American Academy of Political and Social Science

Health Services, Medical Care Insurance, and Social Security

Author(s): I. S. Falk
Source: The Annals of the American Academy of Political and Social Science, Vol. 273,
Medical Care for Americans (Jan., 1951), pp. 114-121
Published by: Sage Publications, Inc. in association with the American Academy of
Political and Social Science
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 Health Services, Medical Care Insurance, and
Social Security
By I. S. FALK *

IT has long been clear to social se- may be catastrophic to the economic se-
curity experts that, as a nation, we of the individual.
curity
cannot achieve the goals of social se- Thus, whether the focus of a discus-
curity without an adequate program sion
foris on community-wide preventive
health. It is now becoming equally services, on special programs for par-
clear to health experts that we cannot ticular groups of people, diseases, or
achieve the goals of a health program services, or on general medical care, it
unless we also have an effective program involves social security as well as health.
for social security. In many respects, only an arbitrary line
The interdependence of health and decides where a health program ends
social security arises from two equally and a social security program begins.
plain facts: nearly every serious illness A modern and adequate program of
has grave social and economic conse- medical care for the Nation must assure
quences; and many of the social and availability not only of the needed serv-
economic catastrophes that befall indi- ices but also of the money to pay for
viduals and families have their origin them. It is now widely understood that
in illness. both requirements must be met more or
Physical and mental health are essen- less simultaneously. We do not develop
tial for the accepted norm of living. needed personnel, hospitals, and other
They are equally important for the facilities for service if the funds to pay
ability to engage in gainful work, the for them are not in sight. And it avails
first essential for economic and social nothing to increase our resources for the
security. Health and medical services
provision of service if people cannot use
of many kinds are necessary to preserve
them because they cannot pay the costs.
health and prevent illness; to diagnose
Thus, consideration of finances must
and treat illness which is not prevented
complement discussions of health per-
from occurring; to prevent disability;sonnel, facilities, and service programs.
and to rehabilitate the handicapped and
VOLUNTARY OR COMPULSORY
the disabled. Illness involves expendi-
INSURANCE?
tures for medical care, and it brings
loss of earnings when it strikes the gain-Formerly there were sharp differences
fully occupied. Since these expendi-of opinion about the need for a better
tures and losses may be very large by
way of meeting sickness costs than
comparison with the current earningsthrough
or individual responsibility and
other resources of those upon whom resources. Today it is widely agreed
they fall, the financial effects of illness
that for most people the costs and losses
resulting from sickness must be some-
* Director, Division of Research and Sta-
how distributed among groups of peo-
tistics, Social Security Administration, Federal
ple and over periods of time.1 Beyond
Security Agency. Opinions expressed here are
the author's, and do not necessarily express1Hearings on S. 1679, etc., and H. R. 4312,
the views of the Social Security Administra-etc., 81st Cong., 1st sess., Washington: Gov-
tion or the Federal Security Agency. ernment Printing Office.
114

