of the testimony I will submit some of the results of our studies and suggestions concerning ways to improve the bill.

Mr. FORAND. Mr. Cohen, you are recognized for 30 minutes. Mr. COHEN. I may say, Mr. Chairman, to qualify myself and perhaps to answer some of the questions that will come later

Mr. MASON. You don't need to qualify yourself. As far as the older members of this committee are concerned, you are qualified. Mr. COHEN. Thank you, Mr. Mason.

May I say that it is now 25 years since I first began work with this committee on social security legislation? I just happen to be reviewing that now, because next year will be the 25th anniversary of the social security program. In doing that, I had occasion to do a little historical research, Mr. Mason, about the work of this committee which I hope to publish next year. I want to say that in going back over that record I think you gentlemen can be very, very proud of the constructive way in which the Ways and Means Committee over the years has worked on this legislation.

As I go back and review the original arguments in 1935, on old-age insurance, it was this committee which took a piece of legislation that made it constitutional, made it administratively feasible, and made it workable against innumerable objections that had been raised, and which in 1939 did so in respect to survivors insurance, and after 17 years of controversy over disability insurance made it a practical and workable program. And one of the things I take satisfaction in telling my students is the responsible and constructive manner in which this committee has enacted and developed social security legislation, irrespective of which party has been in power and irrespective of who has been chairman of the committee.

I say that because I believe that as a result of these hearings I am positive, myself, that a good deal of constructive information and ultimately constructive legislation will come out of this committee.

In preparing for testifying on this I must say that I have spent some 10 years now studying the specific provisions of the Forand bill as it was originally prepared some years ago, and in addition I visited some 15 countries of the world, studying their health insurance programs, including the programs in Britain. I think the legislation that you have in front of you today on this particular subject distills from the worldwide experience of some 50 or 60 countries which have been working in this field, including Canada. For the benefit of the committee I would say, if you wish to explore hospital insurance in some detail, Canada has made some very interesting developments and I urge that that be one of the aspects that you study.

I would like to ask, Mr. Chairman, that my whole statement be put in the record at this time. I will comment on a few points. The CHAIRMAN. Without objection, your entire statement will be placed in the record.

(The statement referred to follows:)

STATEMENT OF WILBUR J. COHEN, REPRESENTING THE AMERICAN PUBLIC

WELFARE ASSOCIATION

Mr. Chairman and members of the committee, my name is Wilbur J. Cohen. I am a member of the Welfare Policy Committee of the American Public Welfare Association and am representing that organization here today. The president

of our association, Raymond W. Houston, would have appreciated the privilege of appearing before you, but is presently out of the country. I am professor of public welfare administration at the University of Michigan where I am engaged in teaching and research on social security.

The American Public Welfare Association appreciates the opportunity of appearing before your committee to present our observations concerning proposals to amend the social security program to provide insurance against the costs of hospital, nursing home, and surgical service for persons eligible for old-age, survivors, and disability insurance benefits.

THE AMERICAN PUBLIC WELFARE ASSOCIATION: EXPERIENCE AND PROFESSIONAL KNOWLEDGE IN MEDICAL CARE ADMINISTRATION

The American Public Welfare Association is the national organization of local and State public welfare departments and of individuals engaged in public welfare at all levels of government. Its membership include Federal, State, and local welfare administrators, board members, and welfare workers from every jurisdiction. Within the association are a number of national councils: State administrators of public welfare, local administrators of public welfare, field representatives, public welfare board members, and State directors of programs for children and youth.

We have five committee (aging, medical care, services to children, social work education and personnel, and welfare policy) on which our membership is represented and through which we are able to obtain a cross section of information on how public welfare is operating to meet the needs of people in their home communities. We hold six regional conferences each year and a nationwide meeting in alternate years at which current issues in social welfare are discussed and the views of our members reported. As a result of the discussions in our councils, committees, and conferences our board of directors of 27 persons, representing all parts of the country, adopts official policy positions on issues of current significance.

