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Nicole - Can I have up late
fill
on want's happend
to panelets
THE WHITE HOUSE
WASHINGTON
April 18, 1999
MEMORANDUM FOR HILLARY RODHAM CLINTON
FROM:
NICOLE RABNER
NEERA TANDEN
RUBY SHAMIR
CC:
MELANNE VERVEER
SHIRLEY SAGAWA
PATTI SOLIS DOYLE
MARSHA BERRY
SUBJECT:
ISSUES UPDATE
Please find brief updates on a variety of issues on which there has been action over the last two
weeks.
Child Care. Since your child care event last Monday, there has been more good news on child
care in the context of the Republican budget resolution. This week, when it looked as if the
budget conferees would strip from the final budget agreement the Dodd-Jeffords amendment to
boost child care subsidy funding by $12.5 billion over ten years, Senators Dodd and Jeffords
offered on the Senate floor a motion to instruct the conferees to include the funding increase.
The motion passed with strong bipartisan support, 66-33, adding 10 Republicans to the 12 who
had previously voted for Dodd's child care amendment. The final budget agreement includes
specific mention of raising child care funding, though it reduces by more than half the amount
Dodd and Jeffords sought the agreement calls for $3 billion over 10 years in new subsidy
funding and $3 billion over 10 years in enhanced child care tax relief.
This represents an enormous step forward in achieving important pieces of our child care
initiative this year. Although we strongly oppose the Republican budget resolution, and
therefore should only show limited praise for its components, the President released a statement
(attached) on the child care vote applauding the bi-partisan cooperation at work in the Congress
on this issue. We will now turn our attention to working with the Senate Finance Committee,
which has jurisdiction over child care subsidy and tax issues; fortunately, the Committee
includes four Republicans who voted for the Dodd-Jeffords measure (Senators Jeffords, Hatch,
Chafee, and Grassley).
PHOTOCOPY
HRC HANDWRITING
USA Accounts. On Wednesday, the President announced the details of our Universal Savings
Accounts (USAs) initiative. The material that was released explained that these accounts would
give 124 million Americans the opportunity to save and build wealth for their retirement and
gave concrete examples of ways in which USAs would affect families of varying incomes. The
documents noted that a married couple with two children and an income of $40,000 could build
up a total of $2,000 a year in retirement savings, which could add up to $253,680 over forty
years in today's dollars. While it is too early to assess reviews of the initiative, the NEC is
currently seeking validators, and coverage in Thursday's papers was primarily positive. The
President's remarks from the event, and the summary of the initiative are attached.
Bankruptcy Reform. This week, the Senate Judiciary Committee began its mark-up of
bankruptcy reform legislation, and the markup underscored the vast ideological differences
between the parties. Several Democratic Senators expressed deep concern that the balancing
provisions in last year's Senate bill have been stripped from the current bill. Senator Kennedy
went so far as to declare this bill stinks." Schumer, Torricelli, Feingold, and Leahy pressed
for balance, as well. Of course, all the Republicans will vote for the bill in Committee, as
will Democrats Torricelli Biden, and Kohl. The Committee Democrats who we expect will
vote no are Schumer, Kennedy, Feingold, and Leahy. Feinstein noted that she is leaning
against the bill, but her vote is not yet clear.
In the House and the Senate, the bills' opponents are working to introduce "moderate"
alternative bills around which Democrats can rally. Senator Durbin will soon introduce last
year's Senate bill, and others are working to develop new moderate alternatives, as well. So
far, the alternatives discussed may be too liberal to credibly influence the current negotiations;
rather, they would serve as rhetorical juxtaposition to pending bills. Internally, the
Administration is working to devise proposals that would substantially improve the current
bills and provide Democrats with strong alternatives to support. We floated some of these
proposals to Lisa Fenning; on Friday.
The President's upcoming event on consumer financial protection will provide a forum for him
and the Administration to press for balance in bankruptcy reform (such as through credit card
disclosures, etc.). Because of your leadership in the Administration in this area and if your
schedule permits, we strongly recommend your participation.
Brooklyn Families Agenda Roundtable Follow Up. As you will recall from the Brooklyn
Families Agenda Roundtable in February, two participants had significant problems which we
have followed up on.
Mrs. Angelina Charriez spoke about her 75 year old mother, Ms. Morales, who worked
as a teacher for many years and whose only income is her Social Security check; she
receives no pension because years ago she neglected to fill out a form. Since the
roundtable, things have turned around for Mrs. Charriez's family. Following the
roundtable, Mrs. Charriez contacted Board of Education officials who have helped her
tremendously, and she has just finished compiling all the paperwork to support her case
which she feels will succeed. She is enormously thankful to you for listening to her story
and helping her, saying that the night before the White House invited her to join the
roundtable, she had been praying that things would work out for her family. Days later
her husband joked: "you went straight to the top-- you prayed to God, and got the help of
First Lady Hillary Clinton." We will continue to monitor this case as her pension appeal
progresses.
Ms. Eileen Quinones is a single mother whose $30,000 salary is too high to qualify her
for subsidized child care, and yet she cannot afford quality child care for her 18 month
old son Justin. Ellen Galinsky has beén in touch with her, and has enlisted the help of
other people who have been trying locate child care options, but we don't think Ms.
Quinones's needs have been fully resolved at this time.
THE WHITE HOUSE
Office of the Press Secretary
(San Francisco, California)
April 15, 1999
I am pleased that Congress has made important progress this week to address the pressing
child care needs of America's working families.
Significant new investments are needed to make child care better, safer, and more
affordable for working families. My budget request includes substantial new resources to help
working families pay for child care, increase the supply of good after-school programs, improve
the safety and quality of care, and promote early learning.
Today, Senator Jeffords and Representative Gilman introduced, with bipartisan co-{
sponsors, the "Caring for America's Children" Act, which calls for significant new investments
to make child care more affordable and improve child care quality. Other important legislation
has been introduced in the House and the Senate during this congressional session, as well. And
most important, this week the Congress demonstrated through votes on the Budget Resolution
that there is strong bipartisan support for taking action on child care. I want to thank Senators
Dodd and Jeffords for their strong leadership on this issue, and I look forward to working over
the coming months with Members of Congress on both sides of the aisle to strengthen child care
for America's working families.
-30-30-30-
PRESIDENT CLINTON
INTRODUCES
UNIVERSAL SAVINGS
ACCOUNTS
Summary Documents
April 14, 1999
TABLE OF CONTENTS
I.
1-Page Description of President Clinton's USA
Accounts Proposal
II.
Hypothetical Examples of How Families Benefit
from President Clinton's USA Accounts
III.
1-Pager on "the Need for Universal Savings
Accounts"
IV.
2-Page Background on President Clinton's USA
Accounts
PRESIDENT CLINTON INTRODUCES UNIVERSAL
SAVINGS ACCOUNTS: PROVIDING MILLIONS OF
AMERICANS A NEW OPPORTUNITY TO SAVE FOR
RETIREMENT
April 14, 1999
Today, President Clinton announced his Plan to Provide Universal Savings Accounts for Most Americans. These
accounts will give 124 million Americans the opportunity to build wealth and to save for their retirement through a
progressive tax cut. A married couple that participated for 40 years, could accumulate over $253,680 in today's dollars
- enough to produce $20,121 a year of after-tax income in retirement.
Currently, Too Few Americans have Additional Savings. Because Americans are living longer, it is more important
than ever for them to build wealth for a secure retirement. Currently, over two-thirds of Americans rely on Social
Security as their principal source of retirement income, and 18 percent rely on Social Security as their only source of
income. Too few Americans are saving for their retirement. The typical family headed by someone 55-64 years of age
has financial assets worth just $32,000.
President Clinton Believes that Social Security Reform Needs to be Complemented with Actions to Strengthen
Private Savings and Private Pensions. Social Security reform will ensure that Social Security remains a rock solid
foundation for retirement security. Universal Savings Accounts will give working American families the opportunity to
save for a secure retirement. Under this new program, 73 million people who do not participate in employer-provided
pension plans would qualify for USAs, as well as 51 million people with pensions.
Here's How USAs Work:
98 million adults would receive an automatic government contribution to their Universal Savings Account every
year.
In addition to the automatic contribution, the government would match, dollar for dollar, voluntary contributions
to the USAs by low and moderate income workers. Eligible workers with higher incomes would have a match
rate of at least 50 percent.
USAs Provide a Progressive Approach for Retirement Savings for the Majority of Working Americans. The
current tax system provides 66 percent of the tax benefits for pensions and retirement savings to taxpayers with incomes
above $100,000. In contrast, the USA proposal would provide 80 percent of its benefits to families with incomes below
$100,000. USAs makes the tax system more progressive by providing the most generous tax breaks for low and middle
income workers-- who are the least likely to have access to employer pensions and who have the most difficult time
saving.
USAs Will Help Make Additional Retirement Savings Universal. Each spouse in a married couple with family
earnings over $5,000 and adjusted gross income of less than $100,000 who is between the ages of-18 and 70 will be
eligible for a USA tax credit (single taxpayers must have adjusted gross income below $50,000; head of household filers
must have income below $75,000). In addition, workers with higher incomes who do not have pension coverage are
eligible for an account.
USAs Allow American Families to Build Wealth to Meet Their Retirement Needs. USAs give these workers an
opportunity to build wealth and save for retirement.
A couple earning $40,000 would automatically receive $600 of tax credits deposited into their accounts, even if
this family contributed nothing to their accounts. After 40 years, with only automatic contributions their
accounts would total $76,104 (in today's dollars) and provide $6,036 a year of after-tax retirement income.
However, if each year this family saved $700 ($350 in the account of each spouse), then the government would
provide a $1,300 tax credit ($650 each). After 40 years they would have wealth totaling over $253,680 in
today's dollars, enough to provide $20,121 of after-tax income in retirement.
USA Tax Credits
A Family of Four with an Income of $40,000
Consider a married couple with two children. One spouse makes $40,000 a year working for a small business.
The other spouse stays at home with their young children. Like millions of other families, they live paycheck to
paycheck. Before payday, their bank account rarely has more than a couple hundred dollars.
How the New USA Accounts Work for this Family. The USA accounts are designed to deliver tax
credits to help families save and build wealth for their retirement. This family would receive:
Automatic Tax Credit: Every year the husband and wife would each receive an automatic annual tax
credit of $300, for a total of $600. They would claim the tax credit on their tax return, and it would be
deposited in their new USA accounts.
Matched Tax Cut: As a powerful new incentive to save, this couple would receive an additional $1 in tax
credit for every dollar the couple saved up to $700 ($350 each) of savings would be matched. For each
dollar the couple deposited in their USA accounts, they would receive a corresponding $1 in a matching tax
credit, which would also be deposited in their USA accounts.
This Adds Up to A Big Tax Cut for Retirement Savings and a Great Investment: The couple's $700 of
savings would be supplemented by a $1300 tax credit for a total of $2000 a year in retirement savings.
That's $600 credited automatically ($300 each) plus a $700 savings credit ($350 each). The USA credit
almost triples the couple's contribution, and it allows for tax favored build up of account balances.
THE AUTOMATIC TAX CREDIT PROVIDES CORE SAVINGS SUPPORT
Automatic
Family Contribution
Matched Tax Cut
Total Annual Savings in USA
Tax Credit
$600
$0
$0
$600
This savings could build to $76,104 after 40 years assuming a 5 percent real rate of return.
THE MATCHING TAX CUT PROVIDES A POWERFUL INCENTIVE To SAVE
Automatic
Family Contribution
Matched Tax Cut
Total Annual Savings in USA
Tax Credit
$600
$700
$700
$2000
This will provide a total tax credit of $1,300.
These savings could build to $253,680 after 40 years assuming 5 percent real rate of return.
And would provide $20,121 of after-tax income in every year of retirement.
Building Wealth for Retirement. Regular savings over a lifetime combined with these tax credits
will help working families build wealth and retirement security. If this family saved $700 every year and
received the maximum tax credit of $1,300, after 40 years they would have a nest egg of wealth totaling
$253,680 in today's dollars. This would provide $20,121 of after-tax income in every year of retirement
from depositing only $700 per year while they worked.
