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prudent method of accomplishing the twin objectives of providing coverage of their employees and at the same time achieving recognition that the operations of these organizations are wholly unlike those of a conventional business or industrial enterprise operated for profit. These benefit-reimbursement provisions for the service covered additionally avoid inequities that would have flowed inevitably were the nonprofits subject to the same conditions as other employing profit-making organizations-inequities that would have imposed financial burdens on those least capable of meeting them and for unemployment circumstances wholly unrelated to their own employment experience.

The House Committee noted that nonprofit employees have less than the average risk of unemployment. It has provided protection for certain employees but under the reimbursement formula has protected the nonprofits from sharing in the costs of providing benefits to workers in profit-making enterprises and at the same time not involving destruction of the insurance concept of unemploy ment insurance.

If the option for "self-insurance" is exercised by a nonprofit organization, then both federal and state taxes become irrelevant. The House Committee recognized this by providing for exemption from taxes under these circumstances. It also provides an exemption from federal taxes for nonprofit organizations, even if the option is not exercised. This too is realistic recognition that the purposes of these taxes are not related to the employment experience of the employees concerned.

The bill also provides for exclusion of certain services of nonprofit organizations. States are free to exclude these services of the nonprofits. A line was drawn, however, as to certain other services performed by church-related organizations. The line seems to us both practical and on the whole clear. We have but two comments.

The Committee report notes that the exclusion of a church would also exclude a divinity school preparing “students for the ministry." The intention of the Committee is clear. The Committee also excluded "ministers and members of religious orders" "when services are in the course of their religious duties." We feel certain the Committee also intended to exclude the novitiates and houses of study for the training of candidates studying to become members of religious orders. We note this with the suggestion that the intention be made clear.

We believe the provision of Section 122(a) which permits a state to assign reduced rates but not less than 1% to newly covered employees until time sufficient to achieve an experience rating is again prudent recognition of the special circumstances involved.

It would also seem desirable to provide that any nonprofit organization which elects coverage rather than the option of self-insurance be permitted to acquire a determination of its experience rating on a 12-consecutive-calendar-month period only, rather than a 36-consecutive-calendar-month period normally required. There is precedent for this suggestion in P.L. 87-705 (9/27/62). It would also be compatible with Congressional determination that these organizations have a far lower average risk of unemployment. States are now free to require only one year of contribution by employers at the maximum rate before they obtain eligibility to an experience rating and contribute thereafter a reduced rate. House of Representatives Report No. 2358, 87th Congress 2d Session, states that in 1962, 20 states permitted all employers to achieve an experience rating in a 12-consecutive-calendar-month. The exercise of this authorization is now permissible, but because of the unique employment experience of nonprofits already recognized by Congress, it would be better were the Congress also to make clear that this preferred treatment ought be accorded the nonprofits both for the 12-month period and at the 1% rate, irrespective of what the state deems the better treatment for profit-making organizations. As pointed out by both the Senate and the House Committees on the District of Columbia, the nonprofit organizations must pass on the financial burden of increased additional costs to those who pay for services. (House Report, supra: Senate Report No. 2054, 87th Congress, 2d Session.) In combination, the diminution of the services contributed to public purposes by the nonprofits and the demonstrated differences in employment experience contrasted with profit-making organizations strongly justifies the proposal to permit nonprofits electing coverage to acquire at the minimum rate a determination of experience with the first 12 months of coverage. We have one final suggestion. The bill provides for exclusion of certain services performed for institutions of higher education. We would suggest that one additional category of service be added to the list to provide for the exclusion of the working spouse of an enrolled student. Normally, such employ

ment on the staff of a college is temporary in nature and related more to the student's commitments than to aspects of regular employment.

In sum, with this modest request for clarification respecting houses of study for religious and the suggestion to exclude working spouses of enrolled students and the one respecting a firm 12-months experience rating period at minimum rates for nonprofits electing coverage, we otherwise heartily endorse the bill.

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Homes for the aged (Little Sisters of Summer camps and community centers the Poor)

Family counseling

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Church administrative units and guidance Lepresaria

Senator TALMADGE. The next witness today is Mr. Gibson Kingren, Kaiser Foundation Health Plan, Inc.

