[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
DEPARTMENT OF HEALTH AND HUMAN SERVICES BUDGET PRIORITIES FOR FISCAL
YEAR 2004
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, FEBRUARY 26, 2003
__________
Serial No. 108-5
__________
Printed for the use of the Committee on the Budget
Available on the Internet: http://www.access.gpo.gov/congress/house/
house04.html
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
85-420 PDF
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON THE BUDGET
JIM NUSSLE, Iowa, Chairman
CHRISTOPHER SHAYS, Connecticut, JOHN M. SPRATT, Jr., South
Vice Chairman Carolina,
GIL GUTKNECHT, Minnesota Ranking Minority Member
MAC THORNBERRY, Texas JAMES P. MORAN, Virginia
JIM RYUN, Kansas DARLENE HOOLEY, Oregon
PAT TOOMEY, Pennsylvania TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington DENNIS MOORE, Kansas
ROB PORTMAN, Ohio JOHN LEWIS, Georgia
EDWARD SCHROCK, Virginia RICHARD E. NEAL, Massachusetts
HENRY E. BROWN, Jr., South Carolina ROSA DeLAURO, Connecticut
ANDER CRENSHAW, Florida CHET EDWARDS, Texas
ADAM PUTNAM, Florida ROBERT C. SCOTT, Virginia
ROGER WICKER, Mississippi HAROLD FORD, Tennessee
KENNY HULSHOF, Missouri LOIS CAPPS, California
THOMAS G. TANCREDO, Colorado MIKE THOMPSON, California
DAVID VITTER, Louisiana BRIAN BAIRD, Washington
JO BONNER, Alabama JIM COOPER, Tennessee
TRENT FRANKS, Arizona RAHM EMMANUEL, Illinois
SCOTT GARRETT, New Jersey ARTUR DAVIS, Alabama
GRESHAM BARRETT, South Carolina DENISE L. MAJETTE, Georgia
THADDEUS McCOTTER, Michigan RON KIND, Wisconsin
MARIO DIAZ-BALART, Florida
JEB HENSARLING, Texas
GINNY BROWN-WAITE, Florida
Professional Staff
Rich Meade, Chief of Staff
Thomas S. Kahn, Minority Staff Director and Chief Counsel
C O N T E N T S
Page
Hearing held in Washington, DC, February 26, 2003................ 1
Statement of:
Hon. Tommy G. Thompson, Secretary, U.S. Department of Health
and Human Services......................................... 6
Gail R. Wilensky, Ph.D., John M. Olin Senior Fellow, Project
Hope....................................................... 61
Judith Feder, Professor and Dean of Public Policy, Georgetown
University................................................. 66
Prepared statement and additional submissions of:
Hon. Adam H. Putnam, a Representative in Congress from the
State of Florida........................................... 5
Secretary Thompson:
Prepared statement....................................... 8
Response to Mr. Nussle's question regarding the
President's Medicare Proposal.......................... 16
Response to Mr. Nussle's question regarding the Physician
Update Rule............................................ 17
Response to Mr. Baird's question regarding the health
care tax credit proposal............................... 39
Response to Mr. Scott's question regarding low-income
heating assistance..................................... 47
Prepared statement of Dr. Wilensky........................... 63
Prepared statement of Dr. Feder.............................. 69
DEPARTMENT OF HEALTH AND HUMAN SERVICES BUDGET PRIORITIES FOR FISCAL
YEAR 2004
----------
WEDNESDAY, FEBRUARY 26, 2003
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 10 a.m., in room
210, Cannon House Office Building, Hon. Jim Nussle (chairman of
the committee) presiding.
Members present: Representatives Nussle, Shays, Gutknecht,
Ryun, Hastings, Brown, Putnam, Wicker, Hulshof, Tancredo,
Vitter, Bonner, Franks, Garrett, Barrett, Diaz-Balart,
Hensarling, Brown-Waite, Spratt, Moran, Hooley, Baldwin, Moore,
DeLauro, Scott, Capps, Thompson, Baird, Cooper, Emanuel, Davis,
Majette, and Kind.
Chairman Nussle. This is the full committee hearing on the
Department of Health and Human Services budget priorities for
fiscal year 2004.
Today we have two very distinguished panels. The first
panel is the Secretary of Health and Human Services, the
Honorable Tommy G. Thompson, Secretary of Health and Human
Services, and the second panel will be Gail Wilensky. Dr.
Wilensky is a senior fellow from Project Hope--and Dr. Judith
Feder, who is the Dean of Public Policy at Georgetown
University. We are honored to have these guests with us today
to testify and to give us their advice on a host of issues, but
most importantly, the budget for fiscal year 2004.
Mr. Secretary, thank you so much for taking time to spend
with us today. This is, as we were just speaking off the record
here, I believe, your 41st appearance, as you were saying,
before the Congress; and that may be a record, certainly among
the current Secretaries. I am not sure it is true with others
in previous administrations, but what it says to me is that you
are willing to be here, to defend programs, to defend policy,
to defend administration, to answer questions, tough questions,
at a time when there are not always good, easy answers as you
know. But we appreciate that.
The Department of Health and Human Services has a long list
of responsibilities, maybe the longest list just about anywhere
in the cabinet. The responsibilities are within numerous
agencies. There are four specific areas that I believe our
committee would like to focus on here today. Certainly
bioterrorism, welfare reform, Medicaid reform, and Medicare
reform with prescription drugs would probably be the four big
areas that members may want to inquire. I am sure there may be
others.
I don't think most people would immediately associate the
Department of Health and Human Services with homeland security;
at least that was not traditionally an association. But the
last 2 years have underscored the critical services that this
department provides when it comes to the well-being of our
citizens, especially in the event of a bioterrorist attack.
Since September 11, we have become increasingly aware of
the possibility of these types of attacks. Health and Human
Services is at the forefront of ensuring America that we are
ready by overseeing that there exists an appropriate supply and
stockpile of vaccines and immunizations, an appropriate number
of trained health care providers and first responders,
hospitals and facilities that are properly outfitted and
equipped, appropriate funding for vaccine research and
development, and improved information networks so that key
personnel can act appropriately in the event of an emergency.
Another area that I would like to discuss that has had some
success over the last several years is welfare reform.
Mr. Secretary, there is probably no one with more working
knowledge in this area than you. As the Governor of Wisconsin,
you led the effort to bring common-sense reforms to this
program that helped put more people back to work and ended
decades of government dependence; and we used you as a model
and used your expertise and advice as a model for our reform.
Since we passed welfare reform in 1996, the number of
families receiving welfare has been reduced by more than half,
and child poverty has been cut significantly; and that is a job
well done for this Congress, for this administration, for
previous administrations, and we need to build upon that. When
welfare reform finally passed, there were critics who claimed
that it might work well during the current economic boom that
we saw at that time, but we were warned that welfare case loads
would swell during economic slowdowns. I am pleased to note
that, in fact, the reforms did sustain during economic
slowdown.
One of the key components of welfare reform--the one that I
believe made it such a success--was the flexibility that gave
States the ability to implement the program. In a similar
fashion, the President's budget proposes to reform the Federal-
State Medicaid program.
This proposition, in theory, gives the States greater
flexibility to cover some of the 41 million Americans without
health insurance. But, Mr. Secretary, we don't have a lot of
specifics or details on the Federal-State Medicaid program
reforms that are part of this proposal, and Congress eagerly
awaits that guidance from the administration.
Similarly, the last issue I want to touch upon is by no
means the least in importance. It may be the most important
non-Homeland Security, non-Defense issue that we have before
us, and although most of the public discussion has focused on
prescription drugs, there is an urgent need to fundamentally
reform the program of Medicare; or, for that matter, risk that
it has become unsustainable. Even today, Medicare's dedicated
revenue is lower than expenditures for the program as a whole.
The President's budget says that Medicare has a $13.3-
trillion shortfall over the next 75 years. Taken together,
Medicare, Social Security and Medicaid eventually will consume
all Federal revenue. So therefore, I agree with the warning
that the President has in his budget where it says, quote,
``Given the financial challenges faced by Medicare in the
future, the Congress must be extremely careful that legislative
changes not add to the long-term, unfunded promises faced by
this program.''
I also have a more specific concern with regard to
Medicare. My State of Iowa, as you know has the fifth highest
population of people over the age of 65 and has the most over
the age of 85 of any State. So clearly Medicare is an
incredibly important component of our health care system. And
we have visited about this many times because I know Wisconsin
has shared similar issues and concerns.
Ironically though, while Iowa ranks 6th in terms of
providing overall quality, it remains 50th in overall Medicare
reimbursement. Medicare simply does not pay its fair share to
Iowa or, for that matter, many other States in similar
situations. And I will just report to you for the good of the
order, that it is not enough, nor is it acceptable, for the
director of CMS, Mr. Scully, to just praise our efficiency and
tell us that our hospitals are fine using data that is 2 years
old; that is just not acceptable. And while we certainly
understand he has an enormous amount of expertise in this area,
we wish that he would come forward with proposals rather than
just faint praise.
Unfair reimbursements rates are causing major problems for
recruitment and retention of health care personnel. It is
making it tough for health care facilities to make ends meet.
If Iowa's health care providers are forced to leave rural and
small urban communities the same way it is true in so many
other States represented on this committee, other employers
will follow suit. It is that simple. If the health care leaves
the community, you have no economic development.
So I am pleased that the recent omnibus appropriations bill
included some short-term relief, but it was not enough. This
needs to be resolved. We have talked about this many times. My
concern is that even though I have had a chance to meet with
you and Mr. Scully and the President himself about this issue
and had a chance to talk about some specifics, we have had the
budget proposal with a plugged number of $400 billion for a few
weeks now and still have no icing on the cake, meaning we have
none of the details similar to the Medicaid program.
I believe Iowans certainly have waited long enough, and I
can tell you that I believe Congress and America have waited
long enough. I believe it is time for the administration to
come forward and give us the principles of the plan and the
outline as soon as possible.
We need to fix this problem now, and we need your
leadership and the leadership of the President in order to get
it done, as we have seen from recent experiences here in the
Congress.
So, Mr. Secretary, I know you have got a snootful of issues
that are on your plate, but I also know that you revel in the
challenges that face you and the Department and our country;
otherwise, you wouldn't have taken on this task. And so we know
that when we make these constructive comments and arguments to
you, they are not falling on deaf ears. We have got a partner
in someone who wants to work with us.
So, with that, let me turn to Mr. Moran for any comments
that he would like to make on behalf of Mr. Spratt. And then I
would like to begin with your testimony.
Mr. Moran. Thank you very much, Chairman Nussle, and we
thank the Secretary for being here.
And given the fact that the President was clearly going to
appoint a Republican as Secretary of HHS, I think he made an
excellent choice in choosing you, Governor Thompson. And I do
sympathize with you for having to defend this miserable HHS
budget that you are presented with.
There are three reasons I say that. One is the domestic
discretionary spending levels. Given the fact that the
President feels that we can afford tax cuts of trillions of
dollars, the idea that we would be cutting in critical areas,
NIH, for example, just doesn't seem to be logical. The National
Institutes of Health budget here will erode the progress that
NIH has made in recent years and undermine the agency's ability
to continue current research efforts and undertake new research
efforts, and I am quoting there from a number of people
involved with NIH that have been involved in the substantial
progress they have made.
In terms of Medicare, that the--excuse me. In terms of
prescription drug coverage that the chairman rightfully
emphasized, I do think that in the interest of full disclosure,
we should make it clear to seniors that they cannot get
prescription drug coverage under your approach through their
Medicare plan. The plan that is being presented with the price
tag that the chairman suggested does, in fact, put them into
private health coverage, and I am not sure that Medicare
seniors are fully aware of the consequences of this plan.
And the third area that I know you are going to emphasize
in your testimony, that I think we want to ask further
questions about is with regard to the Medicaid program, because
I know as Governor--if you were still Governor of Wisconsin--
you would be in the front lines protesting this plan.
I see you nodding there. I think you may be prematurely
nodding there, Governor, but I wanted to catch that, make a
note on that, that the Governor was nodding affirmatively.
You would be on the front lines protesting this plan
because what we are doing is putting this thing under a block
grant which, while it may give more leverage to individual
Governors, takes away responsibility from the Federal
Government for the substance of the plan. But most importantly,
it covers your fiscal situation for the first 7 years, but then
in the last 3 years, you have to pay it all back.
This is worse than the tax plan that we get under the
budget resolution by saying that we are going to repeal the
whole tax plan in order to pay for it in the tenth year. You
know we are not going to do that, and States can't possibly pay
back what we are advancing them for the first 7 years in the
last 3 years. Talk about being fiscally irresponsible.
Now, some of them may feel they are going to be out of
office then and it is not their problem. But to suggest that we
would advance money and then require the States to pay it back
when they may well be in even worse fiscal condition doesn't
seem to be responsible. I know that you would have been one of
the first ones to protest this approach.
I don't want to take a lot of your time because we are
going to have a lot of interesting questions to ask, and we are
looking forward to your testimony and appreciate you for your
leadership, Governor Thompson. Thank you.
Thank you Mr. Chairman.
Chairman Nussle. The record will reflect that the Secretary
was fidgeting in his seat.
Mr. Moran. Sounds like you are fudging there, Mr. Chairman.
Chairman Nussle. That is OK, Jimmy.
All members, with unanimous consent, may put a statement in
the record at this point.
[The prepared statements follow:]
Prepared Statement of Hon. Adam H. Putnam, a Representative in Congress
From the State of Florida
Mr. Chairman, I am pleased that we have convened today to receive
the fiscal year 2004 budget priorities for the United States Department
of Health and Human Services from Secretary Tommy Thompson. I am
honored to be here with you, Ranking Member Spratt, and the rest of the
committee, to exchange views on the Department of Health and Human
Services budget for the coming year. Thank you, Secretary Thompson, for
appearing today to discuss the needs of your Department, which is so
crucial to the well-being and health of our Nation.
I look forward to hearing your department's plans for addressing
the looming Medicare crisis in this country. Together, Congress and the
administration must create a fair and responsible Medicare program that
has improved benefits for its current customers while remaining a
stable, solvent program for the future. Medicare's outmoded benefit
does not cover prescription drugs, provide consistent coverage for many
preventive treatments, support coordinated management of chronic
diseases, or offer catastrophic coverage.
It is imperative that any Medicare reform plans include benefits
similar to what our seniors are receiving now, yet also move to
modernize them. Seniors are generally pleased with their current
benefits but understand the need for a prescription drug benefit.
However, we must institute reforms that will ensure a quality Medicare
program is available to future generations also. Reforms must create a
Medicare that is relevant to future generations. I am eager to hear the
President's proposal to modernize Medicare and I am hopeful that we can
create a system that will keep all of Medicare's benefits financially
secure while also providing our seniors with what is necessary for them
to live healthier and improve their quality of life.
I am also concerned with the Department of Health and Humans
Services' role in meeting threats to our homeland's security. Americans
have access to the best health care system in the world, headed up by
the most dedicated professionals from the CDC level right down to the
local hospital. We have the finest health system, yet we must continue
to reinforce it. I want to be assured that we are improving
surveillance techniques, the dissemination of information, and
awareness of biological threats such as anthrax, smallpox, botox,
bubonic plague, and food safety threats. These are the new threats to
our country and they must be addressed.
In the past I have expressed my concerns with foot and mouth
disease and mad cow disease as examples of diseases that would have a
huge impact on public safety and consumer confidence in our food
supply. This has been a concern of mine for a long time, and so I'm
appreciative that you are concerned about it too. I am hopeful that you
have continued to keep food safety and biological threats a high
priority in your department.
Mr. Secretary, I look forward to your testimony and I am sure you
will provide all of us with a clear picture of your Department's
priorities and required resources necessary to keep America healthy.
Chairman Nussle. Mr. Secretary, welcome back to the
committee. This is your third time that you have had an
opportunity to come before us. We do greatly appreciate that,
and we would like to ask you to proceed as you see fit.
STATEMENT OF THE HONORABLE TOMMY G. THOMPSON, SECRETARY, U.S.
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Secretary Thompson. Thank you very much, Mr. Chairman.
Thank you so much for your leadership, your dedication; and
thank you for your opening remarks on so many issues that are
really key to Iowa, to the country and especially to my
department; Mr. Spratt in absentia and my current Congressman.
Mr. Moran, I live in your district, and I----
Mr. Moran. Wouldn't you know he is a constituent.
Secretary Thompson [continuing]. I would like to point out,
Congressman Moran, that if I was still Governor, I would walk
all the way from Madison to Washington, DC, to be the first
Governor to sign up for my plan, because it is that good; and I
hope to get a chance to explain it to you and even convince my
temporary Congressman from northern Virginia that it is the
right way to go.
And, Mr. Shays and all the other members of this wonderful
committee, thank you for giving me this honor to appear in
front of you to present the President's fiscal year 2004 budget
for the Department of Health and Human Service's that continues
to advance the President's goal of ensuring that every American
has access to health care.
The President proposes outlays for HHS of $539 billion; 539
billion represents an increase of $36.8 billion, or over 7
percent, over fiscal year 2003's enacted amounts, and an
increase of more than $109 billion, or 25 percent, since 2001.
The discretionary part of the budget increases $1.64 billion,
or 2.6 percent, to $65 billion of budget authority. This would
be $60 million higher than the enacted fiscal year 2003
appropriation.
Our most urgent priority is bioterrorism, and I would
parenthetically, just at the outset, invite every member of
this committee to come over to the Department of Health and
Human Services to see our operation, our brand-new
communications room, which is state of the art, and I think it
will allay a lot of your fears, once you have a chance to go
through it and give me an opportunity to explain it to you.
Congressman Shays has been through it, and he would, I
think, remark that it is one of the finest communications rooms
in the Federal Government. It is an area where we have moved
with unprecedented speed, commitment, and determination to
prepare our Nation for an attack or a public health crisis
since the terrorist attack of September 11.
It is clear that our public health structure is stronger
than ever, and getting stronger each and every day as we work
with States and local communities to prepare for possible
attacks as well as other health crises. Yet there is much work
to do, and we remain committed to building our unprecedented
efforts to protect the public health.
Our budget would spend $3.6 billion to further enhance the
steps that we have taken since that terrible day including an
additional $1.4 billion in State, local and hospital
preparedness. Additionally, President Bush recently announced a
new initiative, Project Bioshield, that would also help prepare
the country for a bioterrorism attack.
He would spend roughly $6 billion over 10 years on new
countermeasures. This proposal would speed up research approval
of vaccines and treatments and ensure a guaranteed funding
source for their purchase, just the latest in our forward-
looking efforts to protect our homeland.
While we are preparing the Nation for a bioterrorist
attack, we are also working aggressively to strengthen and
modernize our two largest health programs, Medicare and
Medicaid, popular programs that are badly in need of an update.
As you well know, Mr. Chairman, our Nation's Medicare
program needs to be strengthened and needs to be improved in
order to fill the gaps in current coverage. The President has
proposed numerous principles for Medicare enhancements to
ensure that we are providing our seniors with the best possible
care. We have also dedicated $400 billion over the next decade
to achieve this very ambitious goal, and we look forward to
working closely with Members of Congress and especially this
committee to develop and pass a responsible and effective
Medicare bill.
The budget proposed a prescription drug benefit that would
be available to all beneficiaries, would protect them against
high drug expenditures and would provide additional assistance
through generous subsidies for low-income beneficiaries to
ensure individuals have ready access to pharmaceutical drugs.
Passing Medicare legislation will be a huge task, and
improving Medicaid is also very urgent. In fact, Medicaid is
growing even more rapidly than Medicare. The Federal portion is
$162 billion this year, and the program is growing at about 9
percent a year. But State Medicaid programs are under
tremendous financial pressure and beneficiaries risk losing
coverage. Two-thirds of the States have already made reductions
or have reductions pending.
The President has proposed a very aggressive plan to
preserve coverage, make Medicaid more efficient and provide
better health care delivery. We would begin by addressing the
immediate fiscal needs of the States. We would meet the 9
percent base growth in the program and then forward-fund by
$3.25 billion for 2004 and $12.7 billion over 7 years. And the
States would not have to pay it back. If Congress adopts this
plan, States will be able to build on the successes of the
States' Children's Health Insurance Program. I had a chance to
discuss this proposal with many Governors on Monday, and their
reaction was very positive.
Let me be very clear about two things. First, State
participation in this new program would be optional; it would
be voluntary. Second, mandatory populations will continue to
receive all of their mandatory benefits. The Medicaid
entitlement will be unchanged. States will have more
flexibility in covering optional populations, which account for
a large part of Medicaid spending. They will gain the ability
to target special needs populations, such as those suffering
from mental illness and HIV/AIDS. And if we do not improve
Medicaid, a million Americans could lose coverage this year,
and millions more next year. I look forward to working with
this Congress to make sure that that does not happen.
At the same time we expand access to health care, we also
want to reduce the number of people who need it, and because so
many Americans suffer from preventable diseases, this
administration has made prevention a key priority. Our budget
proposes a new investment of $100 million to promote a
healthier lifestyle by emphasizing prevention of obesity,
diabetes and asthma, something I am absolutely committed to and
passionate about.
Turning from health to welfare. Many of you worked on
welfare reform in 1996 and we have all known how successful it
has been. We will work with Congress this year to reauthorize
the program and to strengthen work requirements and support for
healthy families. The President's budget would spend $17.6
billion for 2004 on TANF, and the $2-billion contingency fund
still remains available.
Now is not the time to turn back. We must move forward in
helping millions of Americans become self-sufficient. In a
continuing effort to improve the lives of children who are at
risk of abuse and neglect, we are proposing a child welfare
financing option that States can use to improve their child-
welfare service systems. We propose to spend nearly $5 billion
for foster care in 2004, a $90-million increase over the fiscal
year 2003 enacted appropriation.
The President has made improving our Nation's health and
health care one of his biggest priorities for the year; and by
working together, we can make it one of our proudest
achievements. I look forward to all the work and I know our
discussion this morning will get things rolling.
I thank you, Mr. Chairman, members of this committee, once
again for giving me this opportunity to come before you and
testify and answer your questions.
[The prepared statement of Secretary Thompson follows:]
Prepared Statement of Hon. Tommy G. Thompson, Secretary, U.S.
Department of Health and Human Services
Good morning Mr. Chairman, Mr. Spratt, and members of the
committee. I am honored to be here today to present to you the
President's fiscal year 2004 budget for the Department of Health and
Human Services (HHS). I am certain you will find that, viewed in its
entirety, our budget will help improve the health and safety of our
Nation.
The President's fiscal year 2004 budget request continues to
support the needs of the American people by strengthening and improving
Medicare and Medicaid, enhancing Temporary Assistance for Needy
Families (TANF) and Foster Care; strengthening the Child Support
Enforcement Program; and furthering the reach of the President's New
Freedom Initiative.
The $539 billion proposed by the President for HHS will enable the
Department to continue its important work with our partners at the
State and local levels and the newly created Department of Homeland
Security. Working together, we will hold fast to our commitment to
protect our Nation and ensure the health of all Americans. Many of our
programs at HHS provide necessary services that contribute to the war
on terrorism and provide us with a more secure future. In this area, I
am particularly focused on preparedness at the local level, ensuring
the safety of food products, and research on and development of
vaccines and other therapies to counter potential bioterrorist attacks.
Our proposal includes a $37-billion increase over the fiscal year
2003 budget, or about 7.3 percent. The discretionary portion of the HHS
budget totals $65 billion in budget authority, which is an increase of
$1.6 billion, or about 2.6 percent. HHS' mandatory outlays total $475.9
billion in this budget proposal, an increase of $32.3 billion, or
roughly 7.3 percent.
Your committee will set the framework for achieving many of the
administration's most important priorities. I am grateful for the close
partnership we have enjoyed in the past, and I look forward to working
with you on an aggressive legislative agenda to advance the health and
well being of millions of Americans. Today, I would like to highlight
for you the key issues in the President's budget.
supporting the president's disease prevention initiative
One of the most important issues on which we can work together is
disease prevention. We all have heard the disturbing news about the
prevalence of diabetes, obesity and asthma that could be prevented
through simple lifestyle changes. The statistics, I am sure, are as
alarming to you as they are to me. For example, the incidence of
diabetes and obesity among Americans is up sharply in the past decade,
putting millions more Americans at higher risk for heart disease,
stroke and other related medical conditions.
Diabetes alone costs the Nation nearly $100 billion each year in
direct medical costs and leads to incalculable indirect economic costs,
including disability, missed work and premature death. Medical studies
have shown that modest lifestyle changes--such as getting more exercise
and losing weight--can reduce an individual's risks for developing
these serious health conditions.
For this reason the HHS budget, consistent with the President's
Healthier US effort, proposes a coordinated, Department-wide endeavor
to promote a healthier lifestyle emphasizing prevention of obesity,
diabetes, and asthma. The fiscal year 2004 budget includes a new
investment of $100 million for targeted disease prevention.
The proposed fiscal year 2004 budget for the National Institutes of
Health builds upon the doubling of the NIH budget that was completed in
fiscal year 2003, providing an increase of $500 million from the
previous year. NIH will be able to increase funds devoted to its
research programs by $1.9 billion, or 7.5 percent. In addition
fighting bioterrorism
As Americans confront the realities of terrorism and hatred around
us, it is imperative that the Federal Government be prepared to keep
our citizens safe and healthy. HHS's $3.6 billion bioterrorism budget
substantially expands ongoing medical research, maintains State and
local preparedness funding, and includes targeted investments to
protect our food supply. The President's proposal significantly expands
NIH research funding needed to develop vaccines and medicines that will
make biologic agents much less effective as weapons. HHS and DHS will
be working hand-in-hand to ensure that Americans have emergency access
to stockpiles containing effective drugs, vaccines, and other
biologics. HHS and the Department of Homeland Security, will spearhead
the development of Project Bioshield. This project, which the President
recently proposed, will bring together the resources of the United
States government in an innovative effort to develop defenses against
bioterror before they are ever needed. Project Bioshield will have
three (3) major goals:
Ensure sufficient resources are available to procure the
next-generation countermeasures. The administration proposes a
permanent, indefinite authority that will: a) provide the government
with the flexibility needed to respond to changing threat information
and science; b) establish a guaranteed funding source that will allow
the government to purchase vaccines and other therapies as soon as
experts believe they can be made safe and effective; and c) spur the
industry investment needed to produce these countermeasures by
providing assurance that if they can produce a needed product, the
government can and will purchase it.
Speed up NIH research and advanced development. Provide
more flexible contracting and procurement authorities for critical
biodefense work.
Make promising treatments available more quickly for use
in emergencies. Establish a new FDA Emergency Use Authorization for
promising medical countermeasures that are under development that
provides greater flexibility in emergency situations than the current
Investigational New Drug (IND) authority.
improving the nation's health
In an effort to improve the Nation's health, the budget includes
initiatives to reduce drug-related medical costs and carry out the Best
Pharmaceuticals for Children Act. The request for the Food and Drug
Administration (FDA) includes $13 million to increase Americans' access
to safe, effective, and less expensive generic drugs. The budget also
includes an additional $30 million in NIH and FDA to expand Federal and
private research to improve information for prescribing pharmaceuticals
to children.
The HHS budget includes a series of improvements in the financing
of childhood vaccines to meet three goals--first, improve vaccine
access for children eligible for the Vaccines for Children program,
second, restore tetanus-diphtheria booster to the VFC program; and
third, build a national stockpile of childhood vaccines. To ensure
against future shortages of childhood vaccines, HHS will develop a
strategic plan and implement a vendor-managed, 6-month supply of all
childhood vaccines by 2006. In addition, legislation will be proposed
to improve access to VFC vaccines for children already entitled to
them. The budget proposes to expand the number of access points for
underinsured children to those whose private insurance does not cover
the immunizations by allowing them to receive their VFC vaccines at
State and local public health clinics. I also propose to restore the
tetanus and diphtheria booster to the VFC program by removing outdate
price caps that are so low that vendors will not bid on VFC contracts.
