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income is completely repulsive in a society based on freedom of choice which is a fundamental attribute of our governmental system.

We note a subhead in the bill in the words "free choice by patient.” This sounds more like the famed "Hobson's Choice," because the individual, to avail himself of the cost assistance provided, must choose from among those who have made satisfactory agreements with the Government for rendering the type of service involved. Failing to select one of the hospitals, nursing homes, or physicians who have agreed with the Government, the individual is put in the position of paying his money and receiving no benefits. It is, therefore, a wholly unsatisfactory choice.

In the consideration that has been given the subject of health over the past several years, the prospect of Government domination of the cost of fees and services has always been in the forefront. This proposal has in it the element of Government determination of the price for hospital, nursing home, and medical service fees. Farmers, for some years, have been having very unsatisfactory experiences with Government intervention in their individual farming operations and are thus in a position to express their doubts and misgivings about the Federal Government being given power to determine their medical and surgical care.

Farmers have been as conscious as any other group of the costs of the services which this bill proposes to cover. However, through the development of better understanding in conferences between those who offer such services and those who use them, these difficulties have been and are being satisfactorily determined without Government intervention. We want to continue to have the opportunity to work out these problems this way.

The bill proposes to finance the cost by increasing the burden of the social security tax by one-quarter of 1 percent each on employees and their employers and three-eights of 1 percent on the self-employed on the first $4,800 of income or wages. Whether the receipts from these taxes will be adequate to cover the costs is highly problematical. In view of experience with the social security tax, we are convinced that, once the system is instituted, it will be further increased before many years have passed by.

The present rate of tax on income of self-employed persons is 334 percent. This will increase on January 1, 1960, to 412 percent. On a $2,000 self-employment income, this tax is $75 this year and $90 next year; on $3,000 income, the tax is $112.50 this year, and $135 next year; on $4,000 income, the tax is $150 this year and $180 next year. Beginning in 1969, the rate of tax will be 634 percent and the amount of taxes on $2,000, $3,000, and $4,000, respectively, will be $135, $202.50, and $270, respectively. The Forand bill will increase the rate of tax on self-employed three-eighths of 1 percent, or $3.75 on each $1,000 of self-employment income. This is a substantial tax burden.

The social security tax is already a burden on the self-employed, much more so than on employed persons, who are taxed only twothirds as heavily as the self-employed. Furthermore, the withholding

of the tax by the employer, who is required to take full responsibility for its collection, relieves all employed persons of responsibility. Employed persons have become accustomed to the tax and have adjusted their personal affairs and living standards to the widely used phrase "take-home pay." We think it is now accurate to describe the social security tax on employed persons as a "payroll excise," or "payroll percentage tax." In contrast, the self-employed individual must meet this tax obligation after the end of his business operations for the year and at the time of meeting his income tax obligations, if any. Thus, the tax burden on the self-employed is not only greater than on the employed, but the responsibility for meeting such substantial payments accentuates for him the burden of the tax.

To further increase this burden by three-eighths of 1 percent is undesirable, unneeded, and not requested by the people. This additional tax should not be imposed.

In summary, we recommend that the provisions of H.R. 4700 be disapproved. This is an opening wedge to socialized medicine. The increase in social security tax will not take care of the expenses that would be necessary in connection with the benefits promised, and we would see the same upward trend in this special tax that has been the case with regard to the social security tax.

We have the best medical care of any people in the world. To launch out on a program of limited socialized medical care would greatly hinder the efforts being made by voluntary groups, such as Farm Bureau, in promoting better medical care for all of our citizens. We sincerely recommend that this legislation not be approved. The CHAIRMAN. We thank you, sir, for your fine presentation of your views on this subject. You have advised the committee that you are a dairy farmer, I believe, from the State of Vermont. We appreciate very much having you here today.

Mr. FORAND. Mr. Wallace, compulsory coverage for old-age survivors insurance was extended in 1954. Did the American Farm Bureau Federation support compulsory coverage of farmers at that time? Mr. WALLACE. No, sir; the Farm Bureau did not.