You may proceed at your pleasure, Mr. Kingren.

STATEMENT OF GIBSON KINGREN, KAISER FOUNDATION HEALTH

PLAN, INC.

Mr. KINGREN. Mr. Chairman and members of the committee, my name is Gibson Kingren. I am appearing on behalf of the Kaiser Foundation Health Plan which conducts the largest prepaid comprehensive group practice health care program in the United States.

At present our program provides most of the hospital and medical care services for approximately 1,400,000 persons through 15 hospitalbased medical centers and 22 outpatient clinics. These facilities are located in the metropolitan areas of San Francisco, Sacramento, and Los Angeles, Calif.; Portland, Oreg.; and Honolulu, Hawaii.

Hospital services to health plan members are provided primarily by 15 self-supporting Kaiser Foundation hospitals. These nonprofit hospitals which serve the general community as well as the prepaid health plan membership have more than 2,850 licensed beds and employ over 5,000 persons with an annual payroll of $25 million. In addition to providing direct hospital care, including charitable care, Kaiser Foundation hospitals sponsor research and educational programs in medicine and related fields.

SUPPORT FOR NONPROFIT PROVISIONS OF BILL

We support section 104 of II.R. 15119 which brings most employees of tax-exempt nonprofit organizations under unemployment insurance coverage and requires the States to give each such organization the option of reimbursing the State for unemployment compensation claims paid on its behalf, in lieu of paying the normal employment taxes required by State law.

The primary reasons for our support are as follows: First, we believe that section 104 represents a sound compromise between two valid

policy objectives-(1) that the benefits of unemployment insurance should be available to all employees who need such protection, and (2) that nonprofit organizations performing significant public services should use their financial resources for such public services.

Second, we believe that section 104 represents a vast improvement over present law which makes unemployment insurance coverage optional in the case of nonprofit organ zations but requires organizations which voluntarily elect coverage to pay the same rates and build up the same reserves as other employers.

In our judgment, the basic considerations which call for unemployment insurance coverage for most of the Nation's working force are applicable to most nonprofit organizations. Except for limited and special classes which continue to be exempt under section 104, we see no valid vasis for distinguishing a nurse, laboratory technician, maintenance man, or similar hospital employee from his counterpart in industry, both from the viewpoint of the individual and the viewpoint of the economy as a whole. The detrimental effects of unemployment are similar and equally deserving of the relief provided by an unemployment insurance system. The reality of our conviction in this regard is demonstrated by the fact that in 1959 we elected voluntary coverage under the California unemployment insurance law.

PROPOSED CLARIFICATION OF SECTION 104

We supported the principles expressed in section 104 before the House Ways and Means Committee, and the section generally reflects our position. However, we direct the committee's attention to an important consideration. Section 104 clearly establishes that nonprofit organizations will have a choice between reimbursing the State for unemployment compensation benefits paid in their behalf or paying contributions under the employment tax provisions of State law. We are advised that Federal law might permit the transfer to the cost reimbursement method of reserves created by those nonprofit organizations which have voluntarily provided unemployment compensation or have been required to do so by State law; however, we suggest that a clarifying amendment would assist the States materially in carrying out the objectives of this section.

To achieve this objective an appropriate amendment should be prepared by the Department of Labor which would make it clear that the intent of Congress is for the States to permit existing reserves credited to a nonprofit organization to be applied on behalf of that organization if it elects the reimbursement method of financing unemployment compensation.

SUPPORTING ARGUMENT

Section 104 of H.R. 15119 does not expressly provide that nonprofit organizations covered under the State unemployment insurance programs may change from a compulsory tax basis to a cost reimbursement basis and transfer their accumulated reserves from the tax base method to the reimbursement method. However, this transfer of reserves should be permitted: otherwise those nonprofit organizations which were farsighted and interested enough in the welfare of their employees to have joined the unemployment insurance system on a voluntary basis would be forced to forgo the alternative method of

financing authorized by section 104, or to sacrifice their reserve balances. Such result surely is not intended.

To require nonprofit organizations to give up their accumulated reserves to the unemployment insurance system when they transfer to a reimbursement basis would in effect require such organizations to make a substantial contribution on behalf of profitmaking enterprises. This would be inconsistent with the public policy expressed in section 104.

