Civil Service Commission, and the Veterans Administration. Consistent with the decentralized pattern of old-age and survivors insurance operations, relationships with the local medical profession would be carried out through regional or area medical representatives. These representatives would be concerned with liaison and instructional work with examining physicians, consultation with the field offices on special problems in claims development, and, in unusual cases, decisions on whether a claimant should undergo additional examinations by specialists or observation and tests in a hospital.

After medical examination has established the nature and extent of the claimant's disability, his condition would be evaluated in terms of its effect on his capacity for substantially gainful activity, and all the evidence in the claim would be subject to determination. This process would probably be carried on in the various area offices after

initial period of centralized determinations. If it is determined that the claimant is permanently and totally disabled, a decision would be made concerning the frequency of reexaminations. Periodic medical examinations, confirmed by results of special field investi gations in any doubtful cases, would provide the basis for reviewing a case whenever it appeared that a change in conditions might call for termination of the benefit.

When a disability claim is filed, or in any event at the time of medical examination or claims adjudication, any disabled person for whom rehabilitation appears possible would be referred to the appropriate State rehabilitation agency. Each State now has a rehabilitation program operated with Federal aid and administered by the Office of Vocational Rehabilitation. The State agency, as a rule, could observe the beneficiary's progress for the social insurance system, and benefits would be stopped when rehabilitation was com pleted. If a claimant was reluctant to undergo rehabilitation, he would know that provisions of the Federal program would require a suspension of his disability benefits for refusal to accept rehabilitation. Under the method of Federal operations described, various relationships with State and local interests would bring local viewpoints to bear on the program. The Council believes that this can be a very important factor in preventing abuses of the system. It is highly desirable that the administration of the program be responsive to local and regional viewpoints. On the other hand, there are distinct advantages in the fact that the permanent and total disability insurance program would be far enough removed from local influence to be free of the pressures which might result in widely divergent local standards and concepts. The Council believes the recommended program can be administered to achieve a desirable balance of interests and influences.

APPENDIXES PERMANENT AND TOTAL DISABILITY INSURANCE

PENDIX II-A. ACTUARIAL COST ESTIMATES FOR PERMANENT AND TOTAL DISABILITY BENEFITS

Estimates of future costs of permanent and total disability benefits be added to the old-age and survivors insurance system are affected the same factors arising in connection with the estimates for oldand survivors insurance as outlined in the preceding report on that ject. In addition there are certain other factors which enter in, cipally, (1) the probability of a person's becoming disabled and ible for benefits a factor that varies by age and sex; and (2) the bability of such a disabled person's continuing to receive benefits, termination depending on the events of death, recovery, or inment of age 65 (and hence eligibility for old-age retirement efits) a factor that varies by sex, age at disability, and duration isability.

relatively wide range in disability cost estimates is necessary use there are no available experience data on a social insurance em that pays disability benefits of the type under consideration at the level presumed. Moreover, it is difficult to estimate the t of the four types of insured status requirements on the number ersons who will be eligible at various periods in the future. is estimated that the level premium cost 2 of the disability benefits osed will be about one-tenth to one-fourth percent of pay roll. e figures include not only the actual cost of disability benefits sabled individuals under age 65 but also the additional cost for ge and survivor benefits resulting from "freezing" the disabled idual's insured status and average wage.

nsidering the disability benefit costs of various future years as ed to pay roll, it is anticipated that the trend will level off after tively short time perhaps in 20 or 25 years. In the early years eration the benefit outgo will be very small because of (1) the al slow growth in building up a benefit roll; (2) the stringent qualrequirements which for a number of years will exclude most of who in the past had been primarily engaged in employment covered under the system; and (3) the delay in filing, as well e nonfiling, of claims by persons who are not familiar with the

m.

er the program has been in operation for a few years, the number v disability claims arising annually will range from 20,000 to , although after perhaps a decade or so, when the full effect of tension of coverage has made itself felt, this number will rise haps 40,000 to 100,000. Eventually the total number of dis

-. 50-60.

vel premium contribution rate is the rate which would support the system in perpetuity if collected irst year.

abled persons who are on the benefit roll and who are under age 65 will number roughly 300,000 to 800,000. The eventual annual cost of the proposed permanent and total disability benefits as a percentage of pay roll will probably range from somewhat more than 0.1 to possibly as much as 0.3 percent of pay roll; in terms of dollars this corresponds to about 200 to 500 million dollars a year.

When the relatively small cost for disability benefits as set forth above is added to the estimated cost for the expanded old-age and survivors insurance program recommended, the over-all cost is increased only slightly. Thus, including disability benefits as proposed in this report the level premium cost of the entire expanded program would range from 5 to 7% percent of pay roll, while the ultimate annual cost after the old-age, survivors, and disability insurance system had been in operation for some 50 years or more would be about 6 to 10 percent of pay roll. In view of the small increase in costs resulting from these disability recommendations, there would seem to be no need to consider a special increase in contributions to finance the disability benefits.

