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Melanne Verveer's Subject Files
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Withdrawal/Redaction Sheet
Clinton Library
DOCUMENT NO.
SUBJECT/TITLE
DATE
RESTRICTION
AND TYPE
001. memo
Maria Echaveste to Distribution re: First Lady's Box (3 pages)
01/12/1998
b(6)
COLLECTION:
Clinton Presidential Records
First Lady's Office
Melanne Verveer
OA/Box Number: 20023
FOLDER TITLE:
Budget '99 [2]
2013-0534-S
rc1690
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed
b(8) Release would disclose information concerning the regulation of
of gift.
financial institutions [(b)(8) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(9) Release would disclose geological or geophysical information
2201(3).
concerning wells [(b)(9) of the FOIA]
RR. Document will be reviewed upon request.
Document NO.
WHITE HOUSE STAFFING MEMORANDUM
Date: 1/12
ACTION / CONCURRENCE / COMMENT DUE BY: ASAP
Subject:
First Lady's Box
ACTION FYI
ACTION FYI
VICE PRESIDENT
NASH
PODESTA
REED
ECHAVESTE
RUFF
RICCHETTI
SOSNIK
LEW
SPERLING
BEGALA
STEIN
BERGER
STERN
BLUMENTHAL
STREETT
FRAMPTON
TRAMONTANO
IBARRA
VERVEER
KLAIN
WALDMAN
LANE
YELLEN
LEWIS
LINDSEY
LOCKHART
MARSHALL
MOORE
REMARKS:
Please advise- Comments to Maria or Chara Shin
RESPONSE:
Staff Secretary's Office
staffing WPD 1/4/99
Ext. 62702
Withdrawal/Redaction Marker
Clinton Library
DOCUMENT NO.
SUBJECT/TITLE
DATE
RESTRICTION
AND TYPE
001. memo
Maria Echaveste to Distribution re: First Lady's Box (3 pages)
01/12/1998
b(6)
COLLECTION:
Clinton Presidential Records
First Lady's Office
Melanne Verveer
OA/Box Number: 20023
FOLDER TITLE:
Budget '99 [2]
2013-0534-S
rc1690
RESTRICTION CODES
Presidential Records Act - - [44 U.S.C. 2204(a)]
Freedom of Information Act [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed
b(8) Release would disclose information concerning the regulation of
of gift.
financial institutions [(b)(8) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(9) Release would disclose geological or geophysical information
2201(3).
concerning wells [(b)(9) of the FOIA]
RR. Document will be reviewed upon request.
501-0800 50/-
Marsha Scott
01/15/99 12:40:55 PM
Record Type:
Record
To:
Shirley S. Sagawa/WHO/EOP
CC:
Subject: NEH building
Please find out from Melanne if she has spoken to Bill Ferris at NEH about GSA wanting them to
move in 2001. I know that she has spoken to Bill Ivey of NEA and he is willing to move. Bill Ferris
feels VERY strongly about not moving and, instead, raising the money to preserve the building.
There are all sorts of implications and issues involved with whatever is done. Dave Barram,
Administrator of GSA, has spoken with Bill Ferris but wants to know where Melanne is on this issue
and especially whether she has conveyed her sentiments to Bill Ferris. Please call me at 62109 or
get back to me today if you can so I can get back to Dave. Dave and I plan to meet with Bill next
week to try and get this settled in a way that everyone is comfortable.
re: SOTU -
\ think the ACorps sectur is
too sell servin -
"I forght L
create Amen Cryss
It: the
they 1 an must proud 7
1 challenge Congren L supgret
1 think it should acknowledge
bipartisen thin as it is was + is.
Support that still creaked
it, is about bringing problems people shundn't be
together to
ACmps solve community divisive
01/15/99 11:50
202 690 7595
HHS OFF OF SEC
001
HUMAN SERVICES
THE SECRETARY OF HEALTH AND HUMAN SERVICES
WASHINGTON. D.C. 20201
USA
FACSIMILE
PLEASE NOTIFY OR HAND-CARRY
THIS TRANSMISSION TO THE
FOLLOWING PERSON AS SOON AS
POSSIBLE:
1/15/99
DATE:
TIME:
TO :
Melanne Verveer
COMPANY : WH
FAX NUMBER: 456-6244
TELEPHONE NUMBER
FROM:
Donna E. Shalala
OFFICE OF THE SECRETARY
200 INDEPENDENCE AVENUE, S.W.
WASHINGTON, D.C. 20201
(202) 690-7000
FAX NO. (202) 690-7595
COMMENTS:
01/15/99 11:50
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HHS OFF OF SEC
5.
002
IMPROVING HEALTH CARE ACCESS FOR UNINSURED WORKERS
January 15, 1999
Overview: The Clinton Administration has taken a number of important steps since 1993
to expand coverage and respond to rapid changes in the U.S. health care system. We
have given states the flexibility to insure more low-income workers, allowed Americans
to take their health care with them when they change jobs, expanded health coverage to
the children of low-income families, and proposed both making Medicare available to
Americans aged 55 to 65 and making Medicare and Medicaid available to disabled
Americans who work.
This new initiative complements these strategies by addressing the need for health care
delivery systems serving the 32 million adult Americans still without insurance. Many
providers of free or low-cost health care services currently do not have the resources or
technical capacity necessary to coordinate their efforts with other providers. This
initiative, funded at $1 billion over 5 years, will help fill that gap. The bulk of the
funding would provide federal grants to help community health clinics, public hospitals,
academic health centers, and other providers of free or low cost health services to create
networks that strengthen comprehensive care for the uninsured. This coordination of
services will help uninsured workers receive more efficient and higher quality care and
gain entry into a "seamless" system of care for low-income working families.
A key emphasis in the early years of the program will be assisting communities and
providers in the development of the infrastructure necessary to participate in networks or
other coordinated care arrangements. Funds will be available for the development of the
financial, information, and telecommunications systems needed to appropriately monitor
and manage patient needs. The initiative will also target substantial funding toward
service gaps that can be identified within coordinated systems of care for the uninsured,
reaching approximately 100 communities over five years. Although need will vary by
community, the focus will be on expanding access to primary health care and ensuring
that it is coordinated with other health care needs, including mental health and substance
abuse services.
Millions of Americans still lack health insurance. In 1997, the number of Americans
without health insurance stood at over 43 million. While the Children's Health Insurance
Program and increased Medicaid outreach can potentially provide insurance coverage for
about half of the approximately 11 million uninsured children, roughly 32 million adults
between the ages of 19 and 64 remain uninsured. Among these uninsured adults, about 17
million have incomes below 200 percent of the poverty level. Many of them receive their
care at community health clinics and local hospitals.
Many of these Americans suffer from multiple health problems and require access
to a coordinated set of health care services. Yet data show that these needs are not
being met. In 1997, 30% of uninsured adults did not receive needed medical care and
55% postponed needed medical care because they could not afford it. They were only
about half as likely to receive a routine check-up as insured adults. Among those who
01/15/99
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HHS OFF OF SEC
1
003
did have a regular source of care, uninsured adults were about five times more likely than
insured adults to use the emergency room as their regular source of care.
Yet, health care providers that help uninsured Americans face many pressures.
These providers consist of institutions, facilities, and individual health professionals that
provide a significant volume of health care services, either without payment or on a
reduced fee basis, to those who are uninsured. They face a number of challenges, such as
increases in the number of uninsured workers, reduced Medicaid revenues due to the
pressures of Medicaid managed care, and a growing need for mental health and substance
abuse services.
The Clinton Administration proposes strengthening health services for uninsured
workers. To respond to these needs, the President's FY 2000 budget will propose a
competitive grant program that would provide $1 billion over five years to strengthen
public and private entities in 100 communities, increasing the availability of
comprehensive, coordinated health care for uninsured workers. The President will
request $25 million for the first year of this initiative in his FY 2000 budget proposal,
which will be sent to Congress on February 1, 1999. The intent of these grants is to
establish patient-focused systems of care to serve low-income, uninsured workers with
greater efficiency and improved quality of care.
Those who provide health care to the uninsured will get help to create the
infrastructure they need to provide quality care. A key emphasis in the early years of
the program will be assisting communities and providers to develop the infrastructure
necessary to participate in networks or other coordinated care arrangements. Funds will
be available for the development of the financial, information, and telecommunications
systems needed to appropriately monitor and manage patient needs. This support will
improve the ability of providers to track patient care needs and receipt of service over
time; permit more clients to be served; and strengthen the financial standing of providers
by enhancing their ability to compete for business from Medicaid and commercial
managed care organizations. Once a coordinated system has been established within a
community, uninsured workers will gain entry into a coordinated health care system that
meets their individual needs.
Once health services are coordinated in a community, gaps in service can be
identified and filled. The initiative will also target substantial funding toward service
gaps that can be identified within coordinated systems of care for the uninsured.
Although need will vary by community, the emphasis will be on expanding access to
primary health care and insuring coordination with other health care needs, including
mental health and substance abuse services.
There is a history of bipartisan support for coordinating health care for uninsured
workers. In the last Congress, a bipartisan bill was supported by the conservative "Blue
Dog" Democrats and House Republicans that would have created "telehealth networks"
for linking rural health services. While the proposal is similar, our initiative would
actually reach a greater number of uninsured workers, in both rural and urban areas. In
01/15/99
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HHS OFF OF SEC
5.
004
the 103rd Congress, Senator Dole introduced a bill that would have funded greater
integration of services for the uninsured in a grant program similar to what we are now
proposing. The history of coordinating community services for the uninsured has been
bipartisan, and the Administration looks forward to building that kind of consensus
around this new initiative.
The Clinton Administration builds on a strong record of extending health care
services to more Americans. Since 1993, HHS has approved Medicaid demonstration
programs to extend health insurance coverage to 2.2 million Americans who would
otherwise be uninsured. In 1996, the President signed the Kassebaum-Kennedy act,
which ensured that Americans could take their health care with them when they changed
jobs. In 1997, under the Balanced Budget Act, the Administration successfully supported
the Children's Health Insurance Program (CHIP). Since then, 49 states and territories
have had their CHIP plan approved by the U.S. Department of Health and Human
Services.
MEMORANDUM
TO:
All Interested Parties
FR:
Communications\Research #
DATE:
February 5, 1999
RE:
President Clinton's Bold Plan to Save Social Security
Attached please find a document, signed off on by Gene, outlining how President Clinton
proposed a bold, sweeping plan to save Social Security following Republican calls for him to
take the first step. We have also included three newspaper clips with particularly strong
headlines. Feel free to distribute this material.
Thanks
PRESIDENT CLINTON RESPONDED WITH BOLD PLAN
TO REPUBLICAN CALLS FOR LEADERSHIP ON SOCIAL SECURITY
For months a number of Republicans have been saying that they were willing to work with
President Clinton on saving Social Security if he would show leadership on the issue and take the first
step by submitting a specific plan. On January 19, 1999, the President laid out a bold framework in his
State of the Union that meets America's challenges -- ensuring the solvency of Social Security until 2055.
Newspapers around the country referred to the President's plan as "bold" and called it "the most
sweeping changes to Social Security ever proposed."
Republicans Said They Were "Willing to Work With The President"
If He Would "Show Leadership" on Social Security
Senate Majority Leader Lott: "The President's Going to Have to Show Leadership"
On the December 6, 1998 "Meet the Press," Senate Majority Trent Lott (R-MI) was asked "what
must be done" to save Social Security. He responded, "What must be done is the president's
going to have to show leadership. He's going to have to show some courage. He's going to have
to make a proposal. I'm willing to work with the president and the Democrats, but they 've got to
propose something. [NBC's "Meet the Press," 12/6/98 (emphasis added)]
Ways & Means Chairman Archer Called on the President to "Grab the Bull by the Horns"
In a December 2, 1998 letter to President Clinton, House Ways and Means Committee Chairman
Bill Archer (R-TX) called on President Clinton to submit a specific plan to save Social Security.
Archer wrote: "If ever there was a need for strong Presidential leadership. the time is now. I
respectfully submit that you need to 'grab the bull by the horns' before it is too late. We have a
small window of opportunity in which Social Security can be saved. I urge you to seize this
moment and I commit to work with you on a bipartisan basis to get the job done. ["President
Should 'Grab the Bull by the Horns' on Social Security, Says Chairman Archer Citing Growing
Factionalism, Chairman Sends Letter to the President," Rep. Archer press release, 12/2/98, Archer
web page (emphasis added)]
Senate Budget Committee Chairman Domenici Urged President to Announce His Plan
In a November 21, 1998 article entitled "Domenici Wants Clinton Plan Soon," the Albuquerque
Journal reported, "Sen. Pete Domenici is urging President Clinton to waste no time in announcing
his plan to ensure the solvency of the nation's Social Security system."
Senate Budget Committee Chairman Pete Domenici (R-AZ): "The longer we wait in
dealing with Social Security, the more we spend the surplus on other things. The sooner
we get an approach as to how we're going to deal with Social Security, The sooner we can
determine how much we have for tax cuts. [Albuquerque Journal, 11/21/98]
1
House Social Security Subcommittee Chairman Clay Shaw: To Save Social Security, "Mr.
President, You Need to Lead Our Nation"
House Ways and Means Subcommittee on Social Security Chairman Rep. Clay Shaw (R-FL): "To
save and strengthen Social Security, Mr. President, you need to lead our nation. It's that simple.
You need to submit to the Congress, a specific plan to save Social Security soon, or the job may
not get done. [The White House Bulletin, 12/8/98 (emphasis added)]
In his December 5, 1998 Republican Response to the President's Radio Address, Rep
Shaw said, "Because the president is elected by all of the people, he alone is best
positioned to build a bipartisan consensus to get the job done. I look forward to hearing
from President Clinton at this historic summit. Together, and with the support of all
Americans, we can and we will strengthen Social Security because it embodies what's best
for all Americans." ["Clay Shaw Delivers Republican Response to the President's Radio
Address" (Federal Document Clearing House), 12/5/98 (emphasis added)]
Sen. Rick Santorum: "We Need You to Go Out and Lead This Debate"
Co-Chair of the Senate Majority Leader's Task Force on Social Security Senator Rick Santorum
(R-PA): "We need this administration Mr. President, we need you to go out and lead this debate
in the American public's eyes, to lead it here in the Congress, and together we can really have a
secure Social Security.' [Pittsburgh Post-Gazette, 12/9/98 (emphasis added)]
Sen. Judd Gregg: If President Says "Where and When" Republicans "Will Be There"
Senate Budget Committee member Senator Judd Gregg (R-NH): "Mr. President, if you simply tell
us where and when, Republicans will be there and will work with you. [United Press
International, 12/12/98]
Gregg: "What we need to hear from the president is which of the options that are out there
he would be willing to consider [A]s long as he is functioning on a plane of the ethereal,
we can't move. [Associated Press, 11/19/98]
Rep. Jerry Weller: "We Need Leadership" from the President "to Get the Ball Rolling"
In a November 19, 1998 press release, House Ways and Means Committee and Social Security
Subcomittee member Rep. Jerry Weller (R-IL) said, "I am prepared to help President Clinton
enact Social Security reform legislation. The American people expect us to work together and we
cannot allow Social Security reform to fall prey to politics. We need leadership and a specific plan
from the President to get the ball rolling. To his credit the President has made Social Security
reform his number one priority. I look forward to reviewing the President's plan for Social
Security reform. ["Weller Ready to Save Social Security," Rep. Weller press release, 11/19/98
(emphasis added)]
2
Newspapers Around the Country Called The President's Plan To Save Social Security
"Bold" and "The Most Sweeping"
Boston Globe: "A Bold Plan" To Save Social Security
According to a Boston Globe news article, President Clinton "offered an ambitious agenda to save
Social Security and improve education [H]e offered a challenging array of ideas and programs for
governing in the next two years, including a bold plan to commit a large share of the budget
surplus to Social Security and invest part of it in the stock market." [Boston Globe, 1/20/99
(emphasis added)]
Washington Post: "The Most Sweeping Change to the Program Since Its Creation"
According to a Washington Post new article, "[President Clinton's] two-pronged proposal [to save
Social Security] would represent the most sweeping change to the program since its creation in the
depths of the Depression." [Washington Post, 1/21/99]
Los Angeles Times Headline: "Ambitious Plan"
The following is the headline of a January 20, 1998 Los Angeles Times page one news article
"Clinton Addresses Nation; President Outlines Agenda; Speech lays out ambitious plan, calling
for the shoring up of Social Security and for programs to protect Americans health" [Los Angeles
Times, 1/20/99]
Seattle Post-Intelligencer: "Clinton Laid Out A Bold Proposal" To Save Social Security
According to a Seattle Post-Intelligencer news article, "Delivering his sixth annual address to a
joint session of Congress, Clinton laid out a bold proposal to allow the government to invest a
portion of the Social Security trust fund in stocks..." [Seattle Post-Intelligencer, 1/20/99
(emphasis added)]
New York Daily News: "The Most Sweeping Changes to Social Security Ever Proposed"
According to a news article in the New York Daily News, "President Clinton defiantly brushed
aside his historic impeachment trial last night, presenting Congress with an ambitious agenda that
ranged from the most sweeping changes to Social Security ever proposed, to more education and
military spending. Urging 'a new hour of healing and hopefulness,' a confident and comfortable
Clinton never mentioned the sex scandal that has threatened his presidency and shaken his
legacy." [Daily News (New York), 1/20/99 (emphasis added)]
The Plain Dealer Headline: "Clinton's Bold Plan for Social Security"
The following is the headline of a January 20, 1998 The Plain Dealer page one news article:
"Clinton's Bold Plan for Social Security" [The Plain Dealer (Cleveland), 1/20/99]
Note: The article that appeared in The Plain Dealer under that headline was a reprint of a New
York Times story.