The agencies and individuals making up the membership of the American Public Welfare Association are charged with administering the various assistance, medical care, and social service programs in public welfare under titles I, IV, X, and XIV of the Society Security Act. The public welfare departments of the country, under authority given to the States by the Congress, have major responsibility for meeting the medical requirements of needy people assisted under these titles and in the general assistance programs which are financed by State and local funds. They have broad experience with the health needs of these persons and also are faced daily with the problems of the thousands upon thousands of individuals and families with borderline income who today, in this great Nation of ours, are unable to meet the costs of medical care and who, far too often, have no place to turn for help with these costs other than the welfare department.

Over the years the association has supported strongly all sound recommendations which have advocated broadening and strengthening the social insurance programs of our country. In fact, we have been in the forefront of the groups which have advocated such legislative steps since, as is indicated in the following excerpt of the association's Federal Legislative Objectives for 1959 (a copy of the full statement of these objectives is attached for the record), we believe this is a preferable means of meeting income maintenance needs and will keep public assistance expenditures to a minimum:

"The contributory old-age, survivors, and disability insurance program, as a preferable means of meeting the income-maintenance needs of people and as a means of keeping the need for public assistance to a minimum, should be strengthened by making benefit payments more adequate; by increasing the amount of earnings creditable for contribution and benefit purposes in line with current conditions; by providing benefits for disabled insured persons of any age and for their dependents; by extending coverage to earners still excluded." I have previously mentioned the association's medical care committee. For more than 20 years this committee, made up of persons knowledgeable in health and welfare programs throughout the country, has studied the medical care problems of needy and low-income individuals and families, and methods of administering and financing medical services required by them. In recent years the committee has given special attention to the health needs of the aged and disabled. On this committee at the present time are physicians, hospital administrators, State and local public welfare administrators and staff members, and other

persons highly qualified in the field of medical care administration. This committee is fully familiar with the present extent of medical care programs in public welfare and with the gaps which still remain despite recent Federal legislation providing for improvements in the matching formula with respect to medical care in public assistance. Last year, as a result of its studies, the medical care committee reviewed the earlier versions of the pending bill and made recommendations to the welfare policy committee which resulted in the following statement adopted by the association's board of directors and embodied in the association's 1959 Federal Legislative Objectives:

"Health costs of old-age, survivors, and disability insurance beneficiaries should be financed through the OASDI program. Arrangements for achieving this objective should take into account the priority needs of the groups to be served; availability of facilities, personnel, and services; and protection and encouragement of high quality of care, including the organization of health and related services to effect appropriate utilization of services and facilities."

Later I will discuss at greater length some of the reasons for our belief that the OASDI mechanism would be a most efficient and effective one for financing the needs of three groups in the population which are most disadvantaged and have great need for medical services.

MEDICAL CARE IN PUBLIC ASSISTANCE

One of the major services which the American Public Welfare Association has provided to the field of public welfare, since its inception almost 30 years ago, has been to stimulate and promote the development of programs of medical care of adequate quality and quantity in the public assistance programs. We supported the medical assistance amendments to the public assistance titles of the Social Security Act which were adopted by the Congress in 1950, 1956, and 1958, and which now provide a sound fiscal base on which the country can build more adequate financing of this service so essential in restoring public assistance recipients to the highest possible level of independent living, self-care, and selfsupport.

Despite the very large expenditures for medical care in these programs, however, and although there has been substantial progress, we find that there are gaps and deficiencies still existing in some States with respect to the provision of medical care for the needy aged and other needy persons. These gaps are often due to a deficient legislative base in the State, to insufficient appropriations, and to administrative complexities. As a result we do not believe there are more than 15 to 20 States in which needy persons, including the aged and disabled, can receive all the medical care they require with the assistance of public funds. There are major variations in the other States, with a number of States providing little or no medical care to public assistance recipients and others financing one or more services but not providing the entire scope of care which is needed by sick people.

