1965 Advisory Council



1965 Advisory Council on Social Security
Appendix A

Appendix A

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 are reached.

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 desirable way."

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.