Buffalo News Headline: "Message Offers Bold Plan To Save Social Security"
The following is the headline of a January 20, 1998 Buffalo News page one news article:
"Message Offers Bold Plan to Save Social Security and Medicare.' [Buffalo News, 1/20/99]
3
Los Angeles Times
Clinton Addresses Nation;
President Outlines Agenda;
Speech lays out ambitious plan, calling for
January 20,1999 20,
the shoring up of Social Security and for
programs to protect Americans' health.
By JAMES GERSTENZANG, TIMES STAFF WRITER
WASHINGTON-President Clinton proposed a rescue plan for the
Social Security system Tuesday night, using his sixth State of the Union
address to offer the most sweeping domestic agenda of his second term.
Eight hours after his lawyers
began telling the Senate why he
should not be removed from of-
fice, the president offered to the
nation a road map of social pro-
grams Intended to protect Ameri-
cans' health and retirement.
Admonishing the nation not to
become complacent at a time of
continuous prosperity, Clinton de-
clared: "How we fare as a nation
far into the 21st century depends
upon what we do as a nation to-
day.
"With our budget surplus grow-
ing, our economy expanding, our
confidence rising, now is the mo-
ment for this generation to meet
our historic responsibility to the
21st century," he said.
His program is built on a strict
parceling of the anticipated
budget surplus over the next 15
years. He would allocate
62%-more than $2.7 trillion-to
Social Security, and the rest pri-
marily to Medicare, a new retire-
ment savings program dependant
on. private investment and mili-
tary and education needs. The
budget surplus is expected to be
$4.4 trillion over that period.
Speaking at one of the more
extraordinary junctures in the his-
tory of the presidency, Clinton
made no reference to his Impeach-
ment by the House of Representa-
tives and his trial now under way.
in the Seriate.
Reflecting the divisions caused
by the trial, six members of the
House and one senator, all Repub-
licans, said that they would boy-
cott the address. Some Republi-
cans had said that the president
should postpone the speech.
House Speaker J. Dennis Hastert
Please see UNION, A14
A14
WEDNESDAY, JANUARY 20, 1999 /NA
create a trust fund, overseen by
private managers, to make equity
investments-a course that has
drawn deep skepticism from labor
UNION: Clinton
unions and others in the tradi-
tional Democratic constituency.
The plan, likely to run into
sharp controversy in Congress,
which must approve it before it
Has Ambitious
could take effect, would limit the
investment to no more than 15%.
of the Social Security fund.
As projected by the Office of
Agenda for U.S.
Management and Budget, the use
of the surplus largely to meet the
demands imposed on the Social
Security system by the baby
Continued from A1
boom generation would so sharply
of Illinois reminded members of
reduce the government's need to
In a moment of drama, Clinton
Congress earlier that they
borrow that the publicly held debt
shouldgreet Clinton in a dignified
said that the Justice Department
would fall by two-thirds.
would sue the tobacco industry to
manner.
The test will be whether Clin-
recover the accumulated costs
An introductory plea for "civil-
ton, if he remains in office, is able
ity and bipartisanship" was
borne by federal taxpayers of
to fend off pressure coming
greeted with applause from both
treating people with smoking-re-
largely from the narrow Republi-
lated diseases. The suit would
sides of the aisle, and the presi-
can majority in the House to use
seek to recover hundreds of bil-
dent was rewarded with the con-
the surplus to pay for an across-
lions of dollars from the nation's
ventional cheering and standing
the-board tax cut and from some
ovation upon his arrival in the
five major tobacco companies,
Democrats and allied groups to
chamber where House members,
At its heart, the program Clin-
produce even greater increases in
one month ago to the day, voted
ton presented to the joint session
spending for domestic programs.
of Congress this year was built
to impeach him. But Republicans
Signaling what aides said was
around the need to tackle the
appeared noticeably restrained as
his intention to fulfill an activist
most pressing problems facing the
Clinton, his face unlined but his
role for the final two years of his
nation as it nears a new century
hair grown noticeably more silver,
second term, Clinton set out doz-
and the opportunities presented
outlined a program that would ex-
ens of goals.
by the extended period of eco-
pand the federal government's
They included strengthening
nomic growth that has marked
role in an array of domestic
the nation's education system by
the end of the decade and the first
arenas.
stressing academic achievement,
federal budget surplus since 1969.
For Clinton, the speech repre-
particularly in low-peforming
"Our fiscal discipline gives us
sented his grandest opportunity
schools, putting 100,000 more
an unsurpassed opportunity to ad-
to remind the nation. of his
teachers in classrooms over the
dress a remarkable new chal-
strengths-those of a president
next seven years and toughening
lenge: the aging of America,"
focused on the domestic and eco-
discipline and promotion require-
Clinton said. "With the number of
nomic issues that the public, in
ments.
elderly Americans set to double
opinion surveys, lists time and
"While our fourth-graders out-
by 2030, the baby boom will be-
again as its greatest concerns.
come a senior boom. So first and
perform their peers in other coun-
Taking advantage of that op-
tries in math and science, our
above all, we must save Social Se-
portunity in the midst of the im-
eighth-graders are around aver-
curity for the 21st century."
peachment drama offered the
age and our twelfth-graders rank
Appealing for bipartisan coope-
president perhaps the most force-
ration at a moment of sharp parti-
near the bottom," the president
ful defense he can present. If his
said. "We must do better."
san division, the president said: "I
Senate trial, as many political sci-
The president also proposed a
reach out my hand to those of you
entists think, is ultimately a po-
$6.1-billion program to help fami-
of both parties in both houses and
litical rather than judicial test,
lies pay for long-term health care,
ask you to join me in saying: We
then maintaining strong poll rat-
a $2-billion plan to help potential
will save Social Security now."
ings may be his ultimate weapon.
workers with disabilities sur-
The goal is to extend the actu-
Perhaps more than those of his
mount barriers to finding jobs and
arial security of the retirement
recent predecessors, Clinton's
a $1-billion effort to help 200,000
program to 2055. Without revi-
State of the Union speech-and
welfare recipients join the
sions, analysts have predicted
the budget he will present on Feb.
workforce.
that the demands of an aging
1-offer the president what White
By using the surplus to pay for
population combined with low-
House counselor Doug Sosnik
Medicare and Social Security,
ered payroll taxes from a reduced
called a "center of gravity" to
rather than spending the surplus
workforce would deplete the fund
project his most ambitious goals
on other programs, administration
in 2032.
for the coming year. Tuesday's
officials argued that they would
In addition to transferring
call for reform of Social Security
bring the publicly held national
nearly two-thirds of the budget
was as dramatic as any program
debt to a level, when compared
surplus .to the Social Security
he has espoused since 1994, when
with the gross domestic product;
fund over 15 years, Clinton would
he called for universal health in-
that would be lower than at any
surance.
point since 1917.
It is currently about 45% of the
gross domestic product, the value
of the nation's economic output of
goods and services, and it would
fall to 10% in 2014 under the ad-
would give Americans incentives
intended to halt the flow of jobs to
"It is time to reverse the de-
fective U.N.," he said. "I want to
ministration's projections, officials
to save, particularly those who
countries where production is
cline in defense spending that be-
work with this new Congress to
said. If borrowing is reduced, gov-
are not participating in such re-
cheap because wages are low and
gan in 1985," thé president said.
pay our dues and our debts."
ernment interest payments would
tirement programs as a 401(k)
environmental concerns are ig-
Clinton also pointed proudly to
He also called for an increase in
be lower and more capital would
plan.
nored.
what he described as administra-
research on vaccines to protect
be left in private hands for invest-
As structured by the adminis-
"We must tear down barriers,
tion diplomatic successes in
against chemical and biological
ment elsewhere in the economy.
tration but subject to reworking
open markets and expand trade.
Northern Ireland, Bosnia and the
weapons and the training of po-
Under Clinton's plan, 15% of
by Congress, Sperling said, the
at the same time, we must ensure
Middle East peace process. But he
lice, firefighters and medical per-
the surplus, or $650 billion to $700
program would be built around a
that ordinary citizens in all coun-
gave no hint of what he hoped to
sonnel to counteract such weap-
billion, would be spent on Medi-
distribution by the government of
tries benefit from trade-pressing
do this year to build on U.S. world:
ons in major metropolitan areas.
care, the federal program of medi-
a specific amount to each worker,
for trade that promotes the dig-
leadership.
cal insurance for the elderly. It
Samuel R. Berger, the presi-
perhaps $200 or $300, so that ev-
nity of work, the rights of work-
"No nation in history has had
would be intended to make sure
dent's assistant for national secu-
ery American could open a retire-
ers, the protection of the environ-
the opportunity and responsibility
that the program remains finan-
rity affairs, said that Clinton was
ment savings account. If individu-
ment," the president said.
we now have to shape a world
cially sound for 20 years.
seeking a 70% increase-to a five-
als chose to contribute more, the
The president also called for
Clinton is planning to seek a
more peaceful, secure and free,"
year total of $4.2 billion-in the
sums would be matched at pro-
$12-billion increase beyond origi-
Clinton said.
steps to expand insurance cove-
budget for programs aimed at pre-
gressive levels and up to a certain
nal plans in the Pentagon's budet
He called on the Senate to
rage of prescription drug costs for
venting the economically pressed
limit by the government. Those
the elderly.
for fiscal 2000, which begins on
ratify the comprehensive nuclear
Russian government from trying
with lower incomes would receive
Oct. 1, 1999, and a $110-billion in-
test ban treaty, which has lan-
Another large part of the sur
to solve its cash problems by sell-
larger matches-say $1 from the
guished there for two years since
plus, 11%, would go toward estab-
crease over six years. Most of the
ing weapons of mass destruction
government for every $1 an indi-
lishing what the administration is
increase would be spent on weap-
Clinton signed it. And he urged
inherited from the collapsed So-
vidual set aside in the investment
calling universal savings ac-
account.
ons modernization and a 4.4% pay
Congress to pay almost $1 billion
viet Union.
increase for personnel. Many
in back dues to the United Na-
counts. It would earmark $33 bil-
Times staff writers Norman Kempster, Sam
Clinton also proposed initiating
servicemen are being lured by
tions.
lion a year, or $500 billion over 15
Fulwood and Judy Lin contributed to this
a new round of global trade talks
years, to help individuals save pri-
higher pay to the private sector.
"America needs a strong and ef-
story.
vately for retirement.
As sketched by Gene Sperling,
who heads Clinton's National
Economic Council, the program
THE PLAIN DEALER
EST NEWSPAPER 350
FINAL
CLEVELAND, WEDNESDAY, JANUARY:
January 20, 1999
Clinton's
bold plan
for Social
Security
By JAMES BENNET
NEW YORK TIMES
WASHINGTON President
The president's Social Security plan draws GOP's fire. 8-A
Clinton proposed last night that
the federal government invest for
is contrary to free enterprise,"
Clinton called for maintaining
the first time in the stock market
said Bill Archer, the Texas Re-
Social Security as a "defined ben-
to strengthen Social Security, as
publican who is chairman of the
efit" plan, that is, one with a guar-
he delivered a confident report on
House Ways and Means Commit-
anteed payout. But last night he
the State of the Union to a Con-
tee.
also proposed the system of per-
gress considering cutting short
The remainder of the surplus
sonal savings accounts, which are
his presidency.
money Clinton hopes to reserve
similar to what Republicans are
Appearing in the grand cham-
for Social Security - about $2
seeking as at least a partial re-
ber of the House of Representa-
trillion- would, like the money
placement for Social Security.
tive a month to the day after he
he would set aside for Medicare,
For the president, the new ac-
was impeached there, Clinton
go to pay off the federal debt.
counts. would supplement Social
also urged Congress to begin con-
That would simultaneously re-
Security, not replace it.
tributing $33 billion a year to a
duce the amount of government
Each worker would receive
new system of retirement ac-
debt and increase Social Securi-
some flat payment, say $100, to
counts for American workers.
ty's financial reserves.
open an account, similar to a 401-
Clinton also proposed that $2.7
trillion of a projected $4.4 trillion
in surpluses in the next 15 years
(k). If he or she then chose to de-
the hum of our prosperity to luli
be reserved for Social Security.
posit more money, administration
us into complacency."
In all, the administration pro-
officials said, the government
He announced last night that
posed investing up to 25 percent
would match a portion of it, per-
of the new money for Social Secu-
haps in the form of a tax credit.
the Justice Department was pres
rity, or $700 billion, in stocks over
paring to sue tobacco companies;
During his address last night,
opening a new front in a war that
the next 15 years. Gene Sperling,
the president never mentioned
the director of the National Eco-
the trial, steps away in the Senate,
has repeatedly gained him politic
nomic Council, said that under
cal ground. He argued. that, fed
where lawyers began defending
this plan, Social Security would
eral programs like Medicare
him just a few hours earlier, as he
never have more than 15 percent
were due hundreds of billions of
envisioned using the rest of his
of its assets in the market, a level
term to strengthen the nation's
dollars for the costs of treating
he called "far, far more conserva-
lung cáncer and other diseases.
schools, military forces and pro-
Va,
tive than any pension plan in the
The president left it to his law
grams for the elderly.
country dóes."
"America is working again,"
yers to attack the charges he
But Republicans signaled they
Clinton said. "The promise of our
broke the law to cover up his af
had no interest in the president's
future is limitless. But we cannot
fair with Monica Lewinsky, this
suggestion.
"Government-
former intern.
realize that promise if we allow
controlled investment in markets
SEE CLINTON/8-A
Clinton proposes
spending billions
on Social Security
CLINTON
But with the surpluses growing
FROM 1-A
and a new politics of prosperity
firing legislators' imaginations,
The president presented his
Senate Republicans declared that
legislative shopping list - from
they would seek a 10 percent cut
an initiative to ease traffic con-
this year in personal income tax
gestion to a $1 billion program to
rates.
help people switch from welfare
Last night, Clinton argued that
to. work - to a Republican Con-
62 percent of forthcoming federal
gress with far different plans for
surpluses should be earmarked to
spending the surpluses accumu-
preserve Social Security, a pro-
lating after decades of deficits.
gram that was at the heart of the
Calling this time "a new dawn
Democratic New Deal but that
for America," he urged his listen-
has since developed overwhelm-
ers to "put aside our divisions"
ing popular support.
and find "a new hour of healing
Another 15 percent of the sur-
and hopefulness."
pluses, Clinton said, should go to
With the justices of the Su-
protect the Medicare program,
preme Court and his antagonists
which assists the elderly with
and allies in both houses of Con-
health care. The president would
gress before him, the president
spend about 11 percent of the sur-
recognized several people in the
pluses to create new retirement
galleries to underscore his points.
savings accounts, called "univer-
Among them, he singled out his
sal savings accounts."
wife, Hillary. Rodham Clinton,
The remainder of the surpluses
whose loyalty and advice have
- roughly another 11 percent,
been key to his political stamina.
according to the administration
He praised her for "for all she has
- would go to defense and do-
done for our children" and for
mestic initiatives.
"advancing our ideals at home
The administration also hopes
and abroad."
to amend the law governing aid to
Illustrating the peculiar politi-
public schools to demand that
cal dynamic unfolding here, Re-
states and school systems begin
publican Senate leaders also
testing new teachers for compe-
seemed eager to play down the
tence, identify failing schools and
trial. They laid out their own leg-
shut them down if necessary, and
islative agenda in the morning,
end practices like "social promo-
insisting that mulling the first re-
tion," or routinely moving chil-
moval ever of a sitting president
dren into the next grade even if
would not divert them from what
they have not gained the neces-
the Majority Leader, Trent Lott,
sary skills.
called "the people's business."
"Each year the government in-
Though the president called for
vests more than $15 billion in our
sure-fire political initiatives like
public schools," Clinton said. "I
putting 50,000 more police offi-
believe we must change the way
cers on the street, he also used his
we invest that money, to support
speech, to push beyond his short-
what works and to stop support-
term predicament. In urging a
ing what does not work.'
long-term fix for the Social Secu-
The president also proposed a
rity system, according to his asso-
series of narrowly targeted tax
ciates, he hopes he will shine
credits, rather than the kind of
through the historic blot of im-
broad-based tax cuts that Repub-
peachment.
licans favor. He said that he
Clinton urged Congress in his
would seek a $1,000 credit to help
State of the Union Message last
families pay for long-term care
year to "Save Social Security
and another $1,000 credit to help
first."
disabled peopled return to work.
