warning signal to people who are saying this is great because the first 24 years have been great.

Certainly, it has been great. People are getting out $100 for every dollar they put in. Certainly, that is great. However, beginning around 1970 or thereabouts you take a young fellow at the age of 20 who has to pay in for 45 years at the higher tax rate. It begins to be a little different picture.

Yes, social insurance is quite a bit different, but we started out on this idea, and I think probably it is the way it had to be, of freezing these people in. All I am urging you is that you not just cast lightly aside those of us who want to call attention to these premises, some of which I question whether they are sound, like the expanding labor force. This is one of your premises, upon which the actuarial soundness is based.

Another premise is that we are not going to have a depression: But if we did! We saw what happened just in a recent recession to our social security income.

Another factor though not a premise has been the boon that this system has received from World War II inflation. I hope we do not ever go to that.

The impact of inflation on social security was a great boost in its fiscal soundness, though it damaged the position of its recipients. So there are many of us who have been asking questions about this. We are not doing it because health care for the aged is an issue at this time, which it certainly is.

Mr. SCHOTTLAND. I know that, Mr. Curtis, and I would like to say that I have the greatest respect for your opinion. I know you have questioned this all along. I would like to mention that although there are these assumptions, and you have to make some assumptions, they are offset by the other assumptions with which other persons may disagree.

One assumption is that wages will stay exactly the same.

Mr. CURTIS. Wages will go up, I hope, if our society improves, but there is what I have all the time suggested, that the real soundness, if there is going to be one, is not going to be the increased tax rates. It is going to be the constant effort to increase the base wage upon which the rates apply, and we even had a bill introduced last time, and I guess it has been introduced again, by Mr. Roosevelt to have the base at $10,000.

Mr. SCHOTTLAND. If the Social Security Administration adopted your assumption of rising wage levels the program would be so far overfinanced that you gentlemen would want to deduce the tax.

Mr. CURTIS. No, not if we kept the wage base the same, but you are assuming it will continue to increase the wage base and, as you know, that has something in it too that has not been told the public, in my judgment. That is the seed of the graduated income tax, because the amount of benefit you get for the tax you pay on the first $1,000 is greater than the amount of benefit for the same tax you pay on the second and third $1,000 and so on, so, yes, I have suggested I see how it might be financed. But I do think it is very important that we not just cast aside these arguments of people paying for other people as just trying to fight something. On the disability coverage once I saw that it was tied to rehabilitation, I was very pleased to

support it. I think it would be of tremendous value with your experience in this field to have a full interrogation of you.

I know the limitations of your time here and I already urged that this committee really have full hearings on this. There have been so many premises that I felt needed to be gone into on both sides. I think that we have half estimates in many respects. Under interrogation you could at least clarify some of these issues. One thing you did not mention in your statement, but I feel that you do think is an important problem in the health care for the aged, is the lack of facilities-nursing homes, home care, and so on.

Do you feel that that is a major problem in this area?

Mr. SCHOTTLAND. This is a major problem. It is a very serious problem. I think a great dent is being made in the problem through Hill-Burton and through a number of other financing arrangements. There has also been a tremendous growth in private nursing homes, primarily because of funds available in public assistance.

A few years ago, and I have no reason to believe the figures would not be the same today, a study revealed that more than half of all of the inmates of every nursing home in America from the most expensive to the charity nursing homes were receipients of public assistance, so that we were reaching a point where the nursing home program in America was almost a relief program.

Mr. CURTIS. Yes, there is a lot to that. Even though we have many people there, waiting lists at nursing homes are still great. If we could create more facilities and create a little more competition then probably we would get a lot better service at a more reasonable price. The area of private insurance is one thing that I wish we had time to go into, but did you hear the testimony this morning of the insurance people, and the development in that area?

Mr. SCHOTTLAND. Yes, I did.

Mr. CURTIS. I would appreciate any comments, not now, because of the time limit, if you would like to make comments on that because it strikes me that here is is a very dynamic area and it is the very area we are talking about, financing. One particular point I wish to develop is why you feel that a prepayment program is not just as logical, in fact in my judgment even more logical, under the private insurance program, as it is under social security. You might comment on that right now, if you would, without any further development of that thought. To me that is one of the key points here.