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 HEALTH SERVICES, MEDICAL CARE INSURANCE, AND SOCIAL SECURITY 115

such agreement on a broad objective,

ECONOMIC VALUE OF HEALTH
there is sharp disagreement-whether
AND SECURITY
and to what extent the financing should
be done through tax payments, through Health services and medical care con-
insurance, or through some combina- tribute in many ways to social security,
tion; and, if through insurance, whether even as social security contributes to
this should be voluntary or compul- health. It is obvious that prevention of
sory. illness and disability in the individual
A confused debate on voluntary versus case in turn prevents the occurrence of
compulsory insurance occupies the cen- destitution, dependency, and need for
ter of a large public stage. At the same support. It may be less obvious, but it
time, many specific actions which have is not less important, that an effective
important bearing on medical care and health program contributes to the
on social security are developing in the wealth of the Nation, increasing indi-
wings. Tax expenditures increase each vidual as well as total resources, making
year for public health, for public medi- possible higher levels of living, and
cal services, for the construction and strengthening security.
support of hospitals and other facili- The 4 or 5 per cent of the national
ties, and for rehabilitation and related income we spend each year for all kinds
services.2 Voluntary medical care and of health and medical services is a cur-
disability insurance expand. Insurance rent expenditure. Part of it, however,
against the costs of sickness becomes is also an investment which brings re-
a major element of labor-management turns in increased size and fuller utili-
contracts and disputes. Compulsory zation of the labor force, higher worker
wage-loss insurance is adopted in a productivity, and higher consumption
number of states as a parallel either to standards than we could possibly have
unemployment insurance or to work- without it. In this sense, expenditure
men's compensation. Federal aid for for health is by no means, on balance,
the public assistance programs, hitherto a debit in our national budget.
restricted to the needy aged and blind The contributions of health and medi-
and to dependent children, is extending cal services in raising national income
to the needy disabled; and Federal aid and levels of living and in producing se-
is being made applicable to direct pay-curity are now receiving international
ments for medical care in all of these support. This is the basis of the Presi-
programs. Permanent total disability dent's Point Four Program and of the
insurance is approaching incorporation United Nations Technical Assistance
in the national system of old-age and Program for the war-ruined or underde-
survivors insurance. veloped countries of the world. The ac-
These and other actions on the wings cepted premise is that little can be done
of the stage are limited and categorical.
by or for those countries to raise their
There are gaps and overlaps among standard or level of living until the toll
them. But it is noticeable that their of infectious disease is curbed, ele-
tempo is increased when the central ac-mentary measures of sanitation are in-
tion is slow. All are parts of the same
troduced, and disability is reduced so
drama; all the threads ultimately weavethat much of the time now lost by peo-
into a central theme: the simultaneous
ple who are sick or half sick is turned
achievement of health, welfare, and se-to the production of useful goods and
curity for the people of the Nation. services. In the United States this basic
2 Social Security Bulletin, July 1950, p. 16.role of health and medical services is

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116 THE ANNALS OF THE AMERICAN ACADEMY

result will be an asset in both our health

not always recognized, in large measure
and our economic balance sheets.
because, with the relatively advanced
state of our public health, people fail
NEED FOR INSURANCE AGAINST
to appreciate how much more can be
MEDICAL COSTS
achieved.
There is a vast difference between Among those who are engaged in pro-
underdeveloped and relatively advanced viding medical care, many often seem
nations in the kinds of services needed. not to appreciate how commonly medi-
In our country the substantial control cal and hospital costs present economic
of infectious disease has reduced the problems to those who must pay the
relative importance of environmental bills, or how serious those problems are.
and certain other community-wideAnd they do not seem to know how
health measures. Instead, the chronic many more families are worried by
diseases are now crowding into the the likelihood of being confronted with
front ranks as causes of illness, dis- burdensome costs; or how large a part
ability, and premature death; and with of the whole population lives in constant
the gradual aging of the population, fear of sickness-for what it may do to
they are likely to remain there. This them not only physically but also eco-
means that expansion and improvement nomically.
of personal health services are increas- Those who doubt this, and those who
ingly important for our future health think those worries and fears are ground-
progress. less, should talk to the wage earner
At this juncture we encounter a or the man on a modest salary-or to
paradox. We commonly recognize andhis wife. If they prefer objective and
widely accept a national interest in quantitative evidence of how often those
assuring the availability of preventivefears proved not to be groundless, they
services, as expressed in public health should examine the records of private
programs. But we have not so fullyand public charity. There they will
accepted, and some groups have re- learn about the role that illness plays
sisted, the implications of our equally in causing destitution and dependency.
common stake in assuring that personal They will find that a large part of the
health services are available to all. To
total public and private expenditures for
that extent we are not realizing the full
assistance is directly or indirectly at-
contribution that health services and tributable to sickness and to the need
medical care can make toward health,for medical and hospital care. The
level of living, or security. sums involved are measured in billions
Not all our people get the medicalof dollars a year. Among the public
care they need when they need it. The(tax-supported) programs, they will find
fault is not so much with our capacitythat dependency due to illness and dis-
for providing services, although muchability accounts for, variously, from
needs to be done to increase and im- about 25 per cent up to nearly 100 per
prove it, as with their actual availability.
cent among the several categorical pro-
Like any other commodity or service,
grams (old-age assistance, aid to de-
medical care must be bought and paid
pendent children, general assistance or
for. We badly need a better way to
home relief,-and aid to the blind).3
pay for it. And however we go about
3I. S. Falk, "Reduction of Dependency
achieving an effective and efficient ar-through Health Programs," Public Welfare,
rangement to pay for medical care, theMay 1949, pp. 102-3, 114. "The Home Re-

