1965 Advisory Council

 

 

1965 Advisory Council on Social Security
Summary of Major Findings and Recommendations

Summary of Major Findings and Recommendations

I. FINANCING THE PRESENT PROGRAM

The Council has examined the financing of the present program apart from any changes which it is recommending and has found as follows:

1. The Status of the Program and Allocation of Contribution Income.-The social security program as a whole is soundly financed, its funds are properly invested, and on the basis of actuarial estimates that the Council has reviewed and found sound and appropriate, provision has been made to meet all of the costs of the program both in the short run and over the long-range future. The contribution income should be reallocated between the two trust funds, however, so that the disability insurance part of the program, like the old-age and survivors insurance part of the program and the program as a whole, will be in close actuarial balance.

2. Adjustment in the Contribution Rate Schedule in the Short Range.-The contribution rates now scheduled in the law should be adjusted to avoid the rapid increase in trust fund assets that will otherwise begin with the rate increases scheduled for 1966 and 1968.

3. The Contribution Rates in the Long Range.-There should continue to be included in the law a schedule of contribution rates which, according to the intermediate-cost estimates, will be sufficient to support the program over the long-range future. However, decisions about putting future rate increases into effect, once the rates actually being charged are high enough to cover the long-range cost of the program as shown by a reasonable minimum estimate, should be guided largely by estimates of program costs over a 15- or 20-year period.

4. The Contribution and Benefit Base.-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.

5. The Contribution Rate for the Self-Employed.-Increases in the social security contribution rate for the self-employed beyond the present rate should be put into effect gradually, and only to the extent that the ultimate rate will be no more than 1 percent of earnings greater than the rate paid by employees.

6. Maintaining the Integrity of the Trust Funds.-To maintain the integrity of the trust funds, the reimbursement of the trust funds for the cost of paying social security benefits based on military service for which no contributions were paid should begin without further delay and the Board of Trustees should be given specific responsibility for reviewing those administrative charges against the trust funds which are based on estimates rather than on actual costs.

II. HOSPITAL INSURANCE FOR OLDER PEOPLE AND THE DISABLED

The Council proposes hospital insurance protection for those 65 or over and for disabled social security beneficiaries as follows:

1. Inpatient Hospital Benefits.-The proposed hospital insurance for people age 65 or over and the disabled should cover a number of days sufficient to meet the cost of inpatient hospital services for the full stay of almost all beneficiaries.

2. Outpatient Hospital Diagnostic Services. Payment under the program should be made for the costs of outpatient hospital diagnostic services furnished beneficiaries.

3. Deductibles.-Hospitalized beneficiaries should pay a deductible equal to the cost of one-half day of care--$20 at the program's beginning. In the case of beneficiaries who are provided outpatient diagnostic services, this deductible amount should be applied for each 30-day period during which diagnostic services are provided.

4. Services in Extended-Care Facilities.-The cost of post-hospitalization extended-care services in facilities which provide high-quality rehabilitative and convalescent services should be covered so as to pay for a minimum number of days after hospitalization in all cases, with additional days of extended-care services being paid for if the patient has not used all of his inpatient hospital coverage.

5. Organized Home Nursing Services.-Insurance coverage should be provided for organized home nursing services.

6. Payments on the Basis of Reasonable Cost.-The extent of hospital insurance and related protection should be specified in terms of the services covered rather than in terms of fixed dollars, and covered services should be paid for on the basis of the full reasonable cost of the services.

7. Hospital Staff Review of Utilization.-Hospitals should be required, as a condition of participation, to establish professional staff committees to review the services utilized.

8. Administration.-The proposed hospital insurance provisions should be administered by the same Federal agencies which administer the social security program but in carrying out this responsibility the Federal Government should use private and State agencies to the extent that these agencies can contribute to efficient and effective operation.

9. The Basis of Eligibility for Benefits.-Hospital insurance benefits should be provided for aged and disabled beneficiaries of the social security program, and special provision should be made for the next few years for those who have not met the requirements of eligibility under the program.

10. Financing.-The proposed hospital insurance program should be financed by a special earmarked contribution of 0.4 percent of covered earnings from employees and from employers, and 0.5 percent from the self-employed, with an 0.15 percent contribution from Federal general revenues to cover the cost of benefits for those already retired or disabled.