Mr. SCHOTTLAND. I would be very glad to comment on it. I think the representatives this morning made two basic suggestions. One was some kind of tax advantage for persons who would take out private insurance. I would like to point out that any tax offset hits only a very small number of persons and only one out of five persons over 65 pays income tax at all.

Mr. CURTIS. I question that approach myself. What I was really concerned about was the extent of coverage both as far as numbers of people and the amounts of benefits, the increased quality that exists, but also because two features of private insurance are relatively new, the catastrophic type policy and, second, the prepayment. The thing that impressed me is that now the insurance companies are offering to groups at the age of 20, or age 30 or 40, and in labor-management

contracts prepayment programs where they get their coverage immediately.

Their premiums then during their working years take care of their health insurance after 65, which is something I think we badly need. But why is not that the area to move ahead in? That is the question I wish to have you develop in your answer.

Mr. SCHOTTLAND. I think there are several reasons for it. It is not just a question of coverage. You have to look at what is being covered. Take, for instance, what the insurance companies today feel is one of the best things being offered, namely, the Connecticut plan which they discussed this morning.

Under this plan, figures that I have here indicate that the rates for the basic plan plus catastrophic are expected to average between $10 and $17 per month and for a couple this equals $348 to $408 annually and for one person $174 to $204. You relate this to the figures which have been presented 50 times to this committee and you can see this is just not practical for the rank and file of the aged people.

Mr. CURTIS. The coverage of the bill is certainly not a catastrophic policy. I mean relating it now to the legislation before us. The coverage in the Connecticut plan is a great deal more than the coverage offered in the King bill.

Mr. SCHOTTLAND. It depends on what you mean. It is a great deal more in some respects and a great deal less in others. The basic plan

is less.

Mr. CURTIS. I am relating it to your catastrophic illness. If we take the basic plan, I think the premium plans run about $130, as I recall the figures. Of course, here is the problem, and I tried to point it out in my interrogation before. I think we have two problems and we are going to damage getting a solution if we do not separate them. One is the problem of our people over 65 now, because there is no question they are not being covered by health insurance or had not. been in the prepayment plan. As a group they are the most expensive group that we could name, because of the incidence of their cost of health care. That is one problem.

The other problem, though, is to have a system so that we never again get a group like that over 65 who have not been covered largely by prepaid health insurance. That is the permanent program. If you get a permanent program set up, we will gradually diminish and eliminate the over 65 group that have not had it. I noticed your testimony there. I feel that there is a tendency to confuse the two problems by referring to this as the great risk age, but under a prepayment plan, with the premiums per person starting out at age 30, paying in for the next 35 years, and then having prepaid insurance for the rest of his life, those premiums can be quite reasonable. They are now on the market and can be examined. You see the reasonableness? That is the system that seems to me is the permanent one and I had a question as to why do you think that that kind of a system has to be social insurance and not private insurance, but we will leave that for development, if you would develop it.

Mr. SCHOTTLAND. I would be very happy to.

(Information referred to follows:)

WHY PRIVATE INSURANCE IS NOT A FEASIBLE METHOD FOR PROVIDING PAID-UP PROTECTION UPON RETIREMENT

Paid-up-at-retirement health insurance is the only device by which the health care needs of the aged can be met. However, paid-up-at-retirement health insurance policies under private insurance cannot provide a practical solution to the problem. Such policies would have to guarantee that specific health insurance protection, paid for over a period of years, will be available on a lifetime basis at a specified age. Such policies would not be feasible under private insurance.

If it were possible to spread the cost of paid-up-at-retirement protection over the full working life of each worker, the annual payments could be relatively small and might be coupled with current health insurance premium payments throughout the individual's working life. However, even with low premium payments participation would be very limited and selective. It can be anticipated with certainty that a great many of the people most in need of the protection would reach retirement without it. Even if all workers elected to buy such insurance, it would take at least 40 years for such a voluntary system to become effective.