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 HEALTH SERVICES, MEDICAL CARE INSURANCE, AND SOCIAL SECURITY 117

We are the wealthiest nation in the irrespective of partisan politics. It is

world, and our national wealth is re- an integral part of a long-term, ground-
flected in the wealth, the income levels, swelling demand for access to economic
and the standards of living of our and educational opportunities, to in-
population. Nevertheless, at least halfcome security, and to essential services.
of all our families live each year close This demand has been fostered by many
to their current economic resources. forces-by growing interdependence in
They have only limited-especially the economy, compelling acceptance of
"liquid"-reserves.4 If income is inter- national minimum standards in income,
rupted or expenses are substantially in-education, and health; by technological
progress, bringing vast potentialities of
creased, their reserves can protect them
for only relatively short periods of time
abundance in goods and services for all;
against debt or dependency. These by advances in public health and medi-
families do not need to be told-as cal science, promising great improve-
medical experts and technicians ments
do, in health; and by the spread of
again and again-that illness bringsgeneral education, so that people know
medical costs; that disability reduces,
the results of progress and that they
are to be had in greater or lesser meas-
interrupts, or permanently stops earn-
ure by all, and not merely by some
ings; and that for the individual family
fortunate few.
these costs and losses, unlike the costs
Another element fostering the demand
of other essentials of living, are not fore-
seeable, budgetable, or manageable. for social insurance has been our chang-
ing doctrines concerning individual lib-
THE DEVICE OF SOCIAL INSURANCE erty and the goals of a democratic so-
ciety. The Social Security Act amended
The risk of incurring large costs for in 1950 by Congress to give broader
medical care belongs with the otherand better protections, is an affirmation
common risks to income and security, of faith that liberty and security are
such as are precipitated by disability, not only compatible with each other
unemployment, death of the family but are essential to each other. De-
earner, and old age. To meet these spite some prophets of disaster, most of
risks society has invented the device of our people believe that individual in-
social insurance, an orderly and socially centive, responsibility, and productivity
acceptable method of assuring at least are strengthened rather than weakened
minimum essential income and services, by pooling risks with which the indi-
of minimizing privations, and of sus- vidual cannot cope. Our national course
taining economic and social stability. is guided by faith that the strength of
Increasing use of social insurance is our society lies in security and not in
now an accepted trend in American life, fear, in satisfaction of human needs and
not in privation.
lief Story," State Department of Social Wel-
fare, New York, 1950, 12 pp.
4Compare income distributions, savings, MEETING THE RISKS OF ILLNESS
liquid assets, and cost of living. "1950 Sur-
vey of Consumer Finances, Part III," Federal Recognition of insecurity caused by
Reserve Bulletin, August 1950; "1949 Survey,
illness is not something new. It is as
Part VIII," ibid., Jan. 1950; "1949 Survey,
Part IV," ibid., August 1949; "The City Work- old as the history Qf society-as old as
er's Family Budget," Monthly Labor Review, the story of privation caused by disease
Feb. 1948.
and of mutual aid for those impover-