The budget also contains $100 million to begin working with
industry to ensure the Nation has an adequate supply of influenza
vaccine in the event of a pandemic. Due to its short shelf life, we
cannot stockpile influenza vaccine, and current manufacturing methods
could not surge to meet the Nation's needs in a pandemic. Funds will be
used for activities to ensure a year-round influenza vaccine production
capacity and the development and implementation of rapidly expandable
production technologies.
In fiscal year 2003, we are completing a 5-year doubling of the
budget of the National Institutes of Health (NIH). This year, we
continue that commitment with a budget of $27.9 billion, a net increase
of $549 million over last year. As a result of one-time projects being
funded in fiscal year 2003, and not needing to be continued, NIH
funding for research on larger scale projects will increase $1.9
billion, 7.5 percent, and fund a record number of new and competing
research grants.
We are investing $50 million in a new program at AHRQ to increase
investments in hospital information technology to improve patient
safety. Of this amount, $26 million will be used to focus on small and
rural hospitals. Proven technologies like computerized physician order
entry and automated medication dispensing systems improve the safety
and quality of care.
faith-based and community initiatives
In support of the President's Faith-Based and Community Initiative,
the HHS fiscal year 2004 budget supports programs that promote positive
relationships that link faith- and community-based organizations, State
and local governments, and Federal partners to develop a shared picture
for substance abuse treatment and positive youth development.
We are proposing to establish a new $200-million drug treatment
program. For some individuals, recovery is best assured when it is
achieved in a program that recognizes the power of spiritual resources
in transforming lives. Under this new program, individuals with a drug
or alcohol problem who lack the private resources for treatment will be
given the means to secure drug treatment services. The program will
give them the ability to choose among a range of effective treatment
options, including faith-based and community-based treatment
facilities. Another important program that helps some of our most
vulnerable children is the Mentoring Children of Prisoners program. We
are asking for funds to be increased to $50 million, which would in
turn be made available to faith-based, community-based, State and local
governments and tribes, and public organizations for programs that
provide supportive one-on-one relationships with caring adults to these
children who are more likely to succumb to substance abuse, gang
activity, early childbearing and delinquency. This down payment will
help approximately 30,000 adolescent children of prisoners receive some
guidance, have positive role models, and give them a fighting chance to
succeed. In addition, the budget request for the Compassion Capital
Fund is $100 million, an increase of $65 million above the fiscal year
2003 appropriation. These funds would continue to be used to provide
technical assistance to faith- and community-based organizations to
expand and emulate model social programs. These are just a few examples
of the services that can be provided to those in need under this
initiative.
strengthening and improving medicare
As we are all aware, our Nation's Medicare program needs to be
strengthened and improved to fill the gaps in current coverage. We
remain steadfastly committed to ensuring that America's seniors and
individuals with disabilities can keep their current, traditional
Medicare. The President has proposed numerous principles for Medicare
enhancements to ensure that we are providing our seniors with the best
possible care. The budget builds on those principles by dedicating $400
billion over 10 years to strengthen and improve Medicare, including
providing access to subsidized prescription drug coverage, better
private options and better insurance protection through a modernized
fee-for-service program.
Prescription drug coverage
Ensuring that Medicare beneficiaries have access to needed
prescription drugs is a top priority for the President and me. This
budget proposes a prescription drug benefit that would be available to
all beneficiaries, protect them against high drug expenditures, and
would provide additional assistance through generous subsidies for low-
income beneficiaries to ensure ready access to needed drugs. The
administration's prescription drug plan would offer beneficiaries a
choice of plans and would support the continuation of the coverage that
many beneficiaries currently receive through employer-sponsored and
other private health insurance.
Medicare choices
Medicare+Choice was introduced to provide beneficiaries with
additional options for Medicare coverage. Over the past year, the
Department has made significant strides in expanding beneficiaries'
Medicare+Choice options by approving 33 new preferred provider
organizations PPOs) through a demonstration. However, due to a variety
of factors, in many parts of the country, few other new plans have
entered the program. More needs to be done to encourage plan
participation. We believe that we should move away from administered
pricing to set Medicare+Choice rates. The administration believes that
Medicare+Choice payments need to be linked to the actual cost of
providing care. America's seniors and citizens with disabilities should
have access to the same kind of reliable health care options others
enjoy and that those choices should be provided through a market-based
system in which private plans compete to provide coverage for
beneficiaries. Those beneficiaries who select less costly options
should be able to keep most of the savings. It is time we give our
seniors the choice they have been promised in Medicare.
Modernized fee-for-service
One of the basic tenets of our proposal to strengthen and improve
Medicare is that seniors and individuals with disabilities deserve the
same range of health care delivery choices as Federal employees enjoy.
These choices should reflect the care and service innovations
incorporated into today's best health insurance plans. A strengthened
and improved Medicare program would rationalize cost-sharing for
beneficiaries who need acute care. It would also eliminate cost sharing
for preventive benefits and provide catastrophic coverage to protect
beneficiaries against the high costs of treating serious illnesses.
Medicare appeals reform
Our budget also includes $129 million for the strengthening of the
Medicare appeals process. The adjudicative function currently performed
by the Administrative Law Judges at the Social Security Administration
would be transferred to the Centers for Medicare and Medicaid Services
(CMS). In addition, the administration proposes several legislative
changes to the Medicare appeals process that would give CMS flexibility
to improve the appeals system. These changes will enable CMS to respond
to beneficiaries' and providers' needs efficiently and effectively.
strengthening and improving medicaid and schip
State health care partnership allotments
Mr. Chairman, as you know, states are confronting serious
challenges in running their Medicaid programs. It is crucial that we do
something now to stabilize Medicaid programs so we do not allow
millions of Americans to go without health care. In the past year, 38
states have reduced services or eligibility and most states are
currently considering other benefit or eligibility cutbacks. We want to
give states another option. It is our responsibility to work together
so that states can get the help they need in managing their health care
budgets, while preventing further service and benefit cuts and
expanding coverage for low income Americans.
Building on the success of the State Children's Health Insurance
Program (SCHIP) and the Health Insurance Flexibility and Accountability
(HIFA) demonstrations in increasing coverage while providing
flexibility and reducing the administrative burden on States, the
administration proposes optional State Health Care Partnership
Allotments to help States preserve coverage. Under this proposal,
States would have the option of electing to continue the current
Medicaid program or to choose partnership allotments. The allotment
option provides States an estimated $12.7 billion in extra funding over
7 years over the expected growth rate in the current Medicaid and SCHIP
budgets. If a State elects the allotments, the Federal portion of SCHIP
and Medicaid funding would be combined and states would receive two
individual allotments: one for long-term care and one for acute care.
States would be required to maintain their current levels of spending
on Medicaid and SCHIP, but at a lower rate of increase than the
increase of the Federal share.
States electing a partnership allotment would have to continue
providing current mandatory services for mandatory populations. For
optional populations and optional services, the increased flexibility
of these allotments will allow each State to innovatively tailor its
provision of health benefit packages for its low-income residents. For
example, States could provide premium assistance to help families buy
employer-based insurance. States could create innovative service
delivery models for special needs populations including persons with
HIV/AIDS, the mentally ill, and persons with chronic conditions without
having to apply for a waiver. Another important part of the new plan
would permit States to encourage the use of home and community-based
care without needing a waiver, thereby preventing or delaying
institutional care. Let me stress that this is an OPTION we are
proposing for States.
New Freedom Initiative
One of the administration's priorities is relying more on home and
community-based care, rather than institutional care for the elderly
and disabled. The New Freedom initiative represents part of the
administration's effort to make it easier for Americans with
disabilities to be more fully integrated into their communities. Under
this initiative, we are committed to promoting the use of at-home and
community-based care as an alternative to nursing homes.
It has been shown time and again that home care combines cost
effective benefits with increased independence and quality of life for
recipients. Because of this, we have proposed that the fiscal year 2004
budget support a 5-year demonstration called ``Money Follows the
Individual'' Rebalancing Demonstration, in which the Federal Government
will fully reimburse States for 1 year of Medicaid home and community-
based services for individuals who move from institutions into home and
community-based care. After this initial year, States will be
responsible for matching payments at their usual Medicaid matching
rate. The administration will invest $350 million in fiscal year 2004,
and $1.75 billion over 5 years on this important initiative to help
seniors and disabled Americans live in the setting that best supports
their needs.
The administration again proposes four demonstration projects as
part of the President's New Freedom Initiative. Each promotes home and
community-based care as an alternative to institutionalization. Two of
the demonstrations are to provide respite services to caregivers of
disabled adults and severely disabled children. The third demonstration
will offer home and community-based services for children currently
residing in psychiatric facilities. The fourth demonstration will test
methods to address shortages of community direct-care workers.
Medicaid coverage for spouses of disabled individuals
The budget proposes to give States the option to extend Medicaid
coverage for spouses of disabled individuals who return to work and are
themselves eligible for Supplemental Security Income benefits. Under
current law, individuals with disabilities might be discouraged from
returning to work because the income they earn could jeopardize their
spouse's Medicaid eligibility. This proposal would extend to the spouse
the same Medicaid coverage protection this committee was instrumental
in offering to the disabled worker.
Extension of the QI-1 program
Under current law, Medicaid programs pay Medicare Part B Premiums
for qualifying individuals (QI-1s), who are defined as Medicare
beneficiaries with incomes of 120 percent to 135 percent of poverty and
minimal assets. The budget would continue this premium assistance for 5
years.
Transitional Medicaid Assistance (TMA)
TMA provides health coverage for former welfare recipients after
they enter the work force. TMA allows families to remain eligible for
Medicaid for up to 12 months after they lose welfare related Medicaid
eligibility due to earnings from work, and was scheduled to sunset in
September 2002. TMA has been extended until June 30, 2003 through the
appropriations process. This budget proposal would extend TMA for five
more years, costing $400 million in fiscal year 2004, and $2.4 billion
over 5 years. This program is an important factor in establishing
independence for former welfare recipients by providing health care
they could not otherwise afford.
We are also proposing modifications to TMA provisions to simplify
it and make it work better with private insurance. These provisions
include:
States will be given the option to offer 12 months of
continuous care to eligible participants.
States may waive income-reporting requirements for
beneficiaries.
States that have Medicaid eligibility for children and
families with incomes up to 185 percent of poverty may waive their TMA
program requirements.
States have the option of offering TMA recipients ``Health
Coupons'' to purchase private health insurance instead of offering
traditional Medicaid benefits.
State Children's Health Insurance Program (SCHIP)
As you know, SCHIP was set up with a funding mechanism that
required States to spend their allotments within a 3-year window after
which any unused funds would be redistributed among States that had
spent all of their allotted funds. These redistributed funds would be
available for one additional year, after which any unused funds would
be returned to the Treasury. An estimated $830 million in fiscal year
2000 funds are expected to go back to the Treasury at the end of fiscal
year 2003. The administration proposes that States be permitted to
spend redistributed fiscal year 2000 funds through the end of fiscal
year 2004. Extending the availability of SCHIP allotments would allow
states to continue coverage for children who are currently enrolled and
continue expanding coverage through HIFA waivers.
Medicaid drug rebate
The current Medicaid Rebate methodology establishes rebates to
State Medicaid agencies based in large part on the drug manufacturer's
reported best price. The best price component of pharmaceutical rebates
requires that the discounts that private sector purchasers are able to
negotiate with pharmaceutical manufacturers also be given to Medicaid.
It has been claimed that this provides a disincentive for drug
manufacturers to give discounts to private sector purchasers. The
administration is interested in working with this committee, the House
Energy and Commerce Committee and the Finance Committee to explore
policy options to address this issue.
empowering america's families
Reauthorization of Temporary Assistance for Needy Families (TANF) and
the Child Care Development Fund
Building on the considerable success of welfare reform in this
great Nation of ours, the President's fiscal year 2004 budget follows
the framework proposed in the fiscal year 2003 request which includes
the reauthorization of TANF. We applaud passage of H.R. 4 and are
committed to working with both the House and the Senate to ensure the
legislation moves quickly through the process and is consistent with
the President's budget. The President's proposal includes 5 years of
funding for the TANF Block Grants to States, Tribes, and Territories;
Matching Grants to Territories; and Tribal Work Programs at current
levels. In addition, the fiscal year 2004 budget reinstates authority
for supplemental population grants at $319 million each year; restore
transfer authority to the Social Service Block Grant of up to 10
percent; as well as funding the $2 billion Contingency Fund with
modified maintenance of effort and reconciliation requirements to make
it more accessible for States.
The central focus of the proposal strengthens work requirements
while allowing States greater flexibility to define activities that
will lead toward self-sufficiency. The Bonus to Reward High Performance
States would be redesigned to provide $100 million a year for bonuses
for employment achievement. We propose replacing the bonus to reduce
out-of-wedlock birth with a new initiative to fund research,
demonstrations, and technical assistance activities primarily targeted
to family formation. Our proposal includes $100 million for matching
grants, also focused on building strong families and promoting healthy
marriages. In addition, the budget proposes to reauthorize State
abstinence education grants for 5 years at $50 million annually to
further assist with reducing the number of out-of-wedlock pregnancies,
reducing the spread of STDs, and helping teens make healthy life
choices. These proposals demonstrate that this administration is
committed to strengthening foundations for our children and supporting
programs that will empower persons who have not been able to work, for
any number of reasons, to achieve self-sufficiency.
Hand in hand with these efforts, the President's fiscal year 2004
budget also follows the framework established in the fiscal year 2003
budget and requests reauthorization of the Child Care and Developmental
Block Grant Act and the Child Care Entitlement to assist States in
meeting the critical child care needs of families.
Increasing support for children in foster care
In a continuing effort to improve the lives of children who are at
risk of abuse and neglect, this administration is proposing a child
welfare financing option that States can use to improve their child
welfare service systems. This plan will allow States to choose a fixed
allocation of funds over a 5-year period rather than the current
entitlement funding for the Title IV-E Foster Care Program.
Participating States will receive their funds in the form of flexible
grants which could be used for a wide array of child welfare-related
purposes, such as child abuse and neglect prevention, maintenance and
administrative payments for foster care, child welfare training, and
family support. The flexible funding will allow States to develop
innovative plans that can be tailored to meet the needs of their child
welfare populations. States that elect this option and experience
emergencies affecting their foster care systems may apply for access to
additional funding from the TANF contingency fund.
The administration is proposing a nearly $5 billion budget for
Foster Care in fiscal year 2004, an $89-million increase over last
year's request. Not only will these funds support the child welfare
program option, but they also will be used to provide payments for
maintenance and administrative costs for more than 240,000 children in
foster care each month, as well as payments for training and child
welfare data systems.
The Adoption Incentives Program has been successful in contributing
to the substantial increase in the number of children who are adopted
from the public foster care system in recent years. The President's
fiscal year 2004 budget request includes reauthorization of this
important funding. Additionally, we propose changes to the incentive
system to target older children, who despite the overall gains in
adoptions constitute an increasing proportion of the children waiting
for adoptive families. The President's budget request for the Adoption
Incentives Program is $43 million.
Another important issue we face with foster care is the transition
for children out of these programs. Last year, nearly 20,000 children
aged out of the foster care system. In order to assist these at-risk
young adults, the President is committed to maintaining the Independent
Living Program, which provides a variety of services for youth who will
likely remain in foster care until they turn 18 and former foster
children between the ages of 18 and 21. The President's budget request
for the Foster Care Independence Program is $200 million. This request
includes $60 million to provide participants with up to $5,000 for
college tuition or vocational training to youth who age out of the
foster care system.
Additionally, the administration continues its commitment to the
Promoting Safe and Stable Families Program by requesting to $505
million to assist States in coordinating services related to child
abuse prevention and family preservation. This important program also
helps to promote adoption and provides post-adoption support to
families.
Child support enforcement
Related to my commitment to strengthening America's families, I am
proud to tell you that our Child Support Enforcement program has made
some impressive gains. Child support collections hit a record $20
billion in fiscal year 2002, serving an estimated 17.1 million child
support cases and in fiscal year 2001, over 1.6 million paternities
were established or acknowledged.
The President's fiscal year 2004 budget will build on this
considerable success. Legislation will be proposed to enhance and
expand the existing automated enforcement infrastructure at the Federal
and State level and increase support collected on behalf of children
and families. For example, States can better benefit from Federal data
systems to freeze and seize assets in multi-state financial
institutions and to garnish insurance settlements in order to satisfy
past due child support. In addition, gaming winnings will be subject to
intercept for past due support. When combined with the opportunities to
increase child support outlined in the President's fiscal year 2003
budget (expanded passport denial, offset of certain Social Security
benefits, optional pass through of child support to families on TANF,
among others) these proposals offer an impressive $7.5 billion in
increased child support payments to families over 10 years. The budget
also recognizes that healthy families need more than financial support
alone and increases resources for the Access and Visitation Program to
support and facilitate non-custodial parents' access to and visitation
of their children.
head start
The President's budget includes $6.8 billion for Head Start. This
level will increase enrollment of children in those areas of the
country with the greatest unmet need. This budget proposal will
continue to focus on school readiness of Head Start programs.
responsible fatherhood and healthy marriages
The President's budget also proposes $20 million for promotion and
support of responsible fatherhood and healthy marriage. This funding
will promote and support involved, committed, and responsible
fatherhood and encourage the formation and stability of healthy
marriages.
president's management agenda
I am committed to improving the management of the Department of
Health and Human Services, and I realize that as we work to improve the
health and well-being of every American citizen, we also need to
improve ourselves. The fiscal year 2004 budget supports the President's
Management Agenda and includes cost savings from consolidating
administrative functions; organizational delayering to speed decision
making processes; competitive sourcing; implementation of effective
work force planning and human capital management strategies; and
adoption of other economies and efficiencies in administrative
operations. We have also included savings in information technology
(IT) which will be realized from ongoing IT consolidation efforts and
spending reductions made possible through the streamlining or
elimination of lower priority projects. I am also very excited about
the IT infrastructure consolidation which should be fully implemented
by October, 2003, that will further reduce infrastructure expenditures
for several HHS agencies.
improving the health, well-being, and safety of our nation
Mr. Chairman, the budget I bring before you today contains many
different elements of a single proposal. What binds these fundamental
elements together is the desire to improve the lives of the American
people. All of our proposals, from building upon the successes of
welfare reform to protecting the Nation against bioterrorism; from
increasing access to healthcare, to strengthening Medicare and
Medicaid; all these proposals are put forward with the simple goal of
ensuring a safe and healthy America. I know this is a goal we all
share, and with your support, we are committed to achieving it.
Chairman Nussle. Thank you, Mr. Secretary.
Let me begin with the budget proposal for Medicare. The
proposal has $400 billion of new resources over 10 years for
Medicare. Is that a net number, meaning is that a number that
recognizes that we should make reforms within the base part of
the program and that the net amount of Medicare should be no
more than $400 billion over that 10-year period?
Secretary Thompson. That is correct.
Chairman Nussle. Or is that the new number?
Secretary Thompson. The $400 billion includes the changes
that we will be making to Medicare. But the giant share of it
is for prescription drugs, Mr. Chairman.
Chairman Nussle. The omnibus bill that just passed had a
$54-billion 10-year add-on for----
Secretary Thompson. That is not subtracted, which a lot of
people want to know about. That is not subtracted; the $400
billion is over and above that.
Chairman Nussle. When the budget was submitted, the $54-
billion doctor reimbursement changes were not contemplated and
were not budgeted for in 2004 budget cycle?
Secretary Thompson. That is correct.
Chairman Nussle. How are we going to pay for that then?
Secretary Thompson. We are taking that into the base budget
that we have in Medicare, Mr. Chairman. But it is not part of
the $400 billion that the President will be advocating in his
Medicare proposal.
Chairman Nussle. But then, in point of fact, it is a $454-
billion budget?
Secretary Thompson. If you add that to it, yes. But the
final details have not been totally determined as of yet.
Chairman Nussle. Alright. Well, I guess that is what I am--
it's either one or the other. It is either added to the 400, or
it is part of a net $400 billion total at the end of the day.
But otherwise, $54 billion doesn't just, as you know, fall out
of the sky; it has got to come from someplace.
Secretary Thompson. That is correct, Mr. Chairman, and as
of right now, the $400 billion is for the changes the President
is going to make and does not include the $54 billion, which
was in the congressional appropriations bill which was signed
last week.
Chairman Nussle. Alright. Should that be in that number?
Should the 54 be included in the $400 billion or should it be
added on?
Secretary Thompson. At this point in time, Mr. Chairman, I
cannot answer that question because it is still being
discussed.
[The information referred to follows:]
Secretary Thompson's Response to Mr. Nussle's Question Regarding the
President's Medicare Proposal
The fiscal year 2004 President's budget requests $400 billion over
10 years for a prescription drug benefit and Medicare modernization.
This remains the highest priority of the administration for fiscal year
2004. Congress took action to add $54 billion to fix physician payments
after our budget was released. We do not anticipate adjusting our
fiscal year 2004 President's budget baseline to reflect this change
until we do our mid-session review. As always, we are monitoring and
assessing congressional actions and changes to the Medicare program
made after our budget was submitted to assess whether adjustments are
necessary.
Chairman Nussle. Alright. Well, we need an answer, because
I will tell you right now----
Secretary Thompson. I understand that and I can tell you
that I am pushing very hard to get an answer to all the
questions dealing with Medicare, so I can come back in front of
you and other members of this committee and tell you what is
going on.
Chairman Nussle. Do you have an idea of when we will get
answers on Medicare? Because when I met with the President in
December, at that point in time there was some discussion that
this might happen congruent with the budget.
Secretary Thompson. Mr. Chairman, I can assure you that my
Department and the White House are working extremely long hours
to accomplish a proposal that we can give to Members of
Congress very soon. It is not quite ready.
I can assure you that it is very close, and we will be
giving you all the details very shortly. I can't give you an
exact date because, I have found, in this city timelines slip
quite easily. And I don't want to--I have been caught up in
this before, and if I give a definite time, I would like to be
able to honor that; and since I can't tell you that it is going
to be on a particular date, all I can tell you is, it is very
imminent.
Chairman Nussle. Well, let me report back to you about our
timeline. We have to have a budget completed by April 15, and
it requires us to be in markup here in this committee and on
the floor within the next 3 weeks.
Secretary Thompson. I understand that, Mr. Chairman. And
all I can tell you is, I am pushing extremely hard to make your
job easier by getting you the details very quickly.
[The information referred to follows:]
Secretary Thompson's Reply to Mr. Nussle's Question Regarding Physician
Update Rule
The fiscal year 2004 President's budget assumes that the 2003
Physician Update Rule would have been implemented March 1, 2003. That
rule would have decreased the physician fee schedule by 4.4 percent.
The baseline reflected the current law at the time. The Consolidated
Appropriations Resolution, 2003 (CAR) was not enacted until February
20, 2003, after the budget had been released. While the current law
budget baseline cannot reflect anticipated changes in the law, even if
it could, there was no way to know what the final provisions of CAR
would be. The impact of the physician payment adjustment enacted in the
CAR will be reflected in this summer's mid-session review baseline.
Chairman Nussle. Well--and part of my job is to help make
your job easy too by providing the resources to make sure that
we can get these things done. But we to get the details on
this.
In your testimony on page 4, you say that under
Medicare+Choice, ``We believe that we should move away from
administered pricing to set Medicare+Choice rates'' and ``the
administration believes that Medicare+Choice payments need to
be linked to the actual cost of providing care.''
What would you say about the areas where Medicare+Choice is
no longer available, such as many areas of Wisconsin and all of
Iowa?
Secretary Thompson. As you know, when Medicare+Choice
started, it grew quite rapidly, and got up to almost 18 percent
of the population. Then there was a decision made by Congress,
I think in 1998, in which they were going to reduce the
payments in those areas where the HMOs were operating and put a
higher premium in those areas where they were not operating.
It did not work, and as a result of that, it has not been
able to continue to grow. In fact, it has slipped from 18
percent down to about 11 percent of the population. And what we
are trying to do is put it on a financially solvent footing so
that it will have the opportunity to continue to grow. The
seniors that are in it like it, and if they have the
opportunity, they will make that choice. But we have to make
sure that companies are able to continue to furnish the
product, namely the Medicare coverage.
Chairman Nussle. Well, I don't usually do this, but I am
going to make the announcement right now. I am not voting for
Medicare+Choice unless or until I understand how it is going to
be in your part of Wisconsin and my part of Iowa, and I mean
now.
It is not going to be enough to come forward with another
fill-in-the-blank stopgap kind of Medicare+Choice proposal that
we blindly assume is going to do the job, when it never has in
our areas. We are done with it. And I mean, I--you know, I have
blindly voted for a number of these proposals on the blind
faith that, in fact, the marketplace will work and that we will
be able to provide these kinds of opportunities for seniors,
but I am announcing to you right now, I am done and I am on the
authorizing committee and that is one vote.
Now--and I am not threatening. I want to work to get this
thing done right, but I will tell you that based on the track
record, you don't have one vote right now unless I see how it
is exactly going to apply to my next door neighbor across the
street in Manchester, IA, and whether or not she is going to
have coverage under a Medicare+Choice plan or whether her
reimbursement rates to her doctor or her hospital are going to
be commensurate with their ability to stay in business and keep
their doors open, period. Done.
I don't have any more room to negotiate on this. And I hate
to say it that way, but it has lasted too long.
Secretary Thompson. I appreciate your comments. But let me
just respond by telling you that the Medicare+Choice is an HMO,
among other things. I have been in just about all the meetings
and I want to be able to tell you, and tell all the members of
this committee the President's plan is not going to force
seniors into Medicare+Choice or into HMOs. It is going to be a
different concept. And it will be based on the Federal
Employees Health Benefit Program, which is in all areas of
Iowa, which is in all areas of Wisconsin, which is in all areas
of Alaska, whether you are a janitor in a Federal building, a
warden or an FBI agent, every single Federal employee has had
the benefit of the Federal Employees Health Benefit Plan. It is
a competitive market, and we are looking at that procedure.
It is not the Medicare+Choice that you are talking about,
Mr. Chairman, and I want you to know that. There is nothing in
the President's proposal that is going to force--and I want to
restate and to restate this once more, there is nothing in the
President's plan that will force the senior into an HMO plan.
Chairman Nussle. Well, pardon me if I went off on a tangent
then, but since we don't know what the President's plan is, you
can pardon us for maybe not quite understanding what is in the
plan.
Secretary Thompson. I understand that, and it is my
responsibility to get that proposal to you as soon as possible,
and I will endeavor to make sure that happens as quickly as the
President makes the final decisions.
Chairman Nussle. I appreciate it.
And I yield now to Mr. Moran.
Mr. Moran. Thank you very much, Chairman Nussle. And I am
going to follow up on your line of questioning because I would
agree with you.
Whereas the Secretary says that this is going to be
comparable to FEHBP, I suspect you are going to be putting
people into PPOs if not HMOs. But it seems to me that if this
is going to be viable of both, substantively, policy-wise as
well as political, it ought to be as good as what the members
provide for themselves. The President wants----
Secretary Thompson. I agree.
Mr. Moran. You agree. OK, I am glad we will begin from that
assumption.
The President wants seniors to pay a $275 deductible each
year; most Members of Congress pay no deduction for
prescription drugs. The President wants seniors to pay 50
percent coinsurance for the first $3,000 worth of medicines;
most Members of Congress pay 25 percent. The President wants
seniors to have a gap in coverage where they pay 100 percent of
costs when their need is between $3,000 and approximately
$7,000 for drugs; most Members of Congress have no gaps in
prescription drug coverage.