On the other hand more and more the new applications for old-age assistance, for example, come from persons who, although they are receiving OASDI, are unable to meet their medical requirements with this limited income. Unless some program-public or private-is inaugurated to assure health insurance coverage to all aged persons, public assistance expenditures will continue to increase.

Medical care payments in public assistance in 1958 are estimated at $400 million of which $300 million is for direct payments to suppliers of medical services. About one-half of this latter total-$150 million-is for medical services to aged assistance recipients. According to the best estimates I have been able to make, if all States were participating fully and providing reasonably adequate medical services at the present time, about $300 million more would be expended just for OAA.

Assuming that hospital costs will continue to rise about 5 percent a year, that OASDI benefits remain at their present level relative to wages and prices, I would estimate that within 10 years medical expenditures in public assistance might reach, or exceed, $1 billion annually.

These totals do not include some $500 million spent for hospital care by Federal, State, or local governments. Nor does it include about $100 million in income tax savings based on medical care deductions for aged persons or $20 million in corporate income tax savings based on employer contributions to health plans.

All of these expenditures will continue to increase as our aged population increases and the need for medical care increases. Voluntary health insurance

does not adequately cover the medical needs of aged persons; fails to cover many low-income aged persons; and is not likely to cover all or most low-income aged persons in the forseeable future. Hence, some new arrangements must be developed to meet the health needs of aged persons.

HOSPITAL COSTS ARE RISING

The number of aged persons is increasing over a thousand each and every day. Both the number and proportion of the aged in the population is increasing. Since 1947-49, the overall consumer price index has increased about 24 percent. Medical care costs have risen over twice as fast-49 percent. But hospital room charges have risen 105 percent and are continuing to increase.

Hospital room rates have increased 71.2 percent from 1948 to 1956, while all medical care costs increased 31.7 percent. Private expenditures for hospital services have increased from 1 percent of per capita disposable income in 1948 to 1.16 percent in 1952, 1.33 percent in 1954, and 1.43 percent in 1956, a 43 percent increase from 1948.

In 1955, public and private expenditures for hospital care in all general and special, short- and long-term hospitals was $4.3 billion, of which 26.6 percent came from general tax sources. If mental and tuberculosis hospitals are included, the total expenditures reached $6 billion, and the portion coming from tax sources was 43.8 percent. From these figures, it can be seen that the issue is not whether public funds shall be used to finance hospital care but in what manner and to what extent.

VOLUNTARY HEALTH INSURANCE IS INADEQUATE

This Committee on Ways and Means already has before it a most compre hensive and excellent report prepared at your request by the Department of Health, Education, and Welfare, "Hospitalization Insurance for OASDI Beneficiaries." We concur in the validity of the five reasons summarized in the report as to why the Federal Government should act in this field. In a review of the characteristics of the present aged population, particularly with respect to sources and amount of income and assets, the Department of Health, Education, and Welfare report substantiates the following conclusions which we believe demonstrate why congressional action is warranted in financing health benefits for social security beneficiaries through the existing OASDI mechanism:

1. The income of older persons is markedly less than that of the general population, both with respect to average income and distribution of income.

2. The medical needs of older persons are greater than younger persons. They have prolonged health problems and, as the age distribution of persons on the OASDI beneficiary rolls shows, more and more this is a progressively older group so that these prolonged health problems become greater in complexity and quantity.

3. Because medical need is greater, expenditures for personal health services are greater. Many aged persons have little or no assets to meet this need.

4. The voluntary health insurance movement in this country has shown great vigor and imagination but despite this it is quite evident that we cannot expect, at any time in the foreseeable future, development of voluntary health insurance coverage which will meet the major portion of the health needs of the aged, either with respect to services or dollars expended. The type, scope and period of present voluntary insurance benefits are seriously inadequate and, it appears, will continue so for meeting the health needs of the aged.