Weather
THE
Savings on horizon
In Local, Gov. Pataki proposes
BUFFALO
trimming income tax rates
Page B1
Shoppers' paradise
In Business, area consumers
enjoy the sales tax holiday.
Page B7
Mostly cloudy:
College cage clash
high around 40;
In Sports, Bona outlasts UB in
Page A2
SOUTH SUBURBAN EDITION
a Big 4 matchup. Page D1
40 PAGES
WEDNESDAY, JANUARY 20, 1999
Message offers bold plan to save
Social Security and Medicare
By ROBERT A. RANKIN
surplus to give most working people seed
Knight-Ridder Newspapers
money to open their own retirement ac-
counts.
WASHINGTON - President Clinton's
The government also would help match
plan to save Social Security and Medicare is
people's personal investments as they built
the biggest, boldest proposal he has made
up those accounts over time, giving more
since his abortive 1993-94 health-care re-
money to those with low incomes. This ap-
form crusade, and may prove. equally con-
proach might satisfy GOP desires to rest
troversial.
more of the nation's retirement system on
Clinton proposes to spend $3.4 trillion
private savings accounts, though it would
over the next 15 years to solve the two big-
not go so far as to privatize the Social Se-
gest financial challenges facing the govern-
curity system itself.
ment for the next generation, to rescue
Without reforms, Social Security will be
both popular programs without the pain of
able to pay only 72 cents of every dollar it
raising taxes or reducing benefits.
promises retirees in pension benefits start
Another part of the proposal would cre-:
ing in 2032, according to the system's trust-
ate a new type of individual savings pro-
gram, devoting $500 billion from the federal
See Benefits Page A6
"It really is big news, big in ev-
Benefits:
ery sense of the term. I think
he does have something for every-
one.
For the general publiè, he
is saying, 'Look, we can do this
GOP objects
without asking too much of people
in terms of sacrifices.' Everything
else will look like castor oil com-
to lack of cuts
pared to this," said John Rother,
chief lobbyist for AARP, the influ-
ential senior citizens lobby. He too
in income tax
was favorable toward Clinton's
proposals.
One big question mark, howev-
er, is whether the expected $4.4
Continued from Page Al
trillion surplus turns up,
ees. But Clinton's plan to channel
"These surpluses apparently*
$2.7 trillion into Social Security
sume 15. more years of economic
would cover all current benefit
growth. We've always been worried
costs until 2055.
?
about: how. realistic those surpluses
In addition, Medicare - which
are," said Craig Cheslog, spokes-
man for the Concord Coalition, B
covers most medical expenses for
the elderly - is projected to go
bipartisan pressure group devoted
bankrupt in 2008. But Clinton's
to fiscal discipline. Nevertheless,
Cheslog stressed, "we think it's an
proposal to give Medicare up to
$700 billion extra over 15 years
interesting first step."
The most controversial element
would pay for all current benefits
through 2020.
of Clinton's plan calls for creating
to
Many Republicans objected to
a new government mechanism to
oversee investment of hundreds of
the mechanics of Clinton's plan.
billions of dollars in the stock
Some accept parts of it but prefer
market.
his
to devote more of the expected
surplus to tax cuts.
The federal. budget is projected
"We didn't balance the budget
to run the $4.4 trillion surplus
over the next 15 years; Clinton
so the government could grown"
complained Senate Budget Com-
proposes putting 62 percent of it
into the Social Security trust
mittee Chairman Pete Domenici,
funds: A new board would oversee
R-N,M., who sharply criticized
investment of about 25 percent 01
Clinton's seizure of the entire our
that in stocks; the rest would:be
plus, saying his plan would pre-
invested in Treasury bonds.
clude any income-tax cuts "for the
next 15 years.
Conservatives fear that permit-
We think tax-
payers should get that money."
ting government to invest so much
But analysts of every stripe ac-
directly in stocks. could lead.to
knowledged that Clinton's bold
federal pressure, through owner
proposals were a political master-
ship power, on private corpora-
stroke, certain to ignite a great na-
tions to follow politically directed
tional debate over how to spend
policies rather than ones set purcly
the looming surplus funds - if
on business interests.
the Senate finishes his impeach-
No, no, a thousand times HOW
ment trial reasonably soon.
said Rep. Bill Archer, R-Texas,
chairman of the House Waysand
Clinton thus posed an implicit
choice to Congress and the coun-
Means Committee, which oversees
try, between bogging down in im-
Social Security and taxes. Archics
peachment or governing imagina-
passionately wants to cut taxes as
tively for the future.
well as craft Social Security
"My instinct is, if the Senate
forms this Congress:
Government-controlled invest-
starts calling witnesses and the im-
peachment trial drags on mib
ment in markets is contrary to-free
April, you can probably kiss thy
enterprise. It will open the door to
significant legislation goodbye,'
all kinds of mischief involving govt
said Henry Aaron, an economist at
ernment dictates, favoritism and
the Brookings Institution, a cert-
cronyism. If there is to be an int
trist think tank, who liked The
vestment in the stock market it
thrust of Clinton's plan.
Hav
must be at the discretion of free
individuals, not at the dictates of
the federal government," Archer
said.
THE WHITE HOUSE
WASHINGTON
November 24, 1998
MEMORANDUM TO THE FIRST LADY
J.K.
FROM:
Chris Jennings, Jennifer Klein, Jeanne Lambrew
SUBJECT:
Response to Questions about Coverage Expansions
cc:
Melanne Verveer, Neera Tanden, Nicole Rabner
In a recent discussion of the uninsured, you asked about several coverage expansion proposals,
including a 55 to 65 coverage option, a Medicaid buy-in, a Federal Employees Health Benefit
Plan (FEHBP) buy-in, and a new health insurance option for young adults. This memo
summarizes these proposals, discusses their rationale, and provides you with a budget and
Congressional status update. As was discussed in the memo to the President on the uninsured,
the absence of substantial subsidies and the omission of an individual or employer mandate
significantly limits the number of Americans who will be newly insured as a result of these
policies. Having said this, each of these options (or modifications to them) can improve access
to needed health insurance and are being considered for the FY2000 budget.
Medicare Buy-In / Health Insurance Options for People Ages 55 to 65
Policy. In our FY 1999 budget, we proposed three policies: (1) a Medicare buy-in for people
ages 62 to 65 that is fully self-financed through an unsubsidized, two-part premium (an up-front
premium plus a smaller, post-65 premium to compensate for any risk selection); (2) a similar
Medicare buy-in for displaced workers ages 55 and over who have involuntarily lost their jobs
and health care coverage; and (3) guaranteed access to former employers' insurance for retirees
age 55 and over whose retiree health benefits have been ended. According to CBO, this entire
initiative costs about $1.5 billion over 5 years (mostly a temporary cost until the participants
begin contributing their post-65 premium) and would assist about 300,000 people.
Rationale. This initiative, according to the latest data, is needed more than ever. Although still
low, the number of uninsured people ages 55 to 65 grew the fastest in 1997 and will grow
exponentially in the future since the number of people in this age cohort is projected to rise by
over 60 percent by 2010. Moreover, we have increasing evidence that the individual insurance
market - relied on by this age group more than any other - is raising its rates dramatically.
Kaiser Permanente, for example, will double its individual insurance premiums for its older
enrollees on January 1. This initiative gives people in this age group options to purchase
insurance that they might not otherwise have. It also would be the bare minimum policy needed
if the age eligibility for Medicare were raised an idea seriously being contemplated by the
Medicare Commission.
Issues. Despite the need, this initiative was victimized by conflicting "too much - too little"
criticisms. Republicans (and some conservative Democrats) claimed that the buy-in creates a
huge loophole in Medicare that will ultimately lead to large costs. In part, this reflects a disbelief
in our technical ability to set premiums that are self-financing in the long run. But mostly, it
results from a strong belief that, even if the premium estimates are accurate, we will eventually
succumb to the pressure to subsidize these premiums to make them more affordable for the lower
income uninsured. In contrast, a number of traditionally liberal advocates and academics
criticized the policy for helping too few people to justify the political capital that would be
necessary to expend to get the proposal any serious attention by the Republican Congress.
Regardless of its political viability in this Congress, this proposal addresses a population in need,
remains generally popular outside the beltway, and will continue to be seriously considered for
inclusion in the FY 2000 budget. It is unclear whether it will make the final cut, however. The
short-term savings needed to finance this initiative are controversial and/or likely to be used for
other priorities (such as for underwriting the costs of the Jeffords/Kennedy disability coverage
expansion bill). Also, there is concern about putting this proposal out so close to the final report
released by the Medicare Commission this March. No matter how we resolve the budget
question, however, we expect Senators Moynihan and Daschle as well as Congressman Gephardt
to introduce this bill at the beginning of the next Congress.
Medicaid Buy-In
Policy. A Medicaid buy-in would allow states to charge income-related premiums for people in
optional eligibility groups with income above 150 percent of poverty (the level at which states
may charge cost sharing under the Children's Health Insurance Program (CHIP)). This proposal
could be broadened to allow all people below a fixed income level -- not just those in current
optional eligibility groups -- to buy into Medicaid.
Currently, states cannot charge premiums to Medicaid beneficiaries. A lesser known fact is that
Medicaid law limits who can be covered as well. Historically, adults were eligible for Medicaid
only if they were: (a) single parents, or married but unemployed parents, who receive welfare;
(b) low-income elderly or people with disabilities who receive SSI; or (c) nursing home
residents. During this Administration, however, new Medicaid eligibility options have been
created. Welfare reform gave states the option to cover higher income single parents and
unemployed married parents. The exclusion of married employed parents -- which is anti-work
and anti-family was changed last summer with "100-hour rule" regulation. This lets states
define "unemployed" as working more than 100 hours a month -- meaning that they may cover
parents working 40-hour weeks if they so choose. And, in the Balanced Budget Act, we created
a Medicaid buy-in for people with disabilities with incomes below 250 percent of poverty.
Rationale. A Medicaid buy-in could be an incentive for states to expand coverage to working
adults, since even small family contributions improve the acceptance of such expansions. It also
gives all states the flexibility that we have permitted through Medicaid waivers and supported in
CHIP, as well as in the Medicaid buy-in for workers with disabilities.
2
Issues. Despite its sound policy basis, the likelihood that a Medicaid buy-in will significantly
reduce the uninsured is low. Since large subsidies are required to encourage low-income,
uninsured people to purchase health insurance, states would have to charge the families low
premiums and pay for most of the costs themselves in order to get meaningful participation.
Moreover, only states that have already expanded coverage to 150 percent of poverty could
charge premiums to all new participants. Unfortunately, states typically cover few adults with
incomes above 50 percent of poverty. Thus, premiums collected through a Medicaid buy-in
would not come close to offsetting the large Federal and state costs. Additionally, while
allowing premium payments from beneficiaries may be attractive to states, Republicans, and
moderate Democrats, it would be vehemently opposed by advocates and liberal Democrats who
believe that this opens the door to high premiums for lower-income Medicaid beneficiaries.
One idea that could possibly address the financial limitations of this proposal is to link the
Medicaid buy-in proposal to a tobacco recoupment bill. The recent state tobacco settlement will
likely lead to legislation about whether and under what terms states may keep the Federal share
of that settlement. In such legislation, we could make expansion through a Medicaid buy-in one
of the uses (or the sole use) of the Federal share. Congressional Democrats and advocates have
long argued that tobacco settlements should be directly linked to health care, health insurance
expansions, and Medicaid. It is possible they would accept a buy-in in a recoupment bill that
assures Medicaid expansions. States, obviously, do not want any strings on the uses of the
Federal share of the settlement, but may have the hardest time arguing against Medicaid
investments since the settlement itself is premised on Medicaid costs resulting from tobacco use.
The clear downside to this option is that money spent on expansions would limit the money used
for other priorities like child care. This issue will be debated in our budget process.
FEHBP Buy-In
Policy. Another proposal for expanding coverage is opening up the Federal Employees Health
Benefits Plan (FEHBP) to various groups of people (e.g., workers in small businesses, people
ages 55 to 65 years old). In order to participate in FEHBP, health plans would have to offer
health insurance to the designated group of eligibles. There are two options for how premiums
would be set: first, new participants could be charged the same premiums as Federal employees;
second, new participants could be charged premiums separately, depending on their own costs.
Rationale. The FEHBP buy-in would give certain groups of uninsured people the benefit of
accessing the health plan options, information and possibly premiums that Federal government
negotiates for its employees. It also reinforces our support for group health insurance
purchasing, plan choices, and adequate information with which to make such choices.
Issues. Depending on how premiums are set, the FEHBP buy-in would either be costly to new
participants or affect the premiums and choices of all Federal employees. Because newly eligible
people who wish to purchase insurance who are healthy can likely find individual insurance that
is cheaper, the population that decides to go into FEHBP is likely to be sicker. This will increase
premiums of all current Federal employees if they are charged the same premium. It could also
reduce plans participating in FEHBP if their enrollees include more costly, new participants than
3
Federal employees (which could happen in rural areas). As a consequence, most FEBHP buy-in
proposals assume a risk pool separate from that of Federal employees for setting premiums. But
because this pool would be a smaller and include less healthy people, premiums would be more
expensive than FEHBP. As a consequence, most analysts project a relatively small effect on
coverage. The only way to address this would be subsidies which carry significant cost
implications. These complexities explain why there have been few FEHBP buy-in bills.
Given concerns about its use as a source of coverage, FEHBP may be better used as a model for
other coverage expansion proposals. What makes FEHBP successful -- purchasing power for a
large group of people; consumer information; plan choices -- could be incorporated into small
businesses purchasing coalitions. These coalitions, promoted in previous budgets, provide any
small business in the area with a set of plan choices and more affordable premiums. This year,
we are examining options to aggressively encourage their development. For example, FEHBP
managers could provide technical assistance in establishing these coalitions. They could also be
granted non-profit status to facilitate private foundation support.
Catastrophic Coverage for Young Adults
Proposal. You mentioned an interest in policy options that would provide catastrophic coverage
for young adults. Medicare, Medicaid, and FEHBP all provide comprehensive coverage,
although we could conceivably develop a special program for catastrophic coverage. It is also
possible through regulation to require individual insurers to offer such coverage to young adults.
Rationale. Young adults are more likely than any other age group to be uninsured -- nearly one
in three 18 to 24 year olds lacks insurance. In part, this problem results because young adults are
usually healthy and do not think that their need justifies the cost of comprehensive coverage.
Thus, catastrophic coverage may be the best option for young adults since it is cheaper and
protects them from the real risk of illness or injury that can be financially devastating.
Issues. Catastrophic coverage options probably would not insure many young adults. Few
young adults would purchase even the lowest-cost catastrophic coverage without significant
subsidies. In fact, some analysts believe that only an individual mandate will make young adults
pay any level of premium for health insurance. This is because they rarely recognize their
financial risk (e.g., one in four young adults sustains major injuries in a year and one in 20 is
hospitalized). Second, while catastrophic coverage makes economic sense, people interested in
insurance do not appear to like it. The lack of interest in the medical savings account (MSA)
demonstration has shown that people prefer lower cost sharing and coverage of primary care.
Recognizing these challenges, we continue to examine policies to allow young adults to buy into
Medicaid. Some of the most needing of insurance in this age group are foster care children who
have aged past their 18th birthday (and thus last year of Medicaid eligibility.) We are working
with OMB to provide a new state option for those Governors interested in expanding Medicaid
coverage to this population. We believe it will be affordable (about $50 million over 5), sound
policy that a number of states will pick up. As of this writing, the chances of this proposal being
included in the budget appear to be quite good.
4
THE WHITE HOUSE
WASHINGTON
November 13, 1998
INFORMATIONAL MEMORANDUM TO THE PRESIDENT
me
FROM:
Chris Jennings and Jeanne Lambrew
THROUGH: Bruce Reed, Gene Sperling
SUBJECT:
Recent Uninsured Trends and Analyses
As you know, the Census Bureau recently estimated that 43.7 million Americans are uninsured --
an increase of 1.7 million from 1996 and nearly 5 million from 1992. Insurance coverage is one of
the few social indicators that has not improved in the last several years. This contradicts the theory
that a strong economy with low unemployment yields a high demand for workers, and thus better
benefits like health insurance. It is even more
disappointing given record-low health care cost growth in
Rate of Uninsured Among the
the last several years, which should make insurance more
Non-Bderly, 1987-1997
20%
17.3%
17.4%
18.3%
15.7%
16.3%
affordable and thus more common. This increase has
14.8%
15%
important consequences since the uninsured are four times
more likely to not receive needed health care, have
10%
hospitalization rates for preventable conditions that are 50
5%
to 75 percent higher, and place growing uncompensated
0%
1987
1989
1991
1993
1995
1997
care burdens on the nation's providers.
