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The committee will stand in recess until 10 o'clock tomorrow morning, and thank you very much for your testimony. Sorry we kept you all day, but I appreciate the information that you have brought to the interest of the people.

Secretary FLEMMING. Thank you, Senator.

(The following memorandum by Senator Paul Douglas and accompanying statement by Gov. Nelson A. Rockefeller were submitted for the record :)


Re inclusion of statement for hearings on social security bill.

In the course of the hearings on H.R. 12580 there were a number of references to the position taken by the Governor of New York, Hon. Nelson A. Rockefeller. At the time, however, the text of the statement of the Governor was not available. I request that the text now be made a part of the record of the hearings so that it will be available for study to the Members of the Senate.


[For release in the afternoon, June 29, 1960, Robert L. McManus, press secretary to the





The provision and equitable financing of adequate medical care for our senior citizens is one of the great unsolved problems of our Nation.

Those over 65 years of age constitute a substantial, steadily growing and predominantly low-income segment of the population.

By 1975, there will be 22 million Americans over 65 years of age, or more than 10 percent of the then population. Yet, while the elderly are increasing in number, their ability to be economically self-sufficient through employment is decreasing. The proportion of older workers in the labor force has decreased from nearly 75 percent of those over 65 in 1890 to about 35 percent in 1958.

The net result is that, according to Government estimates for the year 1957, only about 20 percent of our senior citizens have incomes of more than $2,000 a year—and 60 percent of them receive less than $1,000 a year. These figures include social security payments received.

These senior citizens require, on the average, two to three times more medical care than the rest of the population. Many have special need for long-term institutional care. Estimates for 1958 indicated that 78 percent of those over 65 were afflicted with one or more chronic diseases. In spite of the great need of the aged for health insurance protection, nearly 60 percent of them have no health insurance at all, and of the remaining 40 percent who do, the coverage is frequently inadequate to meet the demands of chronic illness.

These facts constitute a human problem of major proportions. A substantial portion of the burden of providing necessary health services falls upon dwindling savings, upon relatives, and upon public welfare, or upon hospitals, and the medical profession through charity treatment.

The magnitude of the problem is underscored by the fact that in New York State alone there are some 83,000 persons aged 65 or over receiving care in hospitals or nursing homes at State expense.

All too often, a lack of funds may discourage the elderly from seeking the early care and preventive treatment so essential to mitigating the effects of illness and prolonging life. Many of those living on small social security payments or pensions or annuities may face or feel that they face a choice between paying the rent or seeking health care, often with tragic results.

There is substantial reason to doubt that commercial insurance carriers or voluntary health insurance organizations can ever hope to meet the total health insurance needs of the aged as matters now stand.

From the standpoint of the older persons themselves, such insurance is often too expensive for their limited incomes or is unavailable because of existing illness or for other reasons. Recognizing this, the New York Legislature recently passed a law at my request mandating the conversion of group health insurance policies to individual policies upon retirement at premium levels not exceeding 120 percent of prior payments. This measure represents a major advance, but not a complete solution. No one State can solve this problem alone. It is essentially a national problem.

From the carrier standpoint, health insurance for the aged is likely to be a most unprofitable type of business unless premium costs can be spread over all age groups. The latter is difficult in the competitive, experience-rating conditions which exist in the insurance industry.

For voluntary plans, there are serious financial problems in providing such coverage. In 1958, for example, I am advised that the Philadelphia Blue Cross collected $3.5 million in premiums from its 65-and-over subscribers and paid out $9.7 million to meet their hospital bills. Had the Blue Cross not spread this loss among all its subscribers, the premiums of the older subscribers would have been prohibitively high. At the same time, the increasing numbers of such high-cost subscribers not only raise costs for everyone, but threaten the very existence of the Blue Cross system.

It is now clear that some type of Federal Government action is needed to solve this problem-a fact recognized in the wide variety of plans now under consideration in the Congress. In 1954, as Under Secretary of Health, Education, and Welfare, I participated in developing an administration proposal for limited Government involvement through a Federal reinsurance system to assist voluntary health plans in undertaking broadened protection, including improved protection of the aged. The proposal was not adopted by Congress. Since then, the problem has become no less acute.

The issue has ceased to be whether to do anything at all. The issue is how best to do what so obviously needs to be done.

And the issue is immediate. Last Thursday, the House of Representatives passed a bill contemplating some medical care benefits, through Federal grants sharing costs with States, provided on a basis of need. This is an extremely limited measure-seemingly in the nature of an election-year stopgap. There is substantial evidence that the Senate during the coming week will begin serious consideration of expanding this measure into a comprehensive effort to meet the problem. I sincerely hope that this is the case.

Of the various proposed programs of health insurance for the aged, the best known are the Forand bill and the administration bill. There are many differences between these two bills, but the fundamental difference is in the two approaches to financing the proposed benefits. The Forand bill would increase the social security payroll tax to encompass health insurance for those over 65, while the administration bill proposes a Federal-State program of health insurance for older persons, paid for primarily by general tax revenues of the Federal and State Governments, but with the older persons themselves (other than those of public assistance) paying an enrollment fee of $24 a year.

