"I. That the American Bar Association continue to oppose legislation substantially similar to the Forand bill (H.R. 4700, 86th Cong.) as recommended by the standing committee on unemployment and social security.

"II. That the policy of the American Bar Association on alternatives to Forand-type legislation be determined by the following principles:

"1. If the voluntary insurance and prepayment plans are adequately available to those who desire them, the medical care of the aged can be adequately financed thereby, supplemented by old-age assistance and State, county, and municipal programs.

“2. If, however, a new Government program becomes imperative, a State program would be preferable to a joint Federal-State program, and a joint Federal-State program would be preferable to a Federal program.

"3. If a new Government program of medical care of the aged is initiated, a program more closely resembling grants-in-aid for old-age assistance would be preferable to an extension of old-age and survivors insurance.

"4. It would be desirable to include in any program of medical care for the aged that becomes imperative provision for ‘contracting out' or administration through such prepayment and insurance organizations as Blue Cross-Blue Shield, group practice plans, and private insurance companies.

"5. It would be desirable to make any Government program of medical care for the aged that becomes imperative optional rather than compulsory for the aged individual."

In the past we have communicated these principles to your House Ways and Means Committee. They denoted our opposition to legislation of the Forand and King-Anderson type that would extend old age and survivors insurance to include varying amounts of medical care for most of the aged, regardless of need.

Conversely the above principles provide support for the Kerr-Mills program that was embodied in the Social Security Amendments of 1960. It is noteworthy that the medical assistance for the aged established by that legislation has been implemented by 36 States and 4 territories. Thirty-two of these programs are in operation and the remainder should begin during the coming year.

I have been asked to advise you and your House Ways and Means Committee that the principles quoted above continue to be the policy of the American Bar Association. We hope they will prove helpful in your current consideration of bills relating to medical care of the aged.

Sincerely yours,

JAMES K. HONEY,

Chairman, Standing Committee on Unemployment and Social Security.

THE NATIONAL ASSOCIATION OF LIFE UNDERWRITERS,

Re H.R. 3920.

Hon. WILBUR D. MILLS,

Washington, D.C., December 18, 1963.

Chairman, Committee on Ways and Means, House of Representatives, House Office Building, Washington, D.C.

DEAR MR. MILLS: On November 22, 1963, H. Lewis Rietz appeared before the Ways and Means Committee to express the opposition of the American Life Convention, the Health Insurance Association of America, the Life Insurance Association of America, and the Life Insurers Conference to H.R. 3920, which would add to the existing social security system a program of health care benefits for persons aged 65 or over who are receiving or are entitled to receive social security cash benefits, as well as for certain other persons aged 65 or over who do not have social security coverage.

We have studied Mr. Rietz' prepared statement very carefully and would like your committee to know that we are in agreement with and support the views set forth in that statement. To this end, we respectfully request that this letter be incorporated into the record of the hearings held by your committee on H.R. 3920 in November.

We are quite frankly-and, we believe, understandably-concerned that the creation, and virtually inevitable expansion, of the type of Government health care program contemplated by H.R. 3920 would have a severe adverse impact on the continued growth and development of private voluntary health insurance

coverage not only for the senior citizens of this country but also eventually for the younger age groups.

We are equally concerned, however, both with the cost of the proposed program itself and even more so with the distinct possibility that this cost, when superimposed upon the cost of the existing social security cash benefits program, might eventually result in serious impairment of the solvency of the entire social security program, particularly if, as seems almost certain, the proposed program, once enacted, were expanded and liberalized and thus made even more costly.

In voicing this concern we are especially mindful of the following points: (1) That testimony elicited by you from Robert J. Myers, chief actuary of the Social Security Administration, when he appeared before your committee on November 18, clearly indicates that, even in the view of the Department of Health, Education, and Welfare, the tax rate now provided in H.R. 3920 would have to be doubled in order to finance the proposed health care program adequately.

(2) That Mr. Rietz testified that, according to insurance industry estimates, the above-mentioned tax rate would have to be tripled.