Sarce: EBRI. 1998
Because of the importance of this problem and your expressed interest in these data, we are
providing you an analysis of the numbers and recent insurance coverage trends, as well as a
summary of their policy implications.
Uninsured by age: Most of the uninsured in America are young; over 80 percent are under age 45
(35.2 million). These uninsured are disproportionately ages 18 to 24 -- 30 percent of whom are
uninsured compared to 15 percent of children. The number of uninsured children did not increase in
1997, remaining at 10.7 million. This contrasts dramatically with last year's data that showed that
800,000 of the 1.1 million additional people who were uninsured were children. The change
appears to be the result of the unprecedented focus on
Rate of Uninsured by Age, 1997
children's health in 1997. Beginning with the State of the
30%
Union and ending with the establishment of your Children's
30%
23%
Health Insurance Program (CHIP), the Federal Government
17%
20%
15%
14%
14%
and the states started taking actions to address this serious
problem. Next year, after Census' data reflects a full year's
10%
<1%
operation of CHIP, we would expect the number of
0%
uninsured children to fall.
<18
18-24
25-34
35-44
45-54
55-64
65+
While the likelihood of being uninsured is higher among younger adults, the number of uninsured
is growing faster among older adults. One million of the additional 1.7 million uninsured people
in 1997 were age 35 or older. The increase is particularly concentrated among people ages 55 to
65; the number of uninsured people in this age group grew faster than all other age groups (7
percent growth). This trend is cause for concern because people ages 55 to 65 become more
likely to develop a health problem and less likely to have employer insurance (because their
spouses retire and join Medicare, they move to part-time or self-employment which typically does
not offer insurance, or they retire). As a result, this age group is disproportionately relies on
individual health insurance - where premiums have been skyrocketing in recent years and
underwriting practices remain prevalent. Because of the demographics, there is no doubt that the
coverage problem will increase exponentially as the number of people in this age cohort is
projected to rise by over 60 percent by 2010.
Uninsured by income: Not surprisingly, people with less
Uninsured by Income, 1997
income are less likely to have health insurance. Although only
40%
32%
13 percent of the U.S. population, poor Americans (with
26%
30%
income less than $16,000 for a family of 4) represent 26
16%
20%
8%
percent of the uninsured fully one-third have no insurance.
10%
However, reflecting the strong economy, the poverty rate
0%
continues to fall and the number of uninsured below 100
<DO%
DO-
200-
300%
200%
300%
+
percent of poverty did not increase between 1996 and 1997.
Despite the link between lack of insurance and low income, over 80 percent of the uninsured are
in working families. The lack of insurance is growing among the middle class; all of last year's
additional 1.7 million uninsured had income above the poverty level, with the greatest
concentration of people between 100 and 200 percent of poverty. Inexplicably, although still
small in number, the uninsured with income above 500 percent of poverty (over $80,000 for a
family of 4) rose at an extraordinary 20 percent growth rate in 1997.
Job characteristics and the uninsured: Workers in small firms are less likely to have access to
affordable, job-based health insurance. Nearly half of uninsured workers are in firms with fewer
than 25 employees. Compared to over 95 percent of large
Uninsured Workers by Firm Size,
29%
firms, about half of firms with fewer than 10 employees and
30%
27%
1997
19%
three-fourths of firms with 10 to 24 employees offer
20%
14%
11%
coverage. These facts underscore the need to find better
10%
ways for small businesses to pool resources and leverage to
0%
<10
10-24
25-99
100-499
500+
bargain for more affordable benefits.
The rate of being uninsured is also high among people who work full time but only for part of the
year, most likely due to job change or loss (27 percent). A recent Census study found that over
40 percent of workers with at least one job interruption had a gap in coverage. Because most
people are insured through work, insurance coverage often ends with employment changes
underscoring the importance of the Kassebaum-Kennedy portability and COBRA protections.
2
TRENDS IN EMPLOYER-SPONSORED INSURANCE. On the face of it, it does not appear
that the increase in the uninsured is directly linked to a decline in employer-sponsored health
insurance (ESI). The erosion that occurred in the late
1980s and early 1990s has ended. About 64 percent
Nonelderly Americans Covered by
of nonelderly Americans had employer-based
Employer-Sponsored Insurance
insurance in 1997, virtually unchanged from 1995 and
80%
69%
69%
66%
64%
64%
64%
1996. In recent years, access to job-based health
60%
insurance has actually increased, even among small
40%
businesses. However, this has not translated into
20%
increased ESI coverage because a smaller proportion
0%
1987
1989
1991
1993
1995
1997
of people with access to ESI are purchasing it.
Saroe EBRI, 1998
Even though more employers are offering health insurance, fewer employees are taking this
coverage, primarily because they have to pay more of the premiums. The employee share of
premiums has risen, especially in smaller firms. As a result, fewer employees are purchasing this
coverage. For example, in 1987, 90 percent of
Change in Family Share of Premium
workers in firms with fewer than 10 workers who had
50%
44%
38%
1988
1996
access to employer-based coverage took it, compared
40%
34%
28%
29%
30%
to 85 percent in 1996. These take-up rates drop as
30%
the share of the premium paid by the employee
20%
10%
increases. This trend clearly affirms that health
0%
insurance affordability plays the most significant role
Firms < 10
Firms <200
Firms > 200
in people's likelihood of buying health insurance.
Source: Gobel et d., 1997
TRENDS IN MEDICAID. The most notable drop in insurance coverage in 1997, reported by
both the Census Bureau and HCFA, appears to come from the number of people covered by
Medicaid. There are three possible explanations for this trend. The first and likely most
significant factor is that, as the economy has strengthened, fewer people are eligible for Medicaid.
This is supported by the fact that the poverty rate has declined, the number of poor covered by
ESI has increased, and there was no increase in the number of uninsured children eligible for
Medicaid (still 4.7 million). Second, there may be fewer people aware of their continuing
Medicaid eligibility in the wake of state and Federal welfare reform. Third, it is becoming more
likely that Medicaid beneficiaries misreport that
they are covered by private insurance in the
Census survey. States have been taking actions
People Covered by Medicaid
Millions
33.4
33.6
33.4
30.9
33.2
32.1
to "destigmatize" Medicaid by changing the
28.3
30
name of their programs (e.g., TennCare,
20
MinnesotaCare). Also, about 50 percent of
Medicaid beneficiaries are enrolled in managed
10
care plans, which are usually private plans.
0
Thus, beneficiaries can easily mistake their
1991
1992
1993
1994
1995
1996
1997
Source HCFA;
coverage for private coverage.
3
FUTURE TRENDS IN THE UNINSURED. Given the complexity of these trends, it is unclear
whether the rise in the number of uninsured will continue. Several compelling factors suggest that
it will not and may actually decrease modestly. The Office of National Health Statistics projects
that the proportion of Americans covered by employment-based insurance will rise as continued
low unemployment will make employers more likely to use insurance to attract workers.
Medicaid coverage may increase as well as additional low-income parents become eligible because
of the "100-hour rule" welfare-to-work regulation you instituted this past summer and/or due to
the states' continued use of Medicaid waivers, which have already covered over one million
Americans. We also expect to see a decrease in the number of uninsured children beginning to
showing up in next year's Census Report as the effects of CHIP take hold.
As the baby boom generation ages, however, more people will move into the 55 to 65 year old
age bracket -- where the proportion of people with ESI is declining and uninsured is increasing.
Furthermore, significant premium increases for next year, as some recent reports have projected,
may make insurance unaffordable to greater numbers of Americans. While these conflicting
trends make it extremely difficult to predict the future with any sense of confidence, it seems
unlikely that we will see another significant increase in the uninsured next year.
IMPACT OF ECONOMIC AND EDUCATION SUCCESSES ON THE NATION'S
HEALTH. This problem of the uninsured contrasts with tremendous improvements in other
national health indicators. Your impressive economic accomplishments have had an impact on the
costs of health insurance. For the first time in well over 30 years, health inflation was below
general inflation in 1995 and 1996, thus actually reducing the real costs of health insurance.
Moreover, gains in education, income and employment have contributed towards record high life
expectancy (76.5 years for those born in 1997), a record low infant mortality rate (7.1 deaths per
1,000 live births), an AIDS death rate that is half of what it was in 1992, and a record-high
immunization rates. And, historic increases in the investment in biomedical research during your
Administration offer real hope for new (and hopefully cost-effective) treatments and cures for the
diseases that will otherwise place unprecedented burdens on the nation's economy and health care
system when the baby boom retires.
POLICY IMPLICATIONS. The uninsured in America remains one of the most challenging
domestic social problems. Not only is the problem large in size, it is complex, crossing income,
age and geographic boundaries. Despite its complexity, one fact is clear: making health insurance
affordable is and always will be the key to significantly expanding coverage. Even for an
employee whose employer pays for 80 percent of the premium, the family share of the premium is
typically over $1,100 per year more than one out of every $10 of income for a minimum-wage
worker. This cost is obviously much higher for people without access to employer-based
insurance, especially if they have a history of illness. While traditional insurance regulation can
help reduce insurance premium variation and discrimination, independent analysts will not project
any substantial coverage expansions resulting from these interventions. In a non-mandate
environment, they believe that only significant subsidies can induce a substantial reduction in the
uninsured.
4
Ironically, our ability to propose policies to make insurance more affordable is limited by our
success in reducing national health spending. In the last 5 years, hundreds of billions of dollars
in excess Medicare and Medicaid spending have been squeezed out of these programs and used
productively to help eliminate the deficit, finance children's health coverage, extend the life of
the Medicare Trust Fund, and to make the Medicaid program a much more predictable and
affordable safety net. However, substantial reductions in Medicare and Medicaid mean that these
traditionally utilized funding sources cannot be relied on as offsets for major coverage
expansions, let alone long-term Medicare reforms. With this in mind, outside funding sources
from the tax code, tobacco, or elsewhere would be needed for a significant coverage expansion.
Administration & Republican coverage expansion ideas. The range of coverage options,
currently being prepared through the traditional NEC/DPC/OMB budget process, will include
some previous and new targeted coverage expansions. As this memo has documented, the most
recent data validate the case for coverage expansions to the pre-65 and "workers-in between-
jobs" populations. We also will continue to focus on administrative and possibly legislative
outreach policies to encourage enrollment in CHIP and Medicaid to ensure your children's health
initiative is a success. However, recognizing the questionable political and budgetary viability of
these proposals, we are also reviewing options more likely to be well received in this Congress.
First, we are contemplating policies to encourage states to expand using existing options. With
the 100-hour rule regulation, all states can now cover parents of children on Medicaid. Other
states have used Medicaid 1115 waivers to cover all people up to certain income levels. Because
this would likely require greater financial incentives, one option is making coverage expansions a
priority on a short list of acceptable uses for the Federal share of state tobacco settlements.
As an alternative to coverage expansion options, we expect Secretary Shalala to advocate for a
significant investment in public health infrastructure. This investment would be used to adapt
the safety net to the rapidly changing health system. This idea would likely be better received
than a coverage expansion by Republicans. However, if not a capped mandatory grant program,
it would either require raising the discretionary caps or place a major strain on the current caps.
Also, it would likely be perceived by some Democrats as giving up on coverage expansions.
Since there is bipartisan concern about small businesses' problem in accessing insurance, we are
also considering enhancing our previously-proposed small business purchasing coalition grant
initiative. We could more aggressively encourage these coalitions by directing OPM to provide
technical advice for their establishment and operation, so that they more closely resemble
FEHBP. We are also examining granting them non-profit status, to facilitate foundation support.
In 1999, Republicans, too, may consider small business group purchasing policies (although in
the past, their versions have been significantly flawed). It is more likely, however, that, if
Republicans decide to address the coverage issue at all, they will focus on the use of tax
incentives for the purchase of individual health insurance. Encouraging individual insurance is
intriguing because nation's reliance on voluntary, employer-based coverage has clearly not been
an unqualified success. Moreover, if there is to be any significant investment in health care that
the Republicans could possibly support, it would almost inevitably come from the tax code.
5
While acknowledging that tax credits are at least initially appealing, they are no panacea. They
are extremely inefficient and expensive, as many of the assumed recipients would already have
coverage. For independent experts to validate that the previously uninsured would take
advantage of this policy, the credit would have to be quite large. In addition, if used for
individual (rather than employer-based) insurance, they would require the type of major
insurance reforms that have been historically opposed by Republicans. The individual market is
the least regulated, most expensive, most "cherry-picked" and most unstable insurance market.
Notwithstanding legitimate concerns, we believe that tax credits may be the only health coverage
expansion vehicle that could be produced by this Congress. As such, we are reviewing possible
options for your consideration. For example, it might be possible to merge policies to promote
small group purchasing coalitions with tax credits for participating employers or employees.
Limiting the tax credit to such entities could further encourage a long-overdue expansion of
small business coops. However, such approaches also raise equity concerns (e.g., why
discriminate against an employee/employer who does not have access to, or does not want to be
in, a purchasing coop) and political arguments (e.g., isn't this too similar to the Health Security
Act). DPC, NEC, OMB, Treasury and HHS are reviewing this purchasing coalition/tax credit
idea and other tax incentive approaches. We will keep you apprised of developments in this area,
as well as other coverage options, as the budget process unfolds.
6
International Organizations and Programs
(IO&P)
($ in thousands)
FY 1998
FY 1999
FY 2000
Acual
Estimate
Request
ECONOMIC PROSPERITY
210,600
215,300
191,300
Broad-based Growth
210,500
215,000
191,000
United Nations Development Program (UNDP)
98,000
100,000
80,000
United Nations Children's Fund (UNICEF)
100,000
/1
105,000
/1
101,000
United Nations Development Fund for Women (UNIFEM)
1,000
1,000
1,000
OAS Development Assistance Programs
6,500
6,500
6,500
International Fund for Agricultural Development (IFAD)
5,000
/2
2,500
2,500
Open Markets
100
300
300
International Civil Aviation Org. (ICAO) Aviation Programs
100
300
300
GLOBAL ISSUES
74,500
64,200
90,700
Protection of Global Environment
49,500
64,200
65,700
United Nations Environment Program (UNEP)
9,000
13,000
13,000
Montreal Protocol Multilateral Fund
28,000
34,450
34,450
International Conservation Programs
3,750
6,000
6,000
UNFCCC / IPCC
5,000
6,500
8,000
Int'l. Contributions for Scientific, Educational & Cultural Activities
2,250
2,250
2,250
World Meteorological Org./Voluntary Cooperation Program
1,500
2,000
2,000
Stabilization of World Population Growth
25,000
0
25,000
United Nations Population Fund (UNFPA)
25,000
13
0
/4
25,000
DEMOCRACY AND HUMAN RIGHTS
4,900
7,000
7,000
UN Vol. Fund for Technical Coop. in Field of Human Rights
900
1,500
1,500
UN Voluntary Fund for Victims of Torture
1,500
3,000
3,000
OAS Fund for Strengthening Democracy
2,500
2,500
2,500
HUMANITARIAN ASSISTANCE
4,500
5,500
4,000
World Food Program (WFP)
4,000
5,000
3,500
Afghanistan Emergency Trust Fund
500
500
500
TOTAL
294,500
292,000
293,000
/1 Appropriated under Child Survival Programs
/2 Includes $2.5 million transferred from Development Assistance
13 Does not reflect $5 million withheld for congressional prohibition of U.S. funding for UNFPA's China Program
/4 Funding for UNFPA is prohibited by the FY 1999 Omnibus Appropriations Act.
50
98 (TUE) 18:02
US SEN COM UN
ARD M. KENNEDY
MASSACHUSETTS
United States Senate
WASHINGTON, DC 20510
December 18, 1998
MEMORANDUM FOR THE PRESIDENT
FROM SENATOR EDWARD M. KENNEDY
"PROPOSED DEMOCRATIC PRIORITIES FOR THE 106th CONGRESS"
The November elections reaffirmed the key Democratic priorities on which you have
worked so effectively over the past two years. As a result, we are poised to move forward on a
number of popular issues, especially:
-- The Patient's Bill of Rights;
-- The increase in the minimum wage;
-- Education reforms to reduce class size and facilitate school construction;
-- Aid for disabled Americans who are able to work and want to work;
-- Medicare "buy-in" for the near-elderly; and
-- Saving Social Security.
I encourage you to include in the Democratic agenda three new ideas that will help
millions of Americans and expand our base of support for the year 2000.
1. Prescription Drug Coverage under Medicare:
We should help seniors by guaranteeing this coverage under Medicare. In 1965, when
Medicare was enacted, most private insurance plans did not offer this coverage. Today, 99
percent of private insurers provide it -- but Medicare does not. Millions of senior citizens
struggle lo afford the expensive prescription drugs needed to maintain their health and avoid
hospitalization.