III. IMPROVEMENTS IN THE CASH-BENEFIT PROVISIONS

The Council has examined all aspects of the present program of cash benefits and is recommending changes as follows:

Social Security Benefit Amounts

1. The Period for Computing Benefits for Men.-The period for computing benefits (and insured status) for men should be based, as is now the case for women, on the period up to the year of attainment of age 62, instead of age 65 as under present law, with the result that 3 additional years of low earnings would be dropped from the computation of retirement benefits for men.

2. A General Increase in Benefits.-A general increase in benefit amounts, accomplished by a change in the way the benefit formula is constructed, should be provided to take into account increases in wages and prices since the last general benefit increase in 1958, and the maximum on monthly family benefits should be related to earnings throughout the benefit range.

3. The Maximum Lump-Sum Death Payment.-The maximum lump-sum death payment should not be set in terms of an absolute dollar limit but rather should be the same as the highest family maximum monthly benefit.


Dependents' and Survivors' Benefits

4. Children Over Age 18 Attending School.-Benefits should be payable to a child until he reaches age 22, provided the child is attending school between ages 18 and 22.

5. Disabled Widows.-The disabled widow of an insured worker, if she became disabled before her husband's death or before her youngest child became 18, or within a limited period after either of these events, should be entitled to widow's benefits regardless of her age.

6. Definition of Child.-A child should be paid benefits based on his father's earnings without regard to whether he has the status of a child under State inheritance laws if the father was supporting the child or had a legal obligation to do so.


Disability Benefits

7. Young Disabled Workers.-Young workers who become disabled should have their eligibility for benefits determined on the basis of a test of substantial and recent employment that is appropriate for such workers.

8. Rehabilitation of Disability Beneficiaries.-The social security program should pay the costs of rehabilitation for disability beneficiaries likely to be returned to gainful work through such help, with the rehabilitation services being provided through State vocational rehabilitation agencies.

Eligibility for Benefits

9. Insured Status.-The Council recommends retention of a requirement of covered work as a test of eligibility for benefits, and has no major changes to recommend in the present provisions.

10. Retirement Test.-The provision in the law that prevents the payment of benefits to a person with substantial earnings from current work--the retirement test--is essential in a program designed to replace lost work income and should be retained.

Extending the Coverage of the Program

11. Doctors of Medicine.-Self-employed doctors of medicine should be covered on the same basis as other self-employed people now covered, and interns should be covered on the same basis as other employees working for the same employer.

12. Tips.-Social security contributions should be paid on tips an employee receives from a customer of his employer, and tips should be counted toward benefits.

13. Federal Employees.-Social security credit should be provided for the Federal employment of workers whose Federal service was covered under the civil service retirement system but who are not protected under that system at the time they retire, become disabled, or die.

14. State and Local Government Employees.-The coverage of additional State and local government employees should be facilitated by making available to all States the option of covering only those present members of State and local government retirement system groups who wish to be covered, with coverage of all new members of the group being compulsory. Also, policemen and firemen in all States should be provided the same opportunity for coverage as other State and local government employees.

The tax rates needed to finance the changes recommended by the Council

(The contribution rates under present law are applicable to annual earnings up to $4,800; the proposed contribution rates would apply to annual earnings of $4,800 in 1965, $6,000 in 1966 and 1967 and $7,200 in 1968 and thereafter.)

 

Employee and Employer, Each

Self-Employed

 

OASDI

Hospital
Insurance

OASDI

Hospital
Insurance

Period

Pres. Law

Proposed

Pres. Law

Proposed

1965 3.625 3.625 -- 5.4 5.4 --
1966-67 4.125 4.3 0.4 6.2 5.8 0.5
1968-70 4.625 4.3 0.4 6.9 5.8 0.5
1971-75 4.625 4.7 0.4 6.9 6.0 0.5
1976 and
after
4.625 5.3 0.4 6.9 6.3 0.5
{1} The financing of the proposed hospital insurance program would also include a level contribution of 0.15 percent of covered payroll from Federal general revenues for the next 50 years (not shown in the table).