So if those are the criteria, I think we need to bear that
in mind, because we can't sell a plan that is considerably
worse for our constituents than it is for ourselves. And most
of us are under this FEHBP plan.
Under the President's proposal, as we understand it,
seniors would spend $5,500 of their own money each year on
medicines and would get help with only 20 percent of their drug
costs under the President's plan. Our Congressional Budget
Office estimates that Medicare beneficiaries will spend more
than $1.8 trillion on prescription drugs between 2004 and 2013.
Even if every dollar of the President's proposal went toward
prescription drug coverage, and it doesn't because you have got
three other areas of expenditures included there, so it looks
like it is only about $300 billion for--specifically for
prescription drug coverage. But even if it were $400 billion,
the plan would only cover 22 percent of beneficiaries'
medication needs.
Now, that's Medicare. With my time, I want to get back to
Medicaid because you said something about crawling from
Wisconsin.
Secretary Thompson. Not crawling. Walking.
Mr. Moran. Not crawling. Walking. OK, I don't want to
exaggerate. You would walk from Wisconsin to Washington in
favor of this plan. But apparently your sentiments have changed
since April 14, 1997, Governor Thompson, where you signed onto
a letter to President Clinton, where you said, ``We adamantly
oppose a cap on Federal Medicaid spending in any form.''
Now, this block grant is a cap on Medicaid. Well, that is
the way you interpreted it when you were one of the leaders of
the National Governors Association and signed onto this letter,
because that is what block grants are all about. It is a method
of capping entitlement programs.
And I am sure you are familiar with this letter of April
14, 1997, so I won't go into great detail on it. But I refer
people to it if they question where the Governors are likely to
stand.
Those are our major concerns: Medicare, Medicaid and then
some of this discretionary spending.
You know, we can't understand how we can have $1.3 trillion
in tax cuts and yet some of the cuts that are in discretionary
programs for the disadvantaged.
You know, here, this budget proposal would mean that at
least 36,000 seniors would be cut from Meals on Wheels in this
program. I can go down a half a dozen other programs that are
in this budget. It just seems to be misplaced priorities.
So that is where we have our problems. It is Medicare, it
is the Medicaid block grant, and it is the very substantial
reductions in discretionary programs. There is not a lot of
money for each of these individual programs, but as the
President has said in any number of quotes, it means a great
deal in the lives of people in need.
So I am not going to ask any questions. My colleagues are
going to do that. But, again, I hope you have the answers to
their questions.
Thank you, Mr. Secretary.
Secretary Thompson. Mr. Chairman, can I please respond?
Chairman Nussle. Yes.
Secretary Thompson. Congressman Moran, first off on
Medicare, I will be more than happy to sit down with you and go
through the plan as soon as all the decisions are made; as I
indicated to the chairman, I will be more than happy to do
that. I would like to work with you and come up with a Medicare
plan that you could support on a bipartisan basis.
Medicaid: I was one of the leaders when I signed that
letter. Do you know what President Clinton was trying to do? He
was trying to cap Medicaid on a per capita basis and take $8
billion out of the system. That is completely contrary to the
program that I am advancing.
Let me explain. We are not capping the program on a per
capita basis. In fact, the mandatory coverages are not capped;
they are the same as the current Medicaid program.
The optional programs, which States now have the
opportunity to drop, are dropping in record numbers--36 States
last year, and 42 States have got pending drops this year of
over a million individuals under the current Medicaid law; the
only thing that States and legislators can do is to drop whole
populations. They cannot redefine the program and keep the
coverage and keep the Federal dollars. The Medicaid proposal I
am advancing allows them the flexibility to do that.
The second thing is, it advances $12.7 billion over 7 years
so that States are going to get an additional $3.25 billion
this year, so they can set up their own programs and use
flexibility in order to accomplish what you want to accomplish.
What I want to accomplish is to keep individuals covered under
the Medicaid system.
The third thing is, under the current law there are three
provisions in which States have to advance payments each year;
they make these determinations in September and October. Each
year the base budget for the States' portion of Medicaid has
three factors which they have to put into consideration to
determine what their next year's payment is going to be. It is
based upon population increases within your State and
utilization and indexing of medical costs in a particular
State.
Under the proposal we are advancing from the Department,
the first two, the population increases and the utilization,
are not going to be factors anymore. So it will only be based
on the third factor; the indexing of the medical costs. Last
year those increases were $12.7 billion. So, if you pass this
particular program, States would only be paying approximately
$4 billion. Therefore our net savings is over $8 billion of
State contributions in order to get the same Federal match.
So the States are going to pay less, get more money up
front, which they will not have to pay back; and they will have
complete flexibility to design the program so more people can
be covered.
Medicaid is growing at a rate of 9 percent a year for 10
years, and so 9 percent for 10 years is the line that we have
to budget for. And for the first 7 years, States that
voluntarily take this program will be above that line, and only
in the 8th, 9th and 10th years will they go below the line. But
they will still get increases; instead of 9 percent, it will be
about 6 percent. But for the first 7 years, they will have
complete flexibility, will not have to pay that money back, and
the mandatory coverages will be the same.
So it is not a block grant because it continues to rise.
There is no block grant because the population increases, the
mandatory population increases, the money increases, and so do
the responsibilities and the accountability put on by the
Federal Government.
Mr. Moran. Thank you, Mr. Secretary. President Clinton's
intent was exactly the same amount of money. And I know his
intent was to achieve the same savings, but we haven't compared
it in total. But I do think there is a lot of commonality to
the plan that you rejected in the past.
But I appreciate your explanation. Thank you, Mr.
Secretary.
Chairman Nussle. Mr. Gutknecht.
Mr. Gutknecht. Thank you, Mr. Chairman.
Mr. Secretary, Governor, I will try not to be as tough on
you as some of my colleagues here, but I think you can
understand there is a good deal of frustration. And as a former
Governor, part of the frustration we are feeling on this
committee is, we are having unlimited demands right now on a
very limited budget, and frankly, as I mentioned to several of
the other Secretaries, you know, we have had debate about
economic theory and supply side economics and tax cuts.
I tend to be a supply-sider. I tend to believe that during
soft economic times it is a good idea to allow Americans to
keep more of their own money. But I have to say, first and
foremost, that is a theory, and this is a fact. The fact is
that government will be paid; it will either be paid for now by
us, or it will be paid for in the future by our children, with
interest. And as a former Governor, I know that early in your
governorship of Wisconsin you were very effective--probably
made the most effective use of the veto of any Governor I have
ever seen. And if I recall, it wasn't so that you could add
more spending to what the legislature was passing. It was to
cut spending.
The dilemma here is that even with the President's' budget
as he has submitted it, we are looking at very, very large
deficits, and not only this year, but for several years to
come. One of the problems that the Governors are having, and I
am sure you have talked to Governors and probably your
successor--I met with our Governor, our new Governor, a few
weeks ago and he told me that roughly a third of his problem
that he is having to confront in the State of Minnesota in
terms of his budget deficit is the cost of health care. My
concern is, and I share some of the concern that the chairman
mentioned, is that we are just going to nibble around this
thing and not really deal with it. Because my real concern is,
as a country, I don't know--and I represent--I mean, the
biggest employer in my district is one of the finest health
care institutions in the world, and so we are very interested
in making certain that every American has access to top-quality
health care. No question about that.
But can we afford, as a nation, to have a system that is
somewhere near 14 percent of gross domestic product for overall
health care? It seems to me that we have got to get serious
about real reform, and we can't just be shifting around
dollars. And I think, in some respects, Mr. Moran is correct.
It seems to me that we have got to come up with a system that
is sauce for the goose and sauce for the gander; I think it has
got to be fair to everybody. And the problem, it seems to me,
that we have is we have set up various levels of health care
delivery.
We take care of seniors one way, we take care of Federal
employees another way, State employees another way; and I do
think that ultimately it is drawing down our economic growth
rate.
I have met with a lot of business people in my district. I
have talked to big business people, small business people. I
have talked to two of them in particular I will mention. One
said that part of the reason he is not hiring more people today
is that his cost for health care per employee is about $550 per
month. He is in a very competitive marketplace, and he said,
``I simply can't afford to bring more people on because of the
high cost of health care.''
I talked to another individual last week, and he employs
134 people. This year his health care costs were going to go up
50 percent--50 percent. So what he did was he dropped the
health care insurance for all of his employees. He simply gives
them an additional $550 per month to buy their own insurance.
And I guess I want to encourage you to look not only at
what we are doing and what you are recommending, but I think we
are going to have to look completely outside of the box. And I
guess I had a bit of an epiphany when I was over in Taiwan a
month ago. Their costs for health care in Taiwan--and I am not
saying it is the model, but I think it is an example--where
they are spending 5 percent of their gross domestic product. We
are spending almost 14 percent. I am not sure how long we can
afford a health care system in this country that is consuming
that much of our GDP.
We want to work with you. And we wish you all the luck, you
are one of the toughest Secretaries in this Cabinet. If anybody
can do it, you can do it. We want to help you.
Secretary Thompson. Congressman, thank you for that open-
ended question. I appreciate everything you have said, and I
would like to respond point by point. First, it is 14.8 percent
of GDP, and if we don't make a change within the next 15 years,
it will be 18 percent of GDP.
As for the second thing you talked about, the Mayo Clinic--
it is a fantastic place. In fact, I had one of the chairmen of
Mayo Clinic in charge of my regulatory reform, another cost
driver. He came in with 250 changes with his commission, and
held five hearings across America. We have already made 35 of
those changes, such as eliminating paperwork, and streamlining
efficiencies.
The third thing you mentioned was your Governor, Tim
Pawlenty from Minnesota. His biggest driver is Medicaid. This
proposal, the Medicaid proposal, will be a godsend to the State
of Minnesota. It will lower his payments by two-thirds that he
has to pay in on the increases of that amount he would have to
pay. I don't know what Minnesota's share is, but I can tell
you, he would appreciate that.
It would give him flexibility so that he could develop a
Medicaid program in which he could use different programs and
different benefits for southern Minnesota, central Minnesota,
and northern Minnesota. This is something he cannot do under
the Medicaid law. It would advance payments so that he would be
able to get additional money right now over the next 7 years to
set up a new system.
We would require him to split the population into acute as
well as long-term care and, therefore, we would be able to
develop new ways to keep seniors out of institutions and use
the flexibility to do it.
The Medicaid proposal that I am advancing is way out of the
box, and I would strongly urge you to strongly consider it.
Medicare I cannot talk about except in general terms right now
because the final details have not been made.
You talked about thinking outside the box. Let me tell you
what has to be done if we want to do this on a bipartisan
basis. The first thing we have to do is pass a Medicaid
proposal; we have to pass what I think is the best idea. It is
based upon the very successful TANF and SCHIP programs. It
would help every State that voluntarily goes into it.
Third, we have to pass a very good uninsured proposal. I
have got great ideas that I think that you would like to see in
which we could actually pay for it, but--it would cause some
angst, but it would deal with, and get a lot of the uninsured
covered.
The fourth thing and the biggest driver--and this is one
thing that Congress has got to address--is preventative health.
We spend $155 billion a year on tobacco-related illnesses;
400,000 people die. We spend $117 billion a year on obesity-
related illnesses, and 300,000 people die. We spend $100
billion on diabetes, and 200,000 people die. Seventeen million
people have diabetes; 16 million are prediabetic and if we do
nothing in the next 5 years, there will be 33 million people
that have diabetes.
Ninety-some million people in America have chronic
illnesses. You can usually stop the chronic illnesses by
exercising, watching your diet and quitting smoking.
If we are willing to take on those three things, it would
be the biggest driver of reducing costs across America. And
when you add those three things, $115 billion on tobacco, $117
billion on obesity and a $100 billion on diabetes, you are at
over $300 billion, and we are only spending $260 billion a year
on Medicare. So, this is where you are going to have an impact.
Mr. Gutknecht. Thank you.
Chairman Nussle. Mr. Spratt.
Secretary Thompson. I get a little emotional about that. I
am sorry.
Mr. Spratt. Mr. Secretary, I was not here to welcome you
when you came, and I apologize.
Secretary Thompson. I am so happy you weren't, but I am
glad you are here now .
Mr. Spratt. I appreciate, as always, your forthright
testimony. I don't have any questions at this point, but thank
you for coming.
Secretary Thompson. Thank you very much for being here.
Chairman Nussle. Ms. Hooley.
Ms. Hooley. Yes. Thank you.
And thank you for being here. It is always nice to have a
Governor who has been in that spot before and understands what
the States are talking about. Again, I thank you for being
here.
Medicaid--I am going to talk about two things, Medicaid and
Medicare. Medicaid is one of the fastest rising costs in the
State budget. In Oregon, Medicaid covers about 450,000 people;
that has been increasing by 10 percent a year. Currently,
Oregon is in a tough financial situation, not unlike a lot of
States, but we are the number one unemployment State. We have
cut days off our school year, we have made huge cuts to public
safety, we are laying off State troopers and we are making
State cuts to Medicaid.
We have a projected $400 million budget shortfall in
Medicaid alone, and we have already cut prescription drug
benefits, alcohol and drug treatment, those things that are
preventative--mental health benefits for many Medicaid
recipients. And we have had people come and talk to us: You
know, they are getting kicked out of nursing homes, they have
got $1,000 a month drug payments that they can't make.
As we look at that $12.7 billion for participating States
to encourage them to restructure their Medicaid--and I know you
know this about Oregon--this is not what we need. We won't
receive much of this money because we restructured our Medicaid
program 10 years ago with the Oregon health plan. And it has
been one of the most successful Medicaid programs in the
country. We need money to fund Medicaid, not money to change
it.
While reduced revenues are placing severe strains on many
State budgets and could limit Medicaid at a time when
additional coverage and spending is most needed, the Federal
Government's share of the cost will only increase a fraction of
a percent for 2004. Increasing the Federal Medicaid assistance
percentage just by 2.45 would provide Oregon with an additional
$1.7 million over the next 18 months, something we desperately
need.
How are you going to--how do you address Oregon's needs
when we desperately need assistance and would not benefit from
the $12 billion program that you are talking about, because we
have already changed and restructured our program?
Are you going to give us a special dispensation?
Secretary Thompson. First off, the reason you were able to
change is through the waiver process.
Ms. Hooley. I know that.
Secretary Thompson. And the reason that Oregon has been
successful is, they have used the waivers which I have granted,
as you know.
Ms. Hooley. I do. I understand that. Thank you.
Secretary Thompson. Several of the waivers do it.
This plan is based upon TANF, it is based upon the SCHIP,
and it is based upon the waivers that I have advanced since I
have been Secretary. In fact, I have advanced 2,500 SCHIP
plans, waivers and Medicaid State plan amendments. Oregon has
received several of them to redo their plan. But Oregon still
has several problems. It still is restricted under the current
Medicaid law.
Let me explain. Oregon has urban areas, it has rural areas.
I spend a lot of time in Oregon, so I know the State, and you
have got the mountains on the east, versus the plains and the
ocean on the west coast.
Ms. Hooley. Right.
Secretary Thompson. And so you have different things.
But you cannot, under the current Medicaid law, even with
your options, have any kind of differentiations as far as
benefits or as co-pays or as being able to use the SCHIP money.
Oregon was not able to use all its SCHIP money. It had to
send some back because it is SCHIP money. Under this proposal,
Oregon gets to keep all of its SCHIP money and is able to use
it. That is point No. 1.
The second point, the $12.8 billion, the $3.2 billion this
year would give Oregon an additional 2-percent increase on the
Federal match. Oregon, if it voluntarily went into the program,
would get another 1 percent of the Federal match by paying less
into it. So instead of your 2.45-percent increase on the
Federal match that you are asking for, if Oregon went into this
program voluntarily, which I am sure they will, they will get a
3-percent increase on their Federal match.
That is the dollars that they need in order to make this
program work. That is why you should be enthusiastically
supporting this program and be one of the prime sponsors for
it.
Secretary Thompson. This program is one of the most helpful
programs for Oregon and New Mexico and Tennessee, States run by
Democratic Governors. And each one of those individual
Democratic Governors know that.
Ms. Hooley. Let me ask you a second question. I want to
follow up on our Chair's question about Medicare. And again, we
were very efficient in how we dealt with health care in our
State, and then a long time ago when the formula came up for
Medicare, we got the short end of the stick like many other
States did. You have got seniors--the same program, everybody
pays into this program, and yet you have got seniors in some
States reaping the benefits of--they have prescription drug
benefits, they have eye care, they have hearing care, and we
have--our State is under-reimbursed. We have doctors leaving
the system. They will not take any Medicare patients. They will
not take any more Medicare patients. And are we ever going to
get to a solution to this problem where it should be equal
across the United States?
And I don't begrudge anyone any benefits they receive, but
it seems to me if you have a program that is a national
program, that it should treat people equally, and this program
doesn't. Do you see a solution at the end of the rainbow?
Secretary Thompson. I see lots of solutions. I am extremely
optimistic. I think if we have the will, Congresswoman, we have
the opportunity to change Medicare for the best. There are some
very inequitable provisions in it. Medicare needs a complete
review by Congress and by the administration, and if we had the
political will to do that, we could change it.
Just to give you some ideas, there is something in the law
that requires different payments for urban hospitals versus
rural hospitals. It is a 1.5-percent difference. That could be
changed. That could be uniform. There are MSAs in Iowa; there
are 12 different areas in Iowa that have different hospital
assessment areas in order to determine the formula and only one
formula area for doctors. Now, that could be changed, and so
that would be a uniform thing based upon a different kind of a
formula.
There has to be the will to make these kind of statutory
changes legislatively. We can give you a whole list of them,
but as long as the government is the driving force for all
medical costs, and it is based upon reimbursement formulas that
have been built up since 1965 to the present, you have to
really change it or change the model so that you have
competition from the Federal Employees Health Benefit Program
in order to benefit the kind of changes necessary to have a
national system. And it can be done. It is going to require
some bipartisan support to do that, but ideas are out there. If
we sat down across the table, we could certainly, I am
confident, come up with a solution and come up with a much
better proposal that would treat more citizens more equitably.
Whether or not we get rid of all the inequities, I can't
promise you that, but we could reduce them.
Ms. Hooley. I would like to get a little closer.
Secretary Thompson. So would I.
Ms. Hooley. And happy to work on that. It seems to me such
an unfair situation in this country.
Secretary Thompson. I hope you would want to work with me
on the Medicaid system, because I know that the proposal I am
advancing would be tremendously helpful to Oregon.
Chairman Nussle. Mr. Ryun.
Mr. Hulshof.
Mr. Garrett.
Mr. Garrett. I always appreciate coming to these meetings
because the chairman often--I know he digs through this
material more than I do and throws out little tidbits that
strike me. And then in his opening comments when he stated that
I guess in the not too distant future that if we take Medicare
and Medicaid and Social Security and combined that, that will
be consuming the entire Federal spending it just gives you
pause to think that is where we are going with it.
I also appreciate that in the time that I have been here as
the freshman, to hear the folks, we have been able to have
experts such as you come before us and to hear questions a lot
harder than mine, because I sure don't have the answer to this
either, but I look forward to, with this administration,
putting forward something that we can work with that will at
least lead us down the road the right way.
One of the numbers that I remember the chairman mentioned
at one of the meetings that we had previously was talking about
how Medicare spending is going just as it is right now, and as
I understand your initial comments with $400 billion is
essentially--and the way I look at it and the way you are
saying is for prescription drugs primarily, that addition to
the program after we complete any cost savings from the reform
in the proposal that you will be presenting to us--but the
numbers that I have seen before is that Medicare spending is
about $269 billion, and it is projected to nearly double in the
next 5 years, and by 2013--and I know you are not going to
spend the $400 billion evenly, but even if we were to spend it
out over a 10-year period of time, it averages out to $40
billion per year. So if you didn't do anything, you would be
seeing a $25-billion average increase in the Medicare problem,
which is part of the problem in essentially going in debt
totally.
But we are taking that $25 billion figure and adding on top
of it, if I am understanding it correctly, another $40 billion
on average, which is, I don't know, around a 165-percent
increase. And nothing that I have seen so far says that that is
going to reverse the overall trend of what the chairman was
saying at the outset, that eventually we are going to see
Medicare, Social Security, and Medicaid consuming everything.
We may be slowing the pitch of the chart on the graph a little
bit, and in some ways maybe we are--by the reform, but by
adding the prescription drugs and the $400 billion to it,
actually we are throwing that red line up even further, aren't
we?
Secretary Thompson. Absolutely. You can't add a benefit of
prescription drugs, which is going up at 13 to 15 percent a
year, without having that trend line increase. It is
impossible. So the only way to compensate for that is to make
some kind of changes in the basic system in order to make it
more efficient, and that is what the President and the
administration are trying to do.
What I have told a lot of people is that this is the
dessert. Everybody wants prescription drug coverage, and
everybody supports prescription drug coverage, Republicans and
Democrats and Independents. And the seniors need it, there is
no question about it. But if we don't make some structural
changes to the model, to the delivery system, this Congress, I
don't think, will ever come back until it is a crisis
situation.
That is why we need to make the changes with a prescription
drug program so that we can try and put it on a better
financial footing, but it will not go back to where it is right
now. Prescription drugs is an expensive add-on, and it is going
to be more expensive in the future with prescription drugs
added on, even with the changes that we are advocating.
Mr. Garrett. I will close in the numbers I know this House
passed before I was here, the additional program in their bill,
that was a $13.3-trillion increase. The Senate Democrats had
their own version, but theirs would have increased to a $20-
trillion increase. I appreciate this is an add-on. With the
overall budget question, how in the world do we add that on
today until we can confirm that we are going to overall bring
the line down by the cost savings? And until we--because even
though what you are saying is, well, do the reforms, we will
save a little money or maybe a lot of money through the
reforms, but we are going to add on the prescription and not
add benefits.
One of my constituents said to me, how can we be doing this
and adding it on, providing the benefit to the seniors today if
my grandkids are going to be ending up being the ones paying
for the seniors' health benefits?
Secretary Thompson. It is not a one-for-one situation. The
changes that will be advocated will not bring it into line.
This is going to require some real heavy lifting by Members of
the Congress and the administration. But the first thing is not
to exacerbate the situation so badly that we can't get back
there. And just adding on prescription drugs without any kind
of corrections is just, to me, not acceptable, because all you
are doing is driving up the cost, and there will be no driving
force for anybody to get back.
The driving force for people to look at Medicare right now
is prescription drug coverage, and so it is important for us to
take a look at the model, the delivery system, so that we can
make some changes now and hopefully other changes in the future
to make it something that is going to be around for your
children and grandchildren and great grandchildren in the
future.
Chairman Nussle. Ms. Baldwin.
Ms. Baldwin. Thank you, Mr. Chairman.
Secretary Thompson, thank you for your testimony this
morning. As a former Governor, we have had a chance to work
together before, and I want to thank you for being here.
I want to follow some of the line of questioning regarding
Medicaid. Those of us who have been following this have seen
more generalities, and in your previous testimony in response
to previous questions we are getting a little bit more of a
first glimpse of some of the details behind the proposal. I
want to, first of all, make sure that my understanding of the
big picture is correct, and then probe a little more on the
details, especially as you note on your testimony, prepared
testimony, that the States are facing incredible budget crises,
that many have--in the last year 38 have reduced services or
eligibility, and most are considering further benefit and
service and eligibility cutbacks this year.
As I understand it, overall States could decide not to join
in the flexibility program and operate their Medicaid programs
without any sort of additional relief from the Federal
Government. And certainly as the States are progressing with
budget crises, this could resolve in deep Medicaid cuts for the
States. In the alternative they could receive funding or these
advances, $12.7 billion over 7 years, but only if they agreed
to convert much of their Medicaid program, and we are going to
dispute the terminology, but into a block grant or some new
structure. And this would be capped, as I understand it,
according to a fixed formula and would not automatically rise
as the current formula does to meet increases in need perhaps
due to a recession, or a rise in the number of families in
poverty in a given State, or the costs of health care in a
given State. Also, then there is this provision in the final 3
years of the 10-year plan of paying back the additional money.
I have several concerns as I understand that outline, if I
understand it correctly. I also want to draw your attention--I
suspect you are already aware not of the activities of the
National Governors Association in 1997, but this year they
posed, as I understand it, a significant number of questions to
tease out the details of this program. We have been given
copies of their communication of earlier this month. Those are
precisely the questions I am eager to get at, questions
concerning the mandatory core, you know, what happens for the
remaining mandatory populations with FMAP; and does it go away,
is it reduced; financing; our questions, like are the
utilization in populations' projected increases based on the
national average or on the individual States' averages? Just a
wide variety of questions.
I would ask as you answer the National Governors
Association and get those details that you provide them to my
office, and, I suspect other members of the Budget Committee
would be very interested to hear those details so that we can
scrutinize this more carefully. And I would ask your timeline
on that.
And lastly, and I will give you the floor to tackle some of
these, I want to just make a little bit of note about the
governance of these programs as States opt in, if they do.
We know that in the Medicaid program we have used the
States as laboratories. The waiver programs have permitted the
States over the last several years to engage in all sorts of
experimentation with limited controls at the Federal level, but
these have predominantly been transactions between the
executive branch of the Federal Government and the executive
branch of the State governments. As a former Governor, I know
this is probably attractive; but as a lifetime legislator, I
know that I am concerned about the legislative oversight. A
vast amount of experimentation is taking place with very little
guidance from the Congress or from the respective State
legislatures, and, in that same contrast, to other arenas in
which we have done State experimentations. Wisconsin's welfare
experience would be an example.
So I would like to hear your comments also on the
governance issue and accountability to the people of States
through their legislators.
Secretary Thompson. Well, thank you, Congresswoman Baldwin,
and it is always a pleasure to see you. And let me just answer
every one of your points.
A lot of people don't understand Medicaid. First off, this
is not a block grant. A block grant by definition is level
funding. TANF is a block grant. It is $16.8 billion a year for
5 years. Medicaid has a trend line. It is growing at the rate
of 9 percent a year. We have to budget for 10 years. So, we
take a look at the figures and the computation that States send
us in September and October each year, and we make an actuarial
judgment, and our actuarial judgment is that Medicaid is going
up 9 percent. Next year, or this year in September, October,
based upon cost accounting and other things, we may adjust that
figure to 10 percent because we think that is probably where it
is going to go.
So, Medicaid has got a trend line. The Federal Government
funds that trend line, and it is always going up. So you can
just draw a trend line increasing at 9 percent a year and that
is the Medicaid budget which will continue to increase.
Second, there are mandatory populations, and there are
optional populations. One-third of the Medicaid population is
optional population; two-thirds is mandatory. Two-thirds of the
cost of Medicaid are the optional benefits added on by
Governors and legislators. So you have one-third of the
population, two-thirds of the cost on optional populations.
Governors and State legislators right now are dropping
those optional populations because they either have to drop it
or continue to fund it. There is no middle ground. They can't
change the mix. They can't increase copayments. They can't
change from geographic locations from Madison to Superior. It
has got to be uniform. So the only choice State Governors have,
and legislators, is to drop it, and they have dropped over a
million people last year, and this year there will be 42 States
making further cuts into it.
I am trying to change the program so that they can change
that mix and give them the opportunity to be able to
differentiate between Madison and Superior, maybe add some
copayments and keep the Federal dollars in Madison and in the
Medicaid system and keep those people covered. You should like
that, and I know you will if you listen to my explanation.
The third thing is, each year the States have got to make a
computation. Wisconsin pays 42 percent in the Medicaid budget.
The Federal Government pays 58 percent. We get a pretty good
deal in Wisconsin. We get 58 percent. But the Governor and the
legislature have to increase that 42 percent each year based
upon three factors: What is the population increase in
Wisconsin? What is going to be the utilization? And what is the
indexed inflation of medical cost? So those three factors each
year have to be added on to the State's base of 42 percent.