In 1994 and 1996, Democrats received 48 percent of the senior citizen vote. This year,
that support dropped slightly, to 44 percent. The elderly represent 28 percent of the voting
public. We cannot afford as a party 10 lose this powerful and growing voting bloc. There is no
better way to attract these voters than lo fight for their health care. Providing prescription drug
coverage is expensive- which is why seniors are struggling so hard to afford it. But the need is
(TUE) 18:03
US SEN CUM UN LANR
2
great, and the long-term benefit for the Democratic Party is great too.
2. A Well-Qualified Teacher in Every Classroom:
You deserve great credit for directing the national education debate to the all-important
issues of quality and standards. Your two key proposals to reduce class size by funding 100,000
new teachers and to modernize schools have resonated throughout the country. To fill out the
education picture, we must also assure that teachers are well-trained to meet high standards and
raise student achievement.
You are already providing funds to hire new teachers. I propose that we help existing
teachers, loo. We need mentoring programs for novice teachers as they adjust to the classroom.
We need more resources for teacher training, for professional development, and for appropriate
recertification requirements - while avoiding the divisive issue of teacher testing. With your
leadership, we can assure parents and students that we are doing all we can to guarantee a well-
trained teacher in every classroom in America.
3. Ready to Learn:
We must do a better job of enabling children to start school ready to learn. Experts agree
that the attention given children in their formative years often determines their ability to learn
and succed over their lifetime. You have led the way on child care. We need to expand
Headstart, Early Start, pre-K, and other programs with a proven record of preparing children for
school, and we also need to focus these programs more effectively on early learning.
I believe that tobacco funding can provide the resources needed to pay for these
initiatives, and that the iniatives will have widespread support from the American people and
strengthen your hand in dealing with the tobacco companies.
For example, the governors could be permitted to keep the federal share of the state
tobacco settlement, provided that the funds are used to prepare children to start school ready to
learn.
In addition, the federal government should insist on compensation from the tobacco
companies for the costs to the federal government of treating tobacco-related illnesses under
Medicare, veterans' health programs, and other public health programs. The compensation could
be pursued both in court and through legislation. To strengthen these approaches, we should
earmark every cent collected from the tobacco companies for prescription drug coverage for our
senior citizens under Medicare. I believe this linkage would receive broad support.
Thank you for your continued leadership on so many issues of vital importance to the
nation. As always, 1 look forward to working with you to bring greater opportunities for working
families.
(TUE) 18:03
US SEN COM UN L&NR
2
great, and the long-term benefit for the Democratic Party is great too.
2. A Well-Qualified Teacher in Every Classroom:
You deserve great credit for directing the national education debate to the all-important
issues of quality and standards. Your two key proposals to reduce class size by funding 100,000
new teachers and to modernize schools have resonated throughout the country. To fill out the
education picture, we must also assure that teachers are well-trained to meet high standards and
raise student achievement.
You are already providing funds to hire now teachers. I propose that we help existing
teachers, loo. We need mentoring programs for novice teachers as they adjust to the classroom.
We need more resources for teacher training, for professional development, and for appropriate
recertification requirements -- while avoiding the divisive issue of teacher testing. With your
leadership, we can assure parents and students that we are doing all we can to guarantee a well-
trained teacher in every classroom in America.
3. Ready to Learn:
We must do a better job of enabling children to start school ready 10 learn. Experts agree
that the attention given children in their formative years often determines their ability to learn
and succeed over their lifetime. You have led the way on child care. We need to expand
Headstart, Early Start, pre-K, and other programs with a proven record of preparing children for
school, and we also need to focus these programs more effectively on early learning.
I believe that tobacco funding can provide the resources needed to pay for these
initiatives, and that the iniatives will have widespread support from the American people and
strengthen your hand in dealing with the tobacco companies.
For example, the governors could be permitted to keep the federal share of the state
tobacco settlement, provided that the funds are used to prepare children to start school ready to
learn.
In addition, the federal government should insist on compensation from the tobacco
companies for the costs to the federal government of treating tobacco-related illnesses under
Medicare, veterans' health programs, and other public health programs. The compensation could
be pursued both in court and through legislation. To strengthen these approaches, we should
earmark every cent collected from the tobacco companies for prescription drug coverage for our
senior citizens under Medicare. I believe this linkage would receive broad support.
Thank you for your continued leadership on SO many issues of vital importance to the
nation. As always, 1 look forward to working with you to bring greater opportunities for working
families.
DEC. -22' 98 (TUE) 18:03
US SEN COM ON L&HR
TEL: 202 224 5128
P. 004
TOBACCO TALKING POINTS- DECEMBER 21, 1998
1)
The Administration should renew its effort to substantially raise the federal tax on
cigarettes. The budget should propose increasing the cigarette tax by at least 70 cents per
pack. A majority of the Senate -- 58 members -- supported a $1.10 per pack increase in
the last session. The cost of the state settlement is approximately 40 cents per pack.
This leaves 70 cents per pack -- approximately $40 billion over five years -- to finance
our initiatives.
2)
Raising the price of cigarettes produces a double benefit -- it is an important deterrent to
youth smoking and it produces badly needed revenue.
3)
The federal government incurs enormous costs each year to provide health care for those
suffering from tobacco-induced disease. Estimates place the federal cost at
approximately $22 billion per year, of which roughly half is incurred in Medicare.
4)
The successful state lawsuits already established the principle that the tobacco industry is
liable for the costs which government incurs treating sick smokers. Whenever people ask
me about tobacco issues, they want to know why the federal government has not filed
suit.
5)
The best way, probably the only way, to get Congress to enact a substantial cigarette tax
increase is for the federal government to file suit against the industry. That is our
leverage to bring the industry to the table and negotiate a strong legislative package.
6)
T know you are hearing from the Justice Department that the federal government does not
have a good case. Many of the foremost experts in the country disagree.
7)
I (along with Senators Conrad and Bob Graham) have had several meetings about this
issue with Attorney General Reno. She personally is very favorably disposed to bringing
a suit, but the staff keeps raising obstacles to going forward.
8)
At her invitation, T have put together a group of experts -- both legal academics and trial
lawyers -- who believe the federal government has astrong case and who are willing to
meet with the Attorney General and her staff on an ongoing basis to persuade them to file
suit and to help them put the case together. It includes Larry Tribe, Robert Blakey (the
RICO expert), Einer Elhauge (an anti-trust expert from Harvard), Mike Ciresi (the lead
trial counsel in the Minnesota case) and Dick Scruggs (the lead counsel in the Mississippi
case). We've already been meeting with them, and the first meeting with the Attorney
General is scheduled for early in January.
9)
They have identified four viable causes of action -- 1) civil RICO, 2) the Medical Care
Recovery Act, 3) the federal common law of nuisance (used successfully in
environmental cases prior to EPA), and 4) antitrust.
DEC. -22' 98 (TUE) 18:03
US SEN COM ON L&HR
TEL: 202 224 5128
P. 005
10)
Such a lawsuit would clearly give us enonmous leverage to negotiate strong lobacco
legislation including a substantial price increase and FDA regulatory authority.
11)
I believe we could further strengthen the legislative argument for a 70 cent per pack price
increase by proposing that the money be spent to provide prescription drug benefits for
seniors through Medicare. You know how popular that issue is, but we've never been
able to fund it. Since much of the tobacco-related cost the federal government incurs is in
Medicare, this would be a particularly appropriate use of the money. It is a much more
potent message than spreading the money over a number of different programs.
12)
I would try to use the federal share of the tobacco money which the states recovered in
their Medicaid suits to address our child care and child development initiatives. We
should only agree to waive the federal claim to those Medicaid dollars if the states agree
to use the federal share for children's programs. The states are worried about losing that
money, and an agreement along these lines can be negotiated.
THE WHITE HOUSE
washington
February 24, 1999
TO:
Gene S., Bruce R., Elena K., Larry S., Steve R.
FROM:
Chris J. and Jeanne L.
RE:
HCFA MEDICARE COMMISSION ANALYSIS
Last night, Senator Breaux released an analysis from the HCFA actuaries on the latest version of
Senator Breaux's Medicare Commission reform packages. Senator Breaux's cover note suggests
that premium support saves $347 to 372 billion over 10 years.
A closer reading of the analysis shows that premium support by itself saves about $75 to 100
billion over 10 years ($26 to 37 billion over 5 years). The $347 to 372 billion "savings" also
includes about $100 billion in revenue from an income-related premium that is earmarked in its
entirety for low-income protections and about $50 billion in reduced Medicare liability from
transferring direct medical education out of the Medicare Trust Fund. As a consequence, almost
one half -- about $150 of the $347 to 372 billion - does not represent Federal savings.
The following is a brief description of the package and analysis:
SENATOR BREAUX'S PACKAGE
Premium support ($26 to 37 billion over 5, $75 to 102 billion over 10). The actuaries
estimated savings from Senator Breaux's "alternative" model that was described for the first
time in a memo from the Commission on 2/17. The higher savings estimate assumes that
there is no ability for private plans to vary their benefits. The lower savings estimate
assumes a limited amount of variation. These savings are higher than expected because
Senator Breaux has made important modifications in his proposal, specifically reducing the
benefits flexibility, even in the more "flexible" model.
Income-related premium ($36 to 38 billion over 5, $95 to 96 billion over 10). This plan
would start increasing the Medicare premium for beneficiaries with income at $24,000 for
singles, $30,000 for couples. These income thresholds are half as high as the 1997 Chafee-
Breaux proposal, and would affect more than twice as many people - about 30 percent of
beneficiaries (about 12 million beneficiaries) would pay higher premiums. Assuming 1999
costs, this premium would be $125 a month each for an elderly couple with $50,000 annual
income more than a 100 percent increase. All $38 billion in revenue from this income-
related premium, according to the description, would be reinvested in a yet- to-be designed
low-income protections and therefore would be budget neutral (no savings).
Raising the age eligibility ($2 billion over 5, $25 billion over 10). The real savings from
this proposal are in the long-run -- a separate analysis indicated that this policy alone would
produce as much savings as premium support over the 30-year period. The analysis does not
include any proposal to assist people losing Medicare eligibility in finding new sources of
coverage (e.g., Medicare buy-in).
Cost sharing and Medigap changes ($14 billion over 5, $31 billion over 10). This plan
would make a number of changes to Medicare cost sharing which, in total, would increase
the amount that beneficiaries pay out-of-pocket ($9 billion over 5, $20 billion over 10). This
primarily results from a new 10 percent home health copay. The plan would also prohibiting
Medigap from covering Medicare's deductible ($5 billion over 5, $11 billion over 10).
Fee-for-service reforms ($16 billion over 5, 79 billion over 10): This includes extending
most Balanced Budget Act proposals from 2003 to 2007 ($7 billion over 5, $57 billion over
10) (note: since the BBA expires in 2002, only 2003 and 2004 savings count toward the 5
year savings). The plan would also modernize Medicare fee-for-service by giving it
additional flexibility used by private health plans ($9 billion over 5, $22 billion over 10).
These savings are more than we expected, and probably are more than CBO would estimate.
Transferring direct medical education out of Medicare ($20 billion over 5, $46 billion
over 10). This proposal does not actually save the Federal government any money -- it
simply moves DME spending from Medicare to some other, unnamed place in the budget.
WHAT IS NOT IN SENATOR BREAUX'S PACKAGE
Surplus: The plan contains no revenue proposals.
Prescription drug benefit: Under the more flexible benefits version of premium support,
plans could offer a limited drug benefit and possibly receive a government subsidy for it if its
premium is below average. People in traditional Medicare or without access to a low-cost
private plan would have no drug option.
Defined benefit: Despite improvements in their structure, both premium support options
allow some flexibility around the core benefits (e.g., offer varying but actuarially equivalent
levels of physician visit coverage, home health, outpatient care). The more flexible option
allows plans to offer whatever additional benefits they desire, so long as the value of those
benefits doesn't exceed a limit. Benefits variability not only reduces effective competition,
but could cause risk selection and confusion among beneficiaries faced with a wide array of
slightly different benefits options.
Medicare buy-in: The proposal raises age eligibility without offering any options
whatsoever for people who lose Medicare eligibility as a result of the change.
There are also unanswered questions, like whether beneficiaries choosing private plans will pay
more or less depending on where they live. We will you posted as we learn more.
SENATOR BREAUX'S MEDICARE REFORM PROPOSALS
(Calendar years, dollars in billions)
00-04
00-09
Premium Support
Limited Flexible Benefits
-26
-75
No Flexible Benefits
-37
-102
Income Related Premium (Begins $24/30 ends $40/50)
Limited Flexible Benefits
-36
-96
No Flexible Benefits
-38
-95
Raising Age Eligibility
-2
-25
Cost Sharing / Medigap Changes
Cost sharing changes (including unlimited home health copay)
-9
-20
Medigap: Prohibiting coverage of deductible
-5
-11
Subtotal
-14
-31
Medicare Fee-For-Service Reforms
BBA Extenders
-7
-57
Modernizing fee-for-service
-9
-22
Subtotal
-16
-79
Removing direct medical education from Medicare
-20
-46
Drug Coverage
Not Included
Surplus
Not Included
Interactions
1
6
MEDICARE SAVINGS
Total Package Plus Premium Support #1
-114
-346
Total Package Plus Premium Support #2
-126
-373
FEDERAL SAVINGS (Minus Income-Related Premium; DME)
Total Package Plus Premium Support #1
-58
-204
Total Package Plus Premium Support #2
-69
-231
2/24/99
Package 1-Draft Medicare legislative package introduced by Senator Breaux
at January
26 Commission meeting
Category
Provision
Comment
Fee-for-service:
Cost sharing
Combined A & B deductible of $350 (indered to CPD
10% colneurance on inpatient and proventive care; 10% colnsurance m home health
care, present law OPD colnstrance, 20% cotusurance on all other services
Modernization
Standard BCV package
BBA extenders
NBCFM package (through 2007) uxcept: no M+C / no DSH
Medical education
Remove DME funding from Médicare: по ME provision
DSH
No provision
Medigup reforms
Prohibit coverage of Medicare deductible(s)
Premium supports
Administration
Medicare Board would have considerable authority to negotiale premiums &
benefit packages, financial & quality standards, approve saving area, CIC.
Benefit packages
Option (1): Standardized "Date" package required " minimum
Additional benefits beyond core package are allowed
Private plan packages must be R government FFS plan
Accurial value of package may not cicred 1 1056 of are value
Peripheral benefitsisneh as dontal cara casmede surgery, vislou care,
OTC drugs are not permitted
Option (2): Standardized "card" package only, no benefit package flexibility
Premium allocation
Govy FFS plan must bid nationAlly, others may bid nationally # regionally
Partial geographic adjustment of payments full risk adjustment
3-hendpoint premium allocation formula; based on full plan bids:
At or below 85% of WAP, 100% 1 0% Medicare 1 beneficiary allocation
A1 100% of WAP, 88%/12%
Above 100% of WAP. gov'l cancrib - 88% of WAP
Income related
Single bene's: 12% at $24,000 25% at 540,000+
premium
Bene couples: 12% at $30,000 25% II 550.000+
Bracksts indexed by CPI
Revenue circussided for improving low tocome beneficiary coverage
No specific provision
FFS and PS:
Eligibility age
Increase age of eligibility following OASDE schedule
Vohmtary average
No provided
Drug coverage
No provision
Budget surplus revenue
No provision
1
Specifications reflect clarifi cations and modifications received from Robby Andal Darla Ramfo. and Sarah Lyuns on 1-29-99, 2-11-99,
2-12-99, 2-17-99 and 2-22499.
Office of the Acarry
February 23. 1999
Estimated costs (+) or savings H under Mo atternative versions of Medicare legislative package
Introduced by Sensior Breaux ml Jamary 20 Commission meeting
(Calonder year estruates; amounts in billions)
-Option (3): United varialion m benefit package-
Total sendmes, nomicral Total envings, % of PL expends
Proposal
2000
2001
2002
2000
2004
2005
2008
2007
2000
2009
2000-04
2000-09
2000-04
2000-09
2000-10
BBA entenders
sao
$0.0
SOA
-$2A
-$1.9
$6.6
98.9
-311.0
-811.9
$122
-$7.1
$57.1
-0,5%
-9.7%
28%
Coal sharing changes
-LB
-18
$
-19
-1.9
-B.O
to
&
-21
pg
-61
-19.5
D.P.S
00%
"ars
Modiumbration proposats
-1.7
-1.7
-1.0
-8.8
-2.1
e2
-2.9
-25
-27
29
-9.2
-21.8
-0.7%
-0.6%
-0.6%
Renoved of DME
-3.6
-3.8
-10
-42
-45
-4.7
-19
52
-BA
-5.7
-201
-48.1
-1.4%
.1.3%
29%
Perman support
2.4
-85
5.4
-6.7
-7.7
-8.3
-90
07
101
-15.4
28.1
-74.9
-1.9%
22%
256
6.6
-7.0
-7.5
-B.1
-8.6
"If
-10.5
-11.4
-125
-13.7
36.1
-859
27%
28%
01%
Change An aga of eligibility
0.0
0.0
O.D
-0.7
AA
-22
-10
-4.2
-5.8
-7.8
-21
-25.2
-0.1%
.07%
1.7%
Medigap regulation changes..
