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THE BENEFIT INCREASE

The bill would provide for a 5-percent increase in the benefits payable to the people now on the benefit rolls and to those who will come on the rolls in the future, and would increase from $4,800 to $5,400 the amount of annual earnings that is counted for benefits and subject to contribution for the support of the program (the so-called earnings base). The long-range cost of the proposal is 0.42 percent of covered payroll.

For retired workers now on the benefit rolls who started to receive benefits at or after age 65, monthly payments would range from $42 to $133.40. The increases for retired workers will range from $1.60 (for a worker at the minimum benefit level who comes on the rolls at age 62 when the new rates become effective) to $6.40 (for a worker at the $400 average monthly earnings level who is over 65). For a wife, the increase will range from 80 cents per month at the comparable minimum level to $3.20 at the maximum. Where the sole survivor beneficiary is an aged widow, the increase for her would range from $2 to $5.30.

The $5,400 earnings base, which would go into effect in 1965, would increase benefits for those with earnings over $4,800 who retire in the future, and would ultimately result in a maximum benefit for the worker of $143.40, rather than the maximum benefit today or $127 as under present law.

The maximum on total benefits payable to a family would also, of course, be higher than under existing law. The maximum family benefit amounts would range from $63 at the lowest average monthly earnings level to $300 at the maximum average monthly earnings level-as against a range of $60 to $254 under present law.

The benefit increase provided in the bill would be effective for the second month following the month of enactment. The earnings base increase would be effective January 1, 1965.

SPECIAL TRANSITIONAL BENEFITS FOR PEOPLE NOW AT ADVANCED AGES

This special provision would grant benefits to certain people now in their seventies or older for a minimum of 3 quarters of coverage instead of a minimum of 6 quarters of coverage as in present law. Primary beneficiaries would receive $35 a month, the widows would receive the same amount and wives would receive $17.50. It is estimated that 400,000 people who have had some work covered by the program, or whose husbands have had such work, would be added to the rolls by this provision. The long-range cost of this proposal would be 0.01 percent of payroll.

BENEFITS FOR WIDOWS AT AGE 60

The bill includes a provision to make widow's benefits available at age 60, with the benefits of those widows who start receiving them before age 62 reduced to take account of the longer period over which they would be paid. An estimated 180,000 widows aged 60 or 61 on the effective date of the bill are expected to claim benefits during the first year of operation. Because the benefit amounts would be actuarially reduced, payment of the widow's benefits before age 62 would not increase the longrun cost of the program.

BENEFITS FOR CHILDREN ATTENDING SCHOOL AFTER ATTAINING AGE 18

Under the bill benefits would be payable to a child up through age 21 if he is attending school, rather than stopping at age 18 as under present law. Mother's benefits in such cases would not be payable. This new provision provides for the payment of benefits to children through their attendance at high school, and for some or all of the period when they are going to college. An estimated 275,000 children aged 18 to 21 on the effective date of this provision are expected to claim benefits during the first year of operation. The proposal has a longrun cost of 0.10 percent of covered payroll.

THE COVERAGE PROVISIONS OF THE BILL

There are four changes that would be made by the coverage provisions of the bill that have more than technical significance. The bill would provide social security credits for tips received by employees in the course of their work. It would bring self-employed doctors of medicine under social security on the same basis as other self-employed people. The bill would make coverage available on a permissive basis to policemen and firemen under retirement systems in all States. It would also make a change in the provision in the law which permits farmers with low net earnings to report either actual net earnings or two-thirds of their first $1,800 of gross income. The House bill would raise the $1,800 figure to $2,400.

FINANCING

The changes made by the bill would be financed by increasing the maximum earnings base from $4,800 to $5,400, beginning January 1, 1965, and by a revised tax schedule. The last increase in the earnings base, to $4,800, was enacted in 1958 and was effective starting with 1959. If a $4,800 earnings base had been in effect in 1958, about 55 percent of regularly employed men would have had all their earnings taxed and credited toward benefits.

In comparison, if a $5,400 earnings base were effective this year, about 48 percent of regularly employed men would have had all of their earnings taxed and credited toward benefits. Thus, the increase to $5,400 is a rather conservative adjustment to the economic changes that have taken place since the last time the Congress made a change in this figure.