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 118 THE ANNALS OF THE AMERICAN ACADEMY

ished by sickness. In its modern form need group budgeting of medical costs.
in the United States, public effort to Now even the medical professions and
deal with this aspect of economic inse- their spokesmen generally agree.
curity had its beginning on a nation- The growth of voluntary insurance
wide basis with Title VI of the original plans offers striking evidence of the
Social Security Act of 1935. This title common-sense appeal of prepayment for
provided the first Federal grants to the medical costs. Many persons now have
states for general public health pur- some insurance against hospital, surgi-
poses. It began the vast expansion of cal, or other medical costs. Because of
public health programs achieved in the large duplications among the persons
past fifteen years. Its inclusion in the who have these insurance policies, the
act followed careful study of the risks unduplicated total coverage of each kind
to security arising out of ill health. is not reliably known. But there can be
The President's Committee on Eco- no doubt that the total is large and is
nomic Security proposed as a first meas-
increasing. Voluntary insurance against
medical costs in the United States con-
ure a nation-wide preventive program,
and as a second major step the applica-
firms experience in many other countries
tion of insurance to the problem that
of insurance against the costs of medi-
medical costs.5 cal care is as practical as it is desirable.
The financial burden of medical care
INADEQUACY OF VOLUNTARY INSURANCE
falls unevenly. The six million recipi-
ents of public assistance are among the While voluntary insurance has dem-
most disadvantaged groups with respect onstrated that insurance against medi-
to medical costs. Only limited funds cal costs is practical, it has failed to
are available for their medical care be-
achieve a coverage that meets the com-
cause of the pressure of subsistence costs mon need. Even the highest docu-
on state and local public assistance ap- mented claims do not profess that one-
propriations.6 Adjacent to them are half the population is insured against a
millions who are at, or very close to, the major part of hospital bills, or one-third
level of public aid but are not receiving the population against surgical bills in
it. And beyond these groups there are hospitalized cases, or much more than
probably more than 100 million persons one-tenth' the population against even
who can meet the costs of minor ill- limited parts of physicians' bills for
nesses or inexpensive services but who nonsurgical services.
are in difficulty when confronted by It is fair to ask how much voluntary
large or continuing medical costs.7 The insurance has achieved after more than
public and representatives of consumer fifty years of experience and after
groups have long known that people twenty years of intensive development,
and how much it is worth, in the ag-
5 Report to the President of the Committee
gregate, as real insurance protection
on Economic Security (Washington: Govern-
ment Printing Office, 1935), p. 6.
against medical costs. In 1949 total
private
6 "Medical Care in Public Assistance, 1946," expenditures in the United
Public Assistance Report No. 16 (State issuesStates for medical services and com-
and summary), Bureau of Public Assistance,modities were about $7.9 billion, or $54
Social Security Administration, 1948-50.
7Those in spending units with less thanper capita. Of this, only about 11 per
cent was met by voluntary insurance
$5,000 a year after Federal income tax liability.
See "1950 Survey of Consumer Finances," Fed-benefits and indemnities of all kinds.
eral Reserve Bulletin, August 1950, p. 960. Physician and hospital services ac-

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 HEALTH SERVICES, MEDICAL CARE INSURANCE, AND SOCIAL SECURITY 119

counted for 56 per cent of total private Voluntary insurance against medical
expenditures, or about $4.4 billion; of and hospital costs has demonstrated
this, voluntary insurance covered about that it cannot meet the Nation's need-
20 per cent.8 any more in the United States than it
Voluntary insurance against wage loss could in other countries where its ulti-
resulting from disability is even less mate failure led to the adoption of com-
pulsory insurance. This conclusion is
adequate. It is reported by the Health
Insurance Council that in 1948 about
supported by the bills recently intro-
24 million persons, and in 1949 about
duced in the Eighty-first Congress by
25 million, were "protected" against loss
supporters of voluntary insurance, ask-
of income through insurance (exclusiveing for Federal aid to enable the insur-
of those "protected" through paid sickance plans to achieve what they have
leave). What value to place on these been unable to do through their own ef-
figures may be seen from a financial forts.1l Despite the recognized achieve-
inspection. Nonindustrial income loss ments of voluntary insurance, compre-
(due to current illness only) amountedhensive insurance protection against
to about $4.1 billion in 1948; of this,
medical costs is possible only through
voluntary insurance indemnities met medical care insurance established by
only 6 to 7 per cent.9 Indemnificationlaw, with a population coverage at least
of wage loss due to permanent disability
as broad as that of old-age and survivors
has been even less.'0 insurance, and applicable to all the im-
There is no adequate information onportant kinds of medical costs that can
the income levels of those who have be burdensome.
narrow or broad protection through
A PATTERN FOR INSURANCE AGAINST
voluntary insurance. But such evidence
as is available shows that most of the SICKNESS COSTS