We are saying under this new proposal that States would
voluntarily have the opportunity to join if they want to; that
we will forgive them not having to make payments on population
increases or on utilization, only on the inflation index. So
that means the State legislature, in order to get the 58
percent, will be paying less, which means that the percent
increase will go up by the Federal Government just by the terms
because States will pay in less, which will mean the percentage
for Wisconsin will go down. The inflation index increase will
go up for the Federal Government mathematically.
The fourth thing is that gives the Governor and the
legislature this money to spend and the ability to use it. Also
under this program, the SCHIP program, the disproportionate
share for hospitals, the administration, and Medicaid, which
now are four checks sent out quarterly on a draw-down by the
States, will be two checks. They will be able to go to the
State in two checks, one for acute care and one for long-term
care and prevention. Because the long-term care and prevention
States and Federal Government have really never really looked
at, and what I think, that is going to be the increased cost in
the future. I would like to see the Federal Government use this
long-term care opportunity to be able to find ways to keep more
people in their own homes, and they will have that flexibility
to do so under the new model.
Then you said they have to pay it back. Wrong. They don't
have to pay it back. If the States would take it, if Wisconsin
would take it, instead of getting 9 percent, they would get 12
percent the first year, then above the trend line. Do you
follow me? The trend line is 9 percent, they get 12 percent,
then they get 11, then 10 percent, then 11 percent. They would
always be up above the 9 percent for the 7 years. But then in
the 8th year they would drop below the 9 percent, but still get
an increase of, say, 6 percent, not have to pay any of this
money back. They would still get an increase of 6 percent, 7
percent, and 8 percent for the last 3 years. They would still
be getting an increase, but they would have the use of the
money, the flexibility for adopting new systems and new ways to
be able to accomplish that.
And then on top of that, SCHIP is also a capped program. I
don't know if you know that. SCHIP is a capped program. And
SCHIP each year, if the States don't use it, has to be sent
back after 3 years. Under this program, this would be on top of
the Medicaid program. And for those States like Oregon who have
a system that can't use the SCHIP money, and it goes back into
the Federal Government and gets redistributed, Oregon would be
able to use that money for helping low-income families. And so
it is a wonderful thing for Oregon, it is a wonderful thing for
Wisconsin, it is a wonderful thing for every State.
And then you asked about oversight. I want you to know
that, yes, I have been aggressive. When I was Governor,
Wisconsin received more waivers and we still have more waivers
outstanding than any other State. I was very innovative, as you
know, and I used the waiver process under the Clinton
administration, under the first Bush and under the Reagan
administration to get waivers to try things new. BadgerCare was
one of my programs; family care, senior care, and welfare all
were waiver programs that I used the Federal dollars in the
Federal system to set up. And since I have been Secretary, I
have granted more waivers than all previous Secretaries
combined. And I am not shy about it, I am not bashful about it.
I have to make sure they are budget-neutral.
But under the waiver program that I have utilized with the
States--and the Democrats and Republican Governors all have
proclaimed that this is fantastic because they are able to set
up new systems, we have been able to expand the system so that
under the waivers that I have granted, 2.2 million more
Americans today are covered by Medicaid and by Medicare; 6.7
million more Americans have increased benefits. And I am using
the waiver proposal, the TANF proposal and the SCHIP proposal
to come up with a new streamlined, modern Medicaid proposal
that will be bigger and better than TANF, and all you have to
do is learn the details, and I am confident, knowing your
intelligence and your willingness to help people that need
health coverage, that you will be one of my most enthusiastic
backers and supporters for it.
Ms. Baldwin. One quick follow up on that detail.
Chairman Nussle. The gentlelady's time has expired, and the
question consumed three more answers' worth of time.
So Mr. Hensarling.
Mr. Hensarling. Thank you, Mr. Chairman.
And thank you, Mr. Secretary, for your testimony today.
Before coming to Congress, I was in private business for 10
years, which to me is all about going out and figuring out the
goods and services people want and then producing them at the
lowest price, which has produced the great American dream.
However, we have a huge amount of our medical dollars that are
spent in this country run through the government.
One of the things I saw a number of months ago on the
national press was a report that Medicare was spending five
times as much on the same wheelchair as the VA did. Now, I know
often the media doesn't quite get it right, but I do know in
the fiscal year 2003 budget that the President's budget
included competitive bidding for durable medical equipment, and
I am under the impression that this budget does not include
that proposal. If that is correct, why wouldn't you want to
have competitive bidding for this?
Secretary Thompson. We do want it.
Mr. Hensarling. OK. Is my information incorrect? Your
proposal does include competitive bidding?
Secretary Thompson. Competitive bidding is going to be in
the new Medicare proposal, sir.
Mr. Hensarling. OK.
Secretary Thompson. It is absolutely--yes.
And another thing is I was hoping that Congress would
change the contracting provisions that the House passed last
year, which are arcane and as expensive as anything that we
want. If you want to do something to help me a great deal to
lower the Medicare costs and make it more efficient and more
uniform, as several people have asked, change the contracting
provisions as well.
Mr. Hensarling. What else might be on your laundry list,
since I am a firm believer that government can act smarter and
still be able to deliver greater health care services without
necessarily taking more money away from the American taxpayer?
What else might be on your laundry list for Congress?
Secretary Thompson. Thank you. I have been waiting for that
question. Thank you.
I would like to find you or anybody else who would like to
sponsor a very progressive proposal for the uninsured. I can
give you the details. I would like to have you sponsor a
proposal for preventative health on diabetes and asthma and
obesity, which would be the biggest savings.
I would like to change the contracting provisions. Right
now we are required to get recommendations from State medical
societies and hospitals in order to enter into a contract for
our contract carriers and our financial intermediaries. And we
have to do this, and we can't consolidate them, and we can't
require accountability. Can you imagine that? If you change
that, it would be great.
The fourth thing I would like you to do is I would like you
to take some of the fraud and abuse money and set up a quality
improvement. I have got the details. I need somebody to sponsor
it, you know, take that money and be able to put in a mini
Hill-Burton law.
What is your name?
Mr. Hensarling. Hensarling.
Secretary Thompson. Mr. Hensarling, let us make it the
Hensarling proposal, OK?
Mr. Hensarling. If anybody could spell it.
Secretary Thompson. H-E-N-S-A-R-L-I-N-G. Alright. And put
that money in and be able to use that money as a match grant
for hospitals and clinics to be able to tap into to come up
with uniform new technological devices. It would reduce
mistakes, improve efficiencies. We could develop almost a
paperless system, which would drive down the cost. And then on
top of that do something on the medical liability system, and
we would reduce the cost of health care tremendously.
And I have got ideas, and I have got legislation and
programs. I just can't introduce them.
Mr. Hensarling. Thank you. As my time is running out here,
could you give us a little more detail of the savings that
could be derived from a meaningful medical liability reform?
Secretary Thompson. That could be billions of dollars.
Total cost to the Federal Government right now is about $28
billion. But that is just the cost that the Federal Government
pays in liability judgments. That doesn't take into
consideration the defensive medicine, which is hard to
quantify. But if you want to, we can try and quantify it, but
the actual amount is about 20 to $28 billion that we can
actually itemize.
Mr. Hensarling. Thank you, Mr. Secretary.
Chairman Nussle. Mrs. Capps.
Mrs. Capps. Secretary Thompson, welcome. I want to ask you
about an issue we have discussed many times in the past. In
fact, a couple weeks ago at Energy and Commerce Committee I
brought up the topic of the nurse shortage. Nurses are critical
to everyday health care as well as our Nation's efforts to
prepare for terrorism and bioterrorism, and clearly the current
shortage compromises these efforts. We have to keep in mind
that currently some 19,000 nurses in the work force today are
also in the Armed Forces Reserves. As they are being called up,
our public health system becomes even more compromised. And I
know you and I agree, and we have talked about the seriousness
of this issue.
I was very pleased to read in your fiscal year 2004 budget
in brief document, wonderful language talking about the nurse
shortage. You know I agree with it, and that is why we worked
so hard to pass legislation last year, signed into law,
addressing the growing nurse shortage. It is really a crisis.
The Congress followed up on this in the omnibus appropriations
bill that the President signed, increasing nurse funding for
2003 by $20 million over 2002. But this budget now only asks
for $98 million for these very same programs, $15 million below
the 2003 levels, in the face of a crisis in health care because
of a nurse shortage.
Is the administration--I would like an explicit answer, if
you would--going to revise its request, or are you going to
support a cut in the budget for nursing in 2004?
Secretary Thompson. Congresswoman, you know how passionate
I am with you on this, and I have put together a budget based
upon the figures that are given me. I tried to put more money
into nurses. As you know, I always do. The document speaks for
itself. I wish we had more, but we don't. There is an
additional $21 million in the work force diversity that is
assisting nurses that is not included in that. I tried to
stretch as much as I possibly could.
Mrs. Capps. Again I ask, could the administration revise
this budget?
Secretary Thompson. I doubt very much the administration
will.
Mrs. Capps. Then we are going to see areas continue to
suffer, rural areas like Jim Nussle's in Iowa and many rural
parts of my district, and urban centers where advanced practice
nurses are really delivering primary health care. That piece of
the budget was cut in order to put a few more dollars--robbing
Peter to pay Paul, actually--into basic nursing. But the
overall cut is certainly going to fly in the face of our
bioterrorism preparedness. Who is going to give the vaccines if
we ever need them?
Secretary Thompson. First, I want to work with you on this
and work with Congress. And if we can find some more dollars, I
am certain that the administration would be happy to sign it
into law.
Secondly, I hope you come over and see what we are doing as
far as dividing up the country in order to make sure that
bioterrorism is taken care of with nurses, doctors, and
morticians. If you have the opportunity, I would invite you to
come over, and I think I would allay a lot of the concerns and
a lot of the fears you have as far as bioterrorism is
concerned.
Mrs. Capps. Well, it is one thing to see things on paper,
but it is another thing to be in the communities that all of us
are in every day and know that hospital wards are closed
because of a lack of nurses; that when emergency staff gather--
front line, first-line responders--that the pieces that are
often in very short supply are the people to administer
bioterrorism remedies and preventive mechanisms.
We are talking about a few million dollars here in a very
large budget, and I strongly ask you to reconsider the amount
that has been allocated.
Secretary Thompson. I want to be your partner in this, as
you know, and I have talked to you many times about it, and I
also want you to help us try and recruit more young people to
go into nursing.
We also have to do something about getting more of the
senior nurses or more advanced educated nurses to go into
teaching, because that is the bottleneck we have right now in
our nursing colleges.
Mrs. Capps. And that is exactly where these few million
dollars we are talking about would be plugged right in. The
need is so clearly there. I know you and I agree, and you know
I am going to work very hard to increase the allocation in this
budget in this very area, and we--I know that many of our
communities are going to be right behind us in saying this is a
crying need right now. It is not that high-cost of an item. It
will stretch our resources just in the very areas that we need
right at this time.
Secretary Thompson. Your are a champion, and I salute you,
and I thank you for your leadership.
Mrs. Capps. And I will work with you. We are going to
make--we are going to do something about this budget.
Secretary Thompson. Alright.
Mrs. Capps. I yield back the balance of my time.
Chairman Nussle. Thank you.
Mr. Bonner.
Mr. Bonner. Thank you, Mr. Chairman.
Mr. Secretary, thank you very much for being here. You
talked in answering some of the questions about the number of
waivers you have granted since you have been Secretary. I would
like to say thank you. On February 10, your Department granted
a waiver for 30 Alabamans, and especially a young man by the
name of Nick Dupree, to be able to stay at home receiving the
care that they deserve without having to be forced into a
nursing home. So thank you very much for that waiver in
particular.
Secretary Thompson. Thank you very much, Congressman. I
appreciate that.
Mr. Bonner. You made a point in answering one of the
questions about increased costs associated with tobacco-related
illnesses. I have had a number of phone calls from my
constituents over the last few days about a rumor afloat that
suggests there is a possible $2-a-pack increase in the Federal
cigarette excise tax being contemplated by your Department.
This would raise that tax from 39 cents to $2.39 a pack. I
don't smoke. I have never smoked. But it is a legal product
that is grown in this country. And so can you tell me, is this
a proposal that you or that your Department is contemplating?
Secretary Thompson. I can tell you we are not
contemplating. This administration does not raise taxes.
Mr. Bonner. Thank you.
The second question that is of real concern----
Secretary Thompson. Saying that, I still think it would be
nice to have some money set aside. I haven't found a way to get
it yet, but I am looking for a fund to use for smokers to be
able to quit. Seventy percent of the smokers that are now
smoking would like to quit, and I would like to be able to help
them.
Mr. Bonner. Mr. Secretary, as you are aware, current
Medicare hospital reimbursement policy takes into account the
area wage index. This is something that, in my view, has long
outlived its purpose with regard to areas such as the area that
I represent in Alabama. It is hard for me to go back home and
meet with my hospitals and doctors and nurses and give them an
answer about why they are being reimbursed at a lower rate in
Mobile, AL, than their counterparts in Biloxi, MS, or
Pensacola, FL, which are just 60 miles away. Does this budget
address this inequity?
Secretary Thompson. No.
Mr. Bonner. Would the administration be willing to take
this on as a priority?
Secretary Thompson. The Congress has got to take that on,
because if you change one, Congressman, you take away from
another. If you change the wage indexing, you take away from
hospitals in Pennsylvania and New York and New Jersey for
Alabama, Wisconsin, and Iowa. Now, coming from Wisconsin and
Alabama, and Chairman Nussle, we may think that is a good deal.
But Congress has got to make that decision as to how to deal
with it.
And I would like to point out, and especially for the
chairman's sake, that last year the actuaries wanted to raise
the wage differentiation from 71 percent of the reimbursement
formula to 72 percent, which would have exacerbated the
situation. I said no. We kept it at 71 percent.
But when I was Governor, I tried to sue the Federal
Government on this point. So I know what you are talking about.
We have made certain improvements, but it is something that all
of us collectively have got to sit down and work on.
Mr. Bonner. My last question, Mr. Secretary, is that the
home health industry has recently undergone a reduction in the
reimbursement levels from Medicare, and this has had a chilling
effect in terms of the services provided, especially to
seniors, in my district and throughout the country. And so a
question is does the administration have a plan, or would the
administration be willing to work on a plan, to ensure the
viability of home health care as we move forward into fiscal
year 2004?
Secretary Thompson. Yes. Of course we would. We are there
to serve you. The Balanced Budget Amendment, which is a
congressional law, in 1998 made that decision. It was not the
Department.
But, yes, I am. I would love to work with you on it. I
would love to work with you on tobacco smoking, love to work
with you on preventative health care, love to work with Mr.
Hensarling on a lot of my ideas, and I would love to have some
of you introduce them, because I think they are great ideas.
All we have got to do is get some people to introduce them and
get them passed.
Mr. Bonner. We may try to get the Hensarling-Bonner bill on
quality.
Secretary Thompson. I would like that very much, and I
would like to work with you on it, and I will give you the
ideas, and then you can change it any way you want to and
introduce it, and I will help you get it passed.
Mr. Bonner. Thank you, Mr. Secretary.
Thank you, Mr. Chairman.
Chairman Nussle. Thank you.
Mr. Emanuel.
Ms. Majette.
Ms. Majette. Thank you, Mr. Chairman.
Good morning, Mr. Secretary.
Secretary Thompson. Good morning. How are you,
Congresswoman?
Ms. Majette. I am fine. Thank you.
I represent the Fourth District of Georgia, and the CDC,
the Center for Disease Control and Prevention, has its
headquarters in my district. And I would just like to take this
opportunity to thank you for your management of that branch of
your Department.
Secretary Thompson. It is a great branch.
Ms. Majette. Mr. Secretary, I have recently had the
privilege of visiting the CDC headquarters, and I certainly was
very impressed with your staff's expertise and their
dedication. This branch of your Department is a vital link in
the war or terrorism, as you well know, and I believe that I
speak for all Americans when I say that I am proud of the work
that the scientists and public health experts perform on our
behalf.
At this time when Americans are told to be concerned about
the use of chemical weapons by rogue nations and are
legitimately worried about chemical and biological attacks in
our own cities, we know that preparing for these attacks is
even more important than before. So I applaud your leadership
of the CDC through this preparatory phase of its growth as we
prepare to protect our citizens. The CDC is engaged in a very
important facility building master plan, and within this plan
the CDC will be able to enhance the exchange of information
between public health professionals and allow them to better
inform the public, which, as you know, is a vital mission.
Also, as part of that plan the CDC will be much more effective
at addressing the public health education and the disease
prevention components about which you spoke with such passion
earlier this morning, particularly in the areas of diabetes and
asthma and obesity.
So I would encourage you, Mr. Secretary, to make the rapid
completion of these construction projects one of your
priorities, as we don't know how soon these facilities might be
needed to protect Americans from the unknown, as well as being
able to continue to move forward on the public health and
public education front.
The second point I would like to make, and here is really
where my question comes in, is with regard to Medicaid and
SCHIP. Obviously those programs provide insurance not just for
potential workers, but also for their families and what I would
like to focus on now, our children. SCHIP currently covers more
than 5 million children nationwide. In Georgia the program is
called PeachCare. In Georgia, PeachCare provides more than
50,000 children with health care coverage. Now, as I understand
the budget, the proposed solution, Federal funding for
PeachCare would be rolled into part of the grant that the
States would use to cover Medicaid recipients' benefits. And,
of course, you have talked about the flexibility implied by
this system, but the potential effect it could have on the
number of uninsured children cannot be ignored.
What solution would you propose to deal with the very real
possibility that, under this plan, States might run out of
money in their grant and be forced to cut SCHIP rather than
some of the other mandatory beneficiaries?
Secretary Thompson. Congresswoman, they can do that right
now. That is the SCHIP proposal. They can drop, they can add.
And so that doesn't change.
And second, Georgia could elect to join or not join. The
Medicaid proposal is a completely voluntary program.
Third, the new changes would require the same amount of
children to be covered, plus you would not be able to drop in
order to get the SCHIP money, you would not be able to drop it.
It would allow the State of Georgia to be able to take some of
the SCHIP dollars and help low-income working families get
health coverage as well, provided there aren't any other
further children eligible to get that money. Georgia would be
able to have the discretion first to either join the program or
not join the program, but could use that SCHIP money to help
working families.
This is what I did in Wisconsin. I was the first State to
do this, called BadgerCare, and I found that if you allow the
parent or parents to join up with their children, you get more
children to go into the program. And that is what Georgia could
do with this new, improvised, flexible Medicaid system. I am
confident that you would have more kids covered under this
change than under the current law.
Ms. Majette. Thank you.
Mr. Shays [presiding]. Thank you, Mr. Secretary. We are
going to go to Trent Franks, and then Brian Baird would follow.
Mr. Franks. Thank you, Mr. Chairman, and thank you
Secretary Thompson. A lot of us have followed you over the
years and just seen your innovative personality and attitude be
kind of an inspiration to a lot of the folks that want to try
to look at new ways to systemically change things.
Secretary Thompson. Thank you.
Mr. Franks. And you know Mr. Secretary, I think that all of
us on this panel, Democrat and Republican alike, have
essentially in this particular area the same goals, and that is
to try to afford all Americans the very best health care that
they can have at the least cost while still maintaining their
dignity to direct their own lives as much as possible. And yet
you have very succinctly put forth the other side of the
ledger, which is this whole preventative area, and I think that
is vitally, vitally important, and it just would change the
actuary completely if we could follow your line of logic there.
Having said that, in order to produce the best health care
possible at the least cost, if we glance over our shoulder and
look back, we see the highway of history, as it were, is indeed
littered with the wreckage of socialism. And it is free
enterprise and innovation that have brought revolution to a lot
of areas. I mean, just recently we have seen Federal Express
bring revolution to the post office. We have seen the breaking
up of a telephone monopoly 20 years ago completely bring
revolution to the entire industry where we have seen a profound
decrease in the actual cost and, when you index it for
inflation, enormous decrease. And yet with our medical costs we
see no end in sight in terms of the escalation.
And one of the things that I found very fascinating in the
proposal here was the President's proposal to have a health tax
credit, a refundable tax credit for low-income and moderate-
income individuals that are not covered by insurance. And I am
just wondering, has your Department--or would it be wise,
considering the actuaries that we face, for us to look at that
more broadly and ask ourselves what do we spend per person
enrolled in Medicare and Medicaid, and ask ourselves if indeed
this money were made available to them in the form of a
government draft or a refundable tax credit could be assigned
to private insurance, where would we be? What could they buy?
And would it indeed be possible to create the same revolution
in health care that we did in these other industries that I
mentioned?
Secretary Thompson. Thank you so very much, Congressman.
Let me take your question and expand on the answer if I may.
If you really want to get at health care costs, we have got
to have a Medicare prescription proposal, because that helps
the States as well because it funds the dual-eligibles'
prescription drugs. The Medicaid proposal that I am advancing
is completely innovative, it is completely new, and it changes
the system and allows the entrepreneurship of Governors and
legislators to develop a whole new medical system in their
States. That is why Democrats and Republicans alike should
really like this proposal. Most Democrat Governors have taken
advantage of the waivers that already do what I am suggesting
we do in the new Medicaid law, and I know Republicans have as
well.
The third thing, let us take the President's tax credit
proposal. I think what we should do is expand it so that we
would require every State to put all of the uninsured into a
class. So for the State--I believe it is Arizona--I don't know
how many uninsured there are in Arizona, but let us say you
have 2 million people in Arizona that are not insured. The
Governor would put them all in a class of the uninsured and
would be able to negotiate. Could you imagine how many
companies would like to bid on 2 million people? And you have
some very healthy individuals in that uninsured population. The
categories of the uninsured are usually young, healthy people
that are not making enough money or starting out and don't
think they are ever going to get sick. So it is a good class,
and it should be quite competitive. There are some other people
that can't get a job and have got some other problems that just
can't get insurance. But overall, the class would be very
competitive if you had that big of a buying category.
So if you had the buying category for the uninsured, and
then allowed the State or the individual to go down to the IRS
office, get the number from the IRS office which would equate
to cash, $1,000 for a single, $3,000 for a family to buy a
family plan, you could conceivably move millions of people from
being uninsured to insured, and it would lessen the cost of
health delivery because those individuals go to the emergency
ward because they wait until they get sick. But if they got
insurance, you could also then put in, which I would like to
see, disease management or preventative health, and you would
save megabucks. It would work, it would solve the uninsured,
and it would also improve the quality of health in America.
Mr. Franks. Thank you, Mr. Secretary. My time has expired.
Mr. Shays. Thank you. I was probably not paying attention
to the clock. I am sorry, folks.
What we are going to do is we are going to go to Brian
Baird and then Rosa DeLauro.
Mr. Baird. I thank the chairman and thank the Secretary for
your--I found your testimony refreshing and interesting. I
would like if your staff could give me a copy of the proposal
you just described for dealing with uninsured. I would welcome
that.
Secretary Thompson. Thank you. It is in my head, but I will
write it down for you.
[The information referred to follows:]
Provide Individual Tax Supports for Health Insurance Costs
Offering health credits. The President's budget also proposes $89
billion in new health credits to make private health insurance more
affordable for Americans who do not have employer-subsidized insurance.
As part of the Department of Treasury budget proposal, eligible
families with two or more children and incomes under $25,000 could
receive up to $3,000 in credits to cover as much as 90 percent of the
costs of purchasing health insurance. The credit phases out at $60,000
for families. Eligible individuals earning up to $15,000 annually would
receive up to a $1,000 tax credit. For individuals, the credit phases
out at $30,000. The credits are refundable, so their value does not
depend on taxes owed. Beginning in July 2005, advance credits will be
available allowing individuals to directly reduce their monthly premium
payments. The health credits could also be used in privately sponsored
health insurance purchasing groups. This proposal is expected to
provide coverage for Americans who would otherwise be uninsured for one
or more months, and will help many more working low- and moderate-
income families who currently purchase private health insurance with
little or no government help.
Mr. Baird. Alright. Let me throw out a few things and then
let you choose how to answer them in the 5-minute time in the
interest of everybody else.
First of all, I want to associate my comments with that of
Chairman Nussle. Washington State, as you know, is quite
disadvantaged relative to other States in Medicare
compensation, and the fundamental principle to me is everybody
pays into the Medicare system at the same rate, everybody
should receive the same benefits regardless who they are. And
if I may, and I don't mean this to sound critical, but you have
been, I think, constructive and shared that you have a number
of ideas to fix a number of problems and invited Mr. Hensarling
and others to join you on fixing those problems. I will offer
to you that I will be happy to work with you to fix this
problem, and if you have some ideas for how we can do so, I
would appreciate it. So don't just leave it to the Congress.
You are the Secretary, and we will work with you on this, but
this is, I would say, the number one priority for many of our
States in health care.
So secondly, I want to associate myself with Lois Capps'
comments on loans. I just came back from a tour of several
community colleges, and they are very concerned. It is not your
Department, but it affects this issue of nursing supply. I
didn't mean loans, I meant vocational--Carl Perkins vocational
programs.
The Carl Perkins cuts proposed will substantially adversely
impact our ability to train nurses, and I hope you will work
with your colleague, Mr. Paige, and others and the
administration to fully fund those vocational funds for nurses.
Finally, let me ask as a former practicing clinical
psychologist, I am interested in mental health issues as you
see them, and where you see that going from here, and how we
can address the growing mental health needs and reduction in
services for folks who need mental health. And thank you for
your comments.
Secretary Thompson. Thank you, Congressman.
The first one on the uninsured, I would love to sit down
with you. I have got some and I will put out some of my ideas
in writing and send them to you, and if you want me to come up
to your office, or you can come down, and I would like you to
come down and see the communication room. I keep saying that
because I think you would find it very fascinating and
exciting, and allay a lot of your fears, which hopefully will
allay a lot of your constituent fears about how well we can
respond to a bioterrorism, chemical, or radiological attack.
And secondly, in regards to the Carl Perkins, you will have
to work with my colleague. I am confident he will want to work
with you. Nursing is very important to all of us, and
Congresswoman Capps has taken the leadership role, and I
commend her every time I get a chance to see her on that, as
well as several other people. Billy Tauzin was another great
leader in this thing. And I think we can work something out.
In regards to the SAMHSA budget, we have put in $200
million for a new State voucher program that hopefully is going
to allow the States to set up accountability and
responsibility, and allow for more money to get out to faith-
based communities as well as other individuals in the community
to offer mental health services. We are also putting in an
additional $16 million for mental health services, $9 million
for children's mental health services, and $7 million for
projects for assistance with transition from homelessness. And
we are putting in a lot of--I think it is $50 million in a new
program to counsel children of prisoners, which has some mental
health association, as you well know.
Mr. Baird. How do those increases correspond to
inflationary levels? Will that allow us to maintain current
levels of spending?
Secretary Thompson. It increases them quite a bit.
Mr. Baird. Over inflation?
Secretary Thompson. Much, much higher. Probably the biggest
increases in this program ever. In fact, the voucher program is
brand new.
Mr. Baird. Let me, if I may----
Secretary Thompson. And as you know, the President has come
out in favor of equal parity of mental health and believes very
strongly in that.
Mr. Baird. I would strongly endorse that and was going to
ask you that very next question. I would very strongly endorse
that and appreciate your commitment to that.
Secretary Thompson. I was in favor of that when I was
Governor, but I never quite got the legislature to go along
with that.
Mr. Baird. I will work with you on that one, too.
On the SAMHSA front, one of the concerns that you may be
interested in looking into this, I don't know enough, but I
hear from folks that dual-diagnosis patients, i.e., patients
who have substance abuse problems and mental health problems.