Benefits of USA Tax Credits Compared to the 10% Across-the-Board Tax Cut. This
family would receive a much larger tax cut from the USA account tax credits than from the 10%
across-the-board tax cut. While this family would receive just $315 from the across-the-board tax cut, they
would be eligible to receive $1,300 from the USA account tax credits.
USA Tax Credits
A Family of Four with an Income of $60,000
Consider a married couple with two children. One spouse makes $60,000 a year working for a small
business. The other spouse stays at home with their young children. Like millions of other families,
they live paycheck to paycheck. Before payday, their bank account rarely has more than a couple
hundred dollars.
How the New USAs Work for this Family. USAs are designed to deliver tax credits to help
families save and build wealth for their retirement. This family would receive:
Automatic Tax Credit: Every year the husband and wife would each receive an automatic
annual tax credit of $150, for a total of $300. They would claim the tax credit on their tax
return and it would be deposited in their new USAs.
Matching Tax Credit: As a powerful new incentive to save, this couple would receive an
additional $0.75 in tax credit for every dollar the couple saved up to $972 ($486 each) of
savings would be matched.
This Adds Up to A Big Tax Cut for Retirement Savings and a Great Investment: The
couple's $972 of savings would be supplemented by a $1,028 tax credit for a total of $2,000 a
year in retirement savings. That's $300 credited automatically ($150 each) plus a $728 savings
credit ($364 each). The USA credit more than doubles the couple's contribution, and it allows
for tax favored build|up of account balances.
THE AUTOMATIC TAX CREDIT PROVIDES CORE SAVINGS SUPPORT
Automatic
Family Contribution
Matching Tax Credit
Total Annual Savings in
Tax Credit
USA
$300
$0
$0
$300
This savings could build to $38,052 after 40 years -- assuming a 5 percent real rate of return.
THE MATCHING TAX CREDIT PROVIDES A POWERFUL INCENTIVE To SAVE
Automatic
Family Contribution
Matching Tax Credit
Total Annual Savings in
Tax Credit
USA
$300
$972
$728
$2000
This will provide a total tax credit of $1,028.
These savings could build $253,680 after 40 years assuming 5 percent real rate of return.
And would provide $20,121 of after-tax income in every year of retirement.
Building Wealth for Retirement. Regular savings over a lifetime combined with these tax
credits will help working families build wealth and retirement security. If this family saved $972 every
year and received the maximum tax credit of $1,028, after 40 years they would have a nest egg of
wealth totaling $253,680 in today's dollars. This would provide $20,121 of after-tax income in every
year of retirement from depositing only $972 per year while they worked.
Benefits of USA Tax Credits Compared to the 10% Across-the-Board Tax Cut.
This family would receive a much larger tax cut from the USA account tax credits than from the 10%
across-the-board tax cut. While this family would receive just $547 from the across-the-board tax cut,
they would be eligible to receive $1,028 from the USA account tax credits.
USA Tax Credits
A Family of Four with an Income of $80,000
Consider a married couple with two children. One spouse makes $80,000 a year working for a small
business. The other spouse stays at home with their young children.
How the New USAs Work for this Family. USAs are designed to deliver tax credits to help
families save and build wealth for their retirement. This family would receive:
Matching Tax Credit: As a new incentive to save, this couple would receive an additional
$.50 in tax credit for every dollar the couple saved -- up to $1,333 ($667 each) of savings would
be matched.
This Adds Up to A Big Tax Cut for Retirement Savings and a Great Investment: The
couple's $1,333 of savings would be supplemented by a $667 tax credit for a total of $2,000 a
year in retirement savings. That's a $667 savings credit ($333 each). The USA credit increases
the couple's contribution, and it allows for tax favored build up of account balances.
AT THIS INCOME LEVEL THE AUTOMATIC TAX CREDIT IS NOT AVAILABLE
Automatic Tax
Family Contribution
Matching Tax Credit
Total Annual Savings in
Credit
USA
$0
$0
$0
$0
THE MATCHING TAX CUT PROVIDES A POWERFUL INCENTIVE To SAVE
Automatic Tax
Family Contribution
Matching Tax Credit
Total Annual Savings in
Credit
USA
$0
$1,333
$667
$2000
This will provide a total tax credit of $667.
These savings could build $253,680 after 40 years -- assuming 5 percent real rate of return.
And would provide $20,121 of after-tax income in every year of retirement.
Building Wealth for Retirement. Regular savings over a lifetime combined with these tax
credits will help working families build wealth and retirement security. If this family saved $1,333
every year and received the maximum tax credit of $667, after 40 years they would have a nest egg of
wealth totaling $253,680 in today's dollars. This would provide $20,121 of after-tax income in every
year of retirement from depositing only $1,333 per year while they worked.
Benefits of USA Tax Credits Compared to the 10% Across-the-Board Tax Cut.
This family would receive $947 from a 10% across-the-board tax cut. At first glance, this might seem
to be somewhat larger than the $667 USA tax credit. However, the USA also provides for tax-free
compounding of account balances, making the tax credit worth well over $1000 to this family.
THE NEED FOR USAs
Making Savings For A Secure Retirement Available to More Americans
Currently, Too Few Americans Have Enough Savings For A Secure Retirement. Because
Americans are living longer it is more important than ever for them to build the wealth necessary for a
secure retirement. But there are gaps in the system that leave too many American families behind.
Social Security Provides A Core Foundation For Retirement And Reform is Necessary To
Keep It Strong, But It Is Only One Leg of The Retirement Stool. While providing basic
economic security for older Americans, the program was never meant to provide enough to
maintain the standard of living individuals had during their working years. Social Security
replaces just one-half of pre-retirement income for an individual who earned $17,000, and less
than one-quarter of the income of an individual who earned $72,600. Yet Social Security is the
only source of income for 18 percent of elderly Americans, and the principal source of income
for 66 percent of elderly Americans.
Pension Coverage Provides Additional Support, But Many American Workers Are Not
Covered.
Half of all American workers have no pension coverage at all through their current job.
This situation is worse for workers in small businesses, where only 18 percent of people
who work for organizations employing fewer than 25 workers have access to pensions
through their current job.
Less than 20 percent of workers have their own IRA, and many do not contribute
regularly.
Just one quarter of all workers are covered by 401(k) plans in their current job. And
while two-thirds of people with earnings $75,000 and over have 401(k)s, just 43
percent of those with earnings between $35,000 and $39,000 have (k)s.
While 91 percent of all families have some financial holdings, the median value of these
holdings is just $13,000. The median value of financial assets of families headed by
someone over age 65 is just $20,000.
The Tax Incentives For Retirement Savings Help Many American Families, But The Tax
Benefits Are Skewed To The Better Off.
Two thirds of existing pension tax subsidies go to families with incomes over $100,000, while
just one third goes to those making under $100,000 and just 7 percent goes to families earning
less than $50,000.
USA Accounts provide a progressive tax credit so that the overall retirement system will be more
balanced and give all American families an incentive to save.
80 percent of the tax benefits of USA Accounts go to those making under $100,000.
SUMMARY OF UNIVERSAL SAVINGS ACCOUNT PROPOSAL
Universal Savings Accounts (USAs) are voluntary individual retirement savings accounts with a
progressive tax subsidy.
Automatic Government Contribution. Workers and their spouses in low- or moderate-income
households re cive an automatic government contribution of $300, in the form of a refundable tax credit
deposited directly into their USAs. The automatic credit is phased out between $40,000 and $80,000 of
adjusted gross income (AGI) for joint filers ($20,000-$40,000 for singles; $30,000-$50,000 for head of
household filers).
Government Match of Individual Contributions. Voluntary individual contributions to a USA are
matched by additional government contributions to the taxpayer's USA. The matches will also be in the
form of a refundable tax credit deposited directly into the USA. Low- and moderate-income individuals
receive a dollar-for-dollar match. The match rate phases down to 50 percent over the same income ranges
as the phase-down for the automatic contribution, and then remains at 50 percent until the income level at
which eligibility ends ($100,000 for joint filers with pension coverage; $50,000 for single filers with
pension coverage; $75,000 for head of household filers with pension coverage; no limit for people without
pension coverage). Total contributions (including the credit) to an account are capped at $1,000 per year.
Eligibility. To be eligible, a taxpayer must have at least $5,000 of earnings (which can be combined
earnings on a joint return) and must not be the dependent of another taxpayer. Thus, an individual
without earnings can have a USA if his or her spouse earns at least $5,000. Taxpayers younger than age
18 or older than 70 are ineligible. Taxpayers with an employer-sponsored retirement plan must have AGI
of less than $100,000 for joint filers ($50,000 for single filers; $75,000 for head of household filers). All
eligible workers without an employer-provided pension would receive at least a 50 percent match,
regardless of income.
Investment Choice. Individuals will have the option of investing their accounts in a universal
retirement plan similar to the Federal Thrift Savings Plan (TSP), a 401(k)-type plan for federal
government employees. Individuals would be able to choose among a limited number of broad-based
investment options similar to those offered in the TSP and in many private sector 401(k) plans. We look
forward to working with Congress and experts from the private sector to devise the best way to administer
the accounts, as well as to explore whether it would be possible to provide account holders with the option
of investing directly with private sector fund managers.
Withdrawal Rules. No amount could be withdrawn from a USA before age 65, unless the account
holder dies. Once withdrawals commence after age 64, no additional contributions could be made to the
account.
Tax Treatment of Accounts. Automatic and matching government contributions would not be taxable
when deposited to accounts. Earnings would grow tax free until retirement. Withdrawals would
generally be taxable, but 15 percent of each withdrawal would be excluded from taxes in order to
approximate a tax-free return of an individual's own contribution. Voluntary USA contributions will not
be tax deductible because the tax subsidy is provided in the form of the tax credit rather than a deduction,
enabling the program to be more progressive.
Coordination with 401(k)-type Plans. Eligible employees will receive a government matching
contribution deposited to their USA when they contribute either to their USA or to a 401(k)-type plan The
government match supplements any employer matching contributions. Therefore, USAs will not cause
workers to shift contributions from private-sector 401(k)-type plans to USAs. In fact, USAs will encourage
workers to save through 401(k)-type plans by giving the millions of workers who are currently eligible to
contribute, but who fail to do so, a greater incentive to contribute without imposing administrative burdens
on employers or plan administrators. Because contributions to a 401(k)-type plan are excludable from taxable
income while USA contributions are not, joint filers with AGI of more than $50,000 ($25,000 for single filers;
$37,500 for head of household filers) who elect to receive government matches will be required to include
in taxable income 80 percent of the portion of the 401(k) contribution that is matched.
Protections for Women Including Divorcees and Widows. The design of USAs recognizes that women
are more likely to spend time out of the labor force than men and have lower average earnings than men, and
ensures women will have the opportunity to accumulate significant savings in their USAs. First, spouses of
workers are eligible for the USA tax credit even if they do not work. Second, the progressive credit formula
targets the tax benefits to low and moderate income workers. We look forward to working with Congress and
outside experts to determine what the best means are to ensure that women are protected in case of divorce
or widowhood.
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
April 14, 1999
REMARKS OF THE PRESIDENT
ON UNIVERSAL SAVINGS ACCOUNTS
The Rose Garden
3:09 P.M. EDT
THE PRESIDENT: Thank you very much. Andrew and Theresa
and I were walking down here, and they were mildly nervous because
they don't do this every day. But I think you did a very fine job.
(Applause.) I want to thank them and their three sons for coming.
I'd also like to thank Felicia Harris and her daughter, Alexis, who
came because they're another representative family who will be
benefitted by the USA Account proposal.
I thank Senator Barbara Boxer who is here and has had to
stand up here alone because all of the House members who were
supposed to be with her are back at the House voting, and I
appreciate her being here. I want to thank Secretary Rubin for his
leadership on this issue, along with Deputy Secretary Larry Summers
and Secretary Shalala; Gene Sperling, my National Economic Counselor.
You know that we want to talk to you about a major issue
relating to retirement security in the 21st century. I think it's
important to start out by saying that this will be a very big deal to
a lot more people. We all know that the number of people over 65
will double by the year 2030. By the year 2050, the average American
will live to be 82 years old.