As a businessman concerned with employee welfare, as Under Secretary of Health, Education, and Welfare, and as Governor of New York, I have been concerned with the health insurance question for many years. It seems to me that there are four grave weaknesses in the Forand measure.

1. The Forand bill would not provide health insurance coverage for any of the 4 million persons now over 65 years of age who are not included in the social security system.

2. It lacks any element of choice and would therefore tend to stifle further development of voluntary health insurance for the aged in this country.

3. Administration of the Forand bill program would be under centralized Federal control with no flexibility for accommodation to varying conditions the different States.

4. It fails to provide the standards needed to maintain the quality essential to good medical care.

In the admiinstration bill, the basic flaw is the method of financing, which I regard as fiscally unsound. Instead of extending a proven contributory system of insurance the administration bill provides subsidies from the general revenues, shared by the States and the Federal Government under an equalization formula.

Under a contributory system a definite percentage of the cost is born by those who ultimately receive the benefits. This provides a built-in safeguard against the constant pressure for irresponsible and extravagant additions to the scheme which is politically difficult to resist. The administration plan would be par. ticularly vulnerable to such pressure, based as it is on the concept of subsidy.

The financing of the administration plan also would represent a serious finan. cial drain on the States ; New York, for example, would have to allocate to the program nearly 10 percent of its current State purposes budget if it participated. It is likely that a number of States would decide not to participate at all, as would be their right.

In addition, the administration bill has "means test,” deductible and coinsurance features unrealistically limiting benefits and requiring cumbersome and costly administrative mechanisms in all 50 States. It does, however, provide for minimum standards of care and its benefits would come closer to meeting the medical care needs of the aged than do those of the Forand bill.

What, then, are the elements of a workable approach? In my judgment, we must begin with the principle that our basic reliance for health insurance protection for the population as a whole should be voluntary health insurance. But, recognizing the special problem of insuring the health of the aged, I believe Congress should enact a program based on the principles I shall set forth.

In considering these principles, we should keep in mind that taxes levied by the Government to support a health insurance system are equally compulsory, whether they are in the form of general revenue taxes or earmarked payroll taxes. Hence, the alleged distinction between plans on the basis of "voluntary” versus “compulsory” is, in my opinion, both illusory and irrelevant insofar as financing is concerned. As to the voluntary or compulsory nature of the receipt of benefits, I shall comment further.

The principles I advocate are these :

1. Health insurance should be provided for as many as possible over 65 without reference to a means test.

The concept of an “earned benefit” resulting from a contributory system is an important one to retain-one which stresses individual initiative and dignity in our society.

2. The basic mechanism for achieving this should be the contributory social insurance system, supported by payroll taxes, which exists in the old-age survivors and disability insurance system. A separate health benefit trust fund should be established in this system to account for the taxes received and benefits paid.

This well-administered system has proved to be effective and economical. Its contributor nature has been completely accepted and is indeed, strongly supported by employees as well as their employers.

3. The full payroll tax increase required to finance the additional health benefits should be enacted at the same time as the new benefits.

The maximum additional tax needed for the benfits I propose would be onehalf of 1 percent for employees and the same amount for employers.

4. Some 4 million persons over age 65 are not covered by OASDI insurance. Nearly half of these are recipients of old-age assistance payments, paid from Federal, State, and local general revenues. A second group among these 4 million are receiving retirement benefits from the civil service, railroad retirement, or other programs. A third group receive their support from the other personal resources or are dependent on others for their support.

These older persons not eligible for benefits under the OASDI system must, nevertheless, have comparable health insurance protection available to them.

I believe that the Federal program should permit payments into the separate health benefit trust fund for the purchase of the same health protection for these persons as would be available to retired OASDI beneficiaries. The Federal Government should match according to a formula any payments which an individual State wishes to provide to assist its older persons not eligible for OASDI in purchasing the OASDI health benefits. The Federal Government would also, of course, continue to provide Federal matching grants for old-age assistance payments, including those for medical care purposes.

5. Each OASDI beneficiary eligible for the statutory health benefits should be given an option to forgo those benefits in favor of receiving a special monthly cash benefit added to his regular social security check, provided he presented proof that he carried a health insurance policy at least equivalent to the protection afforded by the statutory benefits.

This option would give the benefit phase of the program, as distinct from the financing phase, a truly voluntary nature. It would encourage commercial carriers and voluntary health insurance organizations to continue their efforts to develop sound coverage plans for the senior population. Furthermore, individuals covered during employment by outstanding health insurance plans would thus be encouraged to continue such plans after retirement.

6. The program should provide at its outset for hospitalization, nursing-home care, and visiting nurse services, with additional benefits to be added as experience may indicate their desirability and feasibility.

