must divert savings and income from meeting the needs of their children to help pay for the medical care of stricken parents. Most important of all, the addition of this protection to our social security program would make a permanent contribution to the solution of the problem, with those now middle-aged and younger making current provision for the protection that they will need in later years.

Mr. Chairman and members of the committee, the need for hospital insurance under social security is most urgent. There are laws, with which you are all familiar, which provide for income-tax deductions for medical expenses that help those who are relatively well off, and there are laws on the books that help the very poor through public assistance. But there are no laws to help the great majority of older people who face the ever-present danger of high and unpredictable medical care costs. The problem is not one of only the very poor. It is unfortunately a problem facing just about all of our older citizens. I do not believe the aged should be asked to wait longer for this needed protection. I hope very much, therefore, that the Congress this year will make provision under social security for hospital insurance for older people.

(The statement previously referred to follows:)

ADDITIONAL INFORMATION ABOUT CERTAIN PROVISIONS OF H.R. 11865

COVERAGE OF TIPS

H.R. 11865 would provide social security credit for tips received by employees in the course of their work. This provision of the bill will improve the social security protection afforded to more than a million tipped workers and their families. Under present law their benefits do not reflect the level of living that they have been able to provide for themselves and their families.

The bill provides for coverage of tips as wages, with the employee being required to report his tips to his employer, and with a penalty being placed on the employee amounts of tips are excluded.

Under the House bill the employer would have no responsibility for trying to get employees to report their tips or for going out of his way to collect the employee's share of the tax. The employer would report tips for an employee and match the employee's social security tax only if the tips were reported to him in writing within 10 days after the end of the month in which the tips were received and if the employer could collect the employee's share of the tax by deducting it from the regular wages or other funds of the employee. It would be up to the employee to see that the employer got the money for these taxes if he did not already have it. The employer would never be required to pay the employee tax from his own funds, and his liability for the employer tax on tips the employee received in a month would end on the 10th day after the end of the month. The plan would require withholding for social security purposes only and not for income tax.

Provisions are included authorizing the employer to get employees' reports of tips more often than once a month to suit the employer's convenience, and there is specific authorization for the employer to withhold the employee tax on tips that may prove to be less than the $20 required in order for tips to be covered. Also, a provision is included that would enable the employer to treat tips as if they were paid to the employee on the date they are reported to the employer rather than on the date they were received by the employee.

The Committee on Ways and Means has indicated its intention that regulations and procedures to implement the provisions of the bill for covering tips are to be framed in such a way as to be the most help to employers in fitting the reporting of tips into their payroll operations. This might mean, for example, that where an employer had difficulty in fitting employee reports of tips into his normal operations he could, instead of getting a report of tips from the employee for each pay period, use an assumed amount of tips that would be the same for each pay period with a periodic adjustment based on the actual amount of tips reported

by the employee. Under this approach he would be required to make the adjustment to the amount the employee had reported to the employer only at the time of his regular social security report, which is made four times a year.

Coverage of doctors

The bill would bring about 170,000 self-employed doctors of medicine into the program on the same basis as other self-employed people. Doctors are the only professional group-except for Federal employees, they are practically the only group-whose earnings are not covered under social security.

More than half of the physicians in private practice today have some social security credits on the basis of work other than as a self-employed doctor or through military service.

The House committee report on the bill stated as follows:

"Large numbers of doctors have requested coverage. Your committee knows of no valid reason why this single professional group should continue to be excluded. It runs counter to the general view that coverage should be as universal as possible. There are no technical or administrative barriers to the coverage of self-employed doctors of medicine."

Policemen and firemen under retirement systems

At present only 19 States specifically listed in the Federal law-Alabama, California, Florida, Georgia, Hawaii, Kansas, Maine, Maryland, New York, North Carolina, North Dakota, Oregon, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, and Washington-may provide social security coverage for policemen and firemen who are under retirement systems. The bill would make coverage available on a permissive basis to policemen and firemen under retirement systems in all States. The bill itself would not cover a single policeman or fireman; it would just make such coverage possible.

H.R. 11865, in making social security coverage available to policemen and firemen in all States, would retain all of the safeguards of present law, and would add an additional safeguard. These safeguards assure that groups of policemen and firemen will not be brought under social security against their will. Present law contains a declaration that it is the policy of the Congress that the protection afforded members of a State or local government retirement system should not be impaired as a result of the extension of social security coverage to members of the system. The specific safeguards of present law are concerned with the procedures which a State must follow in arranging coverage for persons whose position is under a State or local retirement system. Present law gives the States considerable latitude in the formation of groups to be brought under social security. This often permits persons who are likely to have similar needs and desires so far as benefit protection is concerned to be brought under coverage as a separate group. Where a retirement system covers employees of more than one governmental unit, the State may bring under coverage as a single group the employees of any one or more of the governmental units. Also, where policemen and firemen are in a retirement system with other classes of employees, the policemen or firemen (or both together) may be treated as if they were members of a separate retirement system. In order to provide an additional safeguard for policemen and firemen under retirement systems, the bill would amend this latter provision to make the provision mandatory rather than permissive. Thus policemen and firemen would have to be treated as if they were members of a separate retirement system, and would have to be covered separately, even in cases where they were actually in a retirement system with other employees.