1
Now, keep in mind that in 1900, life expectancy was only
47 1/2 years. It took 4,000 years, the majority of all recorded
history, to make a leap in longevity like the one we have seen in
just one century. Now, as I get older, I remind everyone that this
is a very high-class problem, and I like it better as the years go
by. They are a precious gift.
President Roosevelt said, there is no tragedy in growing
old, but there is tragedy in growing old without means of support.
Historically, our people have relied upon three basic means of
support. First, Social Security. It became the basic means of
support and still alone is responsible for lifting almost half of our
senior population out of poverty. But it was never supposed to be
seniors' only means of support. And we see by the fact that the
poverty rate among elderly single women is twice that of seniors in
general what happens when Social Security is the only means of
support.
Pensions are the second, and private savings are the
third. Retirement, to be truly secure, needs a mix of all three.
Well, how strong are these building blocks for most
Americans? First, Social, Security. It's a rock-solid guarantee
and it has been for generations. But for the 18 percent of the
seniors, as I said, for whom Social Security is their only source
of retirement income, life is still pretty tough.
The first thing we have to do is to make sure that
Social Security will be there for the baby boomers. As I said in
my State of the Union address, that's why we ought to set aside
62 percent of the surplus to save Social Security and at the same
time, as Secretary Rubin said, to pay down our national debt.
We also need to be very mindful that Medicare is quite
important not only to Social Security recipients who have that as
their only source of income, but to a lot of other seniors as
well. And we need to set aside enough money from the surplus to
secure Medicare well into the next century.
Our budget plan pays down the debt and saves Social
Security and Medicare. I look forward to working with Congress
over the coming months to make some changes that are necessary to
lengthen the life of both the Social Security and the Medicare
2
trust funds, to maintain our fiscal discipline and secure the
health of our economy into the 21st century.
Now, what about the second building block -- private
pensions? Half of all American workers, 73 million of them, have
no employer-provided pensions whatever. IRAs and 401Ks are
something they hear and read more and more about, but don't have
for themselves. Currently, only one-third -- listen to this --
only one-third of the tax benefits for pensions and retirement
savings go to families who earn less than $100,000, even though
they represent the vast majority of working people in the United
States today.
The third building block is personal savings.
Americans living longer than ever and moving from job to job, who
may have defined contribution rather than defined benefit pension
plans, more and more will need to increase their personal
savings. Our national savings rate has doubled over the last six
years because we're saving more in the government and not having
deficits.
But personal savings has gone down over the last six
years. Too few Americans are saving for their own retirement.
For too many Americans, the hard work they do to provide for
their families today, as you've just heard, makes it difficult
for them to save for tomorrow. The typical family, headed by
someone between the ages of 55 and 64, has financial assets worth
just $32,000. That won't support them very long in their
retirement. For many Americans, as their lives stretch longer,
their resources are stretched thinner.
I believe Americans who work hard their entire lives
and raise their children should not have to have their retirement
posed precariously on the edge of poverty. I believe that
Americans, however, have to do more to save for their own future,
but that Americans deserve the chance to do that.
Now, that's what this USA Account proposal is all
about. It is a complete and comprehensive new plan to help
Americans with retirement savings for the 21st century. It is
the right way to provide tax relief for the American people, and
it is the right way to increase savings and strengthen our
economy, even as we help families like the ones we honor today.
3
Now, I proposed in the State of the Union address
setting aside 12 percent of the surplus to establish these
accounts. Let me say specifically what I think we ought to do.
I propose that Americans be given the chance to open,
voluntarily, Universal Savings Accounts. I propose that workers
receive a refundable tax credit if their incomes are up to
$80,000 a year, deposited directly into their USA accounts, and
as they save, that the government help them save further,
matching their contributions on a sliding scale, depending on
income, giving extra help to those least able to save.
Further, I propose that aid be given to people with
incomes-between the incomes of $80,000 and $100,000 a year, but
on a reduced basis. And even for people with incomes over
$100,000 a year, if they have no other personal retirement
savings or pensions, they should also be eligible for this help.
This would give many, many millions of Americans a new
opportunity to invest in the growing American economy, to have
some wealth and security in retirement. It will revolutionize
savings not simply for older Americans, but especially, perhaps,
for younger Americans, from their very first days in the work
force. With USA accounts everyone in the USA will be able to
save, especially if we get more and more congressional support as
we go along. (Laughter.)
Now, let me go through the reasons that I believe that
this is the right way to provide tax relief with the surplus, and
I would like to go through some very specific things. First of
all, Universal Savings Accounts do just what the name says, they
make savings universal. It would be many workers' first, or
certainly their best, opportunity ever to save. And by rewarding
responsibility, USA Accounts would help set them on the road to
further savings.
Second, USA Accounts make investment universal.
Savings, of course, is about more than protecting what you have,
it's about creating and building greater wealth for a better
future. With these accounts, working families will have a chance
to invest just as wealthier families do today. They can choose
to invest in an interest-bearing account or a stock market mutual
fund or a bond fund, just as they would with a government or
private pension.
4
Third, they make real retirement security universal,
extending it even to workers with low and moderate incomes who
are least likely to be offered pensions by their employers and
least likely to be able to save on their own. As I said earlier,
I want to emphasize this again today -- only a third of all the
tax benefits provided under all the laws of Congress of existing
retirement plans go to families earning less than $100,000.
You heard what our distinguished speaker said. Listen
to this. I mean, does this family -- these look like the people
you want to help, right? I mean, they're making America great.
Only seven percent of existing tax benefits for retirement go to
families with incomes of $50,000 a year or less -- only. seven
percent.
Our plan more than doubles that. More than 80 percent
of the tax benefits of USA Accounts will go to people making
incomes of $100,000 a year or less. It's the vast majority of
the American people and it's the right thing to do. It is the
kind of tax cut America needs, targeted toward working families,
toward savings, and toward the future.
USA Accounts will add up. For example, if a couple
earning $40,000 saved just $700 a year, matched by the
government, a USA Account invested conservatively would be worth
a quarter of a million dollars after 40 years. How many people
making $40,000 a year in this country today have a quarter of a
million dollars in wealth? Think what this could do for America.
That means -- let me just say what it means practically
-- it means that a person could retire and, just from this
account, living over 80 years, have well over $15,000 a year in
income during retirement. That's the power of savings and
compound interest.
But USA Accounts involve more than compound interest.
They also add up to a larger stake in our society and its future.
Families who own very few financial assets would now own a share
of our nation's prosperity and in the remarkable economic growth
they have done SO much to create. People like Andrew and
Theresa, people like Felicia Harris, people working hard, raising
their children, thinking about their children's future, would
have their first real chance to save for tomorrow while they are
5
working today.
With USA accounts we can say to a 25-year old just
starting a family, you can start to save. With these accounts we
can say to someone who has made a transition from welfare to work
and is watching the stock market surge in value, you actually can
have a stake in this wealth you are helping to create. We can
say to working families, now you can think about your children's
future, and your own.
So, as I stand here at the end of one century and the
dawn of the next, and I think about what I would like family life
to be like 10, 20, 30, 40 years from now, one of the things that
I want very badly to do is to see our wealth more fairly shared
by those who create it, and to see it shared in a way that makes
sure that, as we live longer, and longer, those of us who retire
will not pose unconscionable financial burdens for our children
and their ability to raise our grandchildren.
Saving Social Security and Medicare is a part of that.
Having the right sort of tax cut is a part of that. The USA
accounts increase savings, increase retirement security, and will
give millions and millions and millions of families who are a big
part of this remarkable recovery we have enjoyed for the last six
years -- for the first time, those people will have a chance to
actually own a piece of the American recovery they have done so
much to create.
Thank you very much. (Applause.)
END
3:19 P.M. EDT
6
FYI or bankruptcy & child care.
Friday, April 16, 1999
National Journal's Congress AM 9
Bankruptcy Reform Markup Highlights Discord Over Bill
OPENING STATEMENTS
JUDICIARY
way to avoid a joint referral with the
That, in turn, raises questions as
by members of the
Senate Banking Committee - and
to whether either side will have the
Senate Judiciary Committee at a
promised the debate would resume on
votes to pass any significant amend-
markup Thursday of bankruptcy re-
the Senate floor.
ments.
form legislation underscored the vast
But Kennedy, along with Sens. Rus-
Although the committee will con-
ideological differences between and
sell Feingold, D-Wis., and Dianne Fe-
sider 26 amendments in all, specula-
within the parties that appear bound
instein, D-Calif., raised numerous other
tion is the bill will leave the committee
to plague the rest of the markup and
problems with the bill. And while Fein-
near its original form.
ensuing floor debate.
stein remains something of a question
That apparently would suit Judi-
The markup is scheduled to con-
mark as to how she will cast her vote in
ciary Chairman Hatch, as he urged all
tinue next week, possibly Thursday.
committee, neither Kennedy nor Fein-
members to hold as many amend-
In addition to the bill's other trou-
gold left any doubt as to their position.
ments as possible for the Senate floor
bles, a dispute over abortion Thursday
Judiciary ranking member Patrick
- at which point, Hatch asserted, the
threatened to scuttle the bill.
Leahy, D-Vt., also indicated he would
bill will be given "plenty" of time.
A proposal by Sen. Charles Schumer,
vote no, while Sen. Herbert Kohl, D-
In another banking-related devel-
D-N.Y., would require bankrupt people
Wis., announced he would vote for the
opment, a much anticipated meeting
found to have violated laws protecting
bill, with reservations.
among Senate leaders in the financial
abortion clinics to pay those penalties.
The bill's sponsors on the com-
services debate - including Majority
Sen. Joseph Biden, D-Del., said the plan
mittee, including Administrative Over-
Leader Lott, Minority Leader Daschle,
could kill the bankruptcy legislation, the
sight and the Courts Subcommittee
Banking Chairman Gramm and rank-
Associated Press reported.
Chairman Charles Grassley, R-lowa,
ing member Paul Sarbanes, D-Md., has
The way "to make sure nothing hap-
subcommittee ranking member
been postponed until next week, ac-
pens [with legislation] is to say "abor-
Robert Torricelli, D-N.J., and Biden -
cording to sources.
tion," said Biden, who supports the
whose home state contains the head-
These sources noted that the
bankruptcy overhaul bill.
quarters of such large credit card is-
Kosovo conflict has made scheduling
At the same time, Sen. Robert
suers as MBNA and First USA Bank -
the bill strategy session difficult.
Smith, R-N.H:, is pushing an amend-
clearly intend to present a united front.
- By PAMELA BARNETT
ment that would prohibit doctors who
declare bankruptcy from writing off
penalties they owe from medical mal-
practice claims related to abortion.
Childcare Tax Credit Push Is On
an existing childcare block grant.
While at least some GOP members
AFTER WINNING a promise in the bud-
While those levels are well short of
of the committee say they harbor reser-
get resolution for childcare tax cuts,
the money required to fund their tax
vations about the overall bill - Sen.
Senate Health, Education, Labor and
cut bill, Jeffords, Dodd and Gilman
Jeff Sessions of Alabama is one - all
Pensions Chairman Jeffords and Sen.
told a news conference that itemiz-
of those present at Thursday's meet-
Christopher Dodd, D-Conn., Thurs-
ing money for childcare tax cuts was
ing made clear their intention to vote
day reintroduced legislation outlin-
a victory for their cause
for the bill in committee.
ing a wish list of specific tax cuts
Low-income working families
The greatest range of opinion on the
Rep. Benjamin Gilman R-N.Y.
need subsidies that are high enough
bill clearly rests on the Democratic side,
Thursday introduced a companion
so they have an opportunity to
where deep divisions were obvious.
bill in the House Their plan calls for
choose the type of child care they
Sen. Edward Kennedy, D-Mass.,
$36 billion in tax cuts over five years
want for their children," Jeffords said
blasted the measure as a "special inter-
to help families pay for professional
The plan would increase the cur-
est" bill that would hurt middle-class
child care or to help subsidize a par-
rent $500 child tax credit to $900 per
families - and excoriated bill sponsors
ent to stay at home
child, and increase a number of
for failing to include a number of con-
Jeffords, Senate Budget Chair-
other tax credits and deductions for
sumer protections that would hold credit
man Domenici and other Senate Re-
families needing child care
card companies partially responsible for
publicans joined all 45 Democrats
There also would be a tax credit
skyrocketing personal debt.
to support an amendment, eventu-
for businesses that contribute to
"This legislation basically stinks,"
ally contained in the final budget res-
child care for their employees.
declared Kennedy.
olution, calling for $3 billion over five
Jeffords and Dodd tried to move
Bill sponsors defended their deci-
years in tax cuts for child care. An-
similar legislation in the last Congress.
sion to omit the provisions cited by
other $3 billion is set aside to expand
- By MATTHEW MORRISSEY
Kennedy - noting that it was the only
THE WHITE HOUSE
WASHINGTON
April 18, 1999
MEMORANDUM FOR HILLARY RODHAM CLINTON
FROM:
NICOLE RABNER
NEERA TANDEN
RUBY SHAMIR
CC:
MELANNE VERVEER
SHIRLEY SAGAWA
PATTI SOLIS DOYLE
MARSHA BERRY
SUBJECT:
ISSUES UPDATE
Please find brief updates on a variety of issues on which there has been action over the last two
weeks.
