Senator SMATHERS. Now, Mr. Secretary, let me refer you to your statement for just a moment, where you talk about the administration plan. In point No. 2 you say it should make available a system of comprehensive health and medical benefits which provide adequate protection against the cost of long-term and other expensive illnesses. How does your particular proposal, in brief, do that?

Secretary FLEMMING. I think probably the best way I can answer that is to give you an example.

Senator SMATHERS. All right.

Secretary FLEMMING. Let's assume that this plan is in effect in a particular State and let's assume that we are dealing with a woman in her seventies who has suffered a stroke. Now this identification of the treatment that she would receive was prepared for me by the Public Health Service doctors. We will assume she was in the hospital for 30 days which would represent a cost of $900, about $30 a day. We will assume she was in a skilled nursing home for 22 months. Senator SMATHERS. Could we also eliminate one other assumption? This elderly lady, of course, is not on old-age assistance. In other words, she is not getting public assistance.

Secretary FLEMMING. No, not getting public assistance, that is right. She may be on OASDI.

Senator SMATHERS. Yes. Is she in the category where she first has to pay $24 before this?

Secretary FLEMMING. Yes, I am assuming this; that is right.

Senator SMATHERS. She is also in the category of having to pay the first $50 of her medical expense.

Secretary FLEMMING. That is correct.

Senator SMATHERS. All right.

Secretary FLEMMING. Skilled nursing home for 22 months at a cost of $5,280, private duty nurse used for 5 days 24 hours, and then the doctors' expense, total of $325, and drugs $100, making a total expenditure of $6.925.

Now under the program that we have recommended, the program would pay $5,140 of the total expense of $6,925; she would have to pay $1,833. I am assuming this is a 2-year illness, as you will notice, so that she would pay the deductible twice, that is $250 each year, a total of $500, and then, of course, she would pay 20 percent of the total expenditures. She would pay the fee for 2 years of $24 a year, which would be $48. Altogether, she would pay $1,833. The plan would pay her $5,140.

Mr. Chairman, that illustrates what I tried to emphasize in my testimony, namely, that our plan is designed to deal with the longterm illness, because, take under the Forand bill, just as another illustration-with this same illness, under the Forand bill the plan, that is the Government, would pay $1,620, and she would have to pay $5,305.

Under the McNamara bill that is before this committee at the present time, the plan would pay $3,350, and she would pay $3,575. Now the reason, of course, is that both the Forand bill and the McNamara bill tend to place the emphasis on the first dollar costs of an illness, whereas the plan that we have presented places the emphasis on the cost of a long-term illness. For that reason, where a person is involved in an illness of this kind, our plan, as you can

see, would be extremely helpful. It would mean that the individual would receive $5,140 as against $3,350 under the McNamara plan, and $1,620 under the Forand plan.

Senator SMATHERS. Where you say the emphasis of these other two bills is on the payment of the first dollar and yours is on the payment of the long term, what happens to these people who are not on old-age assistance, but actually who can't pay these first dollars. They are not indigent to the point where they have to be on public assistance but they are medically indigent. How could they even qualify for this particular proposal, if they could not pay $247 a year to start with?

Secretary FLEMMING. Well, of course, our feeling is that in many instances, either they themselves or through their families, could take care of the initial cost. Of course, if there was no possibility of their taking care of the initial cost, they would go on the old-age assistance program.

But we do feel that there are some insurance policies that are not too expensive that you can get to take care of initial first dollar costs. The real problem for many families comes in dealing with the longterm illness.

Senator SMATHERS. Mr. Secretary, I don't want to take all your time, these other Senators want to ask you questions but I want to ask you one other question: You say on page 12 it should provide private insurers with the opportunity of expanding their programs of extending health protection to the over-65 age group. How does your particular proposal do that?

Secretary FLEMMING. Just one moment. You will notice that we did put in as an optional benefit the opportunity for a person to elect to purchase from a private group a major medical expense insurance policy with the understanding that 50 percent of the costs would be paid for him from Federal-State matching funds up to a maximum of $60. And then, of course, we definitely do leave open, as our previous discussion indicates, the possibility of the insurance company or other private groups taking care of the initial costs, that is the first $250 of an illness. In other words, we think that this is a program that would make it possible to build on the progress that has been made by commercial companies and by nonprofit groups in insuring people in this area. Our feeling is that they have not as yet certainly done an adequate job by any means in making available protection for long-term illness.