The funding streams are tied up in bureaucracy occasionally, so
that if you are trying to treat a patient who is, say, dealing
with affective disorder and has an alcohol problem, which is
very common, you are restricted. And some of your reform
efforts might look at that, and I would also be happy to work
with you on that.
Secretary Thompson. You know, Congressman, the best thing
you could do for me is to point out exactly where it is. If you
have got prime examples, I love ideas, and I love to find out
where something is wrong in my Department, because it doesn't
take me long to get it fixed. I tell people if they believe in
the status quo, I don't want them on my team. And if they are
not living on the edge, they are taking up too much space. So I
want individuals that are willing to make changes.
Mr. Baird. Thank you.
Mr. Shays. Thank the gentleman.
We will go to Doc Hastings and then to Rosa DeLauro.
Mr. Hastings. Thank you, Mr. Chairman.
And, Mr. Secretary, welcome to the committee.
Secretary Thompson. It is always a pleasure. How are you,
my friend?
Mr. Hastings. I am doing well. Thank you.
I do want to, however, associate myself with the remarks of
my colleague from Washington and the chairman, because as was
mentioned, Washington is one of those States that is under-
reimbursed by the formula on Medicare. And I have had examples
where providers have come in, and, you know, you have heard all
the horror stories. So I look forward to seeing your proposal.
And I hope there is a lot of choice in there because it----
Secretary Thompson. Congressman, the truth of the matter is
we have to work together on this, because it just can't be
something from the administration.
Mr. Hastings. I understand that, but you have to put the
proposal down, and we have to respond to that. So it always has
been amazing to me the idea that when you turn 65, you can't
make a decision; it boggles my mind, and that shouldn't be so.
Mr. Shays. A little more personal now, isn't it?
Mr. Hastings. Well, it is. Yeah. A little ways to go there.
But one thing I want to talk about. You mentioned Medicaid.
You spent a lot of time on Medicaid. You may have responded to
this when I was gone, but--and you also tied Medicaid reform
with SCHIP. In Washington State, our legislature passed a plan
prior to SCHIP that covered funding up to 200 percent.
Secretary Thompson. You can't use your SCHIP money. This
one would allow you to use it.
Mr. Hastings. That is exactly my question. The flexibility
that you are talking about----
Secretary Thompson. Absolutely.
Mr. Hastings [continuing]. As it applies to Washington
State would allow that to be used.
Secretary Thompson. Absolutely, Doc. There are four States,
Washington, New Hampshire, New Mexico, and Vermont, that can't
use their SCHIP money because their legislature went out first
and passed it, and they have been discriminated against because
they can't use it. What they do is they have to send it back
in, and then it is sent out on an apportionment basis to other
States. So Washington's SCHIP money is not going to Washington;
it is going to all the other States around the country.
This proposal would allow you to use your SCHIP money. For
instance, it would allow you not only for children, but it
would allow for low-income working parents of those children to
sign up for health insurance as well and have the Federal
Government pay 70 percent of it. It is a wonderful program. As
I told Congressman Moran, I would have walked to Washington
from Wisconsin to get this deal.
Mr. Hastings. Washington, DC.
Secretary Thompson. To Washington, DC, and I think the
Governor of Washington would like the same. I am working with
Governor Locke, and he sees the merits of it. I am confident
that unless it becomes a partisan issue, he will strongly
support it.
Mr. Hastings. Well, thank you very much, Mr. Secretary, for
that clarification, because I felt that Washington fell under
that, and I just wanted to get it on the record that that is
precisely what you are proposing to take care of those States
that are ahead of the curve, so to speak. So I appreciate very
much your response to that.
Secretary Thompson. Thank you very much.
Mr. Hastings. Thank you.
Mr. Shays. My colleague from Connecticut, Rosa DeLauro.
Ms. DeLauro. I want to thank the Chair, and welcome, Mr.
Secretary. It is a pleasure to see you today.
Secretary Thompson. It is always a pleasure to see you, as
you know.
Ms. DeLauro. Thank you. And I look forward to your coming
before Labor/HHS to have an opportunity for additional
questions.
The first is, I think, a different change, although I
didn't hear all the questions. I want to address the issue of
child care and TANF. In 2002, and this is a quote from you, Mr.
Secretary, that was absolutely right then, and it is absolutely
right now, ``I can tell you from my experience as Governor of
Wisconsin, access to child care assistance can make a critical
difference in helping low-income families find and retain
jobs.''
We know that that is the case, given what today is all
about. And yet, in the President's budget, it flat funds the
child care and development block grant. It has 4.89 or $4.78
millions----
Secretary Thompson. It has $4.89 million.
Ms. DeLauro [continuing]. Over the next 5 years. The fund
currently serves only about one in seven eligible children.
Let me take the State of Connecticut; 4,000 families are on
a waiting list for child care. The waiting list in Connecticut
opened in August, 2002; and we know that States have directed
substantial shares of TANF funds to child care in recent years.
But, even with this, the child care is only reaching a very
small proportion of those children who are eligible.
Now we have got some changes in the new welfare reform
legislation. And I--we talk about welfare reform having worked
and, you know, tout the success of that, but we also want
change. We want to say, let's move from a 30-hour work week to
a 40-hour work week; and I am not disputing that. But if I am
going to go to work for 40 hours, rather than 30 hours, what in
God's name am I going to do with my kids? I haven't been able
to take care of them in those 30 hours, and now I have got 40
hours. Where do I go and what do I do when this backs a law in?
I don't understand the rationale for freezing child-care
funding in the budget. I am not even going to talk about
education and training not being part of what we are talking
about. Good Lord, if we could all get educated and trained in
the same way, then maybe we could do away with the welfare
system and so forth. But let's leave that for Labor-HHS. Let's
just focus in on the child care.
I just think if we are now going to say to States, you are
now going to have to deal with this, let's keep in mind you are
not able to deal with it now. But now you have got to deal with
this because we are going to move from 30 to 40. You handle it.
What happens with this current commitment that we have to
lower-income workers? The States are going to have to do this.
I mean, this is unfunded mandate. I don't think we can just
slip that by and say it is not.
Now the fact of the matter is, what kind of analysis--and I
applaud the work that you do in your shop. What kind of
analysis has HHS done to determine whether this welfare plan is
feasible? The current--my State of Connecticut--my colleague
from Connecticut will address this issue. We are in a tough
spot in the budget in the State of Connecticut. Most States are
this way. How are they going to handle these, this new
requirement? What has your shop done to analyze this to find
out if the fiscal condition of the States is going to allow
them for dealing and handling with these new requirements?
Secretary Thompson. Thank you very much, and thank you for
your passion. You know, I really like your passion; and I would
like to have a chance to discuss things with you, because we
get along.
Ms. DeLauro. We do.
Secretary Thompson. Several things I want to point out.
First off, the amount of money is not flat funded. If you
look, the number of children has been reduced in the last 5
years, but the $4.8 billion was set. So you have half as many
children today as you did back in 1997 when you passed the
first TANF bill.
Secondly, the number of hours is not only work hours. Work
hours go from 20 to 24. The additional 14 and a half hours is
for education, taking care of your children, allowing parents
to be involved in PTA, going down to monitor your children in
class, and being with your children. That would qualify for the
14 and a half hours.
The third thing is the House bill increased the child
support money by an additional $3 billion--$1 billion in
mandatory, $2 billion in discretionary. So there is an
additional $3 billion in the over 5 years in the House bill
that passed.
This is something that most people don't understand--under
the existing TANF law, there is a provision that prevents
States from using any excess money for child care. They have to
use it on benefits. Right now there are $2.5 billion--$2.5
billion of unused TANF money out in the States that could go
for child care; and some of that money is in Connecticut. If
the TANF bill as we propose passes that is money that could go
for child care, education and transportation instead of for
benefits. So there is an additional $2.5 billion that is locked
up because of the restrictions under the current TANF law which
will be changed in the new TANF law.
Ms. DeLauro. Is that money fungible? Can it be used
anywhere or does it have to be used just on----
Secretary Thompson. Just benefits. It all can be used under
the current laws just for cash benefits, and that is why it is
not being used. Therefore, if the new TANF law goes through,
that money could be used for child care as well, Congresswoman.
Ms. DeLauro. Just a quick point. I know that the number of
kids may have gone down, but I think that you are looking at
the TANF caseloads. With all due respect, Mr. Secretary, I
believe that there are loads of kids out there who are eligible
who we now cannot accommodate in any way. It is still my fear
that we are not going to be able to accommodate them, and there
are going to be more because more people are becoming
unemployed in today's economy.
Secretary Thompson. But the caseload is still declining.
The view shows that the decline has been through September, and
that was a report that was put out by my Department I think
last week. That is through September through the fiscal year.
I don't have new numbers for the next quarter. You may have
more modern numbers than the Department does. I don't think you
do, but ours show that there has been a decrease of an
additional three and a half percent in past year and among
single parents, 6 percent. So we are still working on that.
But, you know, this thing has got a long ways to go. But I
hope that the Senate will pass it, and hopefully we can
continue to work to improve it.
Ms. DeLauro. Thank you, Mr. Secretary. I thank the Chair.
The Chairman. Ms. Brown-Waite.
Ms. Brown-Waite. Thank you, Mr. Chairman.
Mr. Secretary, I represent a district in Florida just north
of Tampa, a very heavy retiree population. Medicare+Choice is a
very successful program in the counties where it is offered.
The problem is that we don't have it in all of the counties and
the reason being the reimbursement level.
Secretary Thompson. You are right.
Ms. Brown-Waite. Is it accurate that previously there has
only been a 2-percent increase in Medicare+Choice
reimbursement, even though their costs have gone up 8 percent?
Secretary Thompson. You are absolutely correct.
Ms. Brown-Waite. Well, Mr. Secretary, then it just seems to
me as if we are on a road of making sure that Medicare+Choice
is available in fewer and fewer areas.
Secretary Thompson. You are absolutely correct.
Ms. Brown-Waite. What is the reimbursement that is planned
for this budget that we have before us? What is the
reimbursement increase?
Secretary Thompson. A lot higher as it was last year. But
Congress didn't pass it.
Ms. Brown-Waite. What is a lot higher? What is the
percentage that is in your budget?
Secretary Thompson. I will be able to tell you that very
soon, but it is a lot higher.
Ms. Brown-Waite. A couple of other questions, Mr. Chairman,
if I may continue.
Secretary Thompson. Yes, you know, I agree with you. I
mean, we are starving the problem as a result of us going down.
We have got to put some more money into it if we want to make
the program successful, and the seniors that do have
Medicare+Choice like it.
Ms. Brown-Waite. The seniors who do have it do like it, but
I have counties where Medicare+Choice has pulled out because of
inadequate reimbursement.
Secretary Thompson. And you are right.
Ms. Brown-Waite. The----
Secretary Thompson. Congress made the decision in 1998 that
they were going to try and get it to expand faster into rural
areas, so they decreased the amount of reimbursement. That was
a conscious decision by Congress, which reduced the
reimbursement to 2 percent and then even some years lower than
that from 1998 up until the present. Until last year we tried
to increase it to 6.5 percent. And Congress came back with 2
percent. So we have tried in the administration to raise it,
and as a result it was a failed decision.
I mean, I am not being critical. Probably Congress thought
they were doing the right thing, but they made the wrong
decision by starving a growing program in urban areas in order
to try and force it to go into rural areas by giving more money
to rural areas, and then nobody showed up.
Ms. Brown-Waite. My next question concerns the cost of the
prescription drug program. In the budget that has been
proposed, it is a $400 billion amount for the prescription drug
program. Previously, the amount was $190 billion that was
proposed last year. Help me to understand why the substantial
increase in the amount.
Secretary Thompson. The increase is because Congress as
much as told us that if we didn't come in with an amount that
was going to be close to what they were working on that the
proposal would be a nonstarter.
Secondly, we want this proposal to pass.
Third, we are making some meaningful changes which are
going to require more dollars be put into it.
And, fourth, we want to get something out there that has a
much better probability to get fast action, which needs to be
done. I am fearful that if it waits till next year it is going
to get tied up in presidential politics, and once again we will
fail to gets a Medicare proposal passed.
Ms. Brown-Waite. The last question that I have for you
concerns reimbursement to physicians. In Florida, because of
the aging population, up to 85 percent of the patient caseload
are Medicare recipients. The doctors had cuts, substantial
cuts, and when your income goes down because of cuts and your
expenses because of medical malpractice go up, I have
physicians who are specialty physicians who are moving out of
the area. Now the States and the Federal Government hopefully
will do something with tort reform. But what about the
reimbursement rate for physicians? You know, 85 percent of your
caseload in my district for the doctors that I have spoken to
are Medicare. So they can't offset that with private pay.
Secretary Thompson. I am happy to report, with the work of
the Congress and the most recent appropriation proposal which
was signed into law by the President, we have been able to
adjust upwards from a 4.4-percent reduction for doctors to a
1.6-percent increase, which will be published on Friday of this
week. So on Saturday, March 1, doctors will, instead of getting
a cut, get a 1.6-percent increase.
Ms. Brown-Waite. What is in the budget for the 2003-2004--
any increase?
Secretary Thompson. That is going to have to be decided by
Congress, Congresswoman.
Ms. Brown-Waite. Thank you.
Chairman Nussle. Thank you.
Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman.
Mr. Chairman, before I begin my questions, I noticed on the
schedule that the hearing for the education part of the budget
had evaporated. That is a very important part of the budget,
and I was wondering if we could get--if the Secretary can make
it, if we could hear from somebody from the administration that
can explain to us what is happening to education funding.
Chairman Nussle. I thank the gentleman. If you would yield,
the OMB Director did cover that in his testimony; and it was
our hope to be able to get Secretary Paige. We had him
scheduled for tomorrow, but there was a scheduling conflict
together with our defense hearing. I had to make a judgment
call, and defense took a priority at this moment in time
because we had the opportunity to have the Secretary.
Having said that, I would be happy to work to try to
include an education hearing. That is--we have done that in
years past. It was no intent to do anything but just to make
sure we accommodate all of the different, various schedules.
Mr. Scott. I would hope that we could do that before the
mark up, Mr. Chairman, so it would be a meaningful hearing. I
thank you for your cooperation.
Mr. Secretary, it is good to see you again.
Secretary Thompson. It is always a pleasure, Congressman.
Mr. Scott. You mentioned diabetes, and I was wondering if
you were familiar with the research that is going on in the
Eastern Virginia Medical School.
Secretary Thompson. Where?
Mr. Scott. Eastern Virginia Medical School. If not, I would
like to get you about a one-page summary of some of that very
exciting research.
Secretary Thompson. Please do. I speak about diabetes all
over the country, and any information that might further
enhance my ability to speak on it, I would appreciate.
Mr. Scott. Thank you.
The Medicaid option, I am not sure I completely follow it.
But my question would be, as I understand, it is a option--you
don't have to take it?
Secretary Thompson. That is right. It is voluntary.
Mr. Scott. And if you don't take it the rules don't change?
Secretary Thompson. The rules don't change.
Mr. Scott. If you switch and figure out it was a bad idea,
can you switch back to the old system?
Secretary Thompson. No.
Mr. Scott. OK. Low-income heating assistance. It is my
information that heating costs per gallon have gone up 30 to 50
percent. That is before we go to war and might get more than
that. The LIHEAP budget, as I understand it, goes up 20 percent
from last year, but even funded from the year before that. How
is that going to work for people getting--buying the same
number of--are they going to buy fewer gallons, be able to buy
fewer gallons of heating fuel, or will fewer people be eligible
for coverage?
Secretary Thompson. That question has not been asked. I
haven't looked into it, Congressman. But I certainly will and
get an answer back to you.
I can tell you that the Congress took out discretionary
money of $100 million and put it into the base funding so the
LIHEAP money is going to be at $1.8 billion this year, in
fiscal year 2003; and that is approximately $200 million more
than it was this year.
[The information referred to follows:]
Low-Income Heating Assistance
While heating oil prices have spiked recently, we are moving into
the time period when oil use and purchases decline. The Department of
Energy expects this to be a temporary price increase. You asked how
price and funding changes would affect the amount of fuel LIHEAP buys
for each household, and the number of households served. Since LIHEAP
is a block grant, States make those decisions. This year, I was
concerned with higher-than-expected fuel oil prices; that is why a
significant portion of the contingency funds I released January 24 were
directed to States based on their dependence on fuel oil. My fiscal
year 2004 budget request includes $300 million in contingency funding
to address unanticipated needs such as those due to bad weather or
abnormally high prices.
Mr. Scott. This year was a cut from the year before, as I
understand it.
Secretary Thompson. No, it was in discretionary money which
was not all used, Congressman.
Mr. Scott. OK.
Secretary Thompson. This is going to be a mandatory fund so
it will all be sent out, $1.8 million, which will be more money
than it was this year.
Mr. Scott. Mr. Secretary, the last time----
Secretary Thompson. I just have been corrected. It is the
$200 million that was added to the 1.8, so it will be $2
billion next year in 2004. It is going to be 1.8 in 2003 and $2
billion in 2004.
Mr. Scott. OK. And it was $2 billion in 2002.
Secretary Thompson. It was 1.6 in 2002. It is 1.8 in the
fiscal year we are in, 2003; and it will be $2 billion,
additional $200 million, for fiscal year 2004, Congressman.
Mr. Scott. Mr. Secretary, the last time I was asking you
questions, I asked you about discrimination.
Secretary Thompson. Yes, I know you did.
Mr. Scott. And you said at that time that discrimination
with Federal money was wrong, period.
Secretary Thompson. Yes.
Mr. Scott. Trent Lott said that if Strom Thurmond had been
elected we wouldn't have had all these problems over all these
years. Can you explain to me what problems the 1965 executive
order has caused which prohibits discrimination in Federal
contracts?
Secretary Thompson. I don't know what Trent Lott has got to
do with that. Are you talking about the faith-based initiative?
Mr. Scott. Yes, if the faith-based organization is hiring a
truck driver, an accountant, a typist or a custodian, they can
tell them, no, we don't hire your kind. You are in the wrong
religion under the President's executive order.
My question was----
Secretary Thompson. Nothing in the faith-based initiative,
Congressman, promotes or encourages hiring discrimination. It
doesn't take away any freedom that they currently have.
Mr. Scott. Mr. Secretary, before the President's executive
order, you could not tell somebody that they couldn't be hired
solely because of their religion with Federal money. After the
executive order, you could tell somebody--you can practice all
the bigotry you want and tell somebody, no, you don't--you
can't get hired because of your religion. If it is an all-white
church, you can manufacture an all-white work force. You
couldn't do that before the President's executive order just a
few weeks ago, isn't that right?
Secretary Thompson. It does not discriminate against people
on race or sex.
Mr. Scott. If it is an all-white church, you can hire an
all-white work force.
Secretary Thompson. It allows religions to hire people from
that religion.
Mr. Scott. Or exclude religions. You can consider religion
when you hire. In other words, we don't hire your kind. You are
in the wrong religion.
Secretary Thompson. You can consider religion when you
hire, yes.
Mr. Scott. Is that a problem?
Secretary Thompson. I certainly hope not.
Mr. Scott. I mean, before the executive order, you couldn't
do that.
Secretary Thompson. But it doesn't allow you to
discriminate on race or sex.
Mr. Scott. Just religion.
Secretary Thompson. Just religion.
Mr. Scott. Is that a good idea?
Secretary Thompson. Yes, I believe it is.
Mr. Scott. That is not what you said last time we talked.
Secretary Thompson. I said last time that we should not use
Federal dollars for discrimination based upon race or sex. I
believe that the President has made a decision that money
should get to faith-based groups wherever possible, where they
have not had the opportunity in the past. And the executive
order, as you pointed out, allows religious organizations to
look at religion in hiring, but not based upon race or sex.
Chairman Nussle. Thank you.
Mr. Davis.
Mr. Davis. Thank you, Mr. Chairman; and, Mr. Secretary,
good afternoon to you.
Secretary Thompson. Good afternoon.
Mr. Davis. Let me ask you about a comment that you have
made in a few press conferences and I think you made in
response to Mr. Gutknecht's questions earlier. That is, the
degree of flexibility that States would have to make certain
geographic changes in the way that they administer the Medicaid
program. You were stating that one of the virtues of the
program was that Minnesota, for example, or, in my case,
Alabama could recognize some of the differences and costs and
needs between a central part of the State, a southern part of
the State. Give me some--let me come at it this way.
Secretary Thompson. OK.
Mr. Davis. What kind of reassurance can you give people who
are living in certain rural areas or in certain isolated parts
of States that they won't get caught in that calculus that
States are trying to perform? It seems that one aspect of
flexibility under your program is that it would give States
some capacity to shift resources away from certain high-need
areas. If that assumption is not right, tell me why it is not
right.
Secretary Thompson. It is not right. Let me tell you why.
The current law requires every class to be treated
uniformly. These are optional programs. The State only has two
choices. Continue the program as is, or drop the program for
the optional population. And if it is in central Alabama--you
represent Alabama----
Mr. Davis. Alabama, that is right.
Secretary Thompson [continuing]. Central Alabama, I would
think your constituents would like to have a third choice,
instead of either. Because Alabama has got financial troubles
and they are going to cut back some of their program, I would
like to think that most people in your constituency would say,
I would like to have a third option. Maybe reconfigure the
benefits and allow the Federal dollars to continue and allow
the program to continue.
The States don't have that option under the existing law.
The States would have that under the new proposal.
The fourth option would be that the State would not have to
do it. It is completely voluntary for the State.
And, the State would pay less and get more Federal dollars.
I think all of those things would argue for you to support
it.
Mr. Davis. Let me come at it this way, Mr. Secretary. Let's
say----
Secretary Thompson. Did I answer your question?
Mr. Davis. To some degree. To the degree you didn't, I will
follow up on it right now.
Would the States have the flexibility if they opted into
this program to say, for example, there is a particular part of
our State where we think that the problem of children having
dental care is not as acute as some other part of the State so,
therefore, in this part of the State we are going to cut back
on funds for dental care for children. Is that a hypothetical
under your proposal?
Secretary Thompson. I can't imagine any State legislature
ever allowing that to pass. Can you?
Mr. Davis. Well, coming from Alabama I have seen things
like that happen in my State, so it is--we haven't had a
Governor like you, unfortunately.
Secretary Thompson. Congressman, you would have to pass
that particular law in the legislature, and I can't imagine in
modern day that would ever happen.
Mr. Davis. But there is nothing in the proposal, nothing in
the regulations that would constrain the States' abilities from
doing that.
Secretary Thompson. Unless it is the mandatory population.
All the rights and all the responsibilities and all the
protections are there, but the State now could drop the whole
class, and that would be much worse.
Mr. Davis. Let me shift----
Secretary Thompson. You would have to take dental away from
the whole class, but you would still allow for basic benefits,
which is a tremendous benefit for the States instead of
dropping it. Because the problem is, under the existing law, 38
States have dropped optional programs this past year. A million
people have already been dropped. Next year, 42 States are
going to cut back even further; and more people are going to be
dropped. I want to give these States the option to keep those
Federal dollars coming in and give them the option to keep
these programs alive.
Mr. Davis. Let me cut you off for one second so I can sneak
one more question here. Let me turn to Head Start, which I
don't think we have covered today.
Let me anecdotally report to you that in my district a
number of people are very concerned about the changes in Head
Start; and certainly, as Governor, you have had a fair amount
of experience with the program.
Secretary Thompson. Very much so.
Mr. Davis. In the time that you were Governor of Wisconsin
did you find the Head Start program to be less than effective
and, if so, did you speak out on that? Did you make attempts to
change it as Governor?
And the final part of that, Mr. Secretary, give me some
sense when right now most statistics indicate that children are
performing at a better level educationally coming through Head
Start than children who don't go through Head Start at the same
socioeconomic level, given the fact that those educational
benefits are being conferred, why shift the program from HHS to
Education at all?
Secretary Thompson. I am not going to answer the last part
of it, but I will answer everything else.
Mr. Davis. Can I have a point of order on that, Mr. Chair?
Secretary Thompson. While the program is in the Department
of Health and Human Services I am going to do everything I
possibly can to make it the best program possible.
Secondly, I did not, when I was Governor, get involved in
Head Start because I had no ability to. I would have liked to.
I think Head Start is an excellent program. But I would like to
be able to take my pre-education dollars from my early
childhood programs that I put in when I was Governor for early
childhood, be able to use the opportunity to integrate them in
with Head Start and make an even better program. Under the
current law, I can't do that.
Under the changes that are being advocated, it would allow
Governors to be able to work with the Head Start people and be
able to use the pre-education dollars from the State, if the
State has any, to work with Head Start to improve the overall
program, which is completely voluntary and would require the
sign-off of both the Secretary of Health and Human Services and
the Secretary of Education.
Mr. Davis. OK. Thank you, Mr. Chairman.
Chairman Nussle. Thank you.
Mr. Cooper.
Mr. Cooper. Thank you, Mr. Chairman.
Thank you, Mr. Secretary, for being here.
If we were to look back at this hearing 5, 10 years from
now and a historian judged it, a big-picture presentation would
seem to me to be something like States have deficits and those
deficits are being used, basically, and Medicaid, as we know
it--and let's not prejudge that issue--Medicaid needs a lot of
changes and you have been, you know, great in granting
flexibility to States. It also seems like Federal deficits are
being used to end Medicare and perhaps Social Security as we
know it. And to me, it is important for us to be aware of the
magnitude of the changes at the time they are being made.
Because, so far at least, you haven't issued a press
release to this effect, yet the cumulative weight of the
proposals is even attracting the attention of folks like Robert
Pear and Robin Toner at the New York Times in their February 24
article where they start hinting that this isn't son of Bush or
son of Reagan. This may be son of Barry Goldwater sort of level
of changes. So that the public can understand them, to me,
truth in budgeting is a good idea, government transparency is a
good idea, and if these changes need to be made, let's be open
and forthright with the American people about making such
changes.
So what would your response be? Are these changes of these
magnitudes? Are you going to be speaking at banquets 10 years
from now saying that you ended Medicaid as we knew it in the
year 2003 or Medicare or Social Security as we knew it?
Secretary Thompson. No. Thank you for the question. I think
5 years, 10 years from now people are going to look back at
this and say this was--if we do our job, that this was the most
constructive Congress that made the most positive changes to
allow programs to continue to grow better, with more quality
and better health care than ever before. And if we don't do
that, Medicare, Medicaid and Social Security--let's forget
about Social Security, that is not here. Let's talk about
Medicare and Medicaid. That if we don't make those changes we
are in a world of hurt.
Last year, a million people were dropped from Medicaid.
This year, an additional 2 million people are going to be
dropped. With the Medicaid proposal that I am advancing, it
takes the best of the work ability of TANF and of SCHIP and of
the mandatory populations in Medicaid and allows it to continue
to grow and expand. And I think you should support it,
Congressman, with enthusiasm.
Mr. Cooper. To put it in language that corporate America
could understand, are you shifting these programs from defined
benefit plans to defined contribution plans?
Secretary Thompson. No, I am not.
Mr. Cooper. Are you shifting away from the concept of
social insurance?
Secretary Thompson. Absolutely not. We are expanding social
insurance, Congressman, because I think those States that would
have my option on Medicaid would not have eliminated a million
people. They would have been able to reconfigure it so a good
share of those million would have been able to stay in the
system, which I think you would support, and I know I do.
Mr. Cooper. Well, it seems easy to support in the short
run. But 3 years hence aren't Governors going to be coming back
and saying, hey, we are going to have to pay back all this
money you allowed us to receive now. And many States
traditionally have been unwilling to support their poor.
Wisconsin is different. You may be a social model for the rest
of the Nation. But Tennessee is not at all like Wisconsin.
Secretary Thompson. But, Congressman, you didn't hear me.