RECOMMENDATIONS FOR LEGISLATION

As the association's policy statement quoted above indicates, we are in full accord with the principle of amending the OASDI program to include the financing of certain health benefits for social security beneficiaries. We believe that it is not the wish of the American people that substantial numbers of our aged citizens be required to turn to public welfare for help with their medical needs. Whereas cash benefits under the OASDI program in many instances may be sufficient for the individual's average maintenance requirements, it is rare that medical costs of an unpredictable or large character can be met unless the aged or disabled person has considerable other income and resources. It has been established that only a small proportion of aged and disabled people fall into this fortunate group.

We have pointed out, too, that although there has been considerable improvement in the provision of medical care in the public assistance programs, this is still far from adequate and in many States medically needy persons may be unable to receive help to meet their medical bills. Furthermore, to qualify for public assistance, individuals often must first exhaust insurance and other assets because of the strict eligibility requirements most of the States have established for public assistance. People who do not qualify for public aid or who cannot bring themselves to apply for it must go without medical care since private charity is not generally available for this purpose. All of these alternatives are uncertain and unpalatable to the American people. They want neither assistance nor charity but insurance protection as a matter of right.

We strongly urge, therefore, the establishment of a program of health benefits for social security beneficiaries as part of OASDI.

ADVANTAGES OF THE OASDI APPROACH AS COMPARED WITH THE VOLUNTARY APPROACH

The OASDI approach in the bill has a nuber of very important advantages over the voluntary approach. These advantages are as follows:

1. Contributions are collected from nearly all persons who work for a living under the bill.-This results in a large number of persons contributing, without the adverse selection that tends to accompany voluntary community plans. This reduces the cost per person and assures a strong financial base to the whole program.

2. Contributions are payable under the bill only while the individual is employed. Since contributions are payable in relation to earnings, an individual does not pay for any period in which he has no earnings or is not working. In voluntary plans, contributions must be paid for individuals whether they are earning or not.

3. Contributions under the bill are levied in some measure with ability to pay.— In voluntary plans, contributions customarily are on a flat basis in relation to number of dependents. Thus, in a voluntary plan, an individual earning $2,000 a year and an individual earning $6,000 a year both pay the same premium. Unequals are treated equally. In the bill, since contributions are a uniform percentage of earnings up to a limit of $6,000 a year, the $2,000 individual would pay only one-third the amount the $6,000 individual would pay.

4. Contributions in the bill are levied over the individual's working lifetime and are not paid during the period when he is not earning and is retired.— Under most voluntary plans, the individuals must continue to pay their premiums after they retire and until they die. Where employers contribute toward the cost of voluntary protection prior to retirement, such contributions usually cease on termination of employment. This is burdensome to many older people whose incomes are sharply reduced when they retire. The result is that as people grow older they may drop their voluntary insurance in order to conserve their limited funds. If they retain their voluntary insurance, the flat rate premium takes a very high proportion of a small income. The bill aims to solve these difficulties by requiring individuals and their employers to pay small amounts, in relation to their earnings, over an entire working lifetime and then to forgo any contributions when the individual has no earnings and is retired. The result is a financing arrangement better adapted to the lifetime earning pattern. 5. Contributions in the bill are not related to the number of dependents.—In voluntary plans, the contributions usually increase with the number of dependents. Thus, in a typical plan, there is one uniform rate for an individual, a higher rate for an individual and spouse, and a still higher rate for a family. The result is that the individual with the family has to pay a higher proportion of income for his protection than the individual without a family. From a social point of view, this is not only undesirable, but unnecessary. The individual with the family has the cost of maintaining and educating his family and, since his health costs rise in relation to the size of his family but not in relation to his earnings, he is doubly penalized. In the bill, since contributions are a uniform percentage of earnings, there is no such double penalty on the family earner.

6. The employer is required by the bill to pay one-half of the cost.-Under many voluntary plans, the employer pays part of the cost, and in some voluntary plans the employer pays all of the cost. However, this trend is spotty. In many plans, the employer makes no contribution. Under the bill, the employer would be required to pay one-half of the cost. The existing law permits employers to pay a larger proportion-or all of the cost-if the employer wishes, or if this is agreed to by the employer and employee by contract or collective bargaining.