Mr. FORAND. I understand that the farmers as a whole are very glad to be covered under the old-age survivors and disability insurance section. Is that correct?

Mr. WALLACE. I do not think that is correct. I think it could be stated that many farmers reaching the retirement age are glad to be covered but we find the greatest objection from those young farmers who are just starting out in the farming business and find in addition to all their other costs they have to make these substantial payments in the form of self-employment taxes which make it much more difficult for them to operate and to build up equity in the land and equipment. So I really believe, Mr. Congressman, that you would find the majority of farmers are not happy with the present social security

coverage.

Mr. FORAND. Thank you. That is all.

The CHAIRMAN. Our next witness is Mr. Berger.

For the purpose of the record, will you kindly identify yourself?

STATEMENT OF DAVID BERGER, CITY SOLICITOR, CITY OF
PHILADELPHIA, PA.

Mr. BERGER. I am David Berger. I am a Philadelphia lawyer. My address is 703 City Hall Annex.

The CHAIRMAN. You are recognized for 10 minutes, Mr. Berger. Mr. BERGER. I am grateful to you, Chairman Mills, and the members of your distinguished committee for this opportunity to present briefly the position of the city of Philadelphia and Mayor Richardson Dilworth, on bill H.R. 4700, introduced by Congressman Forand of Rhode Island.

As the representative of over 2 million persons who live or work within its boundaries, the city is vitally interested in prepaid hospital, medical and surgical care plans.

However, because of the numerous witnesses scheduled to testify today, and in view of the necessarily limited time which this committee has made available, I am sure you will not object if I address my remarks to just one of the many problems associated with these health insurance plans.

We are particularly interested in the Associated Hospital Service of Philadelphia's Blue Cross and the Blue Shield plans for hospitalization, medical and surgical insurance upon which an estimated 60 percent of the members of our community depend, and in which the overwhelming majority of volunteer hospitals in the area participate. As a matter of fact, the city, as an employer, provides Blue Cross and Blue Shield insurance coverage for over 8,000 of its civil service employees.

The majority of subscribers to the Philadelphia Blue Cross and Blue Shield plans are covered under group contracts entered into at their place of employment. Rates for members of such groups are less than those for nongroup subscribers, and in many cases the employer undertakes to pay at least part of the premium.

But what happens when an employee retires and leaves the group through which he obtained his Blue Cross and Blue Shield coverage? Very often the retiring employee finds himself in a position where he must either give up his Blue Cross and Blue Shield coverage completely, or, if he is to retain it, pay the substantially higher rates established for nongroup subscribers.

Now, we all know that in the later years of one's life, the need for and the actual use of hospital, medical, and surgical services increase greatly, while the ability to meet the cost of this care correspondingly declines. The result is that our senior citizens are caught in a serious economic squeeze. They earn less income but pay higher premiums; they have greater need for medical care but receive reduced benefits. The plight of the elderly and the retired has been made increasingly more critical in recent years by the frequency of applications by Blue Cross for rate increases and the magnitude of the increases sought. Let me give you an example of how a subscriber to Philadelphia's Blue Cross plan might have fared had he retired from his job just last year.

In 1958 John Smith belongs to the Blue Cross group at his place of employment, and pays $19.80 a year for the standard contract

coverage. Later in the year, Smith retires and thereby ceases to be a member of the group.

If Mr. Smith as a nongroup subscriber wishes to maintain his same Blue Cross coverage, he would find that his annual premiums would increase from $19.80 to $33.60. The combination of his change in membership status and the general rate increase approved in 1958 would have resulted in boosting Smith's health insurance costs by over 60 percent.

Smith's financial predicament is heightened by the further fact that he must live on a fixed income the value of which, unfortunately, will constantly shrink as the inflationary trend of our economy continues.

But Smith's financial difficulties are only beginning. Last month the Philadelphia Blue Cross was again permitted to raise its rates, this time 23 percent over and above the increased rates allowed in 1958.

In order to retain his Blue Cross coverage, Smith must now pay an annual premium of $40.80, well over 100 percent more than he paid before his retirement in 1958. Yet, as our local Blue Cross authorities have candidly acknowledge, additional rate increase will have to be sought in the near future.

