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In certain important respects disability insurance is more like a system of old-age annuities than like a system of unemployment compensation. The risk of disability is predictable with substantial accuracy for a large group of people and for a specific period of time; and the cash benefits which may be furnished to those who become disabled bear a direct relation to the contributions paid into the general pool of funds.

In our previous report we presented at some length the arguments which led us to the particular proposals submitted in respect to a system of unemployment compensation. It is unnecessary in this report to repeat the arguments for a similar system of disability insurance. Specifically, we recommend legislation which will (1) impose a uniform Federal tax on payrolls, beginning with January, 1936, with an offset permitted to any employer who contributes to a disability insurance fund under a compulsory State law, and (2) create federal machinery for participation in the administration of disability insurance. This we believe will encourage the speedy enactment of State laws which meet minimum standards of security and fairness.

The tax should be 1 percent of the payroll. Against this tax imposed in the Federal law, a credit, up to 70 percent of the tax, should be allowed for the money the employer has paid to the proper State authority as contributions for disability insurance purposes pursuant to State law. Approval of the State law should require, however, that such law shall not permit employers to deduct more than one-half of the contributions from the wages of employees.

The funds which will accumulate in the Federal Treasury from that portion of the payroll tax which is not offset against contributions under State laws should provide for the accumulation of Federal funds from which States may be assisted when epidemics or other emergencies endanger the financial soundness of State disability insurance systems otherwise properly designed, and for other measures which may operate in any State to reduce the incidence or severity of illness or to mitigate its effects.

Suggestions for State Legislation

As in respect to unemployment compensation, this Committee plans the preparation of a model State disability-insurance bill, with alternate clauses at many points. In this report it seems unnecessary to discuss all of the details of this model bill, since the legislature will determine the policy in each State. On some major points, however, comment seems appropriate.

Insured Population

It seems eminently desirable that a State law for disability insurance should apply to the same population groups as are covered in a State law for unemployment compensation. In the absence of a State system of insurance against permanent disability or of old-age assistance or if either or both of such systems furnish benefits materially less than those which are furnished under disability insurance, it may be desirable to limit disability benefits to persons who are less than 65 years of age. Otherwise there may be serious administrative difficulties in distinguishing disability caused by specific accident or illness from general debility arising out of old age. Serious financial difficulties may follow for the disability insurance unless the contributions required under State law are adjusted appropriately to meet these contingencies. Contributions. -- The States should make all contributions compulsory and may require them from employers alone, or from employers and employees, with or without contributions by the State. Contributions should be measured by a fixed percentage of wages and the percentage should be the same for all payrolls subject to State contributions, at least until experience accumulates to justify non-uniform rates. Benefits. -- The States should determine their own waiting periods, benefit rates, maximum benefit periods, etc. We suggest caution, especially in the first few years, lest they insert in their laws benefit provisions whose costs will be in excess of collections. To arouse hopes of benefits which cannot be fulfilled is invariably bad social and governmental policy. It is our recommendation that the benefits should not become payable for at least three months after contributions are first made and should be defined along the following lines:

(1) Eligibility for benefits to require an adequate qualifying period of insured employment;

(2) Medical certification of disability to be made by a salaried physician;

(3) A waiting period of one calendar week of certified disability to precede the period of compensable disability; benefits to be paid for wages lost after the seventh day of disability;

(4) Benefit to be 50 percent of the average daily wage upon which contributions were paid in the calendar year preceding the onset of certified disability, but not to exceed $15 a week, and not to be paid in respect to disability due to compensable injury or illness arising out of employment, and not to be paid concurrently with the payment of benefits under a State unemployment compensation law;