Child Care. Since your child care event last Monday, there has been more good news on child
care in the context of the Republican budget resolution. This week, when it looked as if the
budget conferees would strip from the final budget agreement the Dodd-Jeffords amendment to
boost child care subsidy funding by $12.5 billion over ten years, Senators Dodd and Jeffords
offered on the Senate floor a motion to instruct the conferees to include the funding increase.
The motion passed with strong bipartisan support, 66-33, adding 10 Republicans to the 12 who
had previously voted for Dodd's child care amendment. The final budget agreement includes
specific mention of raising child care funding, though it reduces by more than half the amount
Dodd and Jeffords sought -- the agreement calls for $3 billion over 10 years in new subsidy
funding and $3 billion over 10 years in enhanced child care tax relief.
This represents an enormous step forward in achieving important pieces of our child care
initiative this year. Although we strongly oppose the Republican budget resolution, and
therefore should only show limited praise for its components, the President released a statement
(attached) on the child care vote applauding the bi-partisan cooperation at work in the Congress
on this issue. We will now turn our attention to working with the Senate Finance Committee,
which has jurisdiction over child care subsidy and tax issues; fortunately, the Committee
includes four Republicans who voted for the Dodd-Jeffords measure (Senators Jeffords, Hatch,
Chafee, and Grassley).
USA Accounts. On Wednesday, the President announced the details of our Universal Savings
Accounts (USAs) initiative. The material that was released explained that these accounts would
give 124 million Americans the opportunity to save and build wealth for their retirement and
gave concrete examples of ways in which USAs would affect families of varying incomes. The
documents noted that a married couple with two children and an income of $40,000 could build
up a total of $2,000 a year in retirement savings, which could add up to $253,680 over forty
years in today's dollars. While it is too early to assess reviews of the initiative, the NEC is
currently seeking validators, and coverage in Thursday's papers was primarily positive. The
President's remarks from the event, and the summary of the initiative are attached.
Bankruptcy Reform. This week, the Senate Judiciary Committee began its mark-up of
bankruptcy reform legislation, and the markup underscored the vast ideological differences
between the parties. Several Democratic Senators expressed deep concern that the balancing
provisions in last year's Senate bill have been stripped from the current bill. Senator Kennedy
went so far as to declare "this bill stinks." Schumer, Torricelli, Feingold, and Leahy pressed
for balance, as well. Of course, all the Republicans will vote for the bill in Committee, as
will Democrats Torricelli, Biden, and Kohl. The Committee Democrats who we expect will
vote no are Schumer, Kennedy, Feingold, and Leahy. Feinstein noted that she is leaning
against the bill, but her vote is not yet clear.
In the House and the Senate, the bills' opponents are working to introduce "moderate"
alternative bills around which Democrats can rally. Senator Durbin will soon introduce last
year's Senate bill, and others are working to develop new moderate alternatives, as well. So
far, the alternatives discussed may be too liberal to credibly influence the current negotiations;
rather, they would serve as rhetorical juxtaposition to pending bills. Internally, the
Administration is working to devise proposals that would substantially improve the current
bills and provide Democrats with strong alternatives to support. We floated some of these
proposals to Lisa Fenning on Friday.
The President's upcoming event on consumer financial protection will provide a forum for him
and the Administration to press for balance in bankruptcy reform (such as through credit card
disclosures, etc.). Because of your leadership in the Administration in this area and if your
schedule permits, we strongly recommend your participation.
Brooklyn Families Agenda Roundtable Follow Up. As you will recall from the Brooklyn
Families Agenda Roundtable in February, two participants had significant problems which we
have followed up on.
Mrs. Angelina Charriez spoke about her 75 year old mother, Ms. Morales, who worked
as a teacher for many years and whose only income is her Social Security check; she
receives no pension because years ago she neglected to fill out a form. Since the
roundtable, things have turned around for Mrs: Charriez's family. Following the
roundtable, Mrs. Charriez contacted Board of Education officials who have helped her
tremendously, and she has just finished compiling all the paperwork to support her case
which she feels will succeed. She is enormously thankful to you for listening to her story
and helping her, saying that the night before the White House invited her to join the
roundtable, she had been praying that things would work out for her family. Days later
her husband joked: "you went straight to the top-- you prayed to God, and got the help of
First Lady Hillary Clinton." We will continue to monitor this case as her pension appeal
progresses.
Ms. Eileen Quinones is a single mother whose $30,000 salary is too high to qualify her
for subsidized child care, and yet she cannot afford quality child care for her 18 month
old son Justin. Ellen Galinsky has been in touch with her, and has enlisted the help of
other people who have been trying locate child care options, but we don't think Ms.
Quinones's needs have been fully resolved at this time.
THE WHITE HOUSE
WASHINGTON
June 22, 1999
MEMORANDUM FOR HILLARY RODHAM CLINTON
FROM:
NICOLE RABNER
NEERA TANDEN
RUBY SHAMIR
CC:
MELANNE VERVEER
SHIRLEY SAGAWA
PATTI SOLIS DOYLE
MARHSA BERRY
SUBJECT:
ISSUES UPDATE
Crime -- Juvenile Crime/Gun Bills. As you know, last week the House leadership divided the
juvenile crime bill the Senate had passed into two bills - a gun bill and a juvenile crime bill. The
gun bill was defeated by a vote of 147 to 280, with almost all Democrats voting against it. The
bill contained a number of amendments throughout the process, including provisions to: (1) ban
the importation of large capacity ammunition clips (voice vote); (2) require child safety locks for
handguns (311-115); (3) ban juvenile possession of semiautomatic assault weapons (354-69); (4)
ban violent juveniles from owning guns as adults (395-27); (5) allow current and former law
enforcement officers to carry concealed weapons (372-53); (6) revise background check
requirements for guns redeemed at pawnshops (247-181); and (7) allow D.C. residents to keep
handguns in their homes (213-208). However, Democrats decided to oppose the final bill after
the House passed the Dingell gun show amendment, which would weaken existing requirements
for background checks, late Thursday night by a vote of 218-211, and rejected the McCarthy gun
show substitute by a vote of 235-193.
Since the overall gun bill failed, the juvenile bill passed by the House (287-139) will proceed to
conference without significant gun provisions. Before completing work on the juvenile crime
bill, the House approved a number of amendments including an amendment which would allow
states to post the Ten Commandments in public buildings, including schools (248-180); an IDEA
amendment allowing schools to expel disabled students for bringing weapons to school; and a
bipartisan Goodling amendment on juvenile prevention. In addition, they adopted the McCollum
amendment by a vote of 249 to 181, which contained revisions of the federal juvenile justice
system, such as increased mandatory minimums for such criminal activities as using kids to sell
drugs and selling drugs to kids, amongst other prohibited activities.
The President is likely to make a public statement this Friday that will call on the Congressional
Leadership to move the bills to conference. The President's senior advisors are also considering
whether the President should eventually issue a veto threat against the bill if it does not contain a
provision on gun shows.
Bankruptcy. The Senate will not take up the bankruptcy bill for floor action until after the July
4th recess. (Senator Lott pulled the bill to focus on various appropriations bills and other
measures.) This delay, which means that the earliest floor action will be in mid-July, represents
great news to opponents of the bill, who feared that the bill would be rushed through the Senate
floor with Senators eager to break for recess. This delay also gives us time to polish the op-ed by
you which highlights the flaw in the bill and look for a strategic placement. While you've been
away, there has had some behind-the-scenes movement on the bill. Senator Torricelli continues
to negotiate with Senators Grassley and Hatch, the key Republicans, on changes to be included in
the manager's mark. Senator Torricelli, however, has been able to make only minimal
improvements to the bill through this process. The one issue on which he has made some gains,
however, is on credit card disclosures. Senator Torricelli has reached a deal with the credit card
companies and the Republicans that is not sufficient to gain the Administration's support but is a
move in the right direction.
In addition, Senators Grassley and Sessions have offered the Administration a deal on another
important issue - reaffirmations. Under their proposal, we would agree to indicate support for an
amendment that Senator Sessions will offer to include part of the Administration's reaffirmation
proposal in exchange for eliminating from the current Senate bill a provision that Senator
Sessions abhors. The language deleted bars creditors from threatening to do something they
have no intention of doing, thus eliminating one basis for bringing suit to end abusive creditor
practices. However, the language gained would help almost every debtor who is pressured to
reaffirm a debt, by giving the court an analysis of whether they have the capacity to repay that
debt before the court approves the reaffirmation. The Administration working group has
concluded that the trade-off is a net gain for consumers. However, we are seeking a member-
level commitment to preserve both parts of the deal in conference. Grassley and Sessions meet
with Senators Lott and|Hatch this Friday to see if they will agree to protect the agreement in
conference. In general, however, continued meetings with Grassley and Hatch staff have not
been productive. Although they have politely listened to our concerns, they have not moved on
any of our key issues other than the reaffirmation proposal.
New Data on Bankruptcy and Women. On Monday, Harvard Law professor Elizabeth Warren
released new data demonstrating that women are resorting to personal bankruptcy more
frequently than men and married couples. Her data show that 39 percent of bankruptcy court
filings in the 12 months ending March 31 were made by women. That compares with 28 percent
for men and 33 percent for married couples, according to the study of filings in eight of the 94
federal bankruptcy districts. Warren and other opponents of the pending legislation are using
this data to demonstrate that the bill's new restrictions will disproportionately affect women.
Foster Care. We expect that the Foster Care Independence Act, sponsored by Johnson-Cardin,
will reach the House floor this Thursday and pass easily. The White House will issue a
Presidential statement on its passage. Similar to the proposal in the President's FY 2000 Budget
that you unveiled in January, this bill would provide youth leaving foster care with access to
health care and would expand and improve educational opportunities, training, housing
assistance, counseling, and other support and services for these youth. We will forward to you a
detailed memo about the bill's provisions shortly.
Adoption. There are three adoption-related events that we hope to schedule in the coming
months (perhaps in tandem): (1) the release of the new adoption numbers and bonus dollars to
states (with the President) in late July or Early August; (2) the unveiling of the new adoption
stamp with Dave Thomas and the Post Master General in October; and (3) a follow-up meeting
with foundation leaders on adoption issues. Unfortunately, we are not able to schedule the first
two announcements for the same event (the bonuses muse be released before October 1ˢᵗ, and the
stamp must be unveiled mid-October). We can, however, schedule the foundation leaders
meeting in tandem with either of the two announcements, and therefore invite the leaders to the
event and the discussion.
Dean Ornish. Dean Ornish was successful with HCFA in securing a Medicare reimbursement
demonstration project for his nutrition therapy.
Proposed Rule Change for Federal Procurement Regulations. You asked about a
Washington Post article that charged that the Administration had not acted on a promise the Vice
President made to the AFL-CIO that the Administration would require businesses contracting
with the government to "maintain a safe workplace and respect civil, human, and union rights."