-10
-1.0
-10
-1.1
..1.1
-1.1
-1.2
.12
-1.3
-1.3
-52
-11.3
CAX
-0.3%
0%
Interactions
0.1
at
0.1
as
0.4
as
0.7
as
1.0
1.1
10
52
0.1%
0.2%
0.2%
Total savings.
-17.0
122
-21.9
-28.0
JIA
-36D
-41.1
-46.5
.50.7
560
-116.2
-316.6
-8.2%
-10.1%
-11.2%
Total plesent law expends
251
284
279
297
321
246
373
404
436
475
-
-
-
-
-
Savings as % of expend's
-6,8%
-7.3%
-7.8%
-9.0%
-1,8%
-10.4%
-11.0%
-11.5%
-11.6%
-11.8%
-
-
-
I
-
No tax: 1. Balarta specification signature for description of provisions.
2. Estimates shown for each provision are on a 'stand zlose" basis, that is. the thandal Impact of that provision only,
relative la presention. Total savings for the package reflect intellsctions.
3. "Savings" are defined as other expenditure reductions or increase In premium revenues.
4. Estimates are preliminaly and subject m change pending Improved data and more refined methoddogies. In particular,
estimates of Interactions among proposels are very mugh.
Fdo PROPI REV.XLS Option (1) abbrov page 1
Olitce of the Actuary
Health Can Financing Admin
2/23/89
Estimated costs (+) or savings (-) under alternative versions of Medicare legislative package
Introduced by Senator Breaux at January 26 Commission meating
(Calender year extinates; amounts M billions)
-Option (2): No variation to benefits package-
Total
asvings,
nominal
s
Total savings, % of PL expend's
Proposal
2000
2001
2002
2003
2004
2005
2008
2007
2000
2009
2000-04
2000-08
2000-04
2000-09
2000-30
BBA extenders
$0.0
$0.0
-$0.4
-$2A
44.3
-$8.6
-$8.8
-$11.0
$11.3
-$12.2
-$7.1
-$57.0
-05%
-1.7%
-2.4%
CODE thang Changes
-1.8
-1.8
-1.8
-1.0
-139
-20
20
F
-2.1
2
AP
FEA
5
-00%
U.T.
Mod emization proposals
-1.7
-1.7
-1.0
-1.9
-2.1
.22
-2.3
-25
-27
20
-8.2
-21.B
-0.7%
:0.6%
-0.6%
Rennoval al DME
-0.6
-3.6
-4.0
-1.2
-4.5
-4.7
-1.8
-5.2
-6.4
-5.7
-20.1
-46.1
-1.4%
-1.3%
-0.8%
Premium support
4.1
-5.8
-7.6
-9.1
-10.3
-11.1
-11.0
-12.8
-140
-15.2
-06.9
-1020
-25%
-20%
-1.2%
income-related premium
66
-7.0
-7.5
-8.1
-BA
-8.6
-10.4
HIA
121
-116
-37.6
-95.3
27%
-20%
-1%
Cha nge In age of effgibility
0.0
0.0
D.D
-0.7
-1.4
-2.2
-3.0
-4.2
-5,8
-7.9
21
-252
-0.1%
-0.7%
-1.7%
Medigap regulation changes...
-1.0
40
-1.0
-1.1
-2.1
-1.1°
-1.2
-1.2
-1.3
-1.9
-52
-11.3
-0.4%
-03%
-0.2%
Internactions
0.1
0.8
0.2
as
0.5
0.7
de
10
1.2
L4
12
63
0.1%
0.2%
0.2%
Total savings
-18.6
-21.0
-24.0
-20.0
-33A
-38B
-43.9
-49.5
-53.0
-59.5
-1205
-372.0
0.0%
-F0,8%
-11.9%
Total present law expend's
251
284
279
287
321
346
373
404
438
475
-
-
-
-
-
Savings as % of expends
-7.A%
-8.0%
-8.6%
-9.6%
-10.6%
-11.2%
-18.8%
-123%
-12.3%
-12.5%
-
-
-
-
-
Notes: 1. Floter to specification for description of provisions.
2. Extimates shown for each-provision are on a "stand alone" bank, that is. the Inancial Impact of that provision only.
relative to present few. Totalsavings for the package reflect Interactions.
3 "Savings" ass defined as either expanditure reductions or Increases its premium revenues.
4. Emimates are prefininary and subjèct to change pending improved data and more refined methodologies. Importicular,
estimates of interactions arrong proposals are very mugh.
TOTAL P.04
Fle PROP1REV.XLS Option (2) abbrev page 1
Office of the Actuay
Health Care Financing Admin.
2/23/99
02/13/99
10:41
202 331 9363
UNDP WASH, DC.
J.
001/001
The Administrator
United Nations Development Programm
Suctainable human development
undp
11 February 1999
Dear Mrs. Clinton,
I would like to bring to your attention the very difficult position in which UNDP
finds itself at this particular juncture. As you are aware, the Administration requested a
very low figure, $80 million, (a dramatic drop of $25 mi ion from last year's request)
for UNDP for FY 2000. I hope to secure your help in remuing UNDP from what is
clearly a very negative signal being sent by the Administ tion to the United Nations,
and most importantly, to the sustainable development work of the United Nations.
When I communicated this news to Melanne Vervier on the eve of the budget
disclosure, she indicated that you would do whatever you. could to help turn this
situation around. It is most important that we support each agency at the highest
possible level so that each may carry out its specific mantlate, be it for children, health,
population, environment or development. I would therefore like to request your
personal support so that UNDP can reach a level of $110 million for FY 2000.
One possible avenue would be for the Administration to request supplemental
funds that could be directed to UNDP. Our programme is hard at work both in Central
America and in the West Bank and Gaza. Additional support is urgently required for
our longer-term recovery and reconstruction initiatives in the aftermath of Hurricane
Mitch. The recent Wye Accords underscore the need for our strengthened development
efforts with the Palestinian people.
I think it is absolutely critical that we find a way 10 restore funding to UNDP,
and I know I can count on your good offices to achieve 1]1is goal. I look forward to
talking with you at your earliest convenience.
With best personal regards.
Yours sincerely,
Jane. Amtave Speth
James Gustave Speth
First Lady Hillary Rodham Clinton
Office of the First Lady
The White House
Washington, DC 20500
One United Nations Plaza
New York, NY 10017
President Clinton Continues to Fight to Improve the Health of Our Nation's Children
Children and Prescription Drug Testing. Today's announcement requiring manufacturers to do studies on
pediatric populations for new prescription drugs and those currently on the market builds on an impressive
array of children's initiatives advocated by President Clinton.
Children and Insurance Coverage. The President fought hard to ensure that the Balanced Budget Act
included $24 billion -- the largest investment in children's health care since the passage of Medicaid in 1965 --
to provide meaningful health care coverage to as many as five million of our nation's uninsured children. He
also fought to include revenue from a 20 cent tobacco tax which will not only further reduce the number of
uninsured children, but it will also serve as a financial barrier to help prevent our children from starting to
smoke in the first place.
Children and Tobacco. The President issued guidelines to eliminate easy access to tobacco products and to
prohibit companies from advertising tobacco to kids. Each day about three thousand children become regular
smokers and 1,000 of them will die from a tobacco-related illness. According to former FDA Commissioner
David Kessler, the possibility of a comprehensive, public health oriented settlement with the tobacco industry
could not have come about without the President's leadership in this area.
Children and Insurance Reform. By signing the Kassebaum-Kennedy bill into law last year, the President
helped millions of American children keep their health care coverage when their parents lose or change jobs.
Children and Juvenile Diabetes. The President fought to include $150 million ($30 million annually for five
years) for research to help find the cure for diabetes. Americans with this disease often suffer severe
consequences, such as blindness and kidney disease, even when they receive the best treatment and care. The
HHS Secretary will have discretion to target the new funds toward the best scientific opportunities. This
represents the largest single new investment in Juvenile Diabetes.
Children and Immunization. As the President recently announced, over 90 percent of America's toddlers
in 1996 received the most critical doses of each of the routinely recommended vaccines -- surpassing the goal
set by the President in 1993.
Children and the Environment. Earlier this year, the President signed an Executive Order to reduce
environmental health and safety risks to children by requiring agencies to strengthen policies and improve
research to protect children and ensure that new regulations consider special risks to children.
Children and Medicaid. Throughout his Administration, the President has fought to preserve and strengthen
the Medicaid program; its coverage of about 20 million children, makes it the largest single insurer of children.
The Administration has partnered with states through Medicaid waivers to expand coverage to hundreds of
thousands of children.
Draft
THE 1999 DEMOCRATIC AGENDA
Continue on the path of. fiscal responsibility to keep our economy growing; Invest now to
meet the challenges of the 21st century, including quality education for children and secure
retirement and quality care for seniors; and enable families to meet their responsibilities at
home and at work.
Invest the Surplus to save Social Security and Medicare and Pay Down the Debt
Save Social Security: Reserve 62 percent of the projected budget surpluses to save
Social Security until 2055; Allow the trust fund to invest about one-fifth of the
transferred surpluses in the private sector to achieve higher returns for Social Security
just as any state or local government, or private pension does.
Strengthen Medicare for the 21st Century: Reserve 15 percent of the projected
surpluses for Medicare, ensuring the Medicare Trust Fund is secure for 20 years, and
achieve broader reforms -- including a covering prescription drugs.
Pay Down the Debt: Investing 77% of the surplus into Social Security and Medicare will
reduce the national debt to the lowest level since 1917 and save taxpayers billions of
dollars in interest charges.
Quality Education: Modernize Schools, Reduce Class Size and Provide Accountability
School Modernization: Federal tax credits will enable state and school districts to
modernize and renovate 6,000 local public schools, to improve learning conditions, end
overcrowding and make room for smaller classes.
Smaller Classes: Finish the job of hiring 100,000 new teachers over the next seven years
to reduce class size in grades 1-3 to a national average of 18, making sure that every child
gets a solid foundation in the basics.
Teacher Training and Recruitment: Increase support for teacher training in subject-
matter knowledge and teaching expertise; new incentives to recruit highly qualified
teachers.
Build Accountability Measures into federal support for education to ensure that school
districts and states provide every student with a high quality education, building on
proven reforms now being implemented in states and cities
Education Technology: Continue to provide schools with Internet capacity and
resources for teacher training and integrating technology into the curricula; protect the e-
rate discount for schools and libraries and new teacher training
Secure Retirement and Quality Care for Seniors
Social Security: In addition to devoting 62% of the surplus to the Social Security system,
we will work to enact further policies to strengthen the system, reduce poverty among
elderly widows, and eliminate the earnings limit within the context of Social Security
reform.
Medicare: Reserve 15% of the surplus to strengthen Medicare; work to enact further
changes to strengthen and improve the Medicare program, including badly needed
prescription drug benefit.
Protect Pensions
Expand Pension Benefit Coverage: Create a new plan that will make it easier for small
businesses to start private pension plans that provide predictable and secure benefits, and
for employees to save in IRAs through payroll deductions; Permit employees to rollover
benefits from different types of retirement plans.
Strengthen Women's Retirement Security: Allow workers to count time taken under
the Family and Medical Leave Act toward their retirement benefits. Call for pension
plans to offer a 75 percent joint and survivor annuity option -- so that families can choose
to reduce benefits while both are alive in order to guarantee that a surviving spouse would
get higher benefits;
Targeted Tax Cuts for Retirement Savings, Child Care, and Long Term Care
Retirement Savings: Devote 12% of the surplus to USA Accounts, enabling working
families to save for their own retirement in private accounts.
Child Care: Provide greater tax relief for working families who pay child care expenses
in order to work, tax credit credits to businesses that provide child care services, and tax
credits for stay at home parents.
Long Term Care: Provide $1,000 tax credits to families who provide care for elderly
and disabled family members; support caregivers; and provide long term care insurance
for federal employees.
Enable Families to Succeed at Home and at Work
Protecting Patients through a Strong, Enforceable Patients Bill of Rights: The
Patients' Bill of Rights should contain a range of protections, including guaranteed access
to needed specialists, access to emergency room services when and where the need arises,
access to a meaningful independent and external appeals process for consumers to resolve
differences with their health plans, and the right to be compensated when a health plan's
decision causes a patient to be harmed or die.
Continue to Expand Access to Quality, Affordable Health Care by enabling
Americans age 62-65 and displaced and retired workers ages 55 to 65 to buy into
Medicare if they lose coverage.
Ensure Opportunity for Americans with Disabilities by enabling workers with
disabilities to buy into Medicaid and Medicare a $1,000 tax credit and support for
assistive technologies.
Targeted Tax Cuts for Retirement Savings, Child Care, and Long Term Care
Child Care: Improve the accessibility and safety of child care through expansion of the
child care and development block grant to help working families meet costs and improve
quality by increased training and support services for care givers.
After School Care: increase after school care to enable 1.1 million children each year to
participate in after school and summer school programs by using public school facilities
and existing resources.
50,000 More Cops with 21st Century Tools
More Police on the Streets: The 21st Century Policing Initiative builds on the successful
COPS program by helping communities hire and redeploy up to 50,000 more law
enforcement officers over five years, with an effort to target new police officers to crime
"hot spots" and to help retain those officers recently hired.
Raise the Minimum Wage and Enforce Fair Pay
Raise the Minimum Wage: Recognize the value of work and support working families;
give millions of Americans a pay raise by increasing the minimum wage.
Ensure Equal Pay: Help guarantee equal pay for women and men by stronger
enforcement of equal pay laws, ending wage discrimination, and improving access to
wage information for all workers.
Protect the Environment and Improve Livability
Protect Our Environment and our families' safety by ensuring clean air, clean water,
and safe food; continue accelerated toxic waste clean up and make polluters pay; protect
our national parks and other great places.
Improve our Parks and Help Communities Improve Livability: Expand federal
efforts to save America's natural treasures. Provide new tools and resources to states and
local governments to help communities across America grow in ways that ensure a high
quality of life and preserve green space for future generations.
Crackdown on Crimes Against Seniors
Give Law Enforcement Officials Additional Tools to prosecute criminals who target
seniors, such as telemarketing fraud and health care, and strengthen penalties for criminal
behavior that harms seniors physically and financially.
Reduce Unnecessary and Illegal Medicare Costs by cracking down on fraud and abuse
in the Medicare system.
Privacy
Protect Individuals' most personal records by ensuring appropriate treatment for
medical records, affording notice and opportunity for consent to sharing of financial
information, and enhancing enforcement to prevent abuses.
THE WHITE HOUSE
WASHINGTON
March 15, 1999
TO:
Steve R., Gene S., Bruce R., Larry S., Elena K., Jack L., Dan M.
David B., Melanne Y Sarah B., Neera T., Janet M.
FROM:
Chris J. and Jeanne L.
RE:
BREAUX-THOMAS MEDICARE PLAN
Attached is the final Breaux-Thomas Medicare plan. They released it at a 5pm press conference.
Highlights of the plan include:
No specific plan for Medicare financing: The plan contains no options for raising new
revenue for Medicare specifically it does not include the President's proposal to
dedicate part of the surplus to Medicare. Instead, it states that once Medicare appears to
be close to becoming insolvent (using a new definition), Congress would be notified.
This would result in a Congressional debate on legislation to authorize any additional
funding.
No meaningful prescription drug benefit: The plan would require private managed care
plans, Medigap, and possibly Medicare fee-for-service to offer a drug benefit, but only
provides a subsidy for that coverage for people below 135 percent of poverty. This is
troubling because it moves Medicare towards a means-tested, Medicaid-like program, and
would probably result in large adverse selection in the unsubsidized Medicare fee-for-
service option.
Age eligibility increase without a viable insurance alternative: Although there is a
suggestion that vulnerable sick people ages 65 to 67 would get Medicare, the proposal
explicitly states that the Medicare buy-in would be unsubsidized and would not begin at
62 (which is truly conforming to Social Security). This plan would likely lead to an
increase in the uninsured.
No income-related premium: This was dropped since the last draft -- reportedly because
some Republicans considered it too similar to a tax (since it is administered through
Treasury).
There are probably other issues that we have not yet noticed; we will be working on a more
complete memo of the issues for the morning.
Please call or page with questions.
SUMMARY OF BREAUX/THOMAS PROPOSAL
Medicare Board:
The Board would provide information to beneficiaries, negotiate with plans, compute payments
to plans (including risk, geographic, and other adjustments), and compute beneficiaries premiums.
Board would approve plan service areas and benefit package designs.
Benefits Package:
The standard benefits package is specified in law and would consist of all services covered under
the existing Medicare statute. Plans could establish their own rules as to how the benefits would
be provided. Board approval would be required for all benefit design offerings and the Board
would allow variation only within a limited range as the risk adjusters were proven over time.
Prescription Drugs:
Private Plans
All private plans would be required to offer a high option that includes at least the standard
benefits package plus coverage for prescription drugs.