You don't pay the money back. You don't pay the money back. I
don't know, you must have been out of the room. Medicaid is
growing at the rate of 9 percent a year. So the trend line
nationally is 9 percent. For the first 7 years, the States that
voluntarily go into this would be above that trend line, at 10,
11, 12 percent. The trend line continues and the mandatory
population continues, no matter what, the same as the existing
law.
Mr. Cooper. But two-thirds of the program is optional.
Secretary Thompson. One-third of the population and two-
thirds of the benefits are optional, which is two-thirds. But
in the 8th year you would go below 9 percent. You would still
be getting an increase, but you would drop maybe down to 6
percent. Not a payback of 7 percent or 8 percent, depending
upon the trend line, because each year we have to reconfigure
the trend line.
Mr. Cooper. After you are Secretary, Governors may have a
different view of the plan. But I hope you are building
something that will last for the future.
I admire so much of your record of innovation. You are an
accomplished public servant. But these changes need to be
clearly explained to the American people so they can have----
Secretary Thompson. I want to explain them to you first so
you understand so you can explain them to your constituents. I
am confident that this is a bigger change, a more important
change for more people than the TANF proposal, and it will be
more accepted, and 10 years from now you will be one of the
individuals out there saying we did the right thing. We changed
it, and we saved it, and it is going forward. And I am
confident you will make that decision.
Mr. Cooper. Like with TANF which ended welfare as we knew
it, we will be ending Medicaid as we know it.
Secretary Thompson. No, we will not, because it is not a
block grant.
Mr. Cooper. I am not talking about block grants. I am just
talking about such a fundamental transformation of the program.
We end it as we know it. That was the phrase used with welfare.
Secretary Thompson. But it is not ending it as we know it.
It allows it to grow and to continue. It allows the mandatory
population to get all of its protection. It isn't that big of a
change because the States are already dropping these optional
programs and optional populations. They have no choice. This
proposal allows them to reconfigure it, maybe increase co-pays,
maybe drop one of the benefits instead of the whole class,
maybe reduce one of the benefits, but allow more people to be
in.
Let me give you an example. The State of Utah's Medicaid
plan was so rich that it was higher than what the Governor and
State legislature and the State employees had. They asked for a
waiver to reduce the Medicaid health insurance plan to equate
and be able to be purchased with the State employees plan. So
they reduced the Medicaid plan down to what the State employees
and the State legislature had and were able to expand it so
25,000 more people could come into it. That is the kind of
innovation that we are looking for.
Mr. Cooper. I know that I have strained the patience of the
Chair. Thank you.
Chairman Nussle. Not the impatience of the Chair, it is
just there are other members who want to inquire. Mr. Emanuel.
Mr. Emanuel. Thank you, Mr. Chairman.
Mr. Secretary, I want to thank you for your comments about
chronic illnesses that go on in this country, as a son of a
pediatrician and the son of a nurse. But the lecture you gave
us all on tobacco I would recommend be given to other
audiences, and to the general public as well.
Secretary Thompson. I hope I wasn't lecturing to you.
Mr. Emanuel. No, felt good. Don't worry about it. I am the
father of three little children. They often lecture me.
My point is, on the comments about tobacco, those comments
need to be broadened not only by the Secretary of Health but
also by the President as well as the people who overwhelmingly
support your party, the Republican party. So I have no problems
with it.
I am glad to hear your comments. I agree with those
comments as somebody who, for over 20 years; I swim a mile
three times a week; and bike 12 miles twice a week. I believe
good health is the best preventive medicine. So I appreciate
your comments.
To your offer on the uninsured, my father is retired from
his pediatric practice 4 years. He dedicates 1 day a week,
doing exactly SCHIP program for the City of--Health Department
of Chicago. As I said, it is good for the kids, it is good for
my dad, and it is great for my parents' marriage now that he is
retired. So I believe in it, and I would take you up on your
offer and anybody you want to send over to my office to meet
and talk about your plan for the uninsured.
In Illinois, the SCHIP program is known as KidCare. It is
something I was intimately involved in negotiating when I
worked in the White House, and I advocated to expand it to
family care. I think one of the craziest things to do is have
kids in there whose parents work full time without health care.
The kids are getting medical care, and the parents are sitting
in the waiting room without a doctor.
Secretary Thompson. You know what State was the first one?
Mr. Emanuel. Iowa and Illinois. But you only cover up to 33
percent.
Secretary Thompson. No, Wisconsin was.
Mr. Emanuel. Well, the second one was Illinois.
Secretary Thompson. Wisconsin was so far out in front of
Illinois, like they always are, that----
Mr. Emanuel. You are a real clean State, too. We always
know that. We just had our elections in Chicago, and about
30,000 of your citizens voted, so we thank you, also.
Secretary Thompson. My--I better not say it.
Mr. Emanuel. I think they are going to shut the microphones
on both of us soon. Some part of this hearing has been somewhat
of a rendezvous for you as a Governor. Some people talk about
your record as Governor and ask you questions about it; and the
truth is, you did very well as a Governor under those rotten
rules you had and--you did very well as a Governor. You were a
model on welfare and on health care and all the constricting
rules. Somehow you did very well.
So I would like to note that, although those changes--and I
am for reforms and changes, as somebody who worked in both the
SCHIP program and on welfare reform for the President. That
rotten, confining system allowed good Governors like you to
succeed.
Second is, on welfare, you made some comments earlier about
the welfare plan, and we kind of moved on to health care. And I
believe firmly in welfare reform. I worked on passing it. I
think it was the right thing to do. Because what we did is we
basically eliminated the speed bumps folks face through child
care, health care, transportation assistance, minimum wage and
the EITC to move from dependency to independence. And the best
thing we did is for those children whose parents now go to
work. They are tied into the culture of work. So, rather than
looking on the inside into the main value system in our
country, they are part of the main value system; and that is
something we can't measure yet that will pay off for
generations to come.
Unfortunately, not putting the resources--there was a big
poll done by the Joyce Foundation which showed that recipients
who were successful, that moved, needed more dependable,
reliable child care and health care; and, unfortunately, what
is in this budget doesn't allow them to do that. Now you can
say the goal is 70 percent. Without the resources there, you
can't achieve that. I believe in this, and I think all of us
who worked on this want to see this succeed. Setting an
arbitrary goal is the right thing to do. But without the
resources it is one of the most mean-spirited things you can
do.
To the issue on block grants and flexibility--and I know a
little about spin. I practiced it a little while. The problem
here is that you have confused people that somehow block grants
and flexibility mean the same thing. They are not the same
thing. Block grants are a method of financing, and flexibility
is a matter of administration.
You have the power as the Secretary of HHS, as you have
said, giving more waivers to give that flexibility. Block
grants is a matter of financing. As you have explained with
your 11, 12, 9 and 6, in fact, financing does go down; and you
are giving Governors a Hobson's choice. Get money now, and
leave your colleagues in the future in a straitjacket.
I would be interested in any reforms, but the one reform I
am very interested in as it relates to SCHIP--and I want to
make sure that I understand what you are asking because I think
as I read it--I could be wrong. I am positive of that, that I
probably am wrong--and it has bipartisan support here in
Congress and that is add flexibility to the SCHIP program by
reallocating expiring funds back to States to protect the SCHIP
coverage. About 800,000 children with coverage would be
threatened under current policy.
The administration itself advocated a similar proposal last
year, and I haven't heard recently you advocate that, unless it
is part of what you are talking about now. That, basically,
allows States to keep the money from previous years to roll
into the next year and States that succeed would also get more
money. So you would be actually rewarding success in moving
those children whose parents work full time into the health
care system. Is that part of the program you are talking about?
Secretary Thompson. No.
Mr. Emanuel. Did I go over or was it right on the line?
Chairman Nussle. Right on the line.
Mr. Emanuel. I tell you I hope you don't give that gavel to
my kids.
Secretary Thompson. Congressman, first, it was nice meeting
you last night. A mutual friend of ours speaks very highly of
you, and he told me that I had to get a chance to talk to you.
But there are several things you mentioned.
First, on tobacco, I speak about it, I am passionate about
it, and I am glad you are as well.
Secondly, I have the whole Department of Health and Human
Services on a diet, including myself. I give out walking meters
and make sure everybody tries to walk 10,000 steps a day so
that they stay in good health. Because I say, if we are going
to be Department of Health, we have got to lead by example.
Third, I am very glad that you convinced your President,
Bill Clinton, to sign the welfare bill after he vetoed it
twice.
Mr. Emanuel. They were different welfare bills.
Secretary Thompson. Well, he still vetoed it twice; and I
am very glad you weighed in on that.
Fourth, in regards to welfare, it is not mean-spirited. In
this particular proposal, half of the population, half of the
children are no longer on the program. Also, the Congress
increased the support by $3 billion for child support.
You cannot do welfare on the cheap. You have got to be able
to furnish for health care. You have got to furnish for
transportation and training, and you have got to also provide
for child support.
When I was a Governor I came to Congress and testified on
that, and I said you are not going to save money on welfare.
Because if you are going to get people to move from welfare to
independence you are going to have to put more money into those
four areas. I am happy to report that when I was Governor I
took all the children off the waiting list and everybody had
child care in the State of Wisconsin that applied for it. One
of the few States that did that.
Five, in regards to SCHIP, you are talking about the fact
that, in the current Federal law, a State has an allotment for
3 years and after 3 years the money is forfeited back to the
Federal Government if it is not used and then it is
redistributed throughout the country. Several States, such as
the States of Washington, Oregon, Tennessee and New Mexico,
cannot use their SCHIP money, so they never get the benefit of
it. This new proposal will allow them to use their money to
allow for working families to get the same coverage as their
children.
I am very happy that you support that, because this a
concept that I came up with in Wisconsin called BadgerCare,
that you can't expect the families to take the children in if
they need health insurance. You get more children covered if
you allow their parents to be covered, and this is going to be
allowed in the new proposal.
I disagree with you on the block grant. Block grants means
level funding like a block grant is for TANF, $16.8 billion a
year.
The Medicaid proposal continues to grow at 9 percent; and,
as you know from your experience in the White House, we have to
reconfigure that trend line each year. Next year, it may be 10
percent. Next year, it may be 11 percent. But we also are not
holding Governors to a different responsibility. They are
completely voluntary. If they want to go into the new system,
they can--if they don't----
I am confident once I get a chance to explain it to you you
will be supportive of it. I am confident that once I get a
chance to explain it to all the Governors, get the details out
there, 90 percent of the Governors will sign up for it. Because
it is the right thing to do. It gives them the flexibility and
the opportunity to get advanced funding.
We are also going to set up a clearinghouse in the
Department of Health and Human Services; and we are going to
take the best practices of States around the country, whether
it be Wisconsin, Illinois, California. We are going to be the
clearinghouse, and we are going to send those out to the
Governors and say this is what is working in long-term care. If
you use this program and take all the waivers and decide what
is doing the best out there and encourage Governors to use the
best practices in order to make sure that Medicaid is there.
Right now, Governors don't have any choices. They either
continue the program as it now exists or drop it, and that is
what is happening out there, as you well know. One million
people were dropped from medical assistance last year, probably
2 million this year, because they don't have the third choice.
The proposal that I am advancing gives them that third choice,
allows them to reconfigure it, allows them to maintain the
program, allows them to keep the Federal dollars coming into
the health care delivery system, which is a winner for
everybody. That is what I would hope you would do.
The SCHIP proposal you are talking about, the $2.7 billion
versus the $900 million, the President's budget last year
suggested to Congress that all that money should go back, and
should not revert to the Treasury. It didn't pass last year.
This year, he took $900 million and said, this money should
stay with the States; and, two, $1.8 billion should go back to
the Treasury. But that is not part of the medical assistance
proposal that I am advancing.
Chairman Nussle. Mr. Shays.
Mr. Shays. Mr. Secretary, I have enjoyed the fine questions
that are being thrown at you and your excellent answers. I get
a chance to see a lot of people respond to difficult questions,
and you have purported yourself, I think, extremely well.
You are a very sincere person. I love your passion. I also
love your honesty. And I was thinking being Secretary is not
like being Governor. But you have, I think, a tremendous
opportunity to do a lot of good in your position as Secretary
and especially in your past experience as being such an
innovative Governor. I just hope you stay on as Secretary, and
as long as George Bush is President, because we will be very
fortunate if that is the case.
I would like to----
Secretary Thompson. That was the nicest thing anybody has
said to me. Thank you very much, Congressman.
Mr. Shays. Well, it is from the heart; and I think others
would have said that as well.
I want to talk about Health Resources and Services
Administration, and I want to talk about community health
centers. I am beginning to feel that this country, one way or
the other, is going to have to address the 41 or 43, whichever
it is, million Americans who don't have health insurance.
Because, in the end, they get it. They just get it in distorted
ways. As your document has pointed out, those who don't have
health care are more likely to be in a hospital when they don't
need to be.
What I would like to ask you about is the amount of
intensity the administration feels for continuing what I hope
and expect was a doubling of community-based health care
clinics I think in 5 years. My sense is, in general terms, that
we are going to go from 10 million to 20 million; and I also
have the expectation that about half of the folks in health
care clinics don't have insurance. So I make an assumption
that, of the so-called 43 million Americans who don't have
insurance, 5 million presently are covered by health care
clinics, so really do have health care and that, when we double
it from 10 to 20, another 5 of the 10 don't have health care
and will benefit. I want to know if I am thinking soundly about
this, or whether you can enlighten me as to whether that is----
Secretary Thompson. No, you are absolutely correct,
Congressman. I can't say off the top of my head if your figures
are exact, but they are very close, if not right on the money.
In fiscal year 2004, we will be serving 13.75 million
Americans. We are up to 13.75 million, and at the end of this
year we should be at 3,700 community health clinics across
America. They do a wonderful job; and I am so happy that you
are supporting them, Congressman.
Mr. Shays. So the administration, though, intends to move
forward and pursue the doubling in the next 5 years, is that
correct?
Secretary Thompson. That is correct. We are working on that
glide path.
Mr. Shays. Thank you.
Secretary Thompson. We want to get to 20 million. We are at
about 14.
Mr. Shays. I saw three blank faces when you turned to them,
like why are you looking at me? OK. Well, a job well done. Keep
it up.
Secretary Thompson. Thank you very much. Once again,
Congressman, thanks for coming over. Congressman Nussle, I
would like to reinstitute my invitation to all of you to come
over and see the command center. I think Congressman Shays
would tell you it is worth the trip.
Mr. Shays. It is worth the trip. I would also compliment
you on your fine words on Representative Capps, because she is
a star.
Secretary Thompson. She is a delight.
Chairman Nussle. Mr. Secretary, before you go, we spent an
enormous amount of time today talking about Medicare and
Medicaid. For those of us that watched public television last
night and the presentation, the Nova report on a dirty bomb as
an example of some of the things that might go on, I think it
would be poor of us to leave--allow to you leave today without
at least giving you the opportunity to expand a little bit our
testimony with regard to bioterrorism. I mean, certainly
smallpox gets most of the attention. But I feel bad that we
have spent so much time on Medicare and Medicaid that we
haven't given you a little bit more time to expand on that
subject.
It is mostly an open-ended question about the strategies.
Are you satisfied with what you are doing and seeing and the
funding is mostly my question.
Secretary Thompson. I thank you so much for giving me this
opportunity, because this is another one of my passions.
First off, the Congress gave us $1.1 billion last year,
signed into law by the President on January 10. We sent out 20
percent of the money by February 1, which was 21 days later,
which is probably the fastest it has ever happened before.
We requested the States to come back with a comprehensive
plan, what they would do with the money, by April 15. Most
States complied, much to the chagrin of a lot of the critics
who said it couldn't be done. We sent out the balance of the
money by June 1; and now the States have got this wonderful
plan that they have submitted to NIH, to FDA, to CDC and to the
Secretary's Office.
We have sent the money out to expand the communications so
that we will have 90 percent of the health departments hooked
up to our Health Alert Network. We are expanding the surge
capacity so every region in America now has to have a capacity
of an additional 500 beds this year, a thousand next year and
1,500 the following year. We are setting up 122 cities that are
in the metropolitan civic awareness. We are educating the first
responders.
My concern is that the States have only authorized and have
only drawn down 17 percent of the Federal dollars. They might
be committed, but only 17 percent of the money has been spent
so far, and we have an additional $1.1 billion to send out
again this year for them to continue. So I have talked to the
Governors, told them that they have to take a look at this
thing and find out.
We are coordinating with the mayors and with the first
responders, and we have also expanded our laboratory networks
up to over 200 so that we are hooked up on laboratories. We are
increasing the security. And, we are requesting an additional
$1.5 billion for fiscal year 2004, of which $518 million will
go for hospitals for expanding their surge capacities and so
on.
We have got $780 million this year being used on
bioterrorism research at NIH. We are looking at the six most
prevalent agents that we are the most concerned about--
smallpox, anthrax, botulinum toxin, which I am the most
concerned about because it affects food. If we went into closed
session, I would like to really talk to you about botulinum
toxin because I am very concerned about it. The fourth one is
the fever viruses, Ebola; the fifth is plague; and the sixth is
tularemia.
I am happy to report that NIH has come up with a vaccine on
Ebola, which is one of the hemorrhagic fever viruses. We are
going into human trials within the next couple of months. It
looks very promising.
We also then set up a bioshield plan which I would like to
get into in more detail. This is a program which is a permanent
indefinite appropriation, which has probably never been
utilized much, if at all, before. It is $5.6 billion over 5
years. What this would require is Secretary of Homeland
Security, Tom Ridge, to declare an emergency. I would have to
certify that there is a counteragent out there that can be
produced, that it cannot be produced or is not being produced
currently commercially and that we can use the dollars in order
to do that.
We would take these two certifications to the President. He
has to make the final determination; and if he makes the final
determination, and if you pass bioshield, then we would get the
money to go out and procure the particular money, the services
to do that.
This is something that is going to add to our thing. So if
there is an imminent danger of smallpox we would be able then
to go out and to try and recreate more vaccine or better
vaccines. We are on the cutting edge. We were just issued two
contracts today for a new smallpox vaccine, one from Canvas
Baxter and another from a Copenhagen, Denmark firm. This is one
that is called MVA, which is less potent than our current
smallpox vaccine, and we think we could give it to immune
deficient people without causing any adverse consequences.
We are also developing a new anthrax RPA, which wouldn't
require six shots but only three shots and could be
manufactured much faster and cheaper and better than the
current anthrax that has only got one exclusive distributor
ship, namely BioPort, and all the anthrax is being purchased by
the Department of Defense.
We are close on Ebola, and we are trying to develop a new
antidote for botulinum toxin. That is classified information so
I cannot talk about that.
We have expanded our pharmaceutical supply so we have 600
tons of pharmaceutical supplies in 12 strategic locations. We
have set up plants now in which we can distribute 50 tons of
medical supplies to any city in America within 7 hours. It
requires nine semi truckloads or one KC-135 to do so.
We have split the country into 10 regions; and we have got
8,000 medical personel--doctors, nurses, morticians, and
veterinarians--ready to go, divided up. We have DMED-1 teams
which have 2,800 individuals. This is level ones distributed
within 10 regions, and we put three on alert at all times.
Right now, we put them on alert just to see if there are any
problems so that we could be able to utilize them.
We have had to send mortuary teams up to Rhode Island this
past weekend because of the fire up there, and they came back
with rave reviews of what they have done.
We have sent mortuary teams down to Texas to identify the
body parts from Columbia.
We sent some medical teams and some mortuary teams over to
Guam because of the typhoon which we, through the new
communication room that we have been able to develop, can use
to monitor food poisoning, and weather, as well as explosions.
So we have divided that up and I think the Department of
Health and Human Services is very well equipped to respond to a
radiological, biological, or a chemical kind of an incident. We
could not prevent it, but we can respond very quickly, and I
would love to have you come over and see our operation,
Congressman.
Chairman Nussle. I appreciate you eating into your own time
because I know you have to go to the Senate to talk about that.
But I--you know, all the Medicare and Medicaid and all
these other programs combined can't do a thing if something
like this happens, as we learned. So I appreciate you spending
the moment just talking about it.
Secretary Thompson. Thanks for giving me that opportunity.
Chairman Nussle. Thank you, Mr. Secretary, for your
testimony. We look forward to working with you on all of these
programs and policies as we move forward, and we appreciate
your return visit to the Budget Committee and wish you good
luck and Godspeed in tackling these issues.
Secretary Thompson. Thank you very much.
Chairman Nussle. Thank you.
The next panel of witnesses for today's hearing we will
invite forward. While they are coming forward, let me introduce
them. We have today Dr. Gail Wilensky, who is making a return
visit to the Budget Committee witness table, as well as Dr.
Judith Feder, who is also making a return visit. Both of these
professionals are familiar--are probably more familiar with the
government health care policies as maybe anybody who is not
currently in the administration or involved specifically with
the Health and Human Services Department from various
activities.
I was just reviewing both of your biographies prior to
inviting you forward, and it is amazing all of the things that
you have been involved in and worked on. So we very much
appreciate your time in coming here today and visiting with us.
It doesn't mean that you either agree or agree with us all the
time. That is a different issue. But we do know of your
professionalism and your interest, and we appreciate your time
today.
What I will do is I will ask both of you to testify, and
then if we have any questions we can ask them of either one of
you.
STATEMENTS OF GAIL R. WILENSKY, PH.D., JOHN M. OLIN SENIOR
FELLOW, PROJECT HOPE; AND JUDITH FEDER, PROFESSOR AND DEAN OF
PUBLIC POLICY, GEORGETOWN UNIVERSITY
Chairman Nussle. We will start with Dr. Wilensky. And we
appreciate you coming back to the committee, Gail. Thank you.
Thank you very much.
STATEMENT OF GAIL R. WILENSKY
Ms. Wilensky. Mr. Chairman and members of the committee,
thank you for inviting me to appear before you.
I would like to have my testimony entered into the record
and to use my few minutes to speak about some of the issues
that have been raised about Medicare and Medicaid.
First, let me comment on the administration's proposals for
Medicare and prescription drugs and the need for reforming
Medicare and also their proposal to provide some optional
Medicaid and SCHIP funding and flexibility as well as the
rationale for these changes. In my testimony, I am going to
draw on my experiences as the administrator of the Health Care
Financing Administration and have also chaired MedPac for its
first 4 years.
As you know, the administration is proposing to spend a
substantial amount of money, $400 billion, to reform and
modernize Medicare. The specifics of the long-term Medicare
reform have not yet been submitted. The framework and the
principles have been articulated as following the Federal
employees health care plan. That is a program that I
participated in during the 10 or 12 years that I was a Federal
employee and which each of you has also participated. It has
many attractive aspects, most importantly that it allows people
substantial choice in identifying the health care plans that
will best meet their needs.
I know Mr. Nussle and others on this committee have raised
questions that relate to variations in Medicare spending. It is
a serious issue that I wish the Congress would address. The
Congress addressed it in only one very small way and in some
ways unhelpfully in the 1997 Balanced Budget Act when it
changed only the payments for the Medicare+Choice program but
left the driver of the differential payments in
Medicare+Choice, that is the substantial variations in spending
that occurs throughout the Medicare fee-for-service program, to
continue on as is. It is an issue that ultimately the Congress
and administration will need to address if it is an issue that
they want to resolve.
Medicare solvency and financial pressure will continue. We
have 78 million baby boomers who are going to start to retire
at the end of this decade. It will continue to place pressure
not only on Part A but on Part B, which is mostly funded by
general revenues.
The current benefit structure, as has been noted by many,
is unfair. It has people paying in at a comparable rate but
receiving very different benefits depending on where they live
in the country. It is inadequate, doesn't include catastrophic
care and also doesn't include, of course, outpatient
prescription drugs.
The administrative structure is excessively complicated.
Last year, just in time for your hearing, the GAO had issued a
very good report that you had requested about how contractors
provide to physicians and noted that in a large majority of
times the information was inadequate, incomplete, and sometimes
just wrong.
Payment issues are starting to raise questions of access.
You have had some discussion about what happened to physicians
which would have been an issue this year. It will be an issue
next year unless you change the way physician payments are set.
So, while Medicare has many positive attributes, it also has
some serious issues.
Having said that, I believe a stand-alone drug benefit
without making changes to Medicare that go to some of these
other issues is imprudent because of the financial issues out
in the future and because we know that we will substantially
underestimate the cost of any new benefit if history is any
guide.
It is not, however, too soon to start designing and
implementing a reformed Medicare program; and if the Congress
is able and willing to do that, now would be all the better.
Building the infrastructure will take time. Future seniors need
to know the program that they will face, and future seniors
will be very different from the existing senior population,
particularly the women who will have had more education and
more time in the labor force and more income.
Just a word about Medicaid, if I may. You have heard that
the administration is proposing to provide substantially
greater flexibility to the optional benefits and the optional
populations, leaving the mandatory population and mandatory
benefits as they are. As best I can tell, it is fundamentally
taking the same amount of flexibility that is currently
available through the waiver process and giving that
flexibility more directly to the States in order to try to help
them respond in what is a very fiscally constrained period.
Medicaid is ultimately the most flexible Federal program
that exists, but it requires the waiver process which is costly
and sometimes cumbersome.
There is, however, an additional issue that I would like to
raise as a former HCFA administrator and that is the Federal
Government ought to be worried about what is otherwise likely
to happen to Federal spending under Medicaid with the kind of
fiscal pressure that the States are feeling. We have seen in
previous periods of fiscal pressure on States that they have
shown great creativity in ways to increase spending only at the
Federal level and not at the State level. In the early 1990s
this was done through provider taxes and voluntary donations.
It was followed by intergovernmental revenue and
disproportionate share spending.
There are currently disputes going on with regard to upper
payment limits as a way to try to increase Federal spending.
The problem is that these are inappropriate ways for the
Federal Government to make additional monies available to the
States. It is unfair. Who gets the money is not a function of
the need of the State but rather of the aggressiveness of the
State, and it is being made without the explicit decision of
the Congress. The specifics of the formula and the details of
the program that the administration wants to propose are very
important. You need to assess them carefully. But the rationale
that they are providing is a sound one, and I would urge you
not to dismiss it.
Thank you.
Chairman Nussle. Thank you.
[The prepared statement of Gail Wilensky follows:]
Prepared Statement of Gail R. Wilensky, Ph.D., John M. Olin Senior
Fellow, Project HOPE
Mr. Chairman and members of the Budget Committee: Thank you for
inviting me to appear before you. My name is Gail Wilensky. I am a
senior fellow at Project HOPE, an international health education
foundation and I am also co-Chair of the President's Task Force to
Improve Health Care Delivery for our Nation's Veterans. I have
previously served as the administrator of the Health Care Financing
Administration (now the Centers for Medicare and Medicaid Services) and
also chaired the Medicare Payment Advisory Commission. My testimony
today reflects my views as an economist and a health policy analyst as
well as my experiences directing HCFA. I am not here in any official
capacity and should not be regarded as representing the position of
either Project HOPE or the Presidential Task Force.
My testimony today discusses the administration's proposals for
Medicare and prescription drug coverage, the need for reforming
Medicare, the administration's proposal to provide optional Medicaid
and SCHIP funding and flexibility and the rationale for these changes
to Medicaid.
the administration's medicare proposals
The administration has proposed to modernize and reform Medicare
with a program that will include $400 billion in net additional
spending. Although the details are not yet available, the principles
for strengthening and improving Medicare are part of the budget. The
reformed Medicare program would include an improved traditional fee-
for-service plan and more varied health insurance options, so that
ultimately Medicare would look more like the Federal Employees Health
Benefits Program (FEHBP). Some of the important principles underlying
the reform include giving all seniors the option of a subsidized drug
benefit, providing better coverage for preventive care, allowing
seniors to keep traditional Medicare, providing better options to
traditional Medicare, strengthening the program's financial security
and streamlining Medicare's regulations and administrative procedures.