Under current law, government contract officials have fairly wide latitude to decide which
companies receive government contracts, but they must ensure that the business has a
"satisfactory record of integrity and business.ethics." The proposed rule change, expected to be
released for public comment later this month or in early July, will clarify that phrase giving the
contracting official the opportunity to make contracting determinations on the basis of tax, labor,
health, safety, environmental and other laws. Opponents of this rule change charge that the
contracting officials would not have the ability to determine objectively a business's level of
compliance and that some businesses would be effectively "blacklisted."
New Markets. From July 5 to 8, the President will lead a bipartisan delegation of CEO's and
Members of Congress to untapped markets in six U.S. cities to highlight his New Markets
Investment Initiative and to identify the economic potential for investment in these underserved
areas. The President will begin his trip in the Kentucky Highlands, to discuss investment in
Appalachia. Then the President will proceed to Clarksdale, Mississippi, a rural community in the
Mississippi Delta, East St. Louis, which is an empowerment zone community, and the Pine
Ridge Indian Reservation in South Dakota, which is the first Enterprise Zone on a reservation.
On Wednesday, July 7, the President will travel to South Phoenix, Arizona, an Enterprise
Community with a large Hispanic population, and then to the Watts neighborhood in Los
Angeles, where he will discuss the need to provide job training to disadvantaged youth, and the
new market potential of a new, productive workforce. The President will end his trip at a CEO
Conference in Anaheim, California, to encourage private sector workforce investments in
disadvantaged youth. Now that the sites have been determined, the President's staff is working
to solidify commitments from the business community to announce during the trip. Cabinet
participation in making announcements in other regions is expected.
Father Absence in Black America. A politically diverse coalition of black and white scholars,
community and religious leaders, joined together last week to release a compelling report and
call to action on the crisis of fatherlessness in the black community. Seventy percent of African
American children are born to unmarried mothers, up from one-third when Senator Moynihan
released his then-controversial report 34 years ago. They called for significant investments to
improve the economic prospects and marriagability of black men, federal support for
community-based fatherhood programs, and changes in policies which discourage marriage (such
as the marriage penalty in the EITC). They also called on the black leaders to give the same
priority to reuniting fathers and children as they have to civil rights, asked churches to focus on
family healing, recommended that communities support faith-based marriage education and
mentoring programs, and urged the criminal justice system to help reconnect fathers and
children.
This report is especially significant because the participants managed to find substantial areas of
common ground on both the significance of the problem and proposed solutions, despite
historical differences regarding the role of marriage and competing theories of socioeconomic
versus cultural factors in the breakdown of the black family. The report grew out of a
conference last Fall sponsored by Morehouse College, with diverse participants including Bill
Rasperry, William Julius Wilson, David Blankenhorn, and Wade Horn. Our FY 2000 initiatives
address some of the recommendations in the report, including the enhanced focus on fathers in
our Welfare-to-Work reauthorization that the President announced in January. The DPC will
carefully review the recommendations to see what else we might do.
Young Child Poverty Rate. A report released recently by the National Center for Children in
Poverty highlighted positive trends in both the number and rate of young children (under six) in
poverty. Consistent with data we have highlighted before, the young child poverty rate declined
from a high of 26 percent (6.4 million children) in 1993 to 22 percent (5.2 million children) in
1997. This decline came after a 52 percent increase between 1978 and 1993. With a higher
proportion of poor young children with working parents and a declining percentage receiving
public assistance, the study also confirms earlier findings that families are relying less on welfare
and more on work. The report also finds: (1) without our 1993 EITC expansion, the 1997 young
child poverty rate would have been 24 percent higher; (2) key determinants of young child
poverty are single parenthood, low educational attainment, and part-time or no employment; and
(3) the gap between races continues to narrow.
THE WHITE HOUSE
WASHINGTON
June 22, 1999
MEMORANDUM FOR HILLARY RODHAM CLINTON
FROM:
NICOLE RABNER
NEERA TANDEN
RUBY SHAMIR
CC:
MELANNE VERVEER
SHIRLEY SAGAWA
PATTI SOLIS DOYLE
MARHSA BERRY
SUBJECT:
ISSUES UPDATE
Crime Juvenile Crime/Gun Bills. As you know, last week the House leadership divided the
juvenile crime bill the Senate had passed into two bills - - a gun bill and a juvenile crime bill. The
gun bill was defeated by a vote of 147 to 280, with almost all Democrats voting against it. The
bill contained a number of amendments throughout the process, including provisions to: (1) ban
the importation of large capacity ammunition clips (voice vote); (2) require child safety locks for
handguns (311-115); (3) ban juvenile possession of semiautomatic assault weapons (354-69); (4)
ban violent juveniles from owning guns as adults (395-27); (5) allow current and former law
enforcement officers to carry concealed weapons (372-53); (6) revise background check
requirements for guns redeemed at pawnshops (247-181); and (7) allow D.C. residents to keep
handguns in their homes (213-208). However, Democrats decided to oppose the final bill after
the House passed the Dingell gun show amendment, which would, weaken existing requirements
for background checks, late Thursday night by a vote of 218-211, and rejected the McCarthy gun
show substitute by a vote of 235-193.
Since the overall gun bill failed, the juvenile bill passed by the House (287-139) will proceed to
conference without significant gun provisions. Before completing work on the juvenile crime
bill, the House approved a number of amendments including an amendment which would allow
states to post the Ten Commandments in public buildings, including schools (248-180); an IDEA
amendment allowing schools to expel disabled students for bringing weapons to school; and a
bipartisan Goodling amendment on juvenile prevention. In addition, they adopted the McCollum
amendment by a vote of 249 to 181, which contained revisions of the federal juvenile justice
system, such as increased mandatory minimums for such criminal activities as using kids to sell
drugs and selling drugs to kids, amongst other prohibited activities.
The President is likely to make a public statement this Friday that will call on the Congressional
Leadership to move the bills to conference. The President's senior advisors are also considering
whether the President should eventually issue a veto threat against the bill if it does not contain a
provision on gun shows.
Bankruptcy. The Senate will not take up the bankruptcy bill for floor action until after the July
4th recess. (Senator Lott pulled the bill to focus on various appropriations bills and other
measures.) This delay, which means that the earliest floor action will be in mid-July, represents
great news to opponents of the bill, who feared that the bill would be rushed through the Senate
floor with Senators eager to break for recess. This delay also gives us time to polish the op-ed by
you which highlights the flaw in the bill and look for a strategic placement. While you've been
away, there has had some behind-the-scenes movement on the bill. Senator Torricelli continues
to negotiate with Senators Grassley and Hatch, the key Republicans, on changes to be included in
the manager's mark. Senator Torricelli, however, has been able to make only minimal
improvements to the bill through this process. The one issue on which he has made some gains,
however, is on credit card disclosures. Senator Torricelli has reached a deal with the credit card
companies and the Republicans that is not sufficient to gain the Administration's support but is a
move in the right direction.
In addition, Senators Grassley and Sessions have offered the Administration a deal on another
important issue - reaffirmations. Under their proposal, we would agree to indicate support for an
amendment that Senator Sessions will offer to include part of the Administration's reaffirmation
proposal in exchange for eliminating from the current Senate bill a provision that Senator
Sessions abhors. The language deleted bars creditors from threatening to do something they
have no intention of doing, thus eliminating one basis for bringing suit to end abusive creditor
practices. However, the language gained would help almost every debtor who is pressured to
reaffirm a debt, by giving the court an analysis of whether they have the capacity to repay that
debt before the court approves the reaffirmation. The Administration working group has
concluded that the trade-off is a net gain for consumers. However, we are seeking a member-
level commitment to preserve both parts of the deal in conference. Grassley and Sessions meet
with Senators Lott and Hatch this Friday to see if they will agree to protect the agreement in
conference. In general, however, continued meetings with Grassley and Hatch staff have not
been productive. Although they have politely listened to our concerns, they have not moved on
any of our key issues other than the reaffirmation proposal.
New Data on Bankruptcy and Women. On Monday, Harvard Law professor Elizabeth Warren
released new data demonstrating that women are resorting to personal bankruptcy more
frequently than men and married couples. Her data show that 39 percent of bankruptcy court
filings in the 12 months ending March 31 were made by women. That compares with 28 percent
for men and 33 percent for married couples, according to the study of filings in eight of the 94
federal bankruptcy districts. Warren and other opponents of the pending legislation are using
this data to demonstrate that the bill's new restrictions will disproportionately affect women.
Foster Care. We expect that the Foster Care Independence Act, sponsored by Johnson-Cardin,
will reach the House floor this Thursday and pass easily. The White House will issue a
Presidential statement on its passage. Similar to the proposal in the President's FY 2000 Budget
that you unveiled in January, this bill would provide youth leaving foster care with access to
health care and would expand and improve educational opportunities, training, housing
assistance, counseling, and other support and services for these youth. We will forward to you a
detailed memo about the bill's provisions shortly.
Adoption. There are three adoption-related events that we hope to schedule in the coming
months (perhaps in tandem): (1) the release of the new adoption numbers and bonus dollars to
states (with the President) in late July or Early August; (2) the unveiling of the new adoption
stamp with Dave Thomas and the Post Master General in October; and (3) a follow-up meeting
with foundation leaders on adoption issues. Unfortunately, we are not able to schedule the first
two announcements for the same event (the bonuses muse be released before October 1ˢᵗ, and the
stamp must be unveiled mid-October). We can, however, schedule the foundation leaders
meeting in tandem with either of the two announcements, and therefore invite the leaders to the
event and the discussion.
Dean Ornish. Dean Ornish was successful with HCFA in securing a Medicare reimbursement
demonstration project for his nutrition therapy.
Proposed Rule Change for Federal Procurement Regulations. You asked about a
Washington Post article that charged that the Administration had not acted on a promise the Vice
President made to the AFL-CIO that the Administration would require businesses contracting
with the government to "maintain a safe workplace and respect civil, human, and union rights."
Under current law, government contract officials have fairly wide latitude to decide which
companies receive government contracts, but they must ensure that the business has a
"satisfactory record of integrity and business.ethics." The proposed rule change, expected to be
released for public comment later this month or in early July, will clarify that phrase giving the
contracting official the opportunity to make contracting determinations on the basis of tax, labor,
health, safety, environmental and other laws. Opponents of this rule change charge that the
contracting officials would not have the ability to determine objectively a business's level of
compliance and that some businesses would be effectively "blacklisted."
New Markets. From July 5 to 8, the President will lead a bipartisan delegation of CEO's and
Members of Congress to untapped markets in six U.S. cities to highlight his New Markets
Investment Initiative and to identify the economic potential for investment in these underserved
areas. The President will begin his trip in the Kentucky Highlands, to discuss investment in
Appalachia. Then the President will proceed to Clarksdale, Mississippi, a rural community in the
Mississippi Delta, East St. Louis, which is an empowerment zone community, and the Pine
Ridge Indian Reservation in South Dakota, which is the first Enterprise Zone on a reservation.
On Wednesday, July 7, the President will travel to South Phoenix, Arizona, an Enterprise
Community with a large Hispanic population, and then to the Watts neighborhood in Los
Angeles, where he will discuss the need to provide job training to disadvantaged youth, and the
new market potential of a new, productive workforce. The President will end his trip at a CEO
Conference in Anaheim, California, to encourage private sector workforce investments in
disadvantaged youth. Now that the sites have been determined, the President's staff is working
to solidify commitments from the business community to announce during the trip. Cabinet
participation in making announcements in other regions is expected.
Father Absence in Black America. A politically diverse coalition of black and white scholars,
community and religious leaders, joined together last week to release a compelling report and
call to action on the crisis of fatherlessness in the black community. Seventy percent of African
American children are born to unmarried mothers, up from one-third when Senator Moynihan
released his then-controversial report 34 years ago. They called for significant investments to
improve the economic prospects and marriagability of black men, federal support for
community-based fatherhood programs, and changes in policies which discourage marriage (such
as the marriage penalty in the EITC). They also called on the black leaders to give the same
priority to reuniting fathers and children as they have to civil rights, asked churches to focus on
family healing, recommended that communities support faith-based marriage education and
mentoring programs, and urged the criminal justice system to help reconnect fathers and
children.