Low-Income
The proposal would immediately extend coverage of prescription drugs for beneficiaries under
135 percent of poverty ($10,568/individual) under Medicaid with full federal funding of the
additional cost. That coverage could be provided through high option plans when the premium
support system was implemented.
Fee-For-Service
The government-run FFS plan could offer a high option plan which includes prescription drugs.
The Medicare Board would approve the benefit package as it does for private plan offerings.
HCFA would work with third-party contractors to offer its high option plan. Government
contracts would be based on prices commonly available in the market, without recourse to price
controls or rebates.
Medigap
All Medigap plans would include basic coverage for prescription drugs. One plan would be
drug-only. Plans would vary regarding the degree Medicare coinsurance was covered.
Premium Formula Basics:
Beneficiaries would pay 12 percent of the premium for the standard benefits package on average,
pay no premium for plans less than about 85 percent of national weighted average, and pay all
of the additional premium for plan premiums above national weighted average. Only the cost of
standard benefits (Medicare covered services) would count toward the computation of the national
weighted average premium. Plans with only a high option would be required to separate out the
cost of extra benefits in their submission to the Board.
In areas where only the government-run fee-for-service plan operated, the beneficiary obligation
would be limited to the lower or 12 percent of the fee-for-service premium or 12 percent of the
national weighted average premium.
Fee-for-Service Benefits:
The government-run fee-for-service plan would have a $400 combined deductible, indexed to the
growth in Medicare costs. 10 percent coinsurance would be charged for home health, laboratory
services, and certain other services not currently subject to coinsurance. No coinsurance would
be charged for inpatient hospital stays and preventive care.
Special Payments:
Direct Medical Education (DME) would be carved out of Medicare. DME funding would
continue through either a mandatory entitlement or multi-year discretionary appropriation program
separate from Medicare. The proposal would also recommend exploring funding Indirect Medical
Education (IME) and other non-insurance subsidies outside of the Medicare program and
financing those items through a mandatory or multi-year discretionary appropriation program.
Any special payments remaining in Medicare would not be included in the calculation of
premiums for the government-run fee-for-service plan or private plans.
Retirement Age:
The normal age of eligibility would be gradually raised from 65 to 67 to conform with that of
Social Security. A non-subsidized buy-in would be available at age 65. Congress should develop
a special category of eligibility based on specific needs-based criteria (i.e. ADLs) for individuals
between 65 and the then-current eligibility age.
Long-Term Care:
Long-term care issues should be separated from Medicare (an acute care program), and long-term
care improvements should be made through pension, Social Security, and investment reforms.
The proposal would require a study of various long-term care issues.
Financing:
Part A and Part B trust funds should be combined into a single Medicare Trust Fund and a new
concept of solvency for Medicare should be developed. In any year in which the general fund
contributions are projected to exceed 40% of annual total Medicare outlays, Congress would be
required to authorize any additional contributions to the Medicare Trust Fund. This new test (40%
of outlays) would probably not be reached until after 2005. Even if general revenue contributions
were limited to 40% of program outlays, this proposal would extend solvency to 2013 (2017
under CBO's new baseline.)
Budgetary Impact:
Between 2000 and 2009, this proposal would save approximately $100 billion. Over the longer
term, the proposal would reduce the growth of Medicare spending by approximately 1 percent
a year. Although the savings would accumulate slowly over time, by 2030 the annual budgetary
savings would range from $500 to $700 billion.
SUMMARY OF BREAUX/THOMAS PROPOSAL
Medicare Board:
The Board would provide information to beneficiaries, negotiate with plans, compute payments
to plans (including risk, geographic, and other adjustments), and compute beneficiaries premiums.
Board would approve plan service areas and benefit package designs.
Benefits Package:
The standard benefits package is specified in law and would consist of all services covered under
the existing Medicare statute. Plans could establish their own rules as to how the benefits would
be provided. Board approval would be required for all benefit design offerings and the Board
would allow variation only within a limited range as the risk adjusters were proven over time.
Prescription Drugs:
Private Plans
All private plans would be required to offer a high option that includes at least the standard
benefits package plus coverage for prescription drugs.
Low-Income
The proposal would immediately extend coverage of prescription drugs for beneficiaries under
135 percent of poverty ($10,568/individual) under Medicaid with full federal funding of the
additional cost. That coverage could be provided through high option plans when the premium
support system was implemented.
Fee-For-Service
The government-run FFS plan could offer a high option plan which includes prescription drugs.
The Medicare Board would approve the benefit package as it does for private plan offerings.
HCFA would work with third-party contractors to offer its high option plan. Government
contracts would be based on prices commonly available in the market, without recourse to price
controls or rebates.
Medigap
All Medigap plans would include basic coverage for prescription drugs. One plan would be
drug-only. Plans would vary regarding the degree Medicare coinsurance was covered.
Premium Formula Basics:
Beneficiaries would pay 12 percent of the premium for the standard benefits package on average,
pay no premium for plans less than about 85 percent of national weighted average, and pay all
of the additional premium for plan premiums above national weighted average. Only the cost of
standard benefits (Medicare covered services) would count toward the computation of the national
weighted average premium. Plans with only a high option would be required to separate out the
cost of extra benefits in their submission to the Board.
In areas where only the government-run fee-for-service plan operated, the beneficiary obligation
would be limited to the lower or 12 percent of the fee-for-service premium or 12 percent of the
national weighted average premium.
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BUILDING A BETTER MEDICARE
FOR TODAY AND TOMORROW
I.
INTRODUCTION
This recommendation is in three parts:
the design of a premium support system,
improvements to the current Medicare program, and
financing and solvency of the Medicare program.
We believe it is important to address the current program now because of the transition time
necessary to implement this premium support system. We assume the enactment of this
proposal in 1999 and that the premium support system would be fully operational in 2003.
We believe a premium support system is necessary to enable Medicare beneficiaries to obtain
secure, dependable, comprehensive high quality health care coverage comparable to what most
workers have today. We believe modeling a system on the one Members of Congress use to
obtain health care coverage for themselves and their families is appropriate. This proposal, while
based on that system, is different in several important ways in order to better meet the unique
health care needs of seniors and individuals with disabilities. Our proposal would allow
beneficiaries to choose from among competing comprehensive health plans in a system based on
a blend of existing government protections and market-based competition. Unlike today's
Medicare program, our proposal ensures that low income seniors would have comprehensive
health care coverage.
Because the implementation of a premium support system will take a number of years, we
recommend immediate improvements to the current Medicare program. In Section II we outline
the incremental improvements to enhance the beneficiaries' security and quality of care now. We
recommend immediate federal funding of pharmaceutical coverage through Medicaid for seniors
up to 135% of poverty ($10,568 for an individual and $13,334 for a couple). This would also
expand beneficiary participation in currently available subsidies for premiums and cost-sharing.
In reviewing the three parts of this proposal, it is important to keep in mind the different
government roles in the premium support system and in current law. We believe the guarantee
our society makes to every senior is to ensure that they can obtain the highest quality health care,
and that their health care coverage not be allowed to fall behind that available to people in their
working years. We believe that our society's commitment to seniors, the Medicare entitlement,
can be made more secure only by focusing the government's powers on ensuring comprehensive
coverage at an affordable price rather than continuing the inefficiency, inequity, and inadequacy
of the current Medicare program.
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I.
PREMIUM SUPPORT SYSTEM TO PROVIDE COMPREHENSIVE
COVERAGE
The Medicare Board
A Medicare Board should be established to oversee and negotiate with private plans and the
government-run fee-for-service plan. Some examples of the Board's role are: direct and oversee
periodic open enrollment periods; provide comparative information to beneficiaries regarding the
plans in their areas; transmit information about beneficiaries' plan selections and corresponding
premium obligations to the Social Security Administration to permit premium collection as
occurs today with Medicare Part B premiums; enforce financial and quality standards; review and
approve benefit packages and service areas to ensure against the adverse selection that could be
created through benefit design, delineation of service areas or other techniques; negotiate
premiums with all health plans; and compute payments to plans (including risk and geographic
adjustment).
This Board would operate under a government charter that would describe its responsibilities and
operating standards including the ability to hire without regard to civil service requirements and
salary restrictions.
Ensuring Plan Performance and Dependability
All plans (private plans and the government-run FFS plan) would compete in the premium
support system; all plans would have Board-approved benefit designs and premiums. The Board
would ensure that the benefits provided under all plans are self-funded and self-sustaining,
determining whether plan premium submissions meet strict tests for actuarial soundness,
assessing the adequacy of reserves, and monitoring their performance capacity.
Management of Government-run Fee-for-service in Premium Support
The government plan would have to be self-funded and self-sustaining and meet the same
requirements applied to all private plans, including whether its premium submissions meet strict
tests for actuarial soundness, the adequacy of reserves, and performance capacity.
Cost containment measures would be necessary. The provisions of the Balanced Budget Act of
1997 should be extended, or comparable savings achieved. In any region where the price control
structure of the government run plan is not competitive, the government-run fee-for-service plan
could operate on the basis of contracts negotiated with local providers on price and performance,
just as is the case with private plans. The government plan would be run through contractors as
it is today; contractors in one region would be able to bid in other regions; the Board should have
powers to assure that the government-run plan would not distort local markets.
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Benefits Package
A standard benefits package would be specified in law. This benefits package would consist of
all services covered under the existing Medicare statute. Plans would be able to offer additional
benefits beyond the core package and plans would be able to vary cost sharing, including copay
and deductible levels, subject to Board approval. Benefits would be updated through the annual
negotiations process between plans and the Board, although the Board would not have the power
to expand the standard benefit package without Congressional approval. Health plans would
establish rules and procedures to assure delivery of benefits in a manner consistent with
prevailing private standards and procedures offered to employer groups and other major
purchasers.
The Medicare Board would approve benefit offerings and could allow variation within a limited
range, for example not more than 10% of the actuarial value of the standard package, provided
the Board was satisfied that the overall valuation of the package would be consistent with
statutory objectives and would not lead to adverse or unfavorable risk selection problems in the
Medicare market.
New benefit to be instituted in the premium support system: Outpatient prescription
drug coverage and stop-loss protection
In Private Plans:
Private plans would be required to offer a high option that includes at least
Medicare covered services plus coverage for outpatient prescription drugs and
stop-loss protection. Plans would be able to vary copay and deductible structures.
Minimum drug benefits for high option plans would be based on an actuarial
valuation. High option and standard option plans each would be required to be
self-funded and self-sustaining.
In Government-run Fee-For-Service Plan:
The government-run fee-for-service plan would be required to offer high option
(including outpatient prescription drugs and stop-loss) in addition to standard
option plans. The Medicare Board approval process would be the same as for
private plans. High option and standard option plans would be required to be
separately self-funded and self-sustaining. Government contracts would be based
on prices commonly available in the market, without recourse to price controls or
rebates.
Comprehensive coverage for low-income beneficiaries:
Coverage would be provided through high option plans. The federal government
would pay 100% of the premiums of the high option plans at or below 85% of the
national weighted average premium of all high option plans for all eligible
individuals up to 135% of poverty ($10,568 for an individual and $13,334 for a
couple) on a fully federally funded basis. This financial support does not limit
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these beneficiaries' choice of plans nor restrict plans' design with regard to cost-
sharing or other flexibility authorized by the Board. State would maintain their
current level of effort, but the federal government would pay 100% of additional
costs for these individuals. In this context, Congress should review DSH
payments to ensure that double payments do not occur.
Premium Formula Basics
On average, beneficiaries would be expected to pay 12 percent of the total cost of standard
option plans. For plans that cost at or less than 85 percent of the national weighted average plan
price, there would be no beneficiary premium. For plans with prices above the national weighted
average, beneficiaries' premiums would include all costs above the national weighted average.
Only the cost of the standard package would count toward the computation of the national
weighted average premium. Plans with a high option, whether private plans or government-run,
would separately identify the incremental costs of benefits beyond the standard package in their
submissions to the Board, and the government contribution would be calculated without regard to
the costs of these additional benefits.
Premium for government-run fee-for-service plans
The government-run fee-for-service plan would be treated the same as private plans.
Government-run plan premium excludes costs of special subsidies in
premium calculation
All non-insurance functions and special payments now in Medicare would not be
included in calculation of premiums for the government-run FFS plan or private plans.
Guaranteed premium levels where competition develops more slowly
In areas where no competition to the government-run fee-for-service plan exists,
beneficiaries' obligations would be no greater than 12 percent of the FFS premium or the
national weighted average, whichever is lower. The Medicare Board should periodically
review those areas with a fixed percentage premium to ensure that the fixed percentage
premium is not anti-competitive.
Medicare's Special Payments in a Premium Support System
Congress should examine all non-insurance functions, special payments and subsidies to
determine whether they should be funded through the Trust fund or from another source. For
example, payments for Direct Medical Education (DME) would be financed and distributed
independent of a Medicare premium support system. Since the Part A and Part B trust funds
would be combined and the traditionally separate funding sources of payroll taxes and general
revenues would be blurred, Congress should provide a separate mechanism for continued funding
through either a mandatory entitlement or multi-year discretionary appropriation program. On the
other hand, Indirect Medical Education (IME) presents a unique problem since it is difficult to
identify the actual statistical difference in costs between teaching and non-teaching hospitals.
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Therefore, for now Congress should continue to fund IME from the Trust Fund as an adjustment
to hospital payments.
II.
IMMEDIATE IMPROVEMENTS TO THE CURRENT MEDICARE PROGRAM
AND OTHER ASPECTS OF SENIORS HEALTH CARE SPENDING
Provide Outpatient Prescription Drug Coverage for 3 million more low-income
beneficiaries
Immediately provide federal funding for coverage of prescription drugs under Medicaid for
beneficiaries up to 135 percent of poverty ($10,568 for an individual and $13,334 for a couple).
This would also expand beneficiary participation in currently available subsidies for premiums
and cost-sharing. All funding obligations related to the coverage under this provision would be
federal.
Improve access to outpatient prescription drug coverage for seniors
Revise federal directives to National Association of Insurance Commissioners (NAIC) to
develop new Medigap state model legislation immediately. All private supplemental plans
would include basic coverage for prescription drugs. One plan would be a prescription drug-only
plan.
Combine Parts A and B
Health care delivery changes have blurred the distinctions originally contemplated when Parts A
and B of Medicare were enacted. Parts A and B should be combined in a single Medicare Trust
Fund. (See Section III on Financing and Solvency.)
Lower deductible for 8 million beneficiaries
The current Medicare program subjects beneficiaries entering the hospital to extremely
high costs just at a time when they face the many other expenses associated with serious
illness. Virtually no private health plan imposes such costs. We propose to combine the
current Part A ($768) deductible and B ($100) deductible, and replace it with a single
deductible of $400, which should be indexed to growth in Medicare costs.
Improve utilization of health care services
A fee-for-service plan is best maintained by financial incentives, without which costs
spiral out of control or freedom of choice must be restricted. To protect against
unnecessary rises in beneficiary Part B premiums, 10% coinsurance would be established
for all services except inpatient hospital stay and preventive care, and except where
higher copays exist under current law.
Revise federal directives to NAIC to develop new state model legislation to conform to
the changes proposed for Medicare cost-sharing. These directives should also be
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designed to achieve more affordable and more efficient supplemental insurance and to
minimize Medicare outlays. The new single Medicare deductible and coinsurance
schedule would be insurable in part or in whole.
Eligibility Age
Medicare eligibility age should be conformed to that of Social Security. A non-subsidized buy-
in should be available at age 65. In addition, Congress should develop a special category of
eligibility based on specific needs-based criteria, for example selected activities of daily living,
for individuals between age 65 and then-current eligibility age.
III.
FINANCING AND SOLVENCY
The changes proposed in this document are intended to put Medicare on surer financial footing
by creating savings due to competition, efficiency and other factors, and by slowing the growth in
Medicare spending. In addition, these reforms would result in Medicare offering a benefit
package that is more comparable to health care benefits offered in the private sector and would
enhance our ability to meet our commitment to today's and future beneficiaries. Without these
changes, quality of care could suffer, and significantly greater revenues and/or beneficiary
sacrifices would be required. Beneficiaries and the taxpayers would not receive the greatest value
for the total health dollars spent on seniors' behalf.
Medicare's financing needs would be dictated by the Medicare growth rate achieved under the
premium support system. By moving to a premium support system, Medicare's growth rate
would be reduced by 1 to 1.5 percentage points per year from the current long-term annual
growth rate of 7.6 percent (Trustees Intermediate) or 8.6 (Commission's No Slowdown
Baseline.) If this reduction in growth rate can be achieved, the fiscal integrity and Medicare
would be significantly improved.
Even if the estimated reduction in growth rate is achieved, Medicare will require additional
resources as the percent of population that is eligible for Medicare increases. As revenue is
needed, how much should be funded through the payroll tax, through general revenue, and
through beneficiary premiums?
The answer to this question is difficult because it would require knowing today the health care
system of the future. We do not know what the future holds in terms of the evolution of the
health care delivery system, or the impact that technology will have on health care costs.