(3) That the history of the repeated enormous expansion and liberalization of the existing social security program and, indeed, the statements of many proponents of health care for the aged under social security make it clear that the program contemplated by H.R. 3920 would itself be expanded and liberalized in subsequent years, necessitating still further substantial increases in the social security tax rates or the taxable earnings base, or both.

(4) That the 23d annual report of the board of trustees of the two social security trust funds made to the House of Representatives under date of February 28, 1963 (H. Doc. No. 80, dated March 6, 1963) plainly reveals that at least the disability benefits trust fund is already in serious financial difficulty.

Apropos of point No. 4 above, you yourself have indicated your conviction that the entire existing social security cash benefits system is in a shaky financial condition and have introduced H.R. 6688 to increase the taxable earnings base from $4,800 to $5,400 for the announced purpose of producing additional tax revenue sufficient to restore the fiscal soundness of the program. In view of this warning sounded by you and the above-mentioned 23d annual report of the trustees of the two trust funds, we feel that, even if we were not fundamentally opposed to H.R. 3920, Congress would be guilty of extreme irresponsibility to the millions of present and future social security beneficiaries if it enacted such a bill before taking all necessary action to make certain that the existing social security program is soundly financed.

We feel obliged to add that it seems ironical-and even almost incredible-that this administration, which is pushing so vigorously for tax reduction as a means of leaving the taxpayers with more spendable and investable dollars with which to stimulate the national economy, should at the same time be advocating the passage of a bill like H.R. 3920, which would have the diametrically opposite effect of substantially increasing the tax burden of most of the very same taxpayers.

We would also like the record to show that we believe that existing public health care programs such as those provided under the OAA and the MAA systems can and will most adequately and equitably take care of the health care needs of those individuals who are unable to take care of such needs on their own. It will, we trust, interest you to know that since the MAA program was first authorized by Congress in 1960, we have urged our affiliated State associations to assist in its implementation in their respective States.

In conclusion, we are enclosing an extremely thoughtful and informative article by former Postmaster General J. Edward Day, entitled "Ex-Cabinet Member Opposes Health Care Plan," which was published in the December 1963 issue of Nation's Business. As the article notes and as you are probably already well aware, Mr. Day has a solid background of experience and knowledge in the field of life and health insurance. We request that his article also be incorporated in the record of your committee's hearings on H.R. 3920. Sincerely yours,

ROY D. SIMON,

CLU, Chairman, Committee on Social Security, and Member, Board of Trustees.

EX-CABINET MEMBER OPPOSES HEALTH CARE PLAN-FORMER POSTMASTER GENERAL J. EDWARD DAY WARNS THAT NATION SIMPLY CANNOT AFFORD THE ADMINISTRATION HEALTH PROPOSAL IN VIEW OF THE FEDERAL BUDGET CRISIS

The year ahead will see a vigorous new drive to win congressional approval of a Federal health care plan tied to social security taxes.

A strong opponent of such a plan is J. Edward Day, former Postmaster General, who resigned from the Kennedy Cabinet on August 9.

While Mr. Day, of course, does not oppose the whole New Frontier program, in this exclusive Nation's Business interview he reveals his alarm that this pet spending project may become law.

Mr. Day has extensive experience in the insurance field. He served as legal and legislative assistant to former Gov. Adlai Stevenson, and from 1950 to 1953 was Illinois insurance commissioner.

He also served with the Prudential Insurance Co. of America, rising to vice president in charge of operations in 13 Western States.

Now practicing law in Washington, he has no insurance connection. But his interest in welfare programs continues.

Mr. Day, what do you think of the administration's health care plan for the aged under social security?

It is a program that has tremendous political appeal, but it is extremely difficult for the rank and file of the public-or even for fairly informed Members of Congress to appreciate the implications of getting into an expensive medical care plan of this type.

How expensive would it be?

To begin with, we should bear in mind that social security benefits now being paid total over $13 billion a year and it is estimated that by 1980 just the present program will cost as much as $25 billion a year.