There are basically two methods of covering policemen and firemen. Under one method of providing coverage, coverage is extended only if a majority of members vote in favor of coverage, and under the other method (now available in 18 States) coverage is extended to only those current members of the group who desire coverage, with all future members of the group being covered compulsory. Under the so-called referendum method, available to all States, all members of a retirement system group are covered upon a favorable vote by the majority of the members. The new safeguard provided by the bill would have the effect of requiring that only policemen and firemen could vote in any referendum to decide on coverage for them.

Three minor provisions relating to State and local government employees

1. In 1956 a provision was adopted to permit certain States specifically named in the law to bring into social security only those State and local government

employees under a retirement system who desired coverage. In order to minimize the adverse effect upon the social security trust funds which results from permitting employees to choose on an individual basis whether or not to come under social security, the law requires that where this procedure is used all future members of the group must be covered compulsorily. This procedure provided, for certain States, a method of coverage alternative to the referendum method, available to all States, under which all members of a retirement system group are covered upon a favorable vote by the majority of the members. Under the new method provided in 1956, coverage could be provided for only those who desired it, even in cases where a majority of the members of the group might not want coverage. In 1958 the Congress approved an amendment giving another opportunity to choose coverage to individuals who had originally decided against coverage when it was made available to them under this provision. The choice under this new opportunity had to be exercised within a specified time limit. In 1961 this time limit was extended through 1962. H.R. 11865 would give individuals who did not choose coverage under these earlier provisions an additional period, extending up until the end of 1965, to elect coverage.

2. The bill would add Alaska and Kentucky to the list of 18 States that may cover State and local government employees under the alternative coverage procedure discussed above.

3. The bill would permit the coverage of certain hospital employees in California who cannot now be covered. The amendments of 1960 permitted social security credit to be given for the earnings of certain hospital employees which had been reported in error to the Internal Revenue Service for the years 1957 through 1959, and provided future coverage for those employees in California for whom the erroneous reportings had been made. Under the bill, coverage would be made available to persons first employed by the hospital after 1959, who, since they were not in the group for whom erroneous reportings had been made, could not obtain coverage under the 1960 legislation. Coverage of farmers' earnings

The last of the coverage changes made by the bill is a modification of the provisions under which farmers report earnings for social security purposes. When self-employed farmers were covered by the 1954 amendments, it was anticipated that some low-income farmers, who may have no income tax liability, would have difficulty in keeping records from which they could report their net earnings for social security purposes. Accordingly, a special provision was included in the law which now (after amendment in 1956) permits people with low net earnings from farm self-employment to report either actual net earnings in a year or two-thirds of their first $1,800 of gross income. The change now proposed by the House would raise the $1,800 figure to $2,400. Automatic recomputation of benefits

Under the bill, provision is made for automatic annual recomputation of benefits to take account of earnings a beneficiary may have after he comes on the rolls. Under present law, benefit recomputations to take account of additional earnings generally are available only on application by the individual and can be made only if the individual had covered earnings of more than $1,200 in a calendar year after he became entitled to benefits.

Experience has shown that a large number of people who are eligible for higher benefits because of additional earnings fail to apply for them. With the improved automatic data processing system that is now used in the administration of the social security program, it is both feasible and administratively advantageous to handle these recomputations on an automatic basis.

The CHAIRMAN. Thank you, Mr. Secretary.

Now, Mr. Secretary, there are three bills before the committee: The House bill, the King-Anderson bill with some modifications reintroduced by Senator Gore as amendment 1178, and then the Javits bill reintroduced by Senator Javits as amendment 1163. Do you favor the House-passed bill (H.R. 1186)?

Secretary CELEBREZZE. I favor the King-Anderson bill.

The CHAIRMAN. You favor the King-Anderson bill (amendment 1178) ? Secretary CELEBREZZE. Yes.

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The CHAIRMAN. Do you favor the King-Anderson bill on top of the House bill?

Secretary CELEBREZZE. I favor them both.

The CHAIRMAN. You favor both bills?

Secretary CELEBREZZE. I favor both. But if I had to make a choice, while I am for both an increase in benefits and hospital insurance, in my opinion hospital care for the aged is much more important at this particular time than a small increase in benefits.

I cannot get overly excited when you give some wives a benefit increase of 80 cents a month. I favor both the increase and the KingAnderson approach. But if you ask me pointblank, "If you cannot have both, which would you take?" I think that more benefits would result to people from hospital insurance than from the small increase in benefits.