One final factor must be considered in assessing the economic plight of elderly individuals such as our hypothetical John Smith. Blue Cross has obtained permission to put into effect in 1960 a so-called group merit-rating plan. The city fears that the application of the experience-rating principle to health insurance can only result in further increasing Blue Cross premiums for the elderly who can be expected to use Blue Cross benefits more extensively than the younger persons usually covered under group subscription contracts. Thus, if experience is to be the determining factor in apportioning Blue Cross charges, then we can expect that group subscriber rates may be reduced at the cost of driving up the rates for elderly, nongroup members.

The city believes that the principle of the Forand bill offers the only permanent solution for John Smith and the millions of elderly and retired persons like him. H.R. 4700 establishes a program whereby our citizens may establish a reserve fund during their productive years adequate to provide for the cost of hospital, medical, and surgical care when they have retired from employment. Not only would this assure the elderly the hospital, medical, and surgical care they need, but it would also free our Nation's hospitals and physicians from the financial burden of providing free services for elderly persons who are unable to provide themselves with hospital and medical insurance.

Moreover, as we understand the Forand bill, its provisions assure complete freedom of choice in the selection of hospitals and medical personnel, so that the integrity and independence of the medical and allied professions will be preserved.

We are therefore convinced that the inclusion of hospital, medical, and surgical insurance benefits in the social security system through the adoption of the proposed legislation is in the best interest of our country.

The CHAIRMAN. Thank you, sir, for your discussion of your views on H.R. 4700.

Mr. FORAND. I do not have a question, but I do want to commend Mr. Berger for the fine paper he has prepared. He has compacted here in a very short space basic arguments as to why this bill should become law.

Thank you, Mr. Berger.

Mr. CURTIS. Mr. Berger, what sort of private pension and retirement plan does the city of Philadelphia have for its employees?

Mr. BERGER. We have a widespread pension plan for our employees. It covers all of our employees, and we have about 29,000 employees. Mr. CURTIS. Does that include any hospitalization?

Mr. BERGER. No. As you perhaps know, we have uniformed and nonuniformed personnel who work for the city. A large segment of our group, some 8,000 or more, are directly covered by Blue Cross and Blue Shield coverage, and then there are two other segments which actually have arrangements with their own hospitals, speaking of various labor unions.

Mr. CURTIS. Why is that not the way to proceed in this area instead of coming to the Federal Government? Why do you not propose that system?

Mr. BERGER. The main reason why we have to do this, as Dr. Dixon points out, we are confronted with these substantial local deficits. Mr. CURTIS. Do you not think there is a Federal deficit? You are not changing the picture by passing one deficit to another.

Mr. BERGER. It is not merely the question of deficit but something else is involved. When a person is in this group which is within the coverage of this kind of bill, he is by hypothesis no longer a member of the productive working group.

Mr. CURTIS. Is that not true of all your retired people on your own retirement program?

Mr. BERGER. It could be, but here is the point I am trying to make: Where a person retires, if he is covered by this kind of bill, it will permit him and will assure the country that he will be covered so that he can get the kind of hospitalization he needs.

Mr. CURTIS. Why can you not do that?

Mr. BERGER. We cannot, do so because he has to have freedom of movement. If he wants to leave Philadelphia, if you have national coverage such as by social security, then the man can move to climates which perhaps elderly people regard as milder than the Philadelphia climate.

Mr. CURTIS. Why does not your program contemplate movement? You are talking about the city of Philadelphia just like any other employer; many private employers have been able to do this for their employees and it would seem to me certainly before anyone comes here to ask the Federal Government to do something, you owe us some explanation why you cannot do it yourself. Many employers' programs provide and contemplate that the retired people in their retirement system will go elsewhere.

Mr. BERGER. May I say it has been my own personal experienceand I base this on many, many letters that I have received-that under many employers' pension retirement systems a person, once he retires, loses I repeat, loses the benefit of Blue Cross or other hospitalization.

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