For the health care plan, they talk in terms of more than $1 billion the first year and then going up to $2 billion, without taking into account the inevitable future liberalization of benefits.

In my opinion it is inevitable that once this program is enacted there will be the same pattern of liberalization every couple of years that there has been with the original social security law. These liberalizations are bound to add enormously to the expense and I feel would make the total load of financing the social security program completely out of hand.

The program as outlined in the administration bill contains a great many cost reduction features such as a deductible, which the beneficiary would have to pay before getting Federal payments; time limits on the period in the hospital; limitation of the benefits to people 65 or older; no benefits for surgery or doctors' bills, no benefits for drugs.

The reason I am a dedicated Democrat is because I think that the Federal Government should use its resources and its powers to promote the greatest good for the greatest number-but only to the extent it can afford it.

And we have reached the point where we can no longer judge new programs purely on the basis of whether they are desirable. We have to judge them on the basis of whether they are feasible within the budget squeeze and the deficit spending pattern we are up against.

It doesn't make sense to me to have a large Federal deficit in peacetime and in time of prosperity, and I think that this type of new departure in social security commitments may bring on deficits in the future such as we have never even thought of in peacetime before.

Did you have these same views before you became a member of President Kennedy's Cabinet?

I definitely did. As a result of having been insurance commissioner of Illinois and having a top responsibility in the insurance industry, I became concerned some years ago about the eternal extensions of social security financial commitments.

In early 1960 I expressed in a published article this same type of concern as to the medical care for the aged plan which was pending then, and I have never felt differently about it.

Of course, when I was Postmaster General, the social security program was no part of my direct responsibility. I had plenty of problems of my own to worry about, and while I was in office I, of course, supported in general all of the President's program.

But, as a person with some degree of special knowledge in this area, I have been concerned that there has been so little attention to the two points I am emphasizing here: First, that because of the political appeal of social security liberalizations this health program is bound to be extended way beyond what is being proposed now. This is shown by the patterns of the old-age benefits that have been extended many times in the past. It is shown by what has happened to private health insurance plans.

The second thing I think isn't recognized sufficiently is that the tax base for social security comes out of the same payroll check that has to pay for local taxes, for the defense effort, for the space program, and everything else. because it is called a payroll tax doesn't mean that it is something that is available above and beyond all our other demands for public revenue.

Just

Mr. Day, you mentioned a pattern of liberalizations in private health insurance. Could you elaborate on this?

Most private health insurance plans worked out by negotiations with employee groups start out, for example, with a very substantial contribution by the employees to the cost. In each round of bargaining there are efforts, often successful, to get the employees' contribution reduced or entirely eliminated, which greatly increases the cost to the employer.

I think that the precedent of what has happened to the private plans is something that I have not seen discussed in alerting the public and the Congress to the implications of this Federal health program.

Now that sort of thing might happen, too, as your total social security cost increases. We are the only country that has this 50-50 employer-employee participation in paying the cost of our social security plans. There have been suggestions already that a larger proportion of the cost should be loaded on to the employer.

Is there ample private health insurance for people over 65?

There is plenty of insurance available for people who have the money to pay for it. But I don't think anybody can say there is adequate private health insurance for people who don't have the money to pay for it. Health insurance for old people costs substantial money. And many of the people who would be most in need of medical care are people who would be very poor risks from the insurance point of view because of their poor health.

Do you feel that the introduction of a Federal health care plan changes the basic philosophy of social security?

It is a distinct departure in that, for the first time, it provides service. Until now the social security program has provided dollars. But this health care plan provides, for example, after the deductible, whatever a semiprivate hospital room costs.

Now we all know that the costs of hospital care have been going up quite markedly in recent years. They have been going up at a faster rate than the cost of living or than average wages.

There is, therefore, a new departure right there in that the Government is taking on an obligation which is not necessarily keyed to the revenue that is coming in.

Assuming $37 a day cost for a semiprivate room, long-term hospital care is a benefit that is very valuable. Then there is a nursing home benefit that can follow that, and home visits besides. That would be a very generous private insurance plan and the premium would be substantial.