This report is especially significant because the participants managed to find substantial areas of
common ground on both the significance of the problem and proposed solutions, despite
historical differences regarding the role of marriage and competing theories of socioeconomic
versus cultural factors in the breakdown of the black family. The report grew out of a
conference last Fall sponsored by Morehouse College, with diverse participants including Bill,
Rasperry, William Julius Wilson, David Blankenhorn, and Wade Horn. Our FY 2000 initiatives
address some of the recommendations in the report, including the enhanced focus on fathers in
our Welfare-to-Work reauthorization that the President announced in January. The DPC will
carefully review the recommendations to see what else we might do.
Young Child Poverty Rate. A report released recently by the National Center for Children in
Poverty highlighted positive trends in both the number and rate of young children (under six) in
poverty. Consistent with data we have highlighted before, the young child poverty rate declined
from a high of 26 percent (6.4 million children) in 1993 to 22 percent (5.2 million children) in
1997. This decline came after a 52 percent increase between 1978 and 1993. With a higher
proportion of poor young children with working parents and a declining percentage receiving
public assistance, the study also confirms earlier findings that families are relying less on welfare
and more on work. The report also finds: (1) without our 1993 EITC expansion, the 1997 young
child poverty rate would have been 24 percent higher; (2) key determinants of young child
poverty are single parenthood, low educational attainment, and part-time or no employment; and
(3) the gap between races continues to narrow.
April 2, 1999
MEMORANDUM FOR HILLARY RODHAM CLINTON
FROM:
NICOLE RABNER
NEERA TANDEN
CC:
MELANNE VERVEER
SHIRLEY SAGAWA
PATTI SOLIS DOYLE
MARSHA BERRY
SUBJECT:
ISSUES UPDATE
Welcome home. Below please find brief updates on a variety of issues on which there
was some action during your trip.
Child Care Amendment to the Senate Budget Resolution. The Senate passed an amendment
to its budget resolution increasing mandatory funding for the child care block grant by $5 billion
over five years and $12 billion over ten years, with a corresponding decrease in any proposed tax
cut. This action represents a significant step forward for the Administration's proposal to boost
funding for child care subsidies for low-income families (funded in our budget at $7.5 billion
over five years). The amendment, pushed hard by Senator Dodd and co-sponsored by him and
Senator Jeffords, also includes a non-binding provision stating that any child care tax relief
(through expansion of the Child and Dependent Care Tax Credit) must benefit all working
families (presumably by making the credit refundable) as well as assist stay-at-home parents who
care for an infant. Twelve Republicans -- Senators Abraham, Campbell, Chafee, Collins,
Dewine, Frist, Hatch, Jeffords, Roberts, Snowe, Specter, and Warner -- voted with all Democrats
to pass the amendment.
The challenge now will be to build on this step and ensure the conference committee on the
budget resolution retains this provision. The next many weeks will be important, and we are
working to devise a strategy for effective public and behind-the-scenes action for you and the
President to consider (the President noted on a recent memo from the Domestic Policy Council
his enthusiasm to engage on this issue). Of course, as you know, the Administration staunchly
opposes the overall budget resolutions of the House and Senate because of their significant cuts
in key programs, thereby severely limiting our ability to praise the Congress in its budget work.
Also, because the Republicans will be wholly in charge of the conference and Democrats will
have little opportunity to influence the process, extreme visibility by you or the President (i.e.
calling on Congress to preserve the amendment) might in fact be counterproductive in the near
term.
Bankruptcy Reform. The bills are moving swiftly through both the House and the Senate.
Both chambers plan to complete committee action after recess and take floor action in May.
And, with both the Administration and our allies on the Hill having not yet mounted strong
opposition to the current flawed bills, the outlook looks bleak, with the possibility that the
President will be presented legislation that he will not want to sign, yet with sufficient support to
override his veto. We have been working with the President's advisors to devise strategy to
increase our leverage and reduce the likelihood of a veto override. A memo will go to the
President shortly seeking his approval for this strategy, which includes: (1) exploiting publicly
the vulnerabilities of the legislation (by attacking the bill's failure to tackle abuses by credit card
companies and the lingering danger it presents to child support and alimony collection); (2)
working with bill proponents and opponents (including Senators Torricelli and Grassley and
Representative Nadler) to advance alternative provisions that would substantially improve the
current bills; and (3) working with Senators Durbin, Kennedy, Leahy and others to develop a
Senate floor strategy and identify message enhancement amendments which could motivate
Republicans to compromise; and (4) working with Representatives Nadler, Conyers, Frank,
Gephardt, and Bonior to produce a more palatable House bill, or, if that is not possible, to garner
the 20-25 additional House votes to sustain the President's veto.
We will forward a copy to you of this memorandum to the President when it is completed, and
will continue to work internally to gauge what role you might play in this process over the
important next few months. The President is scheduled to unveil a package of consumer
protection initiatives (the event was canceled during recess because a number of Democratic
members wanted to participate) sometime soon. While we will not make inclusion of any
specific consumer protection provisions a precondition to our support for bankruptcy reform
legislation, the Administration will insist on some balancing provisions, and this event will be an
important piece of the strategy to give Democrats something to rally around. If your schedule
permits, we recommend your participation in this event.
Medicare. The President's senior advisors are in the process of developing the Administration
proposal to strengthen and reform Medicare. They hope to send him their proposal in the next
few weeks. Thus far, they have discussed premium support and a prescription drug benefit, and
have reached no conclusions on either issue. (See attached materials on drug benefits.) However,
on premium support, the senior advisors are leaning against a straight premium support proposal,
though they may still adopt some reform measures that includes more choice, and moves more
people to managed care. In terms of the drug benefit, the senior advisors have agreed that the
benefit should be available to all beneficiaries (the Breaux plan had a generous drug benefit for
all people below 135% of poverty) because Medicare has never provided an income-related
benefit. Much of the discussion thus far has centered around whether to cap the benefit at some
figure like $2,000 or to uncap it, thereby ensuring catastrophic coverage. Next week, we are
likely to take up income-related premiums and other topics. Again, no decisions have been
made, though they hope to send the President a series of policy options by late April. As these
discussions become more concrete, we will send you more detail on their nature.
The policy process around Medicare proceeds in light of the new Medicare Trustees Report,
which projected that that the life of the Medicare trust fund has been extended until 2015, seven
years longer than was projected in last year's report. (See attached statement by the President.)
These new projections may well diminish the urgency of using the surplus to extend solvency
further (which is currently our only bulwark against Republican tax cuts); they may well also
make legislators in both parties reluctant to support provider cuts. Without significant provider
cuts, proponents of more generous prescription drug benefits will push for tapping the surplus.
Ed-Flex Legislation and ESEA. The President's advisors have been working to drop from the
conference report the amendment that was adopted as part of the Seance bill that would allow
school districts to use their class-size reduction money to meet the requirements of IDEA. As of
now, 35 Senators have signed a letter recommending that you veto the Ed-Flex bill if this
provision remains, and over 200 House members voted in favor of the motion to instruct
conferees to drop this provision. The President's senior advisors are recommending the
President veto the bill if it is sent to him with the amendment.
In addition, the President's advisors are continuing to work through the legislation for the ESEA
proposal. They now plan to roll out the bill in the third week of April, but these plans are still
tentative. We will send you a memo next week that outlines the outstanding issues in the bill.
Equal Pay. You are scheduled to participate in an event with the President on April 7 to
highlight the Administration's Equal Pay initiatives, and to mark Equal Pay Day, which is April
8. The event will consist of remarks by you and the President followed by a roundtable
discussion that includes women and companies that have been party to or victims of equal pay
violations. The President will announce some new efforts to step up Equal Pay enforcement
(specifically new wage data collection measures), as well as reinforce his support for strong
Equal Pay legislation and new funding for enforcement. We are working with Carol on your
column for that week.
Prescription for Reading Easter Egg Roll Event. The Easter Egg Roll will feature our
Prescription for Reading initiative, with "prescriptions" signed by you and the Surgeon General
handed out to families participating at the South Lawn reading stations. Scholastic, Inc. has
donated children's books with which to "fill" the prescriptions. Our Prescription for Reading
partners are thrilled with this event, and we've invited a number of them to the White House
reception.
THE WHITE HOUSE
WASHINGTON
March 30, 1999
BACKGROUND MEMORANDUM ON PRESCRIPTION DRUGS
FROM:
Chris J. and Jeanne L.
This memo provides background for tomorrow's discussion on a Medicare prescription drug
benefit. It describes the need for coverage, expenditure patterns, and the various moving parts of
a new benefit. We have also attached an article by Laura D'Andrea Tyson on the topic.
BACKGROUND
PRESCRIPTION DRUGS: A GROWING PART OF MODERN MEDICINE
Increasing reliance on drugs. Prescription drugs have become an essential part of health care,
and are expected to play an even greater role in the next century. They serve as complements to
medical procedures (e.g., anti-coagulents with heart valve replacement surgery); substitutes for
surgery and other interventions (e.g., lipid lowering drugs that lessen need for bypass surgery)
and new treatments where there previously were none (e.g, drugs for HIV/AIDS). Some of the
major advances in public health -- the near eradication of polio and measles and the decline in
infectious diseases -- are largely the result of vaccines and antibiotics. And, as the understanding
of genetics increases, the possibility for pharmaceutical and biotechnology interventions will
multiply.
Rising share of national health spending. The increased
importance of prescription drugs is reflected in national health
Prescription Drugs as a
Percent of National Health
spending trends. In the past 10 years, spending on prescription
Spending
drugs has risen as a percent of total spending by 20 percent. In
9%
10%
8%
the next 10 years, its share of national health spending is
8%
7%
6%
6%
projected to increase by nearly 30 percent. This means that
6%
nearly one in ten health care dollars will be spent on drugs.
4%
2%
0%
New drugs and growth in the pharmaceutical industry.
1988
1993
1998
2002
2007
Although the need for drugs is growing, the rapid spending
increase is also driven by the number of new drugs, which are introduced at high prices,
particularly if there is no therapeutical alternative. Between 1994 and 1998, the FDA approved
nearly 150 new drugs (a 140% increase from the 1960s), and one of the leading pharmaceutical
associations estimates that over 350 biotechnology medicines are now in development. Also, in
the last several years, the industry has made unprecedented investments in advertising,
increasing demand for drugs. Sales by research-based pharmaceutical companies were $125
billion in 1998, a 12 percent increase over 1997. Profits are expected to continue to grow.
MEDICARE BENEFICIARIES: GREATEST NEED FOR PRESCRIPTION DRUGS
Elderly and people with disabilities rely more on prescription drugs. Over 85 percent of
Medicare beneficiaries use at least one prescription drug in the course of a year. Although the
elderly comprise 12 percent of the U.S. population, they account for over one-third of all
prescription drug spending. The elderly's per capita spending on drugs is over three times as
high as that of non-elderly adults, and nearly 10 times that of children. This reflects the greater
prevalence of chronic conditions like arthritis and high blood pressure that are best managed
through medication.
COMPARISON OF PRICES FOR DRUGS
Despite their higher use of drugs, many Medicare
Drug
Use
Price for Preferred
Regular
beneficiaries pay higher prices for them.
Customers
Price
Prilosec
Ulcers
$56.38
$111.94
Beneficiaries without drug coverage pay
Zocor
Cholesterol
$42.95
$104.80
significantly more than large HMOs, employers
Procardia
Heart
$67.35
$126.86
and the Veterans' Administration pay for the same
Zoloft
Depression
$123.88
$213.72
drugs. Moreover, American senior citizens pay
Source: Minority staff report to Committee on Gov't reform
higher prices for drugs than citizens in other
nations. For example, the average retail price for the top ten drugs for seniors are 72 percent
higher in the U.S. versus Canada (use is higher in Canada as well).
Distribution of beneficiaries' spending on
Medicare Beneficiaries by Drug
38%
40%
drugs. According the HCFA actuaries'
339349
Spending: Income
projections for 2000, over 50 percent of
30%
25%
beneficiaries will have prescription drug spending
20%
B%
17%
18%7%
20%
14%
15%
of $500 or more about 13 million have spending
10%
12%11%
that is greater than $1,000. This expenditure
10%
distribution varies somewhat by income. About
0%
one in four poor beneficiaries have no drug
0
1-250
250-500
500-1000
1000+
Poor
Near Poor
>200%Poverty
spending, compared to 14 percent of middle to
high income beneficiaries.