In addition to making higher benefits possible for people at average and above average earnings levels, an increase in the earnings base results in a decrease in the cost of the program expressed as a percentage of covered payrolls. Raising the earnings base results in a net saving to the program because the law provides benefits that are a higher percentage of earnings at lower earnings levels than at the higher levels, but the income is determined by a flat percentage tax. The proposed increase in the earnings base would produce a net income equivalent to 0.25 percent of taxable payroll. Similarly, an incidental effect of the extensions of coverage in the bill is to produce a net income of 0.03 percent of payroll.

The income from the higher earnings base and coverage extensions is not enough to finance the full cost of the higher benefits and other

improvements made by the House bill. The remainder of the cost would be met by a revised tax schedule. Under this schedule the contribution rates would increase more slowly and gradually than under present law, so that excessive accumulations of funds in the next several years, with possible depressing effects on the economy, would be avoided.

Under existing law, the tax rate for employers and employees would be increased one-half of 1 percent, from 35% to 41% in 1966 and again in 1968, when the ultimate rate of 45% percent would become effective. Under the schedule in the bill the rate in 1965 would be 3.8 percent instead of 35%, in 1966 it would be 4 percent instead of 4% and the rates would remain below those scheduled in present law until 1971. In 1971 the employee-employer rate would be 4.8 percent; that is, 0.175 percent higher than the 45%-percent ultimate rate under present law. Corresponding changes would be made in the tax rate for the selfemployed so that it would continue to be 11/2 times the rate paid by employees.

The bill would allocate to the disability insurance trust fund 0.15 percent of taxable wages and 0.1125 percent of taxable self-employment income more than is now allocated to it under existing law. This would bring the total allocation to the disability insurance trust fund to 0.65 percent of taxable wages and 0.4875 percent of taxable selfemployment income for years beginning after 1964, and would bring this fund into almost exact actuarial balance (an imbalance of only 0.01 percent of taxable payroll) as contrasted with the present imbalance of 0.14 percent of taxable payroll.

An increase in the allocation to the disability insurance trust fund was included in the bill because disability insurance termination rates due to death and recovery have been lower than previously anticipated, with the result that the costs of the disability insurance part of the program have, since the addition of dependents' benefits and the elimination of the age 50 restriction, been somewhat higher than expected. This change in the allocation as between the two trust funds will not affect the actuarial balance of the whole program. It will, however, provide a more reasonable division of income between the oldage and survivors insurance trust fund and the disability insurance trust fund.

The present social security program is in close actuarial balance. The estimated imbalance of 0.24 percent of taxable payroll, 2.6 percent relative to the cost of the program, is well within any reasonable margin of safety, taking into account the longrun nature of the program and the nature of the long-range assumptions on which estimates are based. The changes made by the bill would reduce the small longrange imbalance still further to 0.19 percent-that is, 0.18 percent for the old-age and survivors insurance part of the program and 0.01 percent for the disability insurance part-this figure is to be compared with the imbalance of 0.30 percent that was considered acceptable by the trustees and the Congress when the 1961 amendments (the most recent amendments that had a cost effect) were enacted.

Taken separately, the disability insurance part of the system-as a result of the reallocation of contribution income made by the billis in almost exact actuarial balance, while the old-age and survivors' insurance part is within 2 percent relative to its total cost.

THE JOB LEFT UNDONE UNDER THE HOUSE BILL

As I indicated earlier, H.R. 11865 fails completely in providing for the highest priority need: hospital insurance protection under social security.

The reasons the administration favors hospital insurance for older people under social security and the supporting evidence for our position have been documented in detail-most recently before the House Committee on Ways and Means and the Subcommittee on the Health of the Elderly, a subcommittee of the Senate Special Committee on Aging. Testimony on this subject was also presented to this committee in 1960. The recently completed Social Security Administration survey of the aged verifies our previous conclusions, and I am attaching a statement of findings from this survey.

The problem is: People after 65 have need of much more medical care than people at younger ages.

Senator LONG. Might I just interrupt you there and say I do not see the attachment to which you make reference here, Mr. Secretary. Secretary CELEBREZZE. Here it is, Senator.

