to see that continued.

The CHAIRMAN. I am just looking at the conclusion of your article which was placed in the record. I thought enough of it to pass it around and suggest to some people that they read it, because I thought it raised some interesting questions. In considerable measure, I found myself in agreement with the answers that you provided. Here is what you said: