as age, family relationship and wage history and provides definite cash benefits that do not require negotiation.

The service benefit proposed in this kind of legislation is an entirely different kind of benefit and could be administered by the social security structure only with difficulty.

It is our contention that the present social security structure should not be jeopardized by imposing on it responsibilities for which it is inherently unsuited.

We believe that the imposition of the additional costs of H.R. 4700 will undermine the long-term willingness of taxpayers to pay for social security. According to HEW, presently authorized OASDI benefits will cost by the year 2050 between 10.51 percent of payroll, the low-cost estimate of the Department of Health, Education, and Welfare, and 15.96 percent of payroll, the high-cost estimate. On a level premium basis-the level premium is simply a rather fictional statistical device that permits comparisons-the cost is 7.62 percent if the low-cost estimate is used or 10.07 percent if the high-cost estimate is accepted. If the benefits promised by H.R. 4700 are established, the burden on the earnings of American workers would increase from the present level premium cost of social security benefits, 8.76 percent of taxable payroll to an overall cost of not less than 11 percent of taxable payroll. That is level cost. It means also that because the level cost is not the cost paid at any one time by any one worker, that according to present estimates when costs finally level off, the drain on payroll will be not 11 percent but 17 percent of taxable payroll if H.R. 4700 is enacted. These costs envision total social security taxes of as much as $500 per year which, for many people, would be considerably more burdensome than their income tax. It may well be asked at what point the American taxpayer will conclude that he is unwilling to pay the heavy costs of social benefit programs and require a future Congress to curtail benefits.

Or conceivably future costs could rise to levels such that it would be extremely difficult for future Congresses to adhere to the sound policy of maintaining the social security system through special taxes levied on those covered by the system and their employers, rather than subsidizing the scheme out of general Federal revenues.

VI. H.R. 4700 would lead to an all inclusive compulsory health insurance plan. If H.R. 4700 were enacted it would soon engender great pressures for expansion and elaboration of health care benefits leading ultimately to a complete compulsory health insurance plan. It is characteristic of social benefit schemes that once established they burgeon and metastasize.

Over the years the Congress has been alert to this inherent bias and has not often injected new principles into the social security system. Once the principle of Government provision of health care benefits for OASDI recipients is adopted, there is no easy stopping point short of an all inclusive program. While H.R. 4700 is proposed as an amendment to the Social Security Act it is not the kind of amendment that develops or perfects a principle now present in the law. The new principle proposed by this legislation is one of taxing all people who are at work, to provide health services for sick people without regard to need. It may be helpful to note some of the anomalies and discriminations that this bill would create and

which would result in demands for subsequent amendments for their correction.

The proposal places a limit on the health service benefits provided. Would it be easy to expel the ailing aged patient from his hospital or nursing home bed when he has exhausted these benefits? Could he be denied needed treatment because it is not specified in the law? Consider the wives of beneficiaries who are not themselves eligible to receive health care benefits. Is not the wife's illness as much a burden as is the husband's? Why should she not get equal care from OASDI? Or, take the widow whose youngest child reaches age 18. Is treatment for either to be discontinued? We believe that the Congress would be under continuous pressure to expand the benefits until complete medical care is provided for the entire population. Other witnesses have, or will, demonstrate that health care provided under any compulsory health benefit scheme is grossly inferior in quality to that provided by the voluntary system in the United States. The experience in England, for instance, is significant in this connection.

We wish to affirm our belief that overutilization and the controls necessarily imposed upon the providers of care in compulsory schemes would adulterate the quality of health care in America were such a system established here. Even after the decade of operation of their national health service plan, the English people have to wait as long as 2 years for the surgical correction of such common chronic ailments as diseased tonsils, appendix, or gall bladder.

As Congressman Alger pointed out, in his conversation with Mr. Reuther, detailed Government dictation of medical procedures is inescapable in a compulsory health care plan. The Congress cannot expand public moneys without assurances as to the manner and purpose for which the funds are spent. The Supreme Court has long since enunciated the dictum that "it is scarcely lack of due process for Government to regulate that which it subsidizes."

VII. H.R. 4700 would fail completely of its apparent purpose. Perhaps the most cogent argument against the adoption of H.R. 4700 is that despite the enormous cost it would entail, and the other undesirable consequences it would engender, the legislation fails completely to meet the only real problem of financing health care costs of the aged-that of the presently indigent aged. The proposal would impose additional taxes on millions of Americans to provide benefits for many who do not need or want them, but would fail to help the only segment of the aged who have a demonstrable need.