If we could afford it, this is a program with a great deal of human appeal. But there are many things that have great human appeal which we simply can't afford to do in view of our Federal budget crisis, which is tied in with our balance-of-payments gap and our pressing needs for urgent purposes such as

defense.

Would the addition of health care endanger the rest of the social security structure?

I don't think it will endanger it in the sense that it will cause any part of social security to be discontinued, but one of the big troubles is that people are inclined to think because social security is financed by a payroll tax that it has some separate source of financing from the rest of Government activities.

There is only 100 percent of the Nation's payroll available as a source of tax revenue for Federal Government, State government, and local government, and as the percentage of the payroll tax continues to go up, as is already scheduled and in the law now on the books, that increases the total tax load.

The social security plan is often mistakenly thought of as an insurance plan, but it is in fact a pay-as-you-go plan. The present trust fund would pay only the benefits now being paid for about a year and a half. So it is in no way comparable to the reserves that are held by an insurance company to pay pension benefits.

As the benefits are liberalized they have to be taken care of on a pay-as-you-go basis by either increasing the tax take at the present time from increased payroll taxes or else going through the pretense of keeping the payroll tax low but paying for it out of general revenues. But in either case it comes out of people's incomes.

The President has stated in connection with his support of the tax cut bill that he intends to take every feasible step to keep down spending and to avoid having the tax reduction cause a long-term increase in the deficit.

But an obligation such as is taken on by a new social security benefit is an obligation for all time.

Isn't the disability portion of the social security fund in danger of running out of money?

Yes, the disability fund-which is a separate trust fund-is running lower than predictions, and Representative Wilbur Mills (chairman of the House Ways and Means Committee) has already been proposing that the taxable wage base be increased for the purpose of supporting that trust fund.

The very same proposal for practically the same amount in the taxable wage base is part of the administration's proposal for financing the health benefit. And you can't finance both things from the same source.

What has happened to the disability benefit is a glaring example of what I am talking about. It was started only in 1956, and at that time was available only to disabled people who were 50 years old or older. In just the short time since then, that age floor has already been taken out and it is available to anyone at any age.

I feel absolutely certain that the health care program, even though it starts out at 65, would inevitably be extended before long to all people receiving social security benefits, which include many dependents under 65. It would be lowered as far as the actual principal beneficiaries are concerned to lower ages, and probably eventually the age limit would be off entirely. The financial implications of that are incredible.

Do you have any specifics as to financial implications?

The medical care plan which is being proposed by the administration is similar to a plan that was proposed for several years by Representative Aime Forand. Known as the Forand bill, it would have provided the hospital benefits to anyone receiving social security benefits, including dependents, and it was estimated that in just 10 years the Forand bill would be costing $8 billion a year. Would it be likely that the health plan would be broadened to pay for even more of the cost of people's sicknesses?

Definitely yes. It has been customary in private health insurance plans, no matter how modest a scale they started on, to extend them to cover surgical and medical benefits. There is no surgical benefit in this plan at all.

There is also a tendency to extend them to drug benefits. There is no provision for providing drugs except as they might be an incidental part of the hospital care.

We are all familiar with the controversies they have had in England over paying for false teeth and for wigs, but these aren't ridiculous items at all as far as what is probable in extending this plan.

Many private health insurance plans as a result of many rounds of negotiations now include psychiatric care. If you begin getting that sort of thing into a publicly financed plan the sky is the limit as to what it might cost.

This matter of the deductibles is something I feel is likely to last a very short time if the bill passes because there will be highly publicized cases of individuals who are not able to come up with that $50 or $75 or something of that kind. The same thing is true on the time limits on the stay in the hospital. People may be glad to have any benefit at all at the start, but when you have highly publicized cases of people who have to be moved out of the semiprivate rooms that they are entitled to under the bill, have to be moved out because they are sick longer than their benefit lasts, there will be demands that those time limits be extended or eliminated.