Drug spending also varies by whether beneficiaries have
insurance coverage. In general, those with some type of
Medicare Beneficiaries by Drug 40%
insurance coverage (private or public) have higher
40%
Spending: Insurance Status
29%
spending and utilization than those with no insurance
30%
24%
18%19%
coverage for prescription drugs. Although beneficiaries
18%16%
20%
13%
11%12%
with drug coverage are somewhat less healthy and thus
10%
may need more drugs, there appears to evidence that the
0%
0
1-250
250-500
500-1000
1000+
lack of coverage discourages use of prescription drugs.
Insured
No Insurance
The distribution of drug spending also varies by what type of insurance coverage beneficiaries
have. Nearly half (47 percent) of beneficiaries with employer-sponsored retiree coverage have
more than $1,000 in annual expenditures, versus 33 percent of those in Medicare managed care.
2
DRUG COVERAGE AMONG MEDICARE BENEFICIARIES
Medicare Beneficiaries' Drug
Private supplemental drug coverage: Only 23 percent of
Coverage, 2000
Medicare beneficiaries are expected to have private insurance
Changed
No
During
Coverage
for drug coverage (retiree coverage or Medigap) -- down
Year
40%
from 38 percent in 1995. Whereas most people under age 65
6%
Employer
have employer-based coverage, only about 17 percent have
17%
employer-sponsored retiree coverage. Another 6 percent of
Government
beneficiaries have Medigap or other private insurance that
Medigap/Self
31%
6%
pays for prescription drugs. Both sources of coverage have
been declining rapidly as the cost of coverage rises.
Retiree health insurance: Employer-sponsored retiree insurance, the most generous type of
drug coverage for beneficiaries, is an important but eroding source of coverage. Between 1993
and 1997, the percent of large firms offering retiree health benefits for Medicare eligibles
dropped about 20 percent (from 40 to 31 percent). The actuaries project that, by 2000, only 17
percent of beneficiaries will have this type of coverage in the absence of a new Medicare benefit.
Medigap: Medigap, the standardized private insurance supplement for Medicare, offers
prescription drugs in 3 of its 10 standard plans. The standardized Medigap benefit includes a
$250 deductible, 50 percent coinsurance, and a cap on benefits spending of $1,250 or $3,000.
Medigap premiums are expensive, ranging from $402 to $7,196 per year, depending on the state
and type of coverage. The median premium for a 65-year old choosing a plan with prescription
drug coverage is well over $1,000 more than a Medigap plan without drug coverage ($2,073 V
$913 in 1998). According to experts, virtually all Medigap drug coverage plans are
underwritten, meaning that the premiums that they charge are based on the person's health.
Medigap premiums in general have been rising rapidly. One study of Medigap in 3 states found
that premiums for the two most popular plans rose by 12 and 20 percent between 1995 and 1996.
At the same time, Medigap coverage has declined from about 40 percent in 1984-87 to 30
percent in 1996. The actuaries project that only 6 percent of beneficiaries will have Medigap
drug coverage in 2000.
Public coverage: About 30 percent of beneficiaries have some type of government coverage.
Medicare managed care: About two-thirds of plans offer some type of drug coverage. Typical
Medicare managed care plans have no deductibles and relatively low copayments, but limit the
amount that they pay for benefits. In 1998, 58 percent had coverage that is greater than $1,000
and 42 percent had coverage limited to $1,000 or less. Increasing costs and reducing Medicare
overpayments could reduce coverage in the future.
Medicaid: Only Medicare beneficiaries who are eligible for Medicaid through the Supplemental
Security Income program or a medically needy (spend down) option are eligible for prescription
drug coverage. These dual eligibles typically have income at or below 60 percent of poverty.
3
Beneficiaries without coverage for drugs. About 16
million beneficiaries (40%) are projected to have no
Medicare Beneficiares: By Income
& Drug Coverage
56%
drug coverage in 2000. Lack of drug coverage is not
60%
41%
just a problem for low-income beneficiaries; 40
40%
30%
29%
22%
22%
percent of beneficiaries without drug coverage have
20%
9441
income above 200 percent of poverty (about $17,000
0%
for a single, $23,000 for a couple in 2000). Nearly
Poor
Near Poor
>200%
No Coverage
Drug Coverage
Poverty
one in three (30 percent) of nonelderly Medicare
beneficiaries with disabilities does not have any coverage for prescription drugs. Older
beneficiaries are less like y to have drug coverage, as are rural beneficiaries. Nearly half of rural
beneficiaries have no insurance coverage for drugs.
CONSEQUENCES OF THE LACK OF DRUG COVERAGE
Less use of needed prescription drugs. The odds that Medicare beneficiaries use drugs to treat
their health problems increases by 60 percent if they have insurance. Although it is difficult to
distinguish appropriate from over-utilization, virtually all researchers acknowledge that the lack
of insurance coverage for drugs results in underutilization of drugs, even essential drugs.
Greater institutionalization. One study found that elderly and disabled Medicaid beneficiaries
experienced significant declines in the use of essential medicines (e.g., insulin, lithium,
cardiovascular agents, bronchodialators) when their Medicaid drug coverage was limited. The
increased cost of institutionalization exceeded the savings from reduced use of drugs by 20 fold.
Another study found that elderly, ill Medicare beneficiaries whose Medicaid coverage was
limited were twice as likely to enter nursing homes. A different study of stroke patients found
that those treated promptly with drugs to thin clots had significantly lower health care costs.
Larger financial burden. Even after controlling for health status and income, elderly people
with private insurance for drugs have half the financial burden for drugs as those without
coverage. One percent of elderly households spend at least 25 percent of their household
incomes on drugs. Rural elderly have costs that are 35 percent higher than urban elderly, and
women have, on average, costs that are 20 percent higher than men, primarily because many are
widowed and lower income. A 1993 survey found that 13 percent of elderly Americans reported
having to choose between buying food and buying medicine.
Shorter lives. Given the importance of prescription drugs to modern medicine, the actuaries
suggest that under-use of them by Medicare beneficiaries can reduce life expectancy. Ironically,
this means that adding a prescription drug benefit could raise -- not lower -- costs of
hospitalization and other services, since beneficiaries would live longer.
DESIGN PARAMETERS FOR A PRESCRIPTION DRUG BENEFIT
There are a number of major design features that affect the costs and coverage of a Medicare
prescription drug benefit. These are outlined below.
4
Eligibility: One of the basic questions about a new drug benefit is who is eligible. Medicare
benefits have never been limited to subsets of beneficiaries or means tested. However, the costs
of a new Medicare drug benefit and concerns about substituting for existing private coverage
were major reasons why some Medicare Commission members opposed a drug benefit. The
Breaux-Thomas proposal did not include a new Medicare benefit. Instead, it recommended a
new Medicaid (not Medicare) subsidized benefit for those with income below 135 percent of
poverty (about $11,000 for a single, $15,000 for a couple). It would also require Medicare plans
and Medigap to offer an unsubsidized drug option. The lack of a significant subsidy would raise
major selection issues that would destabilize this insurance, since healthy beneficiaries would
consider it unaffordable and mostly sicker beneficiaries would participate, driving up costs.
Providing low-income beneficiaries with a fully subsidized benefit is important -- and would, in
fact, happen automatically if a new Medicare benefit were created. This is because, under
current law, Medicaid pays for Medicare premiums for all beneficiaries with income below 135
percent of poverty. Unless this provision is changed, Medicaid would also pay for the Medicare
premium for prescription drugs for low-income beneficiaries (note: in our cost estimates).
However, a low-income drug benefit will leave most beneficiaries vulnerable. Nearly 3 out of 5
beneficiaries who lack drug coverage have income above 135 percent of poverty. About 30
percent of these beneficiaries have drug expenditures that exceed $1,000. This represents a
considerable expense for beneficiaries with income between $15,000 and $20,000. Moreover,
private coverage for drugs is unstable. The actuaries project that the proportion of beneficiaries
with retiree coverage will decline from 28 to 17 percent between 1995 and 2000, and with
Medigap from 10 to 6 percent. Although these declines are offset by increased enrollment in
Medicare managed care, managed care plans are increasingly wary of offering a drug benefit.
For these reasons, Laura Tyson and other economists argue that the only efficient option is to
extend drug coverage to all beneficiaries. Not only does this ensure that beneficiaries that need
this coverage get it, but it limits the need for inefficient, expensive supplemental coverage.
Optional versus mandatory: Today, the Part B premium for Medicare is voluntary but, since
the government pays 75 percent of the premium, virtually all beneficiaries take this option. In
contrast, in 1988, when a catastrophic drug benefit was added to Medicare, all beneficiaries were
required to pay the new premium. This mandatory premium was unpopular, particularly with
beneficiaries with other, less expensive, and typically more generous coverage. This contributed
to the subsequent repeal of this benefit.
Although proponents of a drug benefit would prefer that it be optional, there is one compelling
reason to consider a mandatory benefit: costs. As with most insurance, a new optional drug
benefit would create a "moral hazard", meaning that beneficiaries with high drugs costs are more
likely to purchase the option. This results in a high average cost of the insurance which
translates into higher premiums. Over time, healthier beneficiaries will be less willing to pay the
higher premiums, causing the risk pool to shrink and the premiums to rise even more.
5
There are ways to reduce risk selection in an optional drug benefit. The most important would be
to subsidize the premium for the benefit. Since nearly all beneficiaries use drugs, a reduced-price
premium would encourage healthy beneficiaries to participate. The actuaries assume that even
those with employer-sponsored retiree coverage would participate (employers would pay for the
beneficiaries' share of the premium, and wrap around the Medicare benefit if their current benefit
is more generous). Another way to ensure that an optional benefit is viable is to limit when
beneficiaries can enroll. If beneficiaries can wait until they are sick to enroll, even a subsidized
option could be subject to risk selection. Our actuaries assume that if there is at least a 50
percent premium subsidy and a one-time option to participate (when a beneficiary enrolls in
Medicare), than all beneficiaries will participate in an optional benefit. It may also be possible to
create transition rules for beneficiaries who lose their retiree coverage.
Premium subsidy: As described above, premium subsidies are important to participation in an
optional drug benefit. At the same time, while they reduce the cost per beneficiary, they raise
Federal spending in aggregate. The level of the premium subsidy was discussed extensively in
the last days of the Medicare Commission. Laura Tyson and Stuart Altman, following logic of
the actuaries, argued for at least a 50 percent subsidy. At one point, it appeared that the
Commission would agree to a 25 percent subsidy for all beneficiaries, but in the end rejected it
both on cost grounds and because of a reluctance to subsidize higher income beneficiaries.
One option that could address these concerns is an income-related premium for the optional drug
benefit. It would have to be designed carefully, to avoid selection, but could both lessen the cost
of the benefit and reduce government assistance for those who could afford it. It would make
even more sense if there were an income-related Part B premium, simplifying the administration.
Cost sharing: In additional to the premium subsidy, the cost of a Medicare drug benefit depends
on its cost sharing structure. There are four major moving parts of a drug benefit: its (1)
deductible, (2) coinsurance or copayments, (3) limits on out-of-pocket spending or stop-loss
protection, and (4) cap on benefit payments. The cost sharing for Medicare beneficiaries with
drug coverage varies dramatically. Employer-sponsored coverage is probably the most generous.
Mirroring coverage for their under-65 workers, it
typically has no separate deductible for drugs, low
EXAMPLES OF DRUG BENEFIT COST SHARING
copayments, stop-loss protection, and no limit on
benefit payments. Medigap, in contrast, has a
Option
Deductible
Copay
Stop-Loss
Benefits Cap
FEHBP*
$50
20%
($3,750)
None
separate, $250 deductible, 50 percent coinsurance,
Retiree
($300) $5/15
($1,750)
None
and a cap on how much the plan will pay.