(The material referred to was made a part of the files.)

Secretary CELEBREZZE. People after 65 have need of much more medical care than people at younger ages. They use, for example, three times as many hospitals days on the average. Yet the incomes that the aged have available to pay for this much larger amount of care are, on the average, only about one-half as large as the incomes of younger people. It is for this reason that any approach, such as most private insurance, that seeks to finance the high health costs of older people entirely out of their retirement income cannot do the job for the great majority of people over 65. Reasonably adequate health insurance for an aged couple (health insurance covering the cost of, say, one-half of their total medical bills) costs from over $400 to $550 a year when it is available. This represents one-sixth or more of the income of the average older couple and they just cannot afford it. What is needed, and what the President has proposed, is a system under which workers will pay contributions during their productive years toward protection against the high health costs than can be expected to beset them in later years. Social security-and only social security offers a ready-built, pay-while-working arrangement that can make hospital insurance in old age available to practically everybody.

With a social security hospital insurance program for the elderly in effect, private insurance would play an even more important role in protecting older persons than it does today. Having contributed toward their basic hospital insurance when they were working, older people would be in a position to take premiums many now pay for inadequate protection against hospital costs and apply them to insurance that would cover other health costs, such as physicians' care. Thus they would have, through a combination of public and private plans, a level of protection that only a very few of the aged can now afford.

While almost all of the aged will be able to stand on their own feet, as they strongly desire, when social security basic hospital insurance protection is made available, medical assistance for the aged and other public assistance programs would be available to serve as

a backstop to meet exceptional needs. As a matter of fact, with the large cost of hospital care for older people removed as a burden on the general taxpayer in the States, it would be possible to have more adequate medical assistance generally available.

Although relief and assistance are necessary as a backstop, I am opposed to putting our main reliance on medical aid programs which subject the aged to the humiliation of a test of need and which are a direct burden upon the general taxpayer. It is sound policy to provide that those who will benefit from medical protection should contribute directly to the cost of the benefit and have that protection as a matter of right.

It is now 29 years since the Congress of the United States made the basic decision to place primary reliance on a program of preventing poverty and dependency amoung our elderly citizens rather than merely relieving poverty, through assistance, after it occurs. This decision was strongly reaffirmed in 1950 when this committee was concerned about the fact that more older people were on public assistance rolls than were eligible for benefits under social security, and by the consequent drain on public revenues-Federal, State, and local-which was large and growing larger every day.

The report of the Senate Committee on Finance on the Social Security Amendments of 1950 stated as follows:

Your committee's impelling concern in recommending passage of H.R. 6000, as revised, has been to take immediate, effective steps to cut down the need for further expansion of public assistance, particularly old-age assistance. Unless the insurance system is expanded and improved so that it in fact offers a basic security to retired persons and to survivors, there will be continual and nearly irrestistible pressure for putting more and more Federal funds into the less constructive assistance programs. We consider the assistance method to have serious disadvantages as a longrun approach to the Nation's social security problem. We believe that improvement of the American social security system should be in the direction of preventing dependency before it occurs, and of providing more effective income protection, free from the humiliation of a test of need. Accordingly your committee recommends action designed to immediately bolster and extend the system of old-age and survivors insurance * * (May 17, 1950).

We face a situation today parallel to the one the committee faced in 1950. At that time, many older people had to go on public assistance to meet everyday living costs. Now we find that a growing proportion of people must turn to public assistance because they are not able to meet their health costs. Expenditures for medical care for people 65 and over under the assistance programs are running some $900 million a year, one-third of all the money being spent for public assistance for older people and the amount is growing. If reasonably adequate medical assistance for the needy aged were available throughout the United States it would cost, in the absence of hospital insurance under social security, at least $1.8 billion a year.

To avoid high costs to the general taxpayer at local, State, and Federal levels and to protect the dignity and independence of older people. we must once again place our main emphasis on social insurance rather than put more and more Federal funds into the Kerr-Mills program.

The provision of hospital insurance under social security has an importance that extends to all parts of the population. Not only will it provide protection with dignity for those who are now old, but it will also relieve those in the middle generation who frequently now

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