There are over 4 million men over age 65 and women over age 62 who are not covered by or eligible to receive OASDI benefits, this being generally one-third of all aged persons. Part of this group are the aged people who have the greatest difficulty in paying their health care costs. Yet H.R. 4700 and similar proposals would do nothing to ease their burden. These bills do not go to the heart of the real problem. They fail to define or to reach those who have the greatest need.

Happily there is some evidence that the number of the indigent aged is beginning to decline and presumptively therefore the number of older people who without public or private assistance cannot defray their health care costs. Because assistance programs, whether public

or private, have a flexibility that permits their contraction or elimination with reduction in the number of the indigent, the assistance approach, wisely adopted in the past, is much to be preferred. it has the advantage and economy of matching State and Federal funds. and of local administration. It does not bring into being a new and expensive Government instrumentality but can be operated in the future, as in the past, through already established means.

VIII. H.R. 4700 would have a harmful effect on our entire economy. The enactment of H.R. 4700 would intensify and aggravate present and future economic and Government fiscal problems. Social security taxes are a fixed, continuing, and inflexible part of the cost of doing business for practically every enterprise in our country. As the costs of doing business increase without commensurate increases in productivity, inflationary pressures are intensified. By saddling our economy with higher costs of production, do we not further impair our ability to compete successfully in world markets? Government creates no wealth. It can only take from one and give to another, while losing a significant part of the Nation's economic lifeblood in the transfusion. It is a mistake to assume that there is no limit to what Government can exact from the citizen in taxes. When the tax burden becomes excessive, individual economic incentives are dampened. Personal savings so essential to the vitality of our economy are discouraged, thus placing a greater and greater load on Government to supply the capital needs of the Nation and, in the process, giving another whirl to the vicious inflation cycle. Your committee is acutely aware of our Government's financial problems and of the continuing pressure for expenditures of all kinds that have recurrently in the past and could conceivably in the future result in budgetary deficits contributing to further deterioration in the purchasing power of the dollar. President Eisenhower, when addressing the American Medical Association last month, pointed out:

The cost of inflation is not paid in dollars alone, but in increasingly stagnated progress, lost opportunities and eventually, if unchecked, in lost freedoms for the doctor and the patient.

He said further:

If the time ever comes when large numbers of our citizens turn primarily to the Government for assistance in what ought to remain a private arrangement between doctor and patient, then we shall all have suffered a great loss. If the American heritage is to be preserved, we must reduce the obligations of Government rather than adding to them.

IX. Enactment of H.R. 4700 would destroy voluntary health insurance. I have described to you the vast extent and enormous usefulness of the voluntary health insurance business. It is serving 124 million Americans well today. Were H.R. 4700 enacted this business would be impaired, if not destroyed. Private enterprise cannot compete successfully with Government. The type of benefit proposed in H.R. 4700 is preemptive. If the citizen is taxed for health care benefits, he will not secure duplicating coverage from a private insurer. Rather than being a drain on Government, as would any compulsory health care scheme, private insurance, through the payment of taxes and the social good it accomplishes, supports and sustains our Gov

ernment structure.

Conclusion: We express to you our firm opposition to H.R. 4700 and similar proposals for the Government financing of the costs of health care because

1. Such measures are premised on the false assumptions that most of the aged are unable to finance their health care costs or to secure adequate voluntary health insurance.

2. The proposal would impair, if not destroy, the present social security system, and voluntary health insurance.

3. It would fail to alleviate the only real problems that of the presently aged who require assistance to meet their health care costs.

4. Such proposals would impose a new, uncertain, growing and crushing burden on an already heavily taxed citizenry.

5. Such proposals would develop enormous pressures for a complete compulsory health insurance plan.

6. Such proposals would aggravate and intensify the present and future economic and fiscal problems of the country.

7. Such measures are unnecessary since voluntary health insurance has the capacity and the will to provide the aged, as well as the other segments of the population, with a sound and economic means of paying health care expenses.

8. Such proposals might very well promise and impose a tax for benefits, which, based on presently available facilities, could not be delivered.

It is unnecessary for Congress to mortgage the future of Americans as a free people by enacting legislation of this type. In the best interests of us all, we ask you to vote against these proposals. Thank you, sir.