In any case, there would be major obstacles to the effective operation of such a system. It seems clear that the insurance policy used would have to be of the indemnity type. It would be impossible for an insurance company to estimate the future cost of a service benefit policy-a policy that guarantees payment for certain services for a specified period. To protect itself, the insurance company would have to estimate costs on the high side and then add a safety factor. Under these circumstances, premium costs would be prohibitive. It is an easier matter, of course, for insurance companies to predict the cost of indemnity payments-a specified amount of money for a specified number of days. The shortcomings of indemnity payments are evident when we consider that in as short a period as from 1946 to 1958 the total costs per patient day in nonFederal short-term general hospitals increased from an average of $9.39 to $28.17. After a lifetime of payments had been made, the best plan for adequate paid-up health benefits would be insufficient if, as will doubtless occur, medical costs rise greatly.

The social insurance mechanism offers a much more practicable method of meeting the problem of financing the health needs of the aged. The social insurance plan could be effective soon after enactment, adequate financing would be provided, and the amount of contribution income to the program would increase as wage levels increased and therefore would tend to keep pace with any increase in the costs of the services that are covered.

The CHAIRMAN. We will receive your answer to this and the other questions for the record without objection at the point where the questions were asked.

Are there any further questions of Mr. Schottland?

If not, Mr. Schottland, again we thank you, sir.

Mr. SCHOTTLAND. Thank you.

The CHAIRMAN. Mr. Frazier?

Mr. FRAZIER. Mr. Chairman, in the absence of our colleague, Mr. Baker, who was called away by the death of one of our distinguished citizens, I wish to take this opportunity to introduce to the committee Dr. Charles C. Trabue, of Nashville, Tenn. He has been a practicing doctor and a general surgeon for 27 years, and is one of our most outstanding surgeons, not only in the State of Tennessee, but throughout the South. He has served as past president of the Tennessee State Medical Association, and is immediate past chairman of the association's committee on legislative and public policy. I believe that his statement will be of great interest to the committee.

Dr. Trabue is accompanied by Dr. William J. Sheridan of my hometown of Chattanooga, Tenn. Dr. Sheridan is also a very out

standing physician and surgeon, and he is the president-elect of the Tennessee State Medical Association.

Dr. Trabue is also accompanied by Dr. Charles Smeltzer, of Knoxville, Tenn., from the district of our distinguished colleague, Mr. Howard Baker. Mr. Baker had to be out of the city today and asked that I present Dr. Smeltzer.

The CHAIRMAN. All right, Dr. Trabue. We are pleased to have you and the others at the table before the committee today, and you are recognized, sir.

STATEMENT OF CHARLES C. TRABUE IV, M.D., REPRESENTING THE TENNESSEE STATE MEDICAL ASSOCIATION

Dr. TRABUE. Thank you, Mr. Chairman.

I am Dr. Charles C. Trabue IV, representing the Tennessee State Medical Association. I have been in private practice as a general surgeon for 27 years. I am past president of the State medical association and am immediate past chairman of the association's committee on legislation and public policy.

I should like to begin my testimony by enumerating briefly some of the programs in operation in Tennessee which provide medical care to persons who cannot afford the cost of such care with special reference to those programs which provide for the health needs of elderly persons. I should also like to review the activities of the Tennessee State Medical Association and its 2,800 member physicians which have led to the development of these programs. My purpose in so doing is twofold. First, to demonstrate the fact that the medical profession in Tennessee is aware of the problems involved in providing needed medical care for persons in low-income groups and has moved vigorously and effectively toward solutions of these problems; and, second, to establish that the existing programs in Tennessee obviate the necessity for passage of any further Federal legislation in the area of health care at the present time, particularly such legislation as H.R. 4222.

The Tennessee State Medical Association was one of the first to adopt a service benefit type of voluntary prepaid health insurance program. This program has been in effect since 1949. The Tennessee plan provides that participating physicians agree to accept as full payment of fees the amounts listed in the fee schedules of the policies sold by Blue Shield and 39 private insurance companies to persons in modest income groups. Specifically, persons eligible for service benefits are those single individuals whose annual incomes do not exceed $2,400 and families whose annual incomes are less than $4,200. There are approximately 1,200,000 individuals now covered by this Tennessee plan.

More recently, the Tennessee State Medical Association has taken steps to expand the service benefit plan to Tennesseans 65 years of age and over. At our annual meeting last April, the house of delegates approved a program whereby participating physicians members of the Tennessee plan would agree to reduce their fees by 25 percent to persons over 65 within the above-stated income groups, if the insurance companies would agree to pass on to the purchasers of the policies the savings in terms of reduced premium rates. Blue Shield im