The CHAIRMAN. In other words, it is clear that you favor the House bill as it now stands, and then you favor the passage of the KingAnderson bill as an amendment to the House bill?

Secretary CELEBREZZE. Let me put it this way: I prefer the hospital insurance for the aged, because I think it is of greater benefit to the and on top of that put the King-Anderson bill, then I would favor doing both. I say we need both a benefit increase and the hospital insurance. But if that is not possible, if this committee does not want to go that high in the tax structure, then my choice would be hospital insruance for the aged, because I think it is of greater benefit to the individual than the small increase that is provided for in the House

bill.

The CHAIRMAN. But you favor the King-Anderson bill (amendment 1178) ?

Secretary CELEBREZZE. Yes.

The CHAIRMAN. You favor the House bill.

Secretary CELEBREZZE. I favor the House bill if it is coupled with the King-Anderson bill.

The CHAIRMAN. You favor both of them?

Secretary CELEBREZZE. That is right.

The CHAIRMAN. Now, you are no doubt aware that Senator Ribicoff, a very distinguished member of this committee, when he was Secretary, stated that the limit that he thought should be established on the payroll tax was 10 percent. If you take both of these bills, it will be 10.4. However, you favor it, notwithstanding the fact that it exceeds the 10 percent that Senator Ribicoff, Secretary Ribicoff at that time, thought was the maximum tax that should be assessed?

Secretary CELEBREZZE. Well, of course, Senator Byrd, you don't have to increase the percentage above 10 percent. You can stay within the 10 percent and have both by merely increasing the wage base. I think it can be increased to $6,600 and it will cover both without increasing the tax above 5 percent. You can do it either way.

The CHAIRMAN. I think you have cleared my mind about your position: Namely, you want both bills.

Secretary CELEBREZZE. Yes.

The CHAIRMAN. And the ultimate cost will be 10.4 percent.

Secretary CELEBREZZE. Not necessarily, Senator. You can stay within the 5-percent limitation but increase the wage base. The wage base as recommended in the House bill would be $5,400. You can increase that and still stay within 10 percent.

I think Secretary Ribicoff at the time that he testified-he is here; he can correct me said he thought that we should stay within the 10 percent, but he said nothing at all about the wage base.

Senator BENNETT. This is a case of six of one and half a dozen of the other. You do not increase your rate, but you increase the total take in dollars, and in that case the impact on the individual is increased, even though you may have theoretically stayed within the 10-percent percentage figure.

This seems to me to be a rationalization of the purest kind.

Secretary CELEBREZZE. No; you increase the benefits when you increase the wage base. Moreover, if you increase the wage base, you also increase

Senator BENNETT. Well, here we have got a situation where we are breaking through the 10-percent ceiling, and you have done that by a proposal to increase benefits and add a new program. You say, "We'll solve that by increasing the wage base, so we won't have to increase the rates," and then you say, "When we increase the rates, we will increase the benefits," so that will take us through the ceiling again. You are just chasing your tail.

Secretary CELEBREZZE. There are many factors that must be taken into consideration. We are consistently diminishing the percentage of workers whose earnings are fully covered. In other words, when the social security program went into effect in 1935, we had a $3,000 wage base. That covered all the earnings of 94 percent of regularly employed men. We have consistently diminished that, until now, even with the $5,400, we are down to 48 percent.

The wage base that would be equivalent today to the $3,000 wage base of 1935 would be $12,500.

Another point is that when you talk about a 10-percent ceiling, the employer paying at the maximum corporation income tax rate pays out of pocket, under the new tax structure, only about 52 percent of the 5 percent about 2.5 percent.

Actually, if you are figuring an out-of-pocket expense, the employer is only paying 2.5 percent, under the tax structure, and taking the rest as a business expense.

The CHAIRMAN. Do you favor the Javits bill also?

Secretary CELEBREZZE. There are two Javits bills. Are you referring to the original Javits bill or the one that was introduced recently? I haven't had an opportunity to examine the new bill in detail. The earlier Javits bill was almost parallel with the administration bill in its coverage of hospital and related benefits under social security but also included certain provisions to make it easier for insurance companies to work together on a national basis to develop and sell health insurance to the aged. We strongly favor the administration's version-the King-Anderson bill-rather than the new Javits version.

The CHAIRMAN. But you are not prepared to speak on the Javits bill, S. 2431, which I believe is the one he has modified and reintroduced as amendment No. 1163.

Secretary CELEBREZZE. The last one, the one that was just recently introduced? I haven't had an opportunity to examine it in detail. It was just introduced the other day, Senator. Mr. Ball may want to address himself to it.

The. CHAIRMAN. You have not had any time to study the Javits bill, have you?