(The appendixes referred to follow :)

STATEMENT ON PROPOSED SOCIAL SECURITY AMENDMENTS BY E. J. FAULKNER, AMERICAN LIFE CONVENTION, HEALTH INSURANCE ASSOCIATION OF AMERICA, LIFE INSURANCE ASSOCIATION OF AMERICA

COST ESTIMATES RELATIVE TO H.R. 4700

The American Life Convention, the Health Insurance Association of America and the Life Insurance Association of America have carefully reviewed H.R. 4700 and the estimates made by the Department of Health, Education, and Welfare of the bill's probable costs. Based on data available to the insurance industry, the associations have made estimates which are significantly higher.

H.R. 4700 provides that all OASDI eligible aged and mothers and children shall be entitled, in any 1 year, to the following medical care benefits (payable from OASDI funds):

(a) Sixty days of hospital services, except in a tuberculosis or mental hospital; (b) One hundred twenty days of care in a skilled nursing home following hospitalization less the amount of time spent in hospital prior to transfer to the nursing home; and

(c) Payment for surgical services, other than elective surgery.

The cost estimates are presented in detail on the following pages, indicating separately cost estimates for 1960, cost estimates for years subsequent to 1960, and level premium costs. The highlights of these estimates indicate the following:

(1) The costs of services provided for under H.R. 4700 for 1960 would approximate $2,074 to $2,387 million. This would consist of $1,676 million for hospital services, $248 million for surgical services, and from $151 to $463 million for nursing home services.

(2) By 1980, the annual cost of H.R. 4700 would range from $5,981 million to $7,660 million in terms of 1960 dollars.

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(3) In terms of "level premium cost," as used by the Social Security Administration, H.R. 4700 would cost from 2.32 to 2.97 percent of taxable payroll. (4) Inasmuch as the present level-premium cost of social security benefits is 8.76 percent of taxable payroll, H.R. 4700 would increase long-term social security costs by at least 26 percent, to an overall cost of over 11 percent of taxable payroll.

Cost of hospital services

COST ESTIMATE FOR 1960

The estimates of hospital costs produced here are based on experience with people covered for hospital benefits under voluntary plans. Specifically, they were based on the estimates prepared by the actuarial committee of the New York State Insurance Department study,' with very slight modifications for some ages and with the utilization rates adjusted to apply to a 60-day benefit. The New York State Insurance Department study represented the largest compilation of health insurance experience data on the aged made to date and included not only insurance company information but also that supplied by the New York Blue Cross and Blue Shield plans. The resulting hospital utilization figures reported herein are virtually the same as those included in the associations' submission to the Ways and Means Committee in June 1958, at the time of the hearings on H.R. 9467. The utilization figures were not increased over those presented last year despite the fact that more recent experience suggests that the rates reported here are perhaps too low.

Frequency of hospitalization and average duration of hospital confinement.— The attached table 1 shows the frequency of hospitalization and the average duration of hospital confinement by sex and by age (for ages 62 and over) based on the aforecited study. To these rates must be applied the average per diem charges by hospitals and the number of people to be covered, and some recognition must be made for the cost of administering a program of this sort. It should also be clearly noted that, since these data were based on programs which contain financial deterrents, they do not take into account the extra utilization which is to be expected in a full-payment governmental program.

Average per diem hospital charges.-We have assumed for the purposes of these cost estimates (see table 1) that $30 per diem is an appropriate measure of hospital charges in 1960. American Hospital Association studies have indicated that the average per diem costs in non-Federal short-term general and special hospitals in recent years have been as follows:

It will be noted that the average yearly increase in per diem costs has been exceeding 7 percent. Assuming only a 5 percent per year increase ot 1960, the per diem costs during 1960 will exceed $30. This is a cost figure and does not include the cost of new construction or expansion of hospital facilities or any amount for profit or contingencies.

Number of people to be covered.-The estimated population of the various OASDI groups eligible for benefits under H.R. 4700 (i.e., the aged, younger widows, and dependent children) have been made available by the Division of Actuary, Social Security Administration. Application of the utilization and per diem cost factors from table 1 to the OASDI population figures yields the annual cost of hospitalization for the OASDI eligible population for 1960 (see table 2). It should be noted, however, that the total presented in table 2 is exclusive of administrative costs and the extra utilization to be anticipated.

1 "Voluntary Health Insurance and the Senior Citizen," a report on the problem of continuation of medical care benefits for the aged in New York State, State of New York Insurance Department, 1958.