insurance protection is fragmentary,It is obvious that the health services

that limitations within the contracts of medical care insurance should be de-
make much of it of uncertain value to signed so as to achieve maximum co-
the insured persons, and that by and ordination with services provided through
large the voluntary insurance, such as our public health and related programs.
it is, fails to reach large proportions ofThis implies administration of the in-
those in the lower middle and lowest surance benefits by state and local agen-
income brackets, who are most in needcies that are also responsible for the ad-
of protection. Some groups of wageministration of other health programs.
earners who are in strong labor unions It is equally desirable that the insur-
have won comprehensive insurance pro- ance features should achieve the effi-
tection through their labor-management ciency and economy that can result
contracts, but in large part through em-from interlocking with other social in-
ployer payment of the premiums and at surance programs. This implies that
the cost of consumers in general. medical care insurance should be an
8 "Voluntary Insurance Against Sickness: integral or closely co-ordinated part of
Estimates for 1948," Social Security Bulletin,our national system of old-age and sur-
Jan.-Feb. 1950. Text based on preliminary vivors insurance.
figures for 1949.
9 Ibid. Although there are many important
10 I. S. Falk, "Long-Term Disability Insur- details to be decided, the specifications
ance," Proceedings, American Association of 11 See, for example, S. 1456, S. 1581, S. 1970,
University Teachers of Insurance, March 1945. H. R. 6727, H. R. 6819, and H. R. 8746.

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120 THE ANNALS OF THE AMERICAN ACADEMY

for such a system have been sufficiently mental strains that reduce or nullify the
developed to assure that the general value of medical care; and many are
pattern can be followed.l2 made destitute and dependent.
On the benefit side, administration Disability insurance is neither new
would be decentralized through the nor novel; but it is meager now. Pri-
states. Health agencies, state and lo- vate insurance is very expensive and
cal, would arrange with physicians, hos- provides only very limited income pro-
pitals, and others for the availability of tection, mainly to those who have short-
services. They would negotiate and ad- term protection through individual or
minister the agreements for payments. group "accident and health" policies
In conjunction with representatives of and to those who have permanent-dis-
the insured persons and of those who ability pensions under industrial retire-
provide the services, they would deter- ment plans.13 Public insurance-except
mine the policies and supervise the op- for work-connected disability covered
erations, within broad standards and by workmen's compensation, and except
guarantees in the national statute. for veterans-applies only to special
On the insurance side, coverage, groups 13a and to those covered by four
eligibility, sources of funds, collection state "cash-sickness" programs.14 The
of contributions, and so forth, would be Eighty-first Congress considered exten-
similar to the provisions for the cash sion of old-age and survivors insurance
benefits. Their administration would be by addition of cash benefits in cases of
part of the over-all insurance system,
temporary and permanent disability.l5
permitting a unified payment of con- The proposal for temporary-disability
tributions by the employer or self-em-benefits was defeated in the House
ployed person, a single set of earnings
Committee; permanent-disability bene-
records, and an unduplicated adminis- fits were included in the Committee bill
trative staff. and passed by the House but were de-
feated in the Senate.16 Instead, Con-
DISABILITY INSURANCE
gress provided only Federal aid to state
Reference to the cash benefits is aprograms of public assistance for needy
reminder of a grave weakness in our persons
so- who are permanently and to-
tally disabled.
cial security program, namely, the lack
of disability insurance. Much of theIt may be only a short time before
value of medical care is wasted because
disability rehabilitation services as well
most employed persons and their fami-as income payments are incorporated in
lies have no current income when sick- national social insurance. Certification
ness temporarily interrupts or perma-of disability and reduction of its preva-
nently wipes out working capacity.lence and severity would require the
Many such persons and families mustservices of physicians. Thus, medical
do without essentials for healthy living; care insurance and disability insurance
many suffer physical deprivations orwould contribute to each other. The
one would assure the sick worker of
12 For many details which are not presented
or discussed here, see, for example, "Medical 13 See note 10, supra.
Care Insurance-A Social Insurance for Per- 13aThe Federal civil service, about half of
sonal Health Services," Senate Committee Print
state and local government employees, and
No. 5, Senate Committee on Education and railroad workers.
Labor, 79th Cong., 2d sess., July 1946, xv14+Rhode Island, California, New Jersey, and
185 pp. Also, I. S. Falk, "Cost Estimates New
forYork.
National Health Insurance, 1948," Social 15 Se-H. R. 2893.
curity Bulletin, August 1950. 16 H. R. 6000; P. L. 734.