Nonprofit organizations already participating in the unemployment insurance system have created reserve balances by making payments under the State unemployment tax schedule in an amount greater than the benefits paid out in their behalf by the system. This money was accumulated for purposes of paying future unemployment insurance claims covering employment by the nonprofit organization. To accomplish this purpose such reserves should be available to meet the costs of nonprofit employers that elect the reimbursement method of participation.

This matter is of great concern to the California Hospital Association as many of its nonprofit hospital members have voluntarily assumed the payment of unemployment insurance on behalf of their employees. The California Hospital Association has authorized me to state that it fully supports our position that section 104 should be amended to express the congressional intent that the States should provide that existing reserves credited to a nonprofit organization may be used by that organization if it elects the reimbursement method of financing unemployment compensation.

RECOGNITION OF RELATED LEGISLATION

Legislation was enacted in 1961 in California to permit costreimbursement or other nonreserve financing of unemployment insurance by nonprofit organizations voluntarily electing to cover their employees. This legislation has not been implemented because of questions regarding conformity with Federal law. Enactment of section 104 will permit implementation of the California legislation. Moreover, section 104 is in accord with the philosophy expressed by Congress in permitting special tax treatment for tax-exempt nonprofit organizations in the District of Columbia. This followed legislation making unemployment insurance mandatory for such organizations within the District. H.R. 2788, 87th Congress, clearly recognizes that special financial treatment for nonprofit organizations is desirable in order to minimize the financial impact of unemployment insurance on nonprofit organizations.

SUMMARY

We urge this committee to approve section 104 of H.R. 15119 because it represents a desirable compromise between the objectives of extending unemployment insurance benefits and minimizing the burden on nonprofit organizations which provide important public services. We also urge the adoption of an appropriate amendment to make it clear that nonprofit organizations already participating in the unemployment insurance program may have their accumulated reserves applied to meet the costs of the reimbursement option. This amendment would remove the inequities to certain nonprofit organizations which

either came into the system voluntarily or were covered by State law, and would give each nonprofit organization an equal opportunity to choose the financing method best suited to its needs as intended by section 104.

Thank you for the opportunity to present our views on section 104 of H.R. 15119. In addition, I am authorized to advise the committee that the California Hospital Association, the Group Health Association of America, Washington, D.C., and the Health Insurance Plan of New York support section 104 and the suggested clarification regarding existing reserve balances.

Senator TALMADGE. Mr. Kingren, how would your suggestion work in the States where they have pooled fund laws, they have no separate reserves, as I understand it?

Mr. KINGREN. In discussing this matter with the Labor Security people, they pointed out that there are a variety of ways in which unemployment insurance is financed. It was their concept-let me amend that statement. My request of them was can an appropriate amendment be drawn which would treat all States equally under this provision and be equitable to nonprofit organizations, and the comment was that they thought it could. I am not familiar enough with the laws in each of the States to make a categorical statement on how it should be done.

However, the number of States which have nonprofit organizations participating in unemployment insurance under the State laws is rather limited. My guess is that not more than 50 percent of the States have this provision, have these organizations participating now. There are, I believe, about 10 States which actually forbid nonprofit organizations from participating under unemployment insurance. I am not sure that I have answered completely your question, but in summary the Department of Employment

Senator TALMADGE. How would you handle negative balances?

Mr. KINGREN. It seems to me that we must be fair about this. First, I do not believe that an organization that has a negative balance is going to want to transfer to the added cost method because they obviously have an adverse employment record or they would not have a negative balance.

This section 104 provides for an alternate choice, and I believe that those organizations would probably stay with the tax method and would not want to transfer. Hence I believe that this issue would not come up.

However, if it does come up, I do not believe it would be out of character or inconsistent with the philosophy of 104 to require these organizations to make up the deficiency in their balance so they are at least even with the board before they transfer to the added cost method of financing.

Senator TALMADGE. Thank you.

Any questions, Senator Williams?

Senator Hartke?

Thank you very much, Mr. Kingren.

The next witness is Mr. Leonard E. McChesney, Lake Carriers' Association of Cleveland, Ohio.

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