Statement of Reinhard A. Hohaus on Part II, "Hospital Insurance
for Older People and the Disabled"
The issues posed by this section of the Report are quite complex
and far reaching in their impact. Extensive experience and studies
in both private and social insurance lead me to take exception to
the basic recommendation made in Part II. In short, I believe the
analysis and the proposals contained in this part of the Report
should be regarded as primarily a useful means of fostering discussion
as to what might be the most appropriate ultimate moves. My reasons
for these reservations are summarized briefly below.
This proposal to provide social insurance to pay for hospital care
and certain related medical services for older people and the disabled
differs profoundly from our system of paying cash benefits to beneficiaries
under social security. I believe the proposal and its implications
should be examined and evaluated more thoroughly before any final
conclusions are reached.
The Report recognizes quite correctly that more is involved here
than inpatient care in hospitals. It also acknowledges that some
flexibility is needed in providing medical care benefits; this need
is reflected by its proposals for benefits that would help pay the
cost of certain outpatient services and of home nursing care. There
are many uncertainties, however, as to what collateral effects the
covered services would have on other medical services.
We are not dealing with matters that are fixed or stable, but rather
with conditions that have been changing rapidly and will continue
to change. We know that the availability of voluntary insurance
and prepayment plans has already had marked effect on the utilization
of hospital facilities. With this have come very serious financial
questions. While the matter of cost is exceedingly important, we
also need to know much more clearly where any initial move is likely
to lead, so we can better judge whether the direction indicated
is a desirable path to take.
I have long been a strong supporter of the principles that have
been incorporated in our social security program. I am also strongly
inclined toward principles which advocate harmonizing voluntary
efforts with Governmental measures, such as the Report endorses.
Unquestionably, further evidence must be developed as to whether
or not this kind of partnership can be accomplished effectively
in the procedure proposed in the Report.
In the formulation of the proposals contained in the Report, not
enough recognition has been given to the rapid growth and present
scope of voluntary insurance for older people. Instead of supplementing
existing plans which have won wide public acceptance, the proposal
might lead to adverse consequences. Before moving into this area
the potential economic and social consequences should be weighed
at greater length than has been done. In like manner, the consequences
of alternative measures must also be considered before final conclusions
Much progress has been made in better identifying the issues for
objective consideration and appraisal. The Report contributes substantially
toward that end, especially in its recognition that hospital care
is but one, though an important, area of medical care. It also recognizes
that in many cases care may be required far beyond the limited period
of hospital care suggested in the proposal.
Where the range of need among the aged is so great, it is especially
important to make certain that any aid provided through Government
is utilized most effectively and in a manner that truly advances
the health and welfare of all our citizens.
Further comments on the cost of the proposal on hospital insurance
are given below.
Statement of Reinhard A. Hohaus on the cost of the changes recommended
in Parts II and III
The Report expresses concern about the impact of the recommended
financing provisions on our economy and the taxpayers, in both the
short run and in the long run. It asks, in effect, that the necessary
taxes be such that they can be borne "by the employee, employer
and the self-employed without undue burden or strain." One of the
major findings in the Report is:
"The maximum amount of annual earnings that is taxable and creditable
toward benefits needs to be substantially increased in order to
maintain the wage-related character of the benefits, to restore
a broader financial base for the program and to apportion the cost
of the system among low-paid and higher-paid workers in the most
I agree with that recommendation.
[Table 5] estimates the "level-cost
of the benefits of the present program" at 9.09 percent of taxable
payroll under a $4,800 earnings base. The table also estimates that
if this taxable base is increased from $4,800 to the $6,000-$7,200
base recommended in the Report and if the present benefit formula
is extended to the new base, the level-cost would he .59 percent
of taxable payroll lower. Stated another way, a liberalization costing
that percentage of the new taxable payroll would not change the
present level-cost of 9.09 percent of taxable payroll.
However, if all of the Council's proposals [Parts II and III] are
enacted, the level-cost will increase to 10.13 percent of taxable
payroll with respect to the recommendations of Part III, and with
the level-cost of .90 percent of taxable payroll with respect to
the recommendations of Part II, there would be a total level-cost
of 11.03 percent of taxable payroll. This would be an increase of
about 21 percent above the level-cost of 9.09 percent of taxable
payroll applicable to the present program.
An increase of this magnitude, in addition to an increase in the
maximum earnings used for determining taxable payrolls, warrants
serious scrutiny and public discussion. The cost of adopting all
of the recommendations raises important questions as to priority
in the distribution of our economic resources.