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 HEALTH SERVICES, MEDICAL CARE INSURANCE, AND SOCIAL SECURITY 121

early and continued access to medical method of assuring that people can pay
attendance; the other would provide at the costs of medical care. We have not
least partial income when illness in- yet developed that assurance.
capacitates. The purchase of medical care and the
Conceived in these terms, medical payment of the costs on an individual
care insurance and disability insurance basis do not adequately support the
would be parts of a comprehensive services that are needed. They do not
national system of social insurance.7 fit the economic capacities of most of
Such an insurance system would then the population who, though able to buy
protect workers and their families the budgetable necessities of life, can-
against all the major common risks that not cope with the costs of illness. These
threaten income (unemployment, dis- costs must be made manageable by be-
ability, retirement, and death of the ing pooled and distributed into average
family earner); and it would protect amounts that are adjusted to ability to
them against the costs of medical care. pay. Group payment on a budgeted
It would furnish protection through pay- basis will wipe out burdensome costs
ments that are geared to ability to pay, and will support the needed services.
without a means test, and through ar- We are accustomed to say that we
rangements that cherish the dignity of can achieve security against medical
the citizen and the security of the costs through insurance, taxation, or
family. some combination. Voluntary insurance
has been trying to demonstrate that we
CONCLUSION
do not need compulsory insurance. In
We have been slow, as a nation, in no small measure because it has been
developing an adequate health program. failing, tax-financed public services have
We have been equally slow in develop- been expanding rapidly.
ing an adequate program of social se- The Nation needs a comprehensive
curity, especially with respect to se- program of medical care insurance, de-
curity against sickness. These are not signed as an integral or co-ordinated
really two separate conclusions. They part of our national system of social
are substantially one, because both the insurance. Health security is within
availability of medical services and the our means because it would be financed
achievement of security against sick- largely by the group expenditure of
ness depend in large measure on a money that we are already spending
17 Ninth Annual Report, Social Security individually, and because it would con-
Board, Federal Security Agency, 1944, Wash- tribute to our economy more than it
ington: Government Printing Office. costs.

I. S. Falk, Ph.D., Washington, D. C., is director of the Division of Research and Sta-
tistics, Social Security Administration, Federal Security Agency. He has served as pro-
fessor of hygiene and bacteriology at the University of Chicago; associate director of the
Committee on the Costs of Medical Care; research associate of the Milbank Memorial
Fund; staff member of the Committee on Economic Security; and in several similar ca-
pacities. He is author or co-author of numerous works in the fields of bacteriology, pub-
lic health, and social security, among which are The Costs of Medical Care (1933), Health
Indices (1936), Disability Among Gainfully Occupied Persons (1945), and Medical Care
Insurance (1946).

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