Senator SMATHERS. Before you came to that conclusion, did you consider granting private insurance companies tax credits for losses that might be sustained from writing health policies?

Secretary FLEMMING. As we worked on our various plans, I think it is fair to say that that idea was not presented to us, at least not to my recollection. It may have been, but not to my recollection. Senator SMATHERS. All right, sir.

Secretary FLEMMING. Mr. Chairman, and Senator Smathers, could I in response to one of your earlier questions, just to keep the record straight, point out as far as the attitude of the administration toward this problem is concerned, in all fairness to one of my predecessors, Mrs. Hobby, I should call attention to the fact that in 1954 the administration submitted what was known as a reinsurance bill. That

bill was designed to deal with certain aspects of this particular proposal. Also, I think that I should also call attention to the fact that last July, prior to the hearings on the Forand bill, again at the request of the Ways and Means Committee we did submit to that body a very comprehensive study of this whole area.

We did not make recommendations but we certainly indicated that very clearly there is a problem here that the country cannot continue to ignore.

Senator SMATHERS. You had been studying the problem.

Secretary FLEMMING. That is correct, and as I say, earlier, the administration actually submitted a proposal. I think this found its way, part way through the Congress but not all the way. Senator SMATHERS. On reinsurance.

Secretary FLEMMING. That is correct.
Senator SMATHERS. Yes.

The CHAIRMAN. Senator Curtis?

Senator CURTIS. Mr. Secretary, referring to your presentation, this portion deals with the proposals involving OASI other than this question of medical health for the aged. There you discuss the costs and in general state that the anticipated revenue from the social security taxes, and by that I mean title 2, will in the future take care of the anticipated expenditures.

In arriving at that conclusion, what allowance, if any, did you make for the fact that the Congress might in the future increase benefits? Secretary FLEMMING. None whatever. I mean these figures are based on the law as it would be if the bill that has been passed by the House should be passed by the Senate and concurred in by the President.

Senator KERR. Without amendment?

Secretary FLEMMING. That is correct.

Senator CURTIS. But the Congress has increased benefits often, usually just prior to election; have they not? That is not a sin of the administration; you have enough to answer for.

But the Congress should take responsibility for that. They have; have they not?

Secretary FLEMMING. They certainly have since 1950. [Laughter.] Senator CURTIS. Now, in predicting that this social security system is financed adequately to take care of the future, what, if any, allowance have you taken for the possibiilty that Congress might freeze taxes if in a given period a surplus does accumulate?

Secretary FLEMMING. That Congress might

Senator CURTIS. Freeze the taxes and prevent

Secretary FLEMMING. In other words, not move forward as the law now provides.

Senator CURTIS. Yes.

Secretary FLEMMING. We did not make any allowance for that. We assumed that those schedules would go into effect in accordance with the law.

Senator CURTIS. But Congress has done that during the years social security has been in existence.

Secretary FLEMMING. Mr. Myers tells me in the forties not so farnot during the 1950's but they did during the 1940's.

Senator CURTIS. What I am trying to point out is that we have a political system here, not an actuarial system.

One more question with regard to those figures. What allowance, if any, in saying that this tax would be adequate for the future, have you made for continual inflation?

Secretary FLEMMING. I think I should ask Mr. Myers to respond to that as the actuary, because he is the person who works on these figures, as you know.

Mr. MYERS. Senator Curtis, in this respect, the cost estimates are based both on the law staying the same, and also on existing economic conditions remaining the same-in other words, the general earnings level staying the same. If in the future, earnings levels went up and the law stayed the same, the system would actually be in better financial condition, because the income from taxes (or the contributions) would go up more rapidly than the benefit disbursements would. Of course, if earnings change in the future, it is possible that the system would be amended. Accordingly, we have made what we call static estimates; we assume the law stays the same, and we assume that economic conditions stay the same as they are now. Senator CURTIS. Thank you.