A benefit schedule offering more total days of care according to the proportion spent in nursing home care and visiting nurse services would encourage beneficiaries to use less costly facilities as soon as their medical condition permitted.

Early diagnostic services should be added to the benefits as soon as possible, to help minimize instances of hospitalization. Subsequently, it should be found possible to cover broader forms of organized home-care services, the costs of certain drugs, surgery, and possibly other physician services.

7. A State agency should be chosen or established to maintain standards set by the Secretary of Health, Education, and Welfare.

This agency would make reimbursement to hospitals, nursing homes, and visiting nurse services on the basis of actual costs. The agency would review and certify rates for payment based on actual cost as determined by uniform cost accounting methods. It would certify expenditures under the program and maintain a continuing review of operations within the State.

This program should be regarded as only one part—though a major part—of a larger overall effort to make better provision for our senior citizens who have already made their great contribution to our way of life.

For example, improved housing for the aged ranks as an important aspect of their well-being. But a sound health insurance program is the most urgent immediate need—to the end that the retirement years shall be made as free as possible from the crushing cost burdens and anxieties attendant upon illness.

In the achievement of these objectives, our elder citizens deserve decisive and prompt action.

(By direction of the chairman, the following is made a part of the record :)

CALIFORNIA, PA., July 6, 1960. Senator HARRY F. BYRD, Chairman, Senate Committee on Finance, Senate Building, Washington, D.C.:

Strongly urge passage of legislation adding health care benefits for aged under OASDI system. Would appear before committee but realize this may hold up hearings, so suggest entry of this telegram in Senate records.


MIAMI, FLA., July 6, 1960. Senator HARRY F. BYRD, Senate Office Building, Washington, D.C.:

Six hundred blind delegates assembled in the convention of the National Federation of the Blind representing many thousands of blind people throughout the United States of America urge your active support in the Finance Committee and on the floor of the Senate of the Hartke amendment included in S. 3449. This would amend title X of the Social Security Act so as to include the exemption of the earnings of blind aid recipients from $600 annually to $1,000 plus 50 percent of amounts over $1,000 until self-support is achieved. The blind aid program would thus be made a means of rehabilitating blind people in returning them to productive, economically independent lives.

Dr. JACOBUS TENBROEK, President, National Federation of the Blind.


Trenton, N.J., July 8, 1960. DEAR SENATOR BYRD: I would like to call your attention to the following resolution that was adopted at a recent meeting of the board of directors of the Jewish Family Service of Trenton, N.J.

“The Jewish Family Service of Trenton, N.J., heartily approves and endorses the principle that public financing of medical care for the aging be provided as a * part of the social security insurance program. The board of directors of this voluntary family agency feel deeply that passage of a bill embracing this principle will fulfill a serious unmet social need of our community and country in a most expeditious and encompassing manner.”

The board sincerely hopes that you will wholeheartedly support and work for the passage of a bill that will embrace these principles. Very truly yours,

Mrs. JOHN HIRSCH, Chairman, Public Issues.

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Davenport, Iowa, June 28, 1960. Hon. B. B. HICKENLOOPER, Senate Office Building, Washington, D.C.

DEAR SIR: We are writing to you in opposition to a section of H.R. 12580, concerning financing of the administrative and loan fund provisions of the employment security program. This section was originally H.R. 7177.

Our company supports the principle of unemployment compensation when it is properly designed and safeguarded. We have actively supported the State of Iowa program as well as many of the changes for increased benefits to meet changes in economic conditions. However, we oppose the proposed changes to unemployment compensation laws for the reasons stated below.

As we understand the proposal, it would increase the Federal unemployment tax from 3 to 3.1 percent of the first $3,000 of covered wages with the additional 0.1 percent going to the Federal Government. This would appear to be only a slight increase, but in fact a credit of 2.7 percent is allowed against both rates for payments to the States; as a result, the portion going to the Federal Government would increase from 0.3 to 0.4 percent or one-third. The increased Federal reve nue would be used (1) to cover rising administrative expenses, and (2) to build up the Reed loan fund from $200 million to the larger $550 million, or 0.4 percent of covered payrolls.

We do not believe that a need for the increase has been demonstrated. Federal unemployment tax collections as compared with allocations of Federal funds to the States for administration have been as follows:

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Proponents of the tax increase point to the more rapid growth in allocations in 1957 and 1958 as compared with the growth of tax collections. However, 1958 was a recession year and business conditions have improved since that time. In our opinion continued economic growth of this country will provide sufficient funds at present tax rates to cover any needed increase in allocations to States. Certainly, postponement of action at this time would be wise in order to allow sufficient time to see whether such a drastic increase in tax is necessary.

The second purpose of the increase is to build up the Reed loan fund. This fund was impaired by States which failed to take action to: (1) Assure adequate State funding, and (2) correct loose administration and liberalization. A .comparison of the ratio of benefits to taxable wages in those States with the

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