TABLE 2.-Estimated permanent and total disability beneficiaries and benefit disbursements under Advisory Council proposal

APPENDIX II-B. MEMORANDUM OF DISSENT BY TWO MEMBERS

Total disability should be covered by State assistance programs ded by Federal grants and should not be included in a Federal ntributory social-security program.

essons from life insurance experience

A persuasive theoretical case can be made for including total disbility benefits in the Federal old-age and survivors insurance system. otal disability is a distressing catastrophe involving serious conseences for those whom it overtakes and for their dependents. Hower, the way to meet the situation and at the same time avoid many the pitfalls indicated by life insurance and other experience is on assistance basis.

In the 1920's a persuasive case was developed for the inclusion of tal and permanent disability income provisions in life-insurance licies. There was no doubt that this type of insurance was popular d met a real need. Accordingly the life-insurance companies issued ge amounts of insurance providing the disability income benefits ly to learn by hard experience during the depression of the 1930's, volving literally hundreds of millions of dollars of losses, that inrance of this type cannot be issued safely except under severe strictions as to benefit provisions, rigid selection of risks, high emium charges, the most careful scrutiny of new claims, and an equate follow-up of those receiving disability incomes.

It is sometimes claimed that the difficulties and losses incurred by elife-insurance companies arose from the overinsurance of well-to-do rsons who built up disability insurance coverage to unsound levels. is true that this was a source of heavy loss. However, the hazard the disability coverage was clearly evident in group insurance where rates of disability during the depression rose to a greater extent an did the rates under ordinary insurance. The group experience much more significant as a criterion in considering total disability a contributory basis in a social-security program because it related wage earners, was issued on a wholesale basis without adverse selecn by the insured, and was free from the overinsurance characteriss of business issued on an individual basis.

Some life-insurance companies today sell disability income insurin connection with life insurance to carefully selected male apcants on a very restricted basis and at high rates of premiums. is fact provides no basis whatever for claiming that all gainfully ployed persons could safely be covered for total disability in a tributory social-insurance program.

Unfortunately for reasons analogous in some ways but different in ers, total disability benefits cannot be included in a Federal conbutory social-insurance program with any reasonable assurance that ims can be limited to the type of disability envisaged when the gram is adopted. They will get out of hand just as they did in the insurance experience. The reasons are outlined below.

The break-down of the system is most likely to occur in period of unemployment

In the prosperous years of the middle 1920's, the life-insurance companies were able to administer the total disability insurance provision with relatively little trouble. Because of the problems inherent in a political system providing benefits available to practically all wage earners in all occupations, a Federal contributory total disability benefit program would probably experience more trouble than the life-insurance companies in periods of prosperity when job opportuni ties are plentiful. However, very serious difficulties would develop when unemployment began to assume major proportions. Under such conditions, there would be tremendous pressure to attempt to prove disability to the extent necessary to get on the Government benefit rolls.

Theoretically it would appear easy to prevent abuse of the system, but practically, as the life-insurance companies discovered, the problem is extremely difficulty to handle. The crux of the matter lies in the fact that it is next to impossible to evaluate total disability when there is a determination to attempt to prove that one is disabled in order to obtain a potential life income from the Government. Claims exceedingly difficult to evaluate are those where it is alleged that the disability which prevents one from working is of the subjective type that is next to impossible to disprove-for example, the various manifestations of "rheumatism," feigned or imaginary angina pectoris, and nervous disorders.

Once on the benefit rolls, it would be hard in a large percentage of cases to get the worker to return to his job. An individual's net earnings as a worker after deduction of taxes, union dues, and contributions for insurance benefits, after payment of transportation and g meal costs, and purchases of work clothes, would in many instances, not be sufficiently attractive to induce him to return to work as compared with the tax-free disability payments and freedom from other charges. Moreover, being on the benefit rolls would give many persons a welcome sense of security not present in regular employ ment, especially if they were of the marginal type in ability. Many would prefer a small income with security, to a larger income with what they would consider insecurity.

This would be true because after the period of unemployment which had caused the increase in the number of persons on the benefit rolls, there would be a substantial residue of persons with impaired earning power, whose net earnings if they returned to work, would not be enough more than their benefits, based upon prior earnings records, to make it appear worth while to go back to work. These individuals would do everything in their power to have their disability incomes continued.

Another factor in periods of unemployment that would greatly increase the problem of holding disability claims to proper limits would be the incentive employers would have to lay off inefficient workers who later would be represented as unable to work because of alleged disability. Since the laid-off workers would probably be those whose efficiency was failing, their chances of being employed again at their based upon prior wage records, might be very attractive as compared