Now, Mr. Secretary, you say:

The program would permit States to pay for the medical expenses of lowincome aged persons who were not so needy as to require old age assistance but whose income and resources after taking into account amounts needed for current expenses are insufficient to meet their medical bills.

Would the Federal Government have the authority to pass on the financial eligibility of an individual applicant?

Secretary FLEMMING. The answer is no.

Senator CURTIS. That would be left to the States?

Secretary FLEMMING. Under title VI of the House bill, that would be left to the States.

Senator CURTIS. I might ask, and I am sure that Mr. Myers can give us a reasonably accurate estimate: In our old-age assistance program we permit the States to determine who is needy. There has been a great variance among the States. Of every 100 people over 65 in the State of Louisiana how many of them have been determined as needy and therefore eligible to old-age assistance and incidentally, I might say the level of benefits are such that the Federal Government pays about six-sixths of it. How many out of every person over 65 are on old-age assistance, the best estimate?

Secretary FLEMMING. Nearly 60 percent.

Senator CURTIS. Nearly 60 percent. Now how many out of every 100 people over 65 in the State of our distinguished chairman, Virginia, are on old-age assistance?

The CHAIRMAN. Why do you pick on Virginia? [Laughter.]
Senator CURTIS. I think the answer will reveal it.

Senator KERR. He will eventually get around to Nebraska and I think that will be fine. [Laughter.]

Secretary FLEMMING. About 10 percent or possibly a little less. Senator CURTIS. In other words, six times as many people out of every 100 are determined to be needy in Louisiana, a State with great wealth, oil production, and so on, as there are in Virginia. Do you

know how-Senator Kerr has a keen sense of anticipation, about what is the figure in Nebraska? [Laughter.]

Secretary FLEMMING. Mr. Chairman, Senator Curtis, I am sure you will give us a chance to correct these for the record. Senator CURTIS. I just want your best estimate.

Secretary FLEMMING. But between 15 and 20 percent.
Senator CURTIS. I would guess closer to 15. [Laughter.]

In other words, here is Nebraska, a poor State, not very much industry, practically no tourist business, no valuable minerals, and we administer our law and reach into the Federal Treasury to pay oldage assistance under a system that another State extends it to 4 times as many people out of every 100.

Now, under the Ways and Means Committee bill for payments to people who are financially in need but not on old-age assistance, are you going to prevent that disparity between States?

Secretary FLEMMING. Well, I think my answer to the first question that you asked along that line really answered this one, does it not? I mean, title VI of the House bill makes it possible for the States, within very broad language that is incorporated in the bill, to determine their own standards.

For example, a State, if they wanted to use an income test, for example, to determine who was eligible, one State might use $2,500 and another State might use $4,000, or another State might use $1,500.

Senator CURTIS. Then, coupled with that, you have also a variableI don't say you the House has a variable matching formula, has it not?

Secretary FLEMMING. That is correct. They use the same variable matching formula that is used now for public assistance, 50 to 65. That is for the last payments on public assistance.

Senator CURTIS. But as to the individual it is not graduated against the Federal Government on the payment the individual receives such as old-age assistance?

Secretary FLEMMING. That's right.

Senator CURTIS. That's all, Mr. Chairman.

Secretary FLEMMING. Mr. Chairman, just to-we now have what I think are firmer figures on your question.

Nebraska 10 percent, Louisiana 60 percent, Virginia 6 percent. Senator CURTIS. You mean Louisiana is six times more adroit and effective in getting money out of the Federal Treasury than we poor people in Nebraska? I withdraw the question.

Secretary FLEMMING. OK.

Senator BUTLER. Mr. Chairman, a moment ago I sought to show that these programs start very modestly and then have a tendency to become very large.

An excellent example of that is provided by expenditures for public assistance programs.

At the time the Congress liberalized the old-age and survivors insurance program in 1950, we contemplated that expenditures for public assistance would ultimately decline.

The intent of the Congress is clearly revealed in the Report No. 1669 of this very committee dated May 16, 1950, which discussed