5. Favors the expansion of outpatient services in hospitals which are far cheaper in the long run than inpatient services and consequently provide a more efficient administration.

6. Commends the city council of Philadelphia for entering into contracts with voluntary hospitals for care of needy persons in connection with the transference of certain functions from the Northern Division of Philadelphia General Hospital, and urges them to give further and serious consideration to the following:

(a) The provision of funds to pay for emergency care of indigent persons who are brought to the hospitals under emergency conditions.

(b) The provision, as funds become available, of additional financial assistance to voluntary hospitals, initially in the field of additional care for maternity cases and for outpatient services.

This committee realizes that the problem of hospital care and health services generally cannot be considered independently of other needs of this community, or independently of economic problems which are national in scope. We know that there are many demands on Government for funds for many purposes, and that if all such demands be granted, the tax burdens would be intolerable and would affect the economic stability of the Nation.

An analysis of all demands and a selection between them is the difficult task of all administrations and of all legislators. They must select which of the

many programs to support. In so doing they must set priorities.

This committee believes that since healthy and educated citizens are the most important national asset our Nation possesses, the programs for additional financial assistance to voluntary hospitals should receive a highest priority. If additional funds are not forthcoming, the quality of hospital services will quickly decline.

We deem it our duty as a community committee to point out that the community is faced with a decision as to whether or not it desires in many hospitals reduction in the quality of medical care, the continued deterioration of plant and facilities, impairment of research and training, or whether the taxpayers of this community and of the State are willing to pay a larger share of the costs in order to maintain and provide a high quality of hospital care in the Philadelphia area.

Respectfully submitted.

Committee: Malcolm Adam, John C. Atwood, Jr., Richard C. Bond,
Frederick A. Bothe, M.D., Rev. Luther Cunningham, James P.
Dixon, M.D., John H. Gibbon, M.D., W. Carroll Keesey, Richard
A. Kern, M.D., Rev. Francis X. McGuire, Isidor Melamed, How-
ard C. Petersen, Henry W. Sawyer III, Charles J. Seltzer,
Bradford Smith, James H. J. Tate, E. A. Van Steenwyk, Mrs.
Mary A. Varallo, Donald C. Wagner, William B. Walker, Mrs.
I. J. K. Wells, J. Peter Williams, Elias Wolf, Morris Duane,
Chairman.

PHILADELPHIA, PA., April, 1959

(Whereupon, at 12:24 p.m., the committee was recessed, to reconvene at 1:30 p.m. the same day.)

AFTERNOON SESSION

The CHAIRMAN. The committee will please come to order.

Our first witness is Mr. Keith Wallace.

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

STATEMENT OF KEITH WALLACE, AMERICAN FARM BUREAU FEDERATION

Mr. WALLACE. I am Keith Wallace, a dairy farmer from Vermont, but today I am appearing before this committee as a representative of the American Farm Bureau, which represents roughly 1,600,000 farm family memberships in the United States and Puerto Rico.

The CHAIRMAN. Mr. Wallace, you are recognized for 10 minutes.

Mr. WALLACE. Mr. Chairman, we appreciate the opportunity to present the views of Farm Bureau concerning H.R. 4700, which very drastically amends the Social Security Act and the Internal Revenue Code to provide for the payment of cost of hospital, nursing home, and surgical care for persons eligible for old-age and survivors insurance benefits. We are opposed to the Forand bill, H.R. 4700.

The bill proposes a compulsory health insurance program with benefits to retired and survivor beneficiaries under the Social Security Act. The proposal would be financed by an increase of threeeighths of 1 percent in the social security tax now being levied against all self-employed individuals and an increase of one-fourth of 1 percent each on employees and their employers. With these funds the sponsors plan to pay the cost of hospital and nursing home services; and fees for certain surgical services would be paid to hospitals, nursing homes, and physicians rendering such services to the eligible individuals. However, based on past experience with similar Federal programs, this is only the beginning.

Our opposition to national compulsory health insurance in any form is of many years' standing. When proposals of this nature were made in the 1940's, we took vigorous exception to them. This position has continued down to the present time without alteration or abatement. We believe that such a proposal as is now being made is simply a foot-in-the-door proposition and that, if adopted, it will be expanded to larger and larger groups of citizens and ultimately lead to socialized medicine.

We have been especially conscious of the problems in the field of rural health. For many years our county and State farm bureaus have been very active in their support of voluntary prepaid insurance plans such as the Blue Cross and Blue Shield, and in a number of instances have had special personnel whose time has been devoted to the promotion of these plans and the encouragement of their use. No extended proof is necessary to show that a Federal Government program such as proposed in H.R. 4700 will very seriously impair, if not completely supersede, these efforts and inhibit the development of additional voluntary programs.

In the United States, we have the best hospital, nursing, and medical care of any country in the world. This has been made possible under a free choice system. Before we launch out on a system of socialized medical care, we should carefully examine what has happened in other countries that have taken this route.

We are very conscious of the medical needs of our older people. We know that doctors and hospital bills can be burdensome, especially to those on fixed incomes. However, the farmers and ranchers of America are willing and able to do their part, through the American way— through the free choice system-in helping meet these needs.

This proposal to finance the cost of health services constitutes a radical departure which we believe is socialistic in concept. Unlike the tax under the program to provide retirement income and survivor benefits which can be used by the individual recipient in any manner he chooses, this proposal would be taxing individual income, while designating the use to which it must be put-namely hospital, nursing home, medical, and surgical expenses. Such a paternalistic principle on the part of the Government with respect to the use of individual

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.

To

We have the best medical care of any people in the world. 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