The administration is also proposing a variety of strategies to
improve Medicare in the short term including changes to the pricing of
the Medicare+Choice program, changing the reimbursement for outpatient
drugs, providing better information of the quality of care delivered in
hospitals and nursing homes and improving the appeals process for
beneficiaries and providers.
the need to reform medicare
Although Medicare has resolved the primary problem it was created
to address, ensuring that seniors have access to high quality,
affordable medical care, there are a variety of problems with Medicare
as it is currently constructed. These include complaints of inadequate
benefits from the beneficiaries, concerns of long-term financial
solvency by legislators and criticisms from the provider community of
inadequate payments and excessive administrative complexity.
Part of the motivation for Medicare reform has clearly been
financial. The financial challenges to Medicare are well known and are
documented annually in the Medicare Trustees Report made public each
spring. Medicare is currently spending about $250 billion for 39-
million aged and disabled Americans and spending on Medicare is
expected to grow at a rate of about 7 percent per year for the next
decade. This rate is substantially faster than the rate of economic
growth and than the growth in Federal revenues.
The long-term outlook for Medicare is primarily driven by
demographics. The changing demographics associated with the retirement
of 78 million baby boomers between the years of 2010 and 2030, the
expected longevity of the boomers, and the relatively smaller cohorts
from the baby bust generation means that just as the ranks of
beneficiaries begins to surge, the ratio of workers to beneficiaries
will begin to decline. The strong economy of the last decade and the
slow growth in Medicare expenditures for fiscal year 1998-2000 has
provided more years of solvency than was initially projected, but even
so, Part A of the Trust Fund, which is financed by a portion of the
wage tax, is expected to face cash flow deficits as soon as 2016.
As important as issues of Part A solvency are, however, the
frequent focus on Part A as a reflection of Medicare's fiscal health is
unhelpful and misleading. Part B of Medicare, which is financed 75
percent by general revenue and 25 percent by premiums paid by seniors
is a large and growing part of Medicare. Part B currently represents
about 40 percent of total Medicare expenditures and is growing
substantially faster than Part A and much faster than the economy as a
whole. This means that pressure on general revenue from Part B growth
will continue in the future even though it will be less observable than
Part A pressure. It also means that not controlling for Part B
expenditures will mean fewer dollars available to support other
government programs.
However, the reasons to reform Medicare are more than financial.
Traditional Medicare is modeled after the Blue Cross/Blue Shield plans
of the 1960s. Since then, there have been major changes in the way
health care is organized and financed, the benefits that are typically
covered, the ways in which new technology coverage decisions are made
as well as other changes that need to be incorporated into Medicare if
Medicare is to continue providing health care comparable to the care
received by the rest of the American public.
The most publicized problem of Medicare is its outdated benefit
package. Unlike almost any other health plan that would be purchased
today, Medicare effectively has no outpatient prescription drug
coverage and no protection against very large medical bills. As a
result, most seniors have supplemented traditional Medicare although
some have opted-out of traditional Medicare by choosing a
Medicare+Choice plan.
The use of Medicare combined with supplemental insurance has
important consequences for seniors and for the Medicare program. For
many seniors, it has meant substantial additional costs. The
supplemental plans also mean additional costs for Medicare. By filling
in Medicare's cost-sharing requirements, the plans make seniors and the
providers that care for them less sensitive to the costs of care,
resulting in greater use of Medicare-covered services and thus
increasing Medicare's costs.
There are also serious inequities associated with the current
Medicare program. The amount Medicare spends on behalf of seniors
varies substantially across the country, far more than can be accounted
for by differences in the cost of living or differences in health-
status among seniors. Seniors and others pay into the program on the
basis of income and wages and pay the same premium for Part B services.
The large variations in spending for Medicare mean there are
substantial cross-subsidies from people living in low medical cost
states and states with conservative practice styles to people living in
higher medical cost states and states with aggressive practice styles.
The Congress and the public are aware of these differences because of
the differences in premiums paid to Medicare+Choice plans but seem
unaware that the differences in spending in traditional Medicare is now
even greater than the variation in Medicare+Choice premiums.
Finally, the provider community has been complaining bitterly about
payment inadequacies as well as administrative complexities associated
with Medicare. Particular concern has been raised about reduced
payments to physicians and whether access to care for seniors is in
danger of being jeopardized. Payment rates to physicians were reduced
by more than 5 percent for fiscal year 2002 and would have been reduced
by an additional 4.4 percent next month, had it not been for the action
recently taken by the Congress. Even so, payments are expected to
decline next year if additional changes aren't made to the way
physician payments are calculated. Reductions in payments for nursing
homes and home health care have also raised issues of future
compromises in care although to date there has not been evidence to
suggest access to care has become a problem for seniors. Information on
quality is being made accessible where available and the administration
is making the availability of additional quality measures for home care
and nursing homes a major priority.
Provider complaints about administrative complexities have been
almost as great as their complaints about the levels of payment.
Although none of these are new issues, providers have been increasingly
vocal about these concerns. Among the many complaints that have been
raised-uncertainty about proper billing and coding, inadequate and
incomplete information from contractors and discrepancies in treatment
across contractors seems to be at the top of most lists.
In a report released last year, the General Accounting Office (GAO)
verified the validity of many of the complaints. Among their findings:
information given to physicians by carriers is often difficult to use,
out of date, inaccurate and incomplete. The carriers provided toll-free
provider assistance and web-based information but only 15 percent of
the test calls were complete and only 20 percent of the sites had all
the information required. CMS was also criticized for having too few
standards for the carriers and for providing too little oversight.
prescription drug coverage and medicare reform
Although I believe it is important to pass a reformed Medicare
program soon and that a reformed Medicare package should include
outpatient prescription drug coverage, I believe just adding this
benefit to the Medicare program that now exists is not the place to
start the reform process. The most obvious reason is that there are a
series of problems that need to be addressed in order to modernize
Medicare to accommodate the needs of the retiring baby boomers and to
be viable for the 21st Century. To introduce a benefit addition that
would substantially increase the spending of a program that is already
financially fragile relative to its future needs without addressing
these other issues of reform is a bad idea.
The principles articulated by the President are consistent with the
FEHBP model and also the work of the Bipartisan Commission for the Long
Term Reform of Medicare. I personally support reform modeled after the
FEHBP where the government's payments on behalf of an individual would
not vary with the type of plan that is selected. I believe this type of
structure would produce a more financially stable and viable program.
It would also provide incentives for seniors to choose efficient health
plans and/or providers and better incentives for health care providers
to produce high quality, low-cost care. This type of program,
particularly if provisions were made to protect the frailest and most
vulnerable seniors, would allow seniors to choose among competing
private plans, including a modernized fee-for-service Medicare program
for the plan that best suits their needs.
I recognize that the FEHBP is controversial with some in Congress,
particularly because of the difficulties the Medicare+Choice program
has been having. It is important to understand, however, that many of
the problems of the Medicare+Choice program reflect the decision by the
Congress to encourage the expansion of plans in underserved areas by
limiting the increase for plans with most of the enrollees to 2 percent
per year, even though their costs were increasing at a rate that was
several times that amount. In addition, Medicare+Choice plans have
faced additional regulatory burdens as well as substantial
uncertainties about future changes in regulation. Combined, these
factors have helped transform what had been a vibrant, rapidly growing
sector into a stagnant and troubled one.
A second reason not to add a drug benefit without further reforms
to Medicare is the difficulty of correctly estimating the cost of any
new, additional benefit. Our past history in this area is not
encouraging. The cost of the ESRD (end-stage renal disease) program
introduced in 1972, for example, was underestimated by several-fold.
The estimated cost of the prescription drug component of the
catastrophic bill passed in 1988 and repealed in 1989 increased by a
factor of two and one-half between the time it was initially proposed
and the time it was repealed.
These issues taken together reinforce my belief that adding a
prescription drug benefit to traditional Medicare without further
modernizing the program is unwise. A better strategy would be to agree
on the design of a reformed Medicare program and to begin to implement
changes now. At a minimum, it is likely to take at least 2 years to
produce the regulations needed to build the infrastructure needed for a
reformed Medicare program.
As we contemplate a Medicare program for the 21st Century, it is
also important to understand that the people who will be reaching 65
over the next decade as well as the baby boomers have had very
different experiences compared to today's seniors. Most of them have
had health plans involving some form of managed care, many of them have
had at least some experience choosing among health plans, most have had
more education than their parents and many will have more income and
assets. The biggest change involves the women who will be turning 65.
Most of these women will have had substantial periods in the labor
force, many will have had direct experience with employer-sponsored
insurance and at least some will have their own pensions and income as
they reach retirement age. This means we need to think about tomorrow's
seniors as a different generation, with different experiences, with
potentially different health problems and if we start soon, with
different expectations.
the administration's medicaid proposals
The administration's proposal for Medicaid distinguishes between
mandatory populations and mandatory benefits on the one hand and
optional populations and optional benefits on the other. Mandatory
benefits for mandatory groups are kept as they are under current law,
but substantial new flexibility is provided for the optional
populations and optional benefits. In addition, increased funding of
$12.7 billion is provided over the first 7 years although the program
is to be budget neutral over 10 years. Much of the flexibility that is
currently available through the waiver process would be provided
directly to the states under the administration's proposal. There are
also specific incentives for supporting individuals with disabilities
who are currently institutionalized that could be served in home or
community-based settings.
Although the specifics of the programs have not yet been presented
in detail, the proposal discusses the use of an acute care health
insurance allotment and a long-term care and community services
allotment. The amounts in each would be based on spending in 2002 with
level of effort requirements imposed on the states.
the rationale for providing more flexibility to medicaid
States are experiencing severe fiscal pressure from their Medicaid
programs. These pressures are coming from three different directions.
First, many states proactively increased spending on Medicaid during
the 1990s by expanding the populations covered, the benefits offered
and the rates paid to providers. Second, State revenue declined
substantially more than initially anticipated in 2001 and 2002. Third,
the counter-cyclical nature of Medicaid has produced some additional
expansion in the Medicaid rolls. The administration is proposing to
provide some of the flexibility that has been previously available to
the states through the waiver process directly to the states to
increase their ability to cope with these additional fiscal pressures.
It should be noted that this increased flexibility is being proposed
only for the optional populations and benefits and not for the
mandatory populations or benefits.
The expectation is that the flexibility being proposed will allow
states to make the best use possible of their Medicaid funds in an era
of unusually constrained resources. As in the case of SCHIP, states
would be able to work more directly with private insurers and provide
premium support for recipients enrolled in private plans. States would
be able to tailor their programs to meet the needs of individuals
throughout the State in ways that are not easily possible under current
Medicaid rules, such as with the ``State-wideness'' requirement. This
is not fundamentally new flexibility that is being offered the states
since the waiver process provided what was essentially a fully flexible
program but rather a less hassled and costly way to achieve a similar
flexibility.
There is an additional reason for the Federal Government to provide
greater flexibility to the states in return for more total control over
Federal monies for optional populations and benefits. States in
previous periods of fiscal pressure have shown great creativity in
developing ways to increase Medicaid spending using only increased
Federal dollars. Provider taxes and voluntary donation strategies in
the early 1990s, disputes over disproportionate share spending and
intergovernmental revenue transfers later in the decade and current
debates about upper payment limits are among the examples that come to
mind. These are inappropriate ways for the Federal Government to make
additional monies available to the state. The outcomes of these
strategies do not represent the results of explicit decisions by the
Congress to change the relative shares of Federal to State dollars in
Medicaid and the amount of money a State receives is not determined by
its own spending on Medicaid nor on the basis of its own fiscal need.
The general direction of the Medicaid policy changes announced by
the administration makes sense. The specifics of the formula and the
details of the program will be important determinants of the impact of
the proposed change on the states and on the populations that have been
traditionally served by the Medicaid program. They should be assessed
carefully.
Chairman Nussle. Dr. Feder, welcome.
STATEMENT OF JUDITH FEDER
Ms. Feder. Thank you, Mr. Chairman. I appreciate being
before you and members of the committee.
I am glad to have this opportunity to speak today on the
impact of the President's 2004 budget on both Medicare and
Medicaid. I would appreciate your accepting my remarks in full
for the record.
What I want to do right now is make some brief points with
respect to the proposals on both programs. I have two key
points.
First, the fiscal support this budget offers for both
Medicare and Medicaid is far too limited to meet program and
beneficiaries' needs.
Second, even the limited support that is offered is offered
at too great a price: that is, abandonment of Federal fiscal
guarantees that make today's Medicare and Medicaid so
successful. These proposals would simply do more harm than
good.
Let me elaborate, first for Medicare, then for Medicaid.
The administration proposes to allocate most of $400
billion over 10 years for a prescription drug benefit. Measured
against the costs of prescription drugs, despite the size of
this sum, these dollars are too limited to support adequate
protection. The Congressional Budget Office estimates the next
10 years of drug costs for Medicare beneficiaries at $1.8
trillion, and $400 billion covers only a small portion of that
expense, exposing beneficiaries to a benefit with substantial
cost sharing and actual holes in protection.
The administration likes to compare its proposals to the
Federal Employees Health Benefit Plan, which provides Members
of Congress and others, including myself, with a comprehensive
drug benefit. Estimates indicate, however, that a comprehensive
benefit like the FEHBP's--which the Secretary advocated today,
saying that Medicare beneficiaries ought to have the benefits
Members of Congress have--would cost about twice what the
administration has proposed. Not only is the benefit inadequate
in general, the administration would provide it only to
beneficiaries who agree to trade in their Medicare for
enrollment in a private health insurance plan.
You have to ask why the administration would want to
replace Medicare with private health insurance. Is it because
private insurance is more secure or reliable than Medicare?
Experience with private insurance for the working age
population and with Medi
care+Choice for Medicare beneficiaries tells us that the answer
is no.
Is it because private insurance is needed to expand choice
for Medicare beneficiaries? Medicare beneficiaries already have
the most meaningful choice--choice of doctors, hospitals and
other providers. And surveys show that Medicare beneficiaries
are more satisfied with their coverage and less likely to face
access problems than younger people with employer-sponsored
insurance.
Is it because private insurance would cost less than
Medicare now or over time? Medicare+Choice plans want more
money for Medicare. They are not saving Medicare money. And,
historically, Medicare costs have risen more slowly than
private insurance, including the Federal Employees Health
Benefit Plan, not faster. The only way private insurance can
likely spend less than Medicare is to provide beneficiaries
less service.
The fact that the administration ignores the statutory
commitment of general revenues to Medicare financing now and in
the future and grossly exaggerates Medicare's long-term fiscal
problems reinforces this concern. Privatizing Medicare won't
secure protections for beneficiaries. It will undermine them.
Turning to Medicaid, the administration's proposals are
remarkably similar in form. The dollars are too limited, and
they are offered at a price that would undermine the current
program.
First, the money. The administration offered States $3.25
billion in 2004, $12.7 billion over 10 years. These dollars do
little to address the deficits States are facing today,
estimated at 70 to $85 billion in State fiscal year 2003. Plus,
after 7 years, what the Secretary described as forward funding
would be offset by a cut below that baseline that the Secretary
was talking about, a cut in Federal funds precisely when the
baby boom generation begins to turn age 65 and are likely to
need help from this vital program.
Second, States would receive this so-called aid only if
they agreed to give up guaranteed Federal matching payments
that vary with service costs. This is the key issue about
current funding versus a block grant. Today, Federal funds to
States flow with the number of people who are eligible and the
actual cost of the care they receive. The administration would
replace these guaranteed matching payments with capped Federal
funds, caps perhaps based on an unexplained trend line, but
caps, predetermined allotments, nevertheless.
Why would the administration do this? Will it encourage
flexible expansion of services, for example, for the uninsured
or for the provision of long-term care at home rather than in
nursing homes? Despite the administration's claims, the answer
is no.
Capped funds, even based on projections, are not as
responsive to beneficiary needs as current arrangements. They
do not allow for variation in need across States or
unanticipated need within States or across the Nation. Think
simply of a new medication for AIDS that can dramatically alter
the cost to States of Medicaid services. And no flexibility in
delivery can offset the increases in the numbers of people in
need, especially among the elderly and disabled, or in the cost
of services like prescription drugs and long-term care--to a
significant extent optional services for optional populations--
that States will inevitably face.
Will capping funds save money? The only money it will save,
if services are delivered, is Federal money. Capping funds
doesn't eliminate costs. It shifts them. That is, it limits
Federal dollars and leaves States, their providers, and their
beneficiaries high and dry.
With capped funds, flexibility is nothing more than a
euphemism for cost shifting to States or arbitrary cuts in
protection that the Secretary seemed to prefer to better
support for State programs. Such arbitrary cuts include waiting
lists for enrollees, now prohibited under Medicaid law;
substituting first-come, first-served service for uniform
eligibility rules; changing the mix of benefits, which means
favoring some parts of States over others, despite quite
similar health care needs; charging even the poorest
beneficiaries out-of-pocket payments; and limiting access to
optional populations or services that include nursing home
care, home care, prescription drugs and other services vital to
vulnerable populations.
Whether optional or mandatory, all beneficiaries subject to
capped funds are at risk of reduced coverage as well as a loss
of standards designed currently to assure timely access to
quality care. And allowing States to pay in less to support the
program--as the Secretary emphasized several times, referring
to the three factors that might be used to project spending but
basing maintenance of effort only on one of those factors, the
cost of care--would allows States to pull out money at
beneficiaries expense.
In his most recent State of the Union address, President
Bush described Medicare, and I quote, ``as the binding
commitment of a caring Nation,'' unquote. The same language
applies to Medicaid. A strong Medicare prescription drug
benefit, along with fiscal prudence, rather than substantial
tax cuts, is needed to secure our binding commitment to
Medicare. Enhanced and guaranteed Federal matching payments are
needed to secure our binding commitment to Medicaid.
In his 2004 budget, the President abandons rather than
secures these commitments. A caring Nation should reject these
proposals.
Thank you, Mr. Chairman.
Chairman Nussle. Thank you, Dr. Feder.
Appreciate both of your testimony here today.
[The prepared statement of Judith Feder follows:]
Prepared Statement of Judith Feder, Professor and Dean of Public
Policy, Georgetown University
Chairman Nussle, Congressman Spratt and members of the committee, I
appreciate the opportunity to comment today on the administration's
2004 budget proposals regarding Medicare and Medicaid. The
administration describes its proposals as strengthening the ability of
these vital programs to serve elderly, disabled and low income
beneficiaries. In fact, however, the administration proposals threaten
rather than strengthen Medicare and Medicaid. Not only do these
proposals offer too little fiscal support to meet program needs. They
also make even this modest support contingent upon the abandonment of
the Federal fiscal guarantees that secure access to care for all
eligible beneficiaries. Specifically, the administration proposes to
replace Medicare with private insurance and to replace Medicaid's
guaranteed Federal matching payments with capped Federal funds. Such
policies would severely weaken both programs and their ability to serve
the people who count on them.
Let me explain first for Medicare, then for Medicaid.
impact of administration's 2004 budget on medicare
Although details are sketchy, it appears that the President's 2004
budget proposes to make available (most of) $400 billion over 10 years
to support prescription drug coverage, but only for beneficiaries who
leave the current Medicare program and enroll in private insurance
plans for all of their health care. These plans would also offer
enrollees a different cost-sharing structure for benefits than Medicare
currently provides.
Rather than strengthening Medicare, this proposal provides too
little benefit at too great a cost: First, it falls far short of the
administration's promise to assure all Medicare beneficiaries the
protection against prescription drug costs they so sorely need. The
proposed financing for prescription drug coverage does not come close
to what is necessary to provide all beneficiaries adequate protection.
At the same time, its thinly veiled ``bribe'' to beneficiaries to leave
Medicare for private insurance actually forces beneficiaries to choose
between their need for a drug benefit and their need for Medicare's
guarantee of dependable, affordable health insurance protection.
Despite the urgency of beneficiaries' need for prescription drug
protection, the administration's price--structural reforms that would
undermine Medicare's greatest strengths--are simply not worth it.
Inadequacy of the proposed benefit. Over the next 10 years, the
Congressional Budget Office estimates that prescription drug costs for
Medicare beneficiaries will cost $1.8 trillion. The proposed $400
billion finances only a slim portion of these costs--leaving
beneficiaries to face substantial out-of-pocket expenses in terms of
deductibles, co-insurance, and holes without any coverage at all. This
benefit does not come close to the protection Members of Congress (and
I, as the wife of a Federal retiree) have through the Federal Employees
Health Benefit Plan (FEHBP). Indeed, estimates indicate that a
comprehensive prescription drug benefit would cost about twice the
budget's $400 billion allocation.
I know that this committee is well aware of the fiscal challenges
facing the Nation. But providing adequate financing for prescription
drugs is more a question of priorities than fiscal ability. For the
administration to propose such insufficient investment in prescription
drug coverage alongside a proposal for a $674 billion tax cut raises
serious questions about their priorities.
Inadequacy of private insurance. The administration's proposal to
tie the availability of a prescription drug benefit, adequate or
otherwise, to enrollment in private insurance plans forces
beneficiaries to make an untenable choice: gain a drug benefit but lose
Medicare's guaranteed access to care.
Longstanding experience with private insurance reveals that it does
not offer the dependable protection that Medicare guarantees. Medicare
is an enormously successful program because it brings together the
healthy and the sick, the better off and the less well-off in a single
insurance arrangement, pooling risks to insure that all beneficiaries--
regardless of income or health status, are guaranteed financial
protection against the costs of medical care. It is universal--covering
virtually all people eligible--and enables beneficiaries to obtain
services from the doctors, hospitals and other providers they choose.
Private insurance cannot compete with Medicare's performance. Over
30 years ago, Medicare was enacted because private insurance failed to
reach nearly half the elderly population. Today, private insurance
outside the workplace for the under age 65 population is plagued with
``selection problems''--making affordable coverage available for people
only when they are healthy and denying or restricting benefits to
people when they are sick. And inside the workplace, the 1990s' shift
to manage care reveals that health plans have relied far more on
barriers to access than on efficient care management to control their
costs. Rather than offering beneficiaries a broader set of choices,
health plans may limit the doctors or hospitals that plan members can
use or require them to pay extra to use the providers they want.
Indeed, Karen Davis and her colleagues at the Commonwealth Fund find
that despite better health status and lower need for care among
privately insured employees under age 65, they report less confidence
in getting care when needed and higher incidence of access problem than
do Medicare beneficiaries.
The Medicare program also has experience with reliance on private
health insurance--through Medicare+Choice--that is decidedly
disappointing. Plans that beneficiaries join in 1 year are out of
business the next. Benefits that beneficiaries count on 1 year are
reduced the next. And plans have never found it profitable to serve
many parts of the country--especially rural areas. It appears that it
is insurers who gain choice under these arrangements--not Medicare
beneficiaries.
Nor is reliance on private insurance likely to save money.
Medicare+Choice plans are asking for higher payments from Medicare, not
costing Medicare less. Contrary to claims made by proponents of private
insurance for Medicare, the current Medicare program is as good and
often better than the private sector in controlling its costs. In the
past 5 years, Medicare's average growth in spending per beneficiary was
lower than both the private sector and FEHBP. And, according to Marilyn
Moon of the Urban Institute, over the last 30 years, Medicare spending
per beneficiary has grown at a rate of over 1 percentage point less
than private health insurance--a cumulative savings of about 41 percent
relative to what costs would have been through private insurance. The
facts are that private insurers cannot best Medicare in terms of value
for the dollar in the purchase of services.
The only way private insurance plans can likely spend less than
Medicare is to provide less service. Indeed, previous proposals to rely
on private insurers to provide prescription drug coverage to Medicare
beneficiaries have sought savings precisely by allowing private
insurers to limit beneficiaries' access to a full range of prescription
drugs. Reliance on private insurance plans for the full range of
Medicare benefits--as the administration proposes--would put affordable
access to doctors and hospitals at similar risk. The risk to
beneficiaries becomes even greater if the shift to private plans
transforms Medicare from a program that guarantees the financing of
service costs to a program that guarantees the financing of only a
share of a private insurance premium. The latter would represent an
explicit transfer of financial risk for overall health costs from the
Medicare program to elderly and disabled beneficiaries.
medicare's future
The administration's enthusiasm for shifting Medicare beneficiaries
to private insurance is particularly suspect when it comes to
Medicare's fiscal future. With the aging of the baby boom generation,
the proportion of the population served by Medicare will grow from 14
percent today to 22 percent in 2030. Along with likely continued
increases in health care costs--not just for Medicare but for the
Nation as a whole--the demands on the program will be substantial. As
just described, reliance on private insurance cannot finance increased
demands through greater efficiency. Indeed, the only way that
privatization can address Medicare's future fiscal problems is if it
shifts costs to beneficiaries, ending Medicare's guarantee to assure
affordable access to mainstream medical care.
Not only is the administration promoting privatization as a false
``solution'' to future fiscal problems; it is exaggerating their scope
and squandering the resources needed to address them. The President's
budget reports a $13.3-trillion ``shortfall'' in Medicare over the next
75 years. However, that calculation assumes that only dedicated payroll
taxes (which finance Medicare's Hospital Insurance or Part A) and
beneficiary-paid premiums (which finance 25 percent of Medicare's
Supplementary Medical Insurance or Part B) are available to finance the
program. It ignores that by law and from Medicare's inception, general
revenues are used along with premiums to finance Medicare's Part B
expenses. Unless the administration proposes to withdraw the statutory
commitment to provide general revenue financing, the real ``shortfall''
is only one-third this amount. Further, the 75 year estimates involve
long-term projections about which CBO and, in other places, the
administration have expressed accuracy concerns. CBO has said that
health costs are among the top three reasons for miscalculations in its
projections. Interestingly, at the same time the administration reports
a 75-year Medicare projection, it is unwilling to project its own
budget proposals beyond 5 years.
The right way to address the estimated and accurately calculated
shortfall is to keep the nation's overall fiscal house in order.
Between 2002 and 2011, Medicare's trustees estimate that payroll taxes
will generate a surplus of over $510 billion. These and other revenues
from members of the baby boom generation, now in their prime earning
years, can be used to minimize Federal borrowing today, thereby
strengthening the nation's capacity to meet future needs when they
retire.
But the 2001 tax cut and the additional $674 billion proposed in
the President's 2004 budget move the Nation in precisely the opposite
direction. In part, they use the Medicare surplus to finance a tax cut.
And, by increasing debt, they add dramatically to the burdens that will
fall on future generations. To exaggerate Medicare's fiscal crisis,
promote privatization, and cut taxes suggests that securing and
strengthening the Medicare program, both now and in the future, is not
the administration's primary concern.
impact of administration's 2004 budget on medicaid
The administration's 2004 budget proposes to make available $3.25
billion in 2004 and $12.7 billion over 7 years to share among States
that agree to accept predetermined Federal allocations or block grants
to fund services to low income populations. States who accepted the
additional funds would be expected to repay them in years eight, nine
and ten, regardless of program needs. The proposal is therefore budget
neutral to the Federal Government over the 10 year period.
This Medicaid proposal has much in common with the administration's
Medicare proposal. First, the fiscal relief offered by the proposal is
insufficient to address State budget pressures that are endangering
Medicaid. The early year Federal funds are tiny relative to State
fiscal deficits estimated in the range of $70-$85 billion in State
fiscal year 2003. Second, the proposal offers States an untenable
choice: gain even modest relief now but lose the current commitment to
guaranteed Federal matching payments, designed to flow with the number
of people eligible and the actual costs of their care.