Medigap
$250
50%
None
$1250/3000
Medicare managed care usually has low to no
Kaiser DC:
$0
$5/20
None
$1,000
Limits in parentheses are for all services, not just drugs
deductible and copayments, controlling costs by
*
Blue Cross/Blue Shield standard option
limiting the amount that plans pay.
Typical retiree plan
6
MEDICARE PRESCRIPTION DRUG BENEFIT
MAJOR PARAMETERS AFFECTING COSTS
AGENDA: March 29, 1999
Medicare Beneficiaries By Drug Coverage: 2000
No Coverage (15.5 m)
Changed During Year
40%
(2.2 m)
6%
Employer (6.6 m)
17%
Medicaid (4.3 m)
11%
Medigap/Self (2.4 m)
6%
Medicare HMOs
(7.8 m) 20%
Medicare Beneficiaries Without Any Drug
5.0
4.7
Coverage By Income: 2000
4.0
3.6
Beneficiaries (millions)
3.0
2.7
2.6
1.9
2.0
1.0
0.0
<100%
100-130%
130-200%
200-300%
300% +
Income As Percent of Poverty
Poverty for a Single: About $8,500; Couple: $11,000
Note: Breaux-Thomas coverage to 135% of poverty: $11,000 for a Single, $15,000 for a Couple
Medicare Beneficiaries' Drug Spending:
By Drug Coverage
40%
40%
Insured
No Insurance
29%
30%
24%
19%
20%
18%
18%
16%
13%
12%
11%
10%
0%
3.1 m 3.8 m
4.1 m 3.0 m
2.5 m 1.8 m
4.1 m 2.5 m
9.5 m 4.4 m
$0
$1-250
$250-500
$500-1000
$1000+
Drug Spending in 2000
PARAMETERS AFFECTING COST
ASSUMPTIONS
Eligibility
All Beneficiaries (versus low-income beneficiaries only)
Premiums
Voluntary, Limited Enrollment Options
50% Subsidy
Covers All Drugs
Management
Pharmacy Benefits Managers (PBMs): 13 percent discount
Allow beneficiaries to purchase at discounted rates
COST SHARING AND BENEFIT LIMITS
Deductible
Coinsurance
Benefit Payment Limits or Caps
COST OF OPTIONS: DIFFERENT CAPS & COST SHARING
(Fiscal Years, Dollars in Billions)
OPTIONS:
2000-04
2000-09
HIGH
Uncapped: $250 deductible, 25% copay ($41/mo)
75
243
Capped: $0 deductible, 10% copay, $2,000 cap ($47/mo)
73
219
MEDIUM
Uncapped: $500 deductible, 25% copay ($34/mo)
63
208
Capped: $100 deductible, 10% copay, $2,000 cap ($43/mo) 67
202
LOW
Uncapped: $500 deductible, 50% copay ($24/mo)
51
14
175
Capped: $250 deductible, 20% copay, $2,000 cap ($35/mo) 55
167
Assumes: Implemented in 2001 (no cost in 2000); 50% premium subsidy; all beneficiaries participate; PBM management
ILLUSTRATION OF MEDIGAP COST SHARING
OPTION
SPENDING
$0
$250
$500
$1,000
$2,500
$5,000
Distribution 100%
18%
18%
11%
17%
24%
12%
(38.8 million)
(6.8 m have
(7.1 m spend
(4.4 m spend
(6.6 m spend
(9.2 m spend
(4.7 m spend >
$0 spending)
$1-250)
$250-500)
$500-1000)
$1000-2500)
$2500)
MEDIGAP PLAN H
$500 Deductible
$0
$250
$500
$500
$500
$500
50% Copay
$0
$0
$0
$250
$1,000
$2,250
$1,250 Cap
$0
$0
$0
$0
$0
$1,000
Total
$0
$250
$500
$750
$1,500
$3,750
Cost (+)/Savings (-) Impact:
+$0
+$0
+$0
-$250
-$1,000
-$1,250
With Premium:*-
+$1,000
+$1,000
+$1,000
+$750
+$0
-$250
* According to one study, the Medigap premium for Plan H for an average 65-year old was $2,073 in 1998, compared to
$913 in Plan D, which is virtually the same except for drug coverage. This premium reflects both adverse selection and
high administrative costs typically associated with Medigap.
Note: The savings to the beneficiary will be $1,250 for all beneficiaries with spending greater than $2,750 ($1,750 in cost
sharing and $1,000 in premiums)
14
ILLUSTRATION OF HOW COST SHARING AFFECTS BENEFICIARIES
OPTION
SPENDING
$0
$250
$500
$1,000
$2,500
$5,000
Distribution
100%
18%
18%
11%
17%
24%
12%
(38.8 million)
(6.8 m have
(7.1 m spend
(4.4 m spend
(6.6 m spend
(9.2 m spend
(4.7 m spend >
$0 spending)
$1-250)
$250-500)
$500-1000)
$1000-2500)
$2500)
UNCAPPED ($63 b / 5)
$500 Deductible
$0
$250
$500
$500
$500
$500
25% Copay
$0
$0
$0
$125
$500
$1,125
$0 Cap
$0
$0
$0
$0
$0
$0
Total
$0
$250
$500
$625
$1,000
$1,625
Cost (+)/Savings (-) Impact:
+$0
+$0
+$0
-$375
-$1,500
-$3,375
With New Premium:*
+$420
+$420
+$420
+$45
-$1,080
-$2,955
CAPPED ($67 b / 5)
$100 Deductible
$0
$100
$100
$100
$100
$100
10% Copay
$0
$15
$40
$90
$240
$490
$2,000 Cap
$0
$0
$0
$0
$160
$2,410
Total
$0
$115
$140
$190
$500
$3,000
Cost (+)/Savings (-) Impact:
+$0
-$135
-$360
-$810
-$2,000
-$2,000
With New Premium:*
+$420
+285
+$60
-$390
-$1,580
-$1,580
* About $35 / month or $420 per year. For comparison, beneficiaries with Medigap typically pay $1,000 additional premium for drug coverage.
Notes: "+" indicates increased beneficiary payments; "-" indicates reduced payments. Premium estimates rough approximations; assumes that all
beneficiaries do not now pay premiums; does not include discounts.
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
March 30, 1999
REMARKS BY THE PRESIDENT
ON RELEASE OF 1998 SOCIAL SECURITY TRUSTEES REPORT
Rose Garden
2:57 P.M. EST
THE PRESIDENT: Thank you very much. Please be seated.
(Applause.) I welcome all of our guests here, as well as the members
of the administration. And I thank those who have joined me here on
the platform for this important announcement.
Twice in the last six years, we have strengthened our
nation's future in the 21st century by addressing serious, great
fiscal challenges to America. In 1993, we met the threat of mounting
deficits and a stagnant economy with an economic plan of fiscal
discipline, expanded trade and investment in our people.
Thanks to that action, the red ink of the federal budget
has turned to black, and we are enjoying the longest peacetime
expansion in our nation's history.
In 1997, we reaffirmed our commitment to fiscal
discipline with the bipartisan balanced budget agreement. It took
important steps to improve Medicare, savings tens of billions of
dollars in costs while expanding b nefits for recipients and choices.
Today, we have new evidence that those determined
actions were the right ones. I have just been briefed by our four
Social Security and Medicare Trustees for the administration --
Secretaries Rubin, Shalala, Herman, Social Security Commissioner
Apfel, who here with me today. The Trustees have issued their annual
report on the future financial health of these vital programs. The
Trustees Report shows that the strength of our economy has led to
modest but real improvements in the outlook for Social Security.
They project that economic growth today will extend the solvency of
the Social Security trust fund to 2034 two years longer than was
projected in last year's report.
After that date, however, the trust fund will be
exhausted, and Social Security will not be able to pay the full
benefits older Americans have been promised. Therefore, still I say
we must move forward with my plan to set aside 62 percent of the
surplus for Social Security, investing a small portion in the private
sector for better return, just as any private or state government
pension would do.
As I said in my State of the Union address, we then must
go further, with difficult but achievable reforms that put Social
Security on a sound footing for 75 years; that lift the earnings
limitations on what seniors can earn; and that do something about the
incredible problem of poverty among elderly women living alone.
The trustees have also told us that today the future for
Medicare has improved even more. The trustees project that the life
of the Medicare trust fund has been extended until 2015.
That's seven years longer than was projected in last year's report.
These improvements are only partially due to the stronger economy.
According to the trustees, they are also the result of the difficult
but necessary decisions made in 1997; and to our successful efforts
to fight waste, fraud, and abuse in the Medicare program.
Now, this Trustee Report is very good news. We should
be pleased; Americans can be proud. But we should not be lulled into
thinking that nothing more needs to be done, because the improvements
we see today, themselves, did not happen by accident, but instead
came as a result of determined action to make sure that the problems
were not allowed to get out of hand.
When I became President six years ago, Medicare was
actually projected to go bankrupt this year. We worked hard in 1993
and 1997 to make sure that didn't happen. Some of the actions we
took at the time were not particularly popular, but we knew they had
to be done. They helped to strengthen Medicare, and they laid the
foundations from the difficult challenges we still must face.
Social Security and Medicare face long-term challenges,
as all of you know, with the baby boom aging, with medical science
extending the lives of millions, with the number of elderly Americans
set to double by 2030. Even with today's good news, Social Security
will run out of money in 35 years, Medicare in 16 years. We cannot
-- we will not -- allow that to happen.
For three decades, Medicare has protected seniors and
the disabled while expressing the values of care and mutual
obligations that bind families and the generations of Americans
together. Since my State of the Union address, I have called for
devoting 15 percent of our surplus to strengthening Medicare, while
modernizing the program with real reforms and helping seniors with
prescription drugs.
When the Medicare Commission completed its work two
weeks ago, I said we must build on their recommendations by adopting
the best practices from the private sector while also maintaining
high-quality services, continuing to provide every citizen with a
guaranteed set of benefits, and making prescription drugs more
accessible and affordable to Medicare beneficiaries.
Now we must build on the good news we have received
today. We must extend the life of Medicare even further, modernize
the program even more, and make prescription drugs even more
accessible and affordable. Medicare cannot remain static in the face
of the sweeping changes in our nation's health care system, a system
today that relies increasingly on prescription drugs.
Today, 13 million seniors each spend more than $1,000 a
year, out of pocket, for prescriptions. Let me say that again -- 13
million seniors today spend more than $1,000 a year out of pocket for
prescription medication. At the same time, seniors who have no drug
coverage do not benefit from the lower prices that insurance firms
often can negotiate from pharmaceutical companies. The higher prices
these seniors pay are in effect a hidden tax: We must find a way
through Medicare to inject more competition into the health care
system and to provide a prescription drug benefit.
Now, I know that some might say this good news means
that we can simply delay reform. Nothing could be further from the
truth. Strengthening and modernizing Medicare requires tough
but achievable changes. And now is the time to make those changes --
now when our economy is strong; now when our people have renewed
confidence; and now when we have time on our side so
that modest changes today can have major impacts in the years ahead.
Nothing in this report lessens the need to devote 15
percent of the surplus to strengthening Medicare. But nothing in
this report lessens the need to make tough but achievable reforms
either. And nothing in this report lessens the need to help seniors
with a prescription drug benefit. If we wait we will be condemning
ourselves to future changes that will be much more costly and
wrenching and much less satisfying in the end.
Today we face a choice that is a test of our wisdom as a
self-governing people and a test of our vision of 21st century
America. Will we seize this moment of prosperity? Will we devote
these surpluses to strengthening Medicare, to strengthening our
future? Or will we rush and do the most appealing prospect of the
moment, a tax cut that will explode in later years and avoid our
generation's responsibility and put the future of Medicare at risk?
The Trustees Report is welcome news, but it also
contains a clear lesson tough, disciplined action is good
economics. It's good for Social Security; it's good for Medicare;
it's good for America. It's very good for our children's future and
for the future of our families across the generations.
We can extend the life of Social Security and Medicare,
and have an appropriate, affordable amount of tax relief specially
targeted to the neediest working families and middle class families.
But we have to apply the lessons we have learned in the last six
years to the first years of the 21 st century. I am determined to see
that we do so this year. And the Trustees Report should make it
easier for us to fulfill our responsibilities.
Thank you very much. (Applause.)