Inadequacy of the proposed Federal support. Recessions place States
between a rock and a hard place when it comes to Medicaid financing. At
the same time recessions increase the number of low income people
seeking Medicaid coverage, they reduce the availability of State
revenues available to finance that coverage. Coupled with increases in
health care costs--notably for prescription drugs--States find
themselves with demands that exceed the revenues they have available.
Without Federal fiscal relief, States' likely response is to cut back
the coverage that Medicaid provides. As of December 2002, proposed or
implemented cutbacks were estimated to leave a million people without
health care coverage.
What's needed to prevent these cutbacks is a significant increase
in the Federal Government's share of Medicaid costs--a boost in the
matching rate--in order to cushion the recession's impact. Instead the
administration is proposing not only a small funding increase that
States must repay but also caps on Federal funds for Medicaid
regardless of program needs. The proposal's repayment requirement would
actually cut Federal funds after 7 years, regardless of the number of
eligibles or costs of services at that point in time. The fact that the
repayment cut would begin at precisely the point the baby boom
population begins to turn 65, increasing the number of low income
elderly people eligible for Medicaid, makes higher costs then almost a
certainty.
Inadequacy of block grants. Whatever its form, capped rather than
open-ended funding is not responsive to the needs of the Medicaid
population, the providers who serve them, or the States who share
responsibility for financing their care. Medicaid is now the nation's
largest health insurance program, providing health insurance to low
income families and people with disabilities, filling in Medicare's
gaps for low income elderly, and providing virtually the only safety-
net for people who need long-term care. To support these services, the
Federal Government provides States open-ended matching funds: the more
people who are eligible for service and the more services costs, the
more States receive in Federal matching funds; the fewer people
eligible, the less States receive.
As explained by Andy Schneider in the ``Kaiser Family Foundation's
Medicaid Resource Book'' (July 2002), financing arrangements that
guarantee States at least half the costs of services (up to 83 percent
in the lowest income States) encourage States to extend coverage beyond
levels their own resources would support and make funds automatically
available when circumstances create a need. Recession is one such need.
The Urban Institute estimates that an increase in the unemployment rate
from 4.5 percent to 5.5 percent produces an increase in Medicaid
enrollment of 1.6 million--an increase that, under current law, is
automatically supported by Federal funds. Public health emergencies are
another such need. Medicaid covers an estimated 55 percent of persons
living with AIDS and 90 percent of all children living with AIDS. When
the number of people affected increases or the costs of treatment rise,
Federal funds automatically increase to share the burden.
Predetermined Federal allotments or block grants cannot achieve
these goals. Block grants are distributed according to specific
formulas, not according to the number of people served or the actual
cost of services. Although the administration has not spelled out its
proposal in detail, replacing guaranteed matching payments with capped
funding is inevitably less responsive to the needs of vulnerable
people. As my Georgetown colleague Cindy Mann has explained,
predetermined allotments, even with rates of increase (which the
administration has not specified), do not allow for variations in need
across States (due to variation in health or economic circumstances) or
for unanticipated changes in national circumstances. Had Federal
funding for Medicaid in 2002 been based on costs projected in 1998, for
example, Mann estimates that financing would have been 12-percent below
actual spending.
Reliance on uncertain projections to provide Federal funding is
particularly likely to jeopardize Federal support for Medicaid services
to low income elderly and disabled populations. Medicaid is now the
only source of prescription drug protection for these vulnerable
populations (and the administration's Medicare prescription drug
proposal would not necessarily replace these Medicaid
responsibilities). Medicaid is also the nation's long-term care safety
net--financing almost half the nation's nursing home expenditures.
Given the expected growth in the elderly and disabled population,
capping Federal funds is a strategy to shift responsibility for serving
the baby boom population from the Federal Government to the States.
The administration describes its proposal as providing States
``flexibility'' to use resources more creatively and presumably more
efficiently to meet their needs. However, no creativity in delivery can
offset likely increases in numbers of people in need and increases in
the cost of services over which Medicaid has little if any control.
With capped funds, States' ability to ``flexibly'' expand coverage--
provide coverage to currently ineligible uninsured populations or
continue to expand home and community-based long-term care services--
will be hampered, not enhanced, given the need to cover the inevitably
rising cost of existing obligations. Either that, or expansions will
come at the expense of people already in need. The key to true
expansion of protection is enhanced, guaranteed Federal matching
payments, not capped Federal funds.
Indeed, with capped Federal funds, ``flexibility'' is nothing more
than a euphemism for cuts in protection that Federal rules currently do
not allow: creating waiting lists for enrollment, favoring some parts
of States over others, charging even the poorest beneficiaries out-of-
pocket payments for service, and limiting access to any and all
services based on fiscal concerns. Although the administration proposal
may exempt from some such restrictions Medicaid's so-called
``mandatory'' population groups--primarily poor children, and elderly
and disabled people eligible for Supplemental Security Income (SSI)
(that is, with incomes below 74 percent of the Federal poverty level)--
it is unclear whether these exemptions would apply to all the services
these groups currently receive. New types of restriction may apply to
optional services (for example, prescription drugs, dental services,
physical therapy, and eyeglasses). For optional groups--which include
elderly and disabled people with incomes above 74 percent of the
Federal poverty level--the majority of elderly Medicaid nursing home
residents, pregnant women with incomes above 133 percent of the Federal
poverty level, near poor children and very poor parents--States would
appear to have total discretion to limit the terms and scope of
coverage. The same may be true for the State Children's Health
Insurance Program, funding for which is incorporated in the newly
proposed State allotments.
In general, a cap on Federal funds will constrain coverage for any
and all groups and services subject to that cap. Similarly, elimination
of an array of current Federal Medicaid standards--like those related
to nursing home quality, access to emergency rooms and other
protections under managed care, and timely processing of applications--
will affect any and all groups and services now benefiting from them.
Overall, the administration's Medicaid proposal in no way secures
Medicaid financing for vulnerable populations. Instead it takes
advantage of States' current fiscal weakness to encourage States to
take a bad risk: trading assured Federal financing in the future for a
bit of new revenue and authority to cut spending today.
conclusion
In his most recent State of the Union Address, President Bush
described Medicare as ``the binding commitment of a caring nation.''
The same language applies to Medicaid. A strong Medicare prescription
drug benefit along with fiscal prudence is needed to secure our binding
commitment to Medicare. Enhanced and guaranteed Federal matching
payments are needed to secure our binding commitment to Medicaid. In
his 2004 budget, the President abandons rather than secures these
commitments. A caring nation should reject these proposals.
Chairman Nussle. Do members have any questions?
Mr. Shays or Mr. Scott. Mr. Scott. Oh, I am sorry. Well,
let--do you have questions?
Mr. Scott. I will go next.
Chairman Nussle. Mrs. Capps.
Mrs. Capps. Thank you Mr. Chairman.
I would like to ask you to respond, Professor Feder. The
Bush administration has said that all the current beneficiaries
would continue getting current benefits. You kind of disputed
that a bit. But I want to bring out this part that the
Secretary referred to today as the so-called ``optional
beneficiaries,'' or benefits that are optional, that could be
cut as Federal dollars become more limited.
I say this, in the light of almost every State facing a
deficit with its own budget right now, it is certainly going to
be right up front there if this legislation should pass or if
this proposal of the administration becomes law.
You have made some comments about this, but again, what do
you think about this argument and who are--maybe you can
describe some of these optional beneficiaries. What would they
do without the availability of Medicaid and what would happen
to them as more and more people become unemployed?
Ms. Feder. I would be happy to address that.
I think there has been some uncertainty. As we have
discussed the details, actually both proposals are not fully
laid out. And there has been some inconsistency in the
information on whether, as the Secretary said today, mandatory
populations would continue to receive benefits, or more
accurately, whether they would be subject to the capped funds.
I believe even today, he spoke about perhaps exempting the
mandatory population from the capped funds for mandatory
services, but not optional services, as was pointed out.
To be more precise, mandatory population groups are
primarily the poorest population groups, the poorest children
and elderly and disabled people who are eligible for
Supplemental Security Income, SSI. Those people have incomes
below 74 percent of the poverty level. These people, along with
optional groups in the population--which include the bulk of
nursing home residents--people also rely on optional benefits.
Optional benefits include benefits for prescription drugs,
benefits for dental care, benefits for physical therapy,
benefits for eyeglasses.
So those optional benefits, even for the poorest
population, would be constrained potentially under the caps.
And for the optional population groups, those people who are
just above poverty or have incomes above SSI level for the bulk
of nursing home residents, for the beneficiaries receiving home
care, those populations and their services are totally up for
grabs and at the States' discretion.
And the difference--even though those benefits are optional
now, the State must define eligibility rules that apply across
States. They must provide comprehensive benefits for the
population they make eligible. And so, as they squeeze, they
cannot be arbitrary in the cuts they are putting into place. So
what is needed is money so that those States won't have freedom
to cut in ways that may be arbitrary.
Mrs. Capps. It is rather a nightmare scenario to think of
what would happen to nursing home residents, for example,
should this proposal be enacted.
And then, if I could go on, because I want to give you a
chance to elucidate and respond to so many members, along with
the Secretary, saying Medicaid and Medicare programs are just
too expensive, they have been growing at such a high rate we
can't afford them. What are some other ways that we should
consider our responsibility in this arena and the kind of
valuable services that these services provide to our
population?
Ms. Feder. I am glad you asked Congresswoman Capps, because
the issue is not affordability of these services. Cutting back
program protections doesn't make the costs of health care go
away. It simply shifts them to the people who bear those costs,
and for many, it makes them unable to get it. The issue is not
affordability; the issue is our Nation's priorities.
I personally am appalled at the notion that some would
propose a $674 billion tax cut at this time and argue that
decent protections for Medicare beneficiaries, for prescription
drugs, for poor and vulnerable populations, for health and
long-term care services are unaffordable. And over the long
term the issue is fiscal prudence to enable this Nation to
address the additional costs that will inevitably come as our
generation turns age 65. Those costs, we know they are coming.
The job is to minimize debt today so that we can cope better in
the future. That's exactly the opposite of what we are doing,
what is being proposed.
Mrs. Capps. Thank you.
Thank you, Mr. Chairman.
Chairman Nussle. Thank you.
Mr. Shays.
Mr. Shays. Thank you, Mr. Chairman.
I would like to thank both of our witnesses. It is kind of
awkward sometimes, when you are the second panel after a
Secretary, but you both are such noted scholars and experts on
these issues that I know we continue to rely on both of you for
your advice and counsel.
I have to tell you that what frightens the hell out of me
is that when I look at basically two-thirds of our budget on
automatic pilot, and I think that I am supposed to be in a
legislature that is supposed to come to grips with these
issues, and I look at Medicaid going up at an average of 9-
percent a year and Medicaid close to 7--that is what the
average kind of is. And I think it is such a big bulk of
government spending, and, I think, of opportunity costs that it
drowns out other things.
And then I think that we have already learned that our
gross domestic product, 14.4 percent is on health care in
general, and I think that our American businesses have to
compete overseas with countries that their gross domestic
product might be at 5 percent, like, you know, Formosa or
Taiwan.
So I guess what I want to ask you both is, how do we slow
the growth in these gigantic programs so they ultimately don't
crowd out other very needed programs?
Ms. Wilensky. That's a very large question to handle in a
hearing. I think, in this country, we will spend more on health
care than in other countries because we are not inclined to
wait. We want easy access to new technologies. We tend not to
want to have a lot of constraints on our providers, and when we
place those constraints, or attempt to place those constraints,
people respond badly. I believe it will be much more a question
of whether people feel they are getting value for the money
that they are spending, and when they don't, they get very
frustrated.
To me, it is instructive to consider a managed care
backlash we had in this country in the late 1990s. We did not
see a similar kind of response from Federal employees who, when
they are unhappy, every November can vote with their feet and
find a different health care plan.
I don't want to pretend that this model is a panacea and is
not going to challenge us as to how much we want to spend on
the currently working versus how much we want to spend on the
currently not working. These are difficult issues and there is
no easy resolution. But the question of whether or not some
kinds of programs, put in place, are able to respond better to
what people want than others is what you, as Members of
Congress, have to decide.
What we are seeing, in part, now, on Medicaid is the
aftermath of many States have done what a lot of us wanted them
to do in the late 1990s, expand benefits, expand populations
that they covered, and expand payments to providers. They are
being caught in a fiscal bind with no ability to deficit-
finance and having to respond in a simple way, to reduce
expenditures which is usually to try to cut providers' rates or
to cut benefits now, in some cases, or populations.
What you are able to do as Members of Congress is to try to
help design programs that make sense with these changing
demographics. I am not sure what we are going to--this country
next about trying to restrain health care spending. We are in
the spending phase because nobody has been very comfortable
with seeing restraints come back in place.
I don't think we are going to repeat the 1990s, and I don't
think we are going to go back and repeat some of what we did in
the 1980s. Whether or not we move to a Federal employees'
model, whether or not we allow individuals to make better
choices in terms of the kind of health care they want, whether
we have flexibility or whether we go back to have more
regulatory strategies, I think that is really what we are going
to have to decide as a country: What do we want to do next?
But I don't think we are going to--this country is going to
continue spending substantial amounts on health care. The fact
that we are so proud that we doubled the NIH budget is only
going to make it more difficult, not less, because there will
be many technological advances to go along with our aging
population.
It is really a question of whether we can have people feel
like they are getting value for their money, and they are in a
position to make the choices they want, or do we want to have a
much more structured, regulatory approach. Judy and I differ in
terms of what it is that makes sense, particularly for, say,
our Medicare program.
Either as a program or as a component program, there are
fundamental philosophical issues that the Congress is going to
have to deal with. When we have seen the expansions talked
about for the uninsured, there really is a fundamental
philosophical question about whether or not you want to use
refundable tax credits and grouping mechanisms, or do you want
to expand Medicare and Medicaid to the currently uninsured as a
way to try to bring people into insurance coverage. These
represent legitimate, philosophical disputes that people can
have and still feel passionately they want to see the problem
solved.
Mr. Shays. And the light is on, but I am sure Mr. Scott
doesn't mind my going on longer.
The bottom line is, I think, we have so much distortion now
in the marketplace in taking care of the uninsured because we
are not going to--we don't throw them off a cliff. We just give
them a different kind of health care.
Dr. Feder, feel free to make some comments.
Ms. Feder. Thank you, Mr. Shays.
I agree with much, though not all, as she knows, of what
Gail said. And I want to go back to the way you framed the
problem, which was in terms of the percentage of GDP we spend
on health care, a growing amount for the Nation as a whole,
because I think, as you recognized in that comment, it is the
entire health care system that causes costs to rise.
The unique problems of Medicare, it is not that Medicare is
inefficient. It is that Medicare--and particularly looking out
into the future--has to deal with larger numbers of older and
disabled beneficiaries. They have the same problems with health
care costs that the entire Nation has, not different ones;
indeed, because of the payment control mechanisms, they
actually are able to do somewhat better than the private sector
in controlling costs.
But health care costs are rising, and deciding whether we
are getting value for the dollar--we are, after all, an
affluent Nation; our GDP is expected to rise per worker by 50
percent over the next--what is it--through 2035. How we want to
use those dollars is our choice.
I would also add----
Mr. Shays. Let me just say, the problem is, in one way it
is our choice; in another way, it isn't quite our choice. That
is, when you see that we are going to have--I have some
companies that are going out of business in my district because
they are not able to compete with countries that don't have
such large health care costs and so on. And you know their
labor costs are not.
Ms. Wilensky. I do not buy that. Their total labor cost is
divided between wages and fringe benefits, and if they can't
compete, it is because of their labor compensation, the total
labor compensation, and not the notion that there is some piece
of it that is growing faster.
Mr. Shays. No, I think there are a lot of pieces. But if
you are paying $15,000 for health care insurance for your
employee, it makes it pretty hard.
Ms. Wilensky. What it means is that the workers are going
to get squeezed on wages, and of course, what we saw in the
1990s is because we were so much more successful in slowing
down the rate of health care spending, we were able to see
substantial increases in wages in the 1990s without inflation.
Mr. Shays. So your argument--and we will get back to you,
Dr. Feder. But your argument is, bottom line----
Ms. Wilensky. It is productivity. And what happens in terms
of total labor compensation, that is what makes you competitive
or not.
Mr. Shays. Of which health care is a much larger amount in
the United States than it is for other countries?
Ms. Wilensky. It is, but relative to the total package it
is actually quite small.
Mr. Shays. Well, great. Then I don't feel as scared.
Ms. Wilensky. I think it is an easy--it is an easy excuse
as to why a company is having trouble.
Mr. Shays. I am not looking for excuses. I am just very
concerned that my employees now have--my constituents no longer
have jobs, and I am trying to get some answers to it.
But, Dr. Feder, we kind of interrupted you.
Ms. Feder. That is quite alright.
What--on this point I think there are also differences
between the way we finance medical care in this Nation and the
way it is done in other countries. In other countries they bear
those costs. Not all countries have extensive health insurance
systems or as costly health care. But in other countries it is
financed through the tax system and it doesn't fall in the same
way on individuals, on particular employers.
So there are many ways that we have the issue of whether we
want to continue to support the advancing of health care,
adopting new technology that is providing us a lot of good,
along with, perhaps, a lot of unnecessary service. We do have
to figure out, if we don't want to do that, how we limit what
we spend on health care, a very challenging choice. It should
not be done to limit those who are most in need of care, the
elderly and disabled beneficiaries of Medicare, leaving younger
populations unaffected.
We shouldn't be leaving the uninsured hanging out to dry
when the problem is not the health care costs for that 40-some
million people, but rather the costs for all of us who have
health insurance. But we as a Nation need to grapple with it
appropriately. It is not beyond our ability to deal with.
Mr. Shays. Thank you both.
Thank you, Mr. Scott, for your patience. Mr. Scott, you
have as much time as you want.
Mr. Scott. Thank you, Mr. Chairman.
I think--in follow-up to your question, I think Dr. Feder
has suggested that if we had universal health care, that would
relieve the employers of paying a significant portion of their
wages and would make us more competitive. And we have also
heard that the programs we are trying to deal with now,
Medicare and Medicaid, you take the health care system you have
got and expenses out there, and we are just buying what is out
there. If we could get a hold on the health care system and the
increases, then we would be a lot better off.
But in that light, if we are dealing with a private system
rather than Medicare or Medicaid, private has--you have got to
pay for the services, you have got expenses, you have got a
profit. There are only three little pots you can play with, and
if you are not going to reduce the services, where are Medicare
and Medicaid in terms of cost of administration?
Ms. Feder. As you know, Medicare in particular, I believe
that the figure is less than a handful of percentage points--2
to 5 percentage points, 2 percent of Medicare in administrative
costs is the figure that I recall.
Mr. Scott. What is private system?
Ms. Feder. Private sector varies by the size of the group
being insured. My belief is that for employer-sponsored
insurance in large firms, it is in the neighborhood of between
10 and 11 percent. And for small businesses it is in the
neighborhood of 30 to 40 percent.
Mr. Scott. So you can't--you are doing as well as you can
on expenses, you don't have a profit, so how can you possibly
do better in the private system than Medicare or Medicaid?
Ms. Feder. I have got to tell you, Mr. Scott, it beats me.
I think, and the record shows, as I said, that Medicare does a
far better job historically of controlling costs than does the
private sector. Claims about a competitive system or the
Federal Employees Health Benefit Program have simply not been
borne out. They--we have not seen a slowdown in health care
costs.
Mr. Scott. OK. Now, as I understand this proposal, you get
a prescription drug benefit? You go into an HMO, is that the
deal on this thing?
Ms. Feder. An HMO or another--the administration has said a
private health insurance plan because they have considered
options beyond HMOs.
Mr. Scott. Once you get into the private sector, is there
any limit to what they can charge you on co-pays?
Ms. Feder. I believe actually in terms of what the
administration has laid out in detail--and the details are
sketchy on the proposal, but my understanding is that they
would be, they are proposing to make some specifications of a
benefit plan, but allow variation within it. So some variation
within limits.
Mr. Scott. If the HMO that you get into goes broke, then
what happens?
Ms. Feder. That is a good question and not one to which I
have seen an answer, and one which we have had a problem with.
Mr. Scott. And once you go to a HMO can you get back to
Medicare.
Ms. Feder. I believe I heard the Secretary say no, but I
don't know the answer to that in their proposal.
Mr. Scott. OK. Medicaid, now, there has been a question of
whether this thing is capped or not. After this thing goes and
if you choose that option, do you get a set amount of money or
not?
Ms. Feder. My understanding of the proposal is that it is
to replace the current system that provides Federal dollars on
a matching basis, based on the number of people who actually
sign up and the costs of their service. It would replace that,
for a substantial portion at least, if not all of Medicaid,
with predetermined allotments to the States.
Mr. Scott. So the State of Virginia would get one big check
regardless of who they enroll, based on what they used to be
spending?
Ms. Feder. In a word, that is pretty much true.
Mr. Scott. And if they enroll more people, that is on the
State; and if they enroll less people, that is good for the
State.
Ms. Feder. Or the State budget.
Mr. Scott. State budget.
Now, if you buy in, you can't get--I mean, if you buy in,
you can't get back to the regular Medicaid. After about 6 or 7
years--he kept kind of doing this to the curve, where you get
under the cost of inflation--if the cost of medical care keeps
going at 9 percent, in the fullness of time, you are going to
be way behind the curve as I understand it.
Ms. Feder. Well, the way I understood it--and it was clear,
I thought, in his use of the term, forward-funding--it means
give the money to you up front, then take it back at the end,
as I understood it.
And even though he said that it was not a cut, as he showed
the trend line, by doing this, he did indeed say that in years
7, 8 or 8, 9 and 10, that States would receive less than that
inflation trend line, that baseline.
So I think that your interpretation is correct, that
becomes a cut.
Mr. Scott. So when he said you wouldn't have to pay it
back, that wasn't really the whole story. You just wouldn't be
getting enough.
Ms. Feder. I didn't understand that, because I believe that
the forward-funding, if you get more up front, that means that
you have to get less in the back.
Mr. Scott. In future, with the costs going way up, we could
just increase it, say, instead of 9 percent, 6 percent, 5
percent, whatever kind of a budget he wants to do; and the
State of Virginia would just get that check and we would be on
our own after that.
Ms. Feder. Well when you move away from the commitment that
we have now to match the payments based on the eligibles and
the costs, then you can decide what rate of increase you want
to apply. I have not seen it well explained, what the
administration intends, although they sound as though they are
talking about a baseline--which is the projected rate, as he
said, changing from year-to-year.
But policy could be changed. It becomes quite simple to
ratchet that down as is the experience in other areas. But--
well, go right ahead.
Mr. Scott. The State doesn't have to sign up for this and
your recommendation would be to leave well enough alone?
Ms. Feder. Oh, I think it is a really bad gamble. I think
it is appalling that we would only provide States aid if they
sign up for it, because it is really forcing them to make what
I would argue is a very, very bad choice.
Mr. Scott. Thank you, Mr. Chairman.
Chairman Nussle. Thank you. I just have a couple of things.
We appreciate your time today.
The first is, with regard to--and you were on MedPAC. You
were the--in fact, you chaired MedPAC, didn't you, Dr.
Wilensky?
You know, it seems to me one of the frustrations that we
have, or at least that I have--I can't speak for everybody, but
one of the frustrations we have is that the data we are using
to make determinations of impact and how things are--how things
are going, how the challenges within Medicare in particular are
being handled by our system are often 2 years old or longer.
And is that still true, A; and B, what can we do about it? And
doesn't it--doesn't that information make our decisions
incorrect from the beginning, or inaccurate from the very
beginning if you are basing it on information that is 2 years
old?
Ms. Wilensky. Two years is usually good in health data, to
have the data not be more than 2 years out of date. There have
been some attempts to try to get information sooner. The
American Hospital Association has a survey that is used to
provide information that I think is about a year old. But if
you are trying to use actual information in terms of spending
or cost reports, it is very difficult to have it quicker just
because by the time it takes to come in, and for bills to be
paid.
It does seem peculiar in an age of instant information that
we can't find better ways to transmit information within the
government. It is possible that some of the effects of the
HIPAA requirements, which have transaction standards, will be
to have information more readily available after it is all in
place.
But it is a source of frustration.
Chairman Nussle. One other thing that I--or just since you
are here, you are the--you are the co-chair of the President's
Task Force to Improve Health Care Delivery for our Nation's
veterans. And I wanted to ask you, because there has been some
discussion lately, and in fact, bills that have been introduced
in the most recent Congress and now, I assume, considered to be
introduced in this Congress, to change the method of financing
this from a discretionary annual program to a mandatory funded
program; and I guess what I am curious about is, is the task
force considering a recommendation in that regard?
When are--I guess first, when are the recommendations
coming out? I suppose I shouldn't ask you to tilt your hand too
much, but if you would tip your hand, is it heading in that
direction or maybe a different way of financing the veterans
program?
Ms. Wilensky. Our recommendations will be made to the White
House no later than May of this year. We had an interim report
that was out last summer. This activity has been one that has
taught me Medicare is not as hard a problem as I had thought
relative to other issues. Much of what the task force is
looking at has to do with ways to try to have health care
between the VA and the DOD--for retirees and veterans--be
integrated in a better way so that resources can be shared, so
that health care can be more transparent for the active duty to
retiree status of an individual. And so we are--many of our
activities have involved looking at information systems, trying
to go to single physical discharges rather than having
duplicate physical discharges.
We have also looked at the issue of a funding mismatch. The
problem is that if you have major waiting times in the VA
system, it makes it very hard to talk about sharing or
coordination between the VA and DOD when you have one system
that is already so backed up.
We are in the midst of our final deliberations and as of
now, the task force--these are all open meetings, so anybody
can come listen as we proceed over the next 2 months. But the
task force seems to be leaning to make an impartial
distinction. The first refers to the categories, what had been
called 1-through-6s, those who were service-connected
disabilities and the indigent.
With geographic adjustments, it is 1-through-7s in the new
definition, and to look at that group differently from the
category--so-called Category-8s, or the old 7s who have neither
service-connected disabilities nor are they indigent. At this
point we are leaning toward a way to try to assure full funding
for those with service-connected disabilities and for the
indigent without directly discussing, or at least at this
point, recommending the funding mechanism.
As you might imagine, as a former administrator, I am very
gun-shy about adding to the large pot of expenditures that Mr.
Shays has already noted is off of the table in terms of
discretionary decision-making. But to also recognize we need to
make sure that there is full funding for this group of veterans
who have service-connected disabilities and/or who are
indigent, whatever mechanism is used.
We are also engaged in a discussion about what, if any,
policies might seem appropriate for the Congress to consider as
to the Category-8s. We have not come to any conclusions either
with regard to the funding or with regard to this issue. The
task force seems to be leaning in this direction to recognize a
difference between those that have service-connected
disabilities or who are indigent and those who were newly
allowed to use the VA as a result of the 1996--in the
Millennium legislation.
I think we are all feeling a sense of frustration that
Congress' legislation and funding seem to be inconsistent. We
recognize that technically the Congress provided the Secretary
with the ability to close enrollment, but Congress seems very
unhappy when the Secretary actually tries to do that.
We are likely to have the sentiment that would-be funding
and intent need to go closer together.
Chairman Nussle. Well, thank you. I mean, I am sure that
there are more areas we could get into, but I will spare you
that because I know May is just around the corner, and we are
all very anxiously awaiting those recommendations. But it sure
sounds like you are touching all of the most important
component parts. There are many, as you know.
I want to thank you both for your testimony and for your
advice. I am sure you will continue to provide it in this kind
of forum as well. As you said, there are many other ways that
we can discuss this. An open hearing isn't always the most easy
way to accomplish that. But we appreciate all the ways that you
have done those in the past, and we appreciate your testifying
today.
If there is nothing else to come before the committee, we
will stand adjourned.
[Whereupon, at 1:50 p.m., the committee was adjourned.]