At the Commission's first meeting, Federal Reserve Chairman Alan Greenspan said that "the
trajectory of health spending in coming years will depend importantly on the course of
technology which has been a key driver of per-person health costs" Yet he went on to underscore
what could be the absurdity of attempting now to determine funding levels necessary decades
into the future "technology cuts both ways with respect to both saving medical expenditures and
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potentially expanding the possibilities in such a manner that even though unit costs may be
falling, the absolute dollar amounts could be expanding at a very rapid pace. One of the major
problems that everyone has had with technology--and I could allude to all sorts of, forecasts over
the most recent generations--one of the largest difficulties is in forecasting the pattern of
technology. It is an extremely difficult activity."
Notwithstanding the magnitude of uncertainty contained in the task, the statute establishing the
Commission directed us to recommend measures to attain the long-term "solvency" of the
Medicare program. Because of recent history the meaning of "solvency" has come under
question. We believe a new measure of solvency must be developed that couples the uncertainty
inherent in the task with the real need for the public to evaluate the cost of Medicare and how we
should choose to fund this program over time.
The solvency test that has been applied to Social Security is not an apt model for Medicare.
Social Security Trust Funds are funded exclusively through payroll taxes; Medicare is paid for by
a combination of payroll taxes, general revenue and beneficiary premiums. These ratios have
changed over time such that a greater portion of program expenses is now paid by general
revenues and a relatively smaller portion is paid by payroll taxes and beneficiary premiums.
In addition, the payroll tax supporting the OASDI Trust Funds is limited both by its rate and the
wage base on which that rate is applied. No portion of Medicare's funding contains these
limitations. In Medicare, there is no cap on the wage base; the Part A Trust Fund is funded by a
payroll tax of 2.9% on all earnings, and pays only for the Part A benefits of Medicare.
Medicare's Part B benefits are paid 75% by general revenues and 25% by beneficiaries.
Consequently, the historic concept of Medicare's solvency is one that has been partially and
inappropriately borrowed from Social Security and has never fully reflected the fiscal integrity,
or lack thereof, of the Medicare program. In Medicare, "solvency" has meant only whether the
Part A Trust Fund outlays were poised to exceed Part A reserves and collections. That is all.
Recently even this partial proof of fiscal integrity has been shattered. The notion of Part A
"solvency" or rather "insolvency" has been used to shift more program costs to the general fund.
An act of Congress shifted major home health expenditures from Part A to Part B in 1997, thus
extending the fiction of the Part A Trust Fund "solvency" from 2002 through 2008 by shifting
obligations to the general fund. The general fund, in great part, became the source of Part A
"solvency".
The ever increasing estimates of general fund exposure should be part of any definition of
solvency. Absent reform, general fund exposure jumps from 37% of program funding in FY2000
to 43% in FY2005 and 49% in FY2010. General fund demand will increase from $92 billion in
FY2000 to $156 billion in FY2005 to $261 billion in FY2010.
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Consequently, the "solvency" of the Part A Trust Fund is not useful as a guide to policy making
or even as a tool to educate the public on the security and financial condition of the Medicare
program.
Therefore, Part A and Part B Trust Funds should be combined into a single Medicare Trust Fund
and a new concept of solvency for Medicare should be developed. This concept should more
accurately reflect the implications of the program's financing structure, i.e., the ratio of relative
financing burdens on the general fund, the Hospital Insurance payroll tax, and the premiums
beneficiaries pay. Because beneficiary premiums and the payroll tax rate can only be amended
by law, and have proved very difficult to modify over time, the only meaningful solvency test of
this entitlement program is one based on the amount of general revenues needed to fund program
outlays. This could be referred to as a programmatic solvency test.
Congress should enact this revised definition of Medicare solvency so that decisions can be
made in the context of competing demands for general revenue. Congress should require the
Trustees to publish annual projections regarding the ratio in program financing. In any year in
which the general fund contributions are projected to exceed 40% of annual total Medicare
program outlays, the Trustees would be required to notify the Congress that the Medicare
program is in danger of becoming programmatically insolvent. The Trustees Report should
provide for necessary and important public debate leading to potential adjustments to the payroll
tax and/or the beneficiary premium as well as any adjustment of the general fund devoted to
Medicare. Congressional approval would be required to authorize any additional contributions to
the Medicare Trust Fund.
With the reforms contemplated under this proposal, that new test would probably not activated
until after 2005. Even if we limit general revenue contributions to 40% of program outlays,
however, this proposal would extend the solvency of Medicare to 2013. This calculation, based
on the most recent CBO baseline, would indicate that solvency under this test would extend to
2017 or beyond.
Long-term care
The Commission recognizes that its proposal is focused on acute care, and does not address the
issue of long-term care. In 1995, Americans spent an estimated $91 billion on long-term care,
with 60 percent coming from public sources. Despite these large public expenditures, the elderly
face significant uncovered liabilities. The Commission recommends that the Institute of
Medicine conduct a study to 1) estimate future demands for long-term care; and 2) analyze the
long-term care financing options available to seniors, including long-term care insurance, tax
policy and community-based, state and federal government programs.
To: Medicare Commission
3/14/99
From: Jeff Lemieux
Subject: Cost estimate of March 14 proposal
The attached estimate is based on the proposal specified below. The estimate is displayed in annual
figures for the 10-year budget window used in the Senate (and slightly beyond). Long-term tables
developed by the Modeling Task Force, which display the impact of the proposal using several
different measures, are also included. In addition, a simulation of a combined trust fund is attached.
The explanation of the basis of the estimate is limited to new items in the proposal. The February 17
estimate of the original Breaux proposal contains a general explanation of the premium support plan.
Since the current proposal is similar to the nontraditional estimate on February 17, simulations of the
impact on beneficiary premiums from that estimate continue to apply.
DESCRIPTION OF THE PROPOSAL
Medicare Board:
The Board would provide information to beneficiaries, negotiate with plans, compute payments to plans
(including risk, geographic, and other adjustments), and compute beneficiaries' premiums (collected via
Social Security system as with Part B premiums now). Board approval would be required for plan
service areas and benefit package designs.
Benefits:
The standard benefits package specified in law would consist of all services covered under the existing
Medicare statute (Medicare covered services). Plans could establish their own rules as to how the
benefits would be provided. Board approval would be required for all benefit design offerings and the
Board would allow variation only within a limited range as the risk adjusters were proven over time.
Prescription Drugs:
Private Plans
All private plans would be required to offer a high option that included at least the standard benefits
package plus coverage for prescription drugs. The minimum drug benefit for high option plans would
be based on an actuarial valuation, with standards and examples set by the Board.
Low-Income
The proposal would immediately extend coverage of prescription drugs to qualifying beneficiaries under
135 percent of poverty under Medicaid with full federal funding of the additional cost. That coverage
could be provided through high option plans when the premium support system was implemented. (A
special premium support schedule could be used to combine premium and drug subsidies for low-
income beneficiaries.)
Fee-For-Service
The Health Care Financing Administration (HCFA) would be allowed to contract with or enter joint
marketing arrangements with private insurers offering prescription drug benefits. That would allow a
public/private high option plan or plans, with HCFA providing coverage for Medicare covered services
and its private partner(s) providing coverage for drugs. HCFA's share of the premium in a
public/private high option plan would simply be the premium for its standard option plan. In the longer
run, HCFA would be allowed to transition the government-run fee-for-service plan to a more private-
managed basis overall, possibly with different alternatives available regionally.
Medigap
The National Association of Insurance Commissioners would develop new model plans immediately
under a federal directive. All plans would include basic coverage for prescription drugs. One plan
would be drug-only. Plans would vary regarding the degree Medicare coinsurance was covered.
Premium Formula Basics:
Beneficiaries would pay 12 percent of the premium for the standard benefits package on average, pay
no premium for plans less than about 85 percent of national weighted average, and pay all of the
additional premium for plan premiums above national weighted average. (An example of this type of
premium schedule was included in the estimate from February 17.)
Although all plans would be available on the national premium schedule, only the cost of standard
benefits (Medicare covered services) would count toward the computation of the national weighted
average premium. Plans with only a high option would be required to separate out the cost of extra
benefits in their submission to the Board for that purpose.
If early versions of the risk adjuster would otherwise fail to prevent excessive premium differences
between high and standard option plans, the Board's actuaries could require that differences in
premiums reflect the difference in value of benefits offered for private plans with multiple benefit
options.
In areas where only the government-run fee-for-service plan operated, the beneficiary obligation would
be limited to the lower of 12 percent of the fee-for-service premium or 12 percent of the national
weighted average premium.
Fee-for-Service Benefits:
The government-run fee-for-service plan would have a $400 combined deductible, indexed to the
growth in Medicare costs. Ten percent coinsurance would be charged for home health, laboratory
services, and certain other services not currently subject to coinsurance. No coinsurance would be
charged for inpatient hospital stays and preventive care.
Management of the Government-Run Fee-for-Service Plan:
All plans, private plans and the government-run fee-for-service plan, would compete in the premium
support system; all plans would have premiums and would be available on the national schedule. The
fee-for-service plan would have a premium like any other plan-it would adjust its premium in
subsequent years based on its cost experience.
The proposal recommends that efforts to contain costs in the fee-for-service plan continue. Toward
that end, HCFA would be allowed to pursue competitive purchasing strategies in areas where its
payments were not appropriate. The estimate assumes that the growth of fee-for-service spending
would be moderated somewhat by a combination of HCFA and Congressional efforts. Without some
such ongoing savings, the fee-for-service plan could gradually lose its competitive position with private
plans.
Special Payments (Education, Disproportionate Share, Rural Subsidies):
Under the proposal, federal support for Direct Medical Education (DME) would be carved out of
Medicare. DME funding would continue through either a mandatory entitlement or multi-year
discretionary appropriation program separate from Medicare. Depending on the nature of the
replacement program for DME, the federal budget as a whole might not be affected by the carve-out.
The proposal would also recommend exploring funding disproportionate share hospitals (DSH) and
Indirect Medical Education (IME) outside of the Medicare program and financing those items through a
mandatory or multi-year discretionary appropriation program.
Any special payments remaining in Medicare would not be included in premiums for the government-
run fee-for-service plan or private plans.
Retirement Age:
The normal age of eligibility would be gradually raised from 65 to 67 to conform with that of Social
Security. Congress would develop an exemption process for affected beneficiaries with special needs,
such as those unable to work and otherwise get health coverage. Eligibility requirements under that
exemption process would not necessarily be the same as the requirements for eligibility based on
disability for those under 65, although the waiting period for eligibility based on disability could also be
waived or shortened for those affected by the change.
Long-Term Care:
The proposal indicates that long-term care issues should be separated from Medicare (an acute care
program). The proposal would require a study of various long-term care issues. The cost estimate
does not include any impact on the budget from long-term care items.
Financing:
The proposal would implement a combined trust fund, with guaranteed general revenue funding to grow
at the same rate as overall program costs if it otherwise would exceed 40 percent of the program's cost
(without further Congressional approval). The initial balance in the combined fund would equal the
balance in the Part A and Part B funds at the time of enactment.
BUDGETARY IMPACT
Table 1 lays out the estimate in the style of an annual Congressional cost estimate. The savings
attributed to the individual policies result from a top-down ordering of the estimate. Premium support
was estimated first, in the absence of any other policies. Then the subsequent policies were added one
by one-the savings represent the incremental impact of that policy on Medicare spending. Because
Medicare spending would be reduced compared with current law, premium collections from
beneficiaries would be reduced as well. That is why the impact of the proposal on premiums is
displayed as a cost item in the table-lower government premium collections reduce the budget surplus
(or increase the deficit).
Excluding the optional items, the proposal would be approximately budget neutral in the 5-year budget
window between 2000 and 2004. That is because the new assistance for low-income beneficiaries
would begin immediately, while the savings provisions would not be implemented until 2003. Over the
10 years between 2000 and 2009, the proposal would save approximately $100 billion.
Tables 2-6 show the detailed cost estimate of the March 14 plan in the format developed by the
Modeling Task Force. That format was designed to gauge the impact of proposals using many different
measures. Because the Part A trust fund would be replaced by a combined fund, tables 2-6 do not
show results for the Part A fund under the proposal. Over the longer term, the proposal would reduce
the growth of Medicare spending by approximately 1 percent a year. Although the savings would
accumulate slowly over time, by 2030 the annual budgetary savings would range from $500 to $700
billion.
Table 7 shows the projected impact of a combined trust fund under the proposal, with general revenue
funding growing at the same rate as program costs overall. As noted in the February 17 estimate, the
growth of Medicare spending slowed significantly in 1998, and will probably remain slow in 1999.
Reasons for the slowdown include payment restraints enacted in the Balanced Budget Act of 1997 and
efforts to ensure compliance with billing rules spurred by enactment of the Health Insurance Portability
and Accessibility Act of 1996 and other laws.
Although those changes will reduce the projected path of Medicare spending in the next few years, they
are not likely to slow the long-run growth of spending in the program. Therefore, the 30-year baselines
used by the Commission remain appropriate. Because of interest payments, however, trust fund
calculations can be greatly affected by short-run changes in spending or revenues. Estimates of the
expected life of the Part A fund under current law will probably be extended from 2008 or 2009 to
2012 or 2013 by CBO and HCFA in the coming months. To be consistent with the latest estimates,
the insolvency date of the combined trust fund in Table 7 should be extended by 3 or 4 years as well, to
2016 or 2017.
BASIS OF THE ESTIMATE AND DISCUSSION
Premium Support
The basic estimate of the premium support plan is largely unchanged from the February 17 estimate.
Tying the national average to the cost of Medicare covered services reduces transition costs by a small
amount, increasing slightly the savings attributed to premium support. The provision protecting
beneficiaries in areas with only one plan from paying more than 12 percent of the cost of that plan or
the national weighted average would add slightly to the cost of the proposal.
Requiring all plans to offer a high option plan and allowing the Board to maintain an appropriate price
difference between plans' high and standard options until the risk adjuster was proven over time greatly
reduces concerns about adverse selection in high option plans.
Low-Income Subsidies
Currently, state Medicaid programs cover drugs for only so-called dually-eligible Medicare
beneficiaries, often limiting such coverage to those well under the poverty line. Medicaid covers
Medicare premiums and cost sharing for those between the limit of Medicaid dual eligibility and the
poverty line. Between 100 and 135 percent of poverty, Medicaid covers Medicare premiums only.
The cost of such Medicaid coverage under current law is split between the states and the federal
government. About 50 percent of beneficiaries between the limit of dual eligibility and the poverty line
participate in premium and cost sharing subsidies; about 20 percent of beneficiaries between 100 and
135 percent of poverty participate.
This estimate assumes that the federal government would pay 100 percent of the cost of extending drug
coverage to qualifying beneficiaries under 135 percent of poverty via the Medicaid program. (States
would continue to be responsible for their share of the cost of drug coverage for dually-eligible
beneficiaries.) In addition, the federal government would make grants to the states in amounts set to
cover 100 percent of the cost of the extra participation in the current assistance programs (for
premiums and cost sharing) that the new drug coverage would cause. The estimate assumes that the
participation rate for those under 135 percent of poverty, but not dually eligible, would be 60 percent.
Thus the federal government would effectively cover the cost of expanding participation for those not
dually eligible but under poverty from 50 to 60 percent, and from 20 to 60 percent for those between
100 and 135 percent of poverty.
Management of the Fee-for-Service Plan
In the short run, the proposal would allow the government-run fee-for-service plan to partner with
private plans to offer drug benefits under one high option premium. The estimate assumes that such
partnerships would not involve HCFA regulation of that industry.
The estimate assumes that a combination of HCFA and Congressional initiatives would slow the growth
of spending in the fee-for-service program somewhat. That slowdown was explained in the description
of the nontraditional estimate of February 17. The estimated impact of the specified cost sharing
changes in the fee-for-service plan is shown separately.
Financing
The Part A fund covers only part of Medicare spending, and an act of Congress recently aided the fund
simply by transferring a portion of its spending out of Part A into Part B (which is funded mostly by
general revenues). Current budget proposals would transfer additional funds from the general Treasury
to the Part A fund in order to postpone its insolvency date. Because the Part A fund never covered all
of Medicare, and because of the recent and proposed transfers of obligations and funds, the Part A
fund no longer adequately summarizes the financial condition of the Medicare program. A combined
fund could make it more clear who pays for Medicare and would allow a more transparent discussion
of how to aid Medicare's finances.
Table 1. March 14 Proposal
(by calendar year)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
00-04
00-09
Cost (+) or Savings (-) in Billions of Dollars
0
-2
-4
-6
-9
-11
-15
-19
-23
-29
-35
-42
-5
-65
Premium Support
0
0
Drug Coverage up to 135 Percent of Poverty 11
2
2
2
3
3
3
3
4
4
5
5
6
6
7
12
31
Extra Participation in Current Low-Inc. Programs 12
2
2
2
3
3
3
3
4
4
4
4
5
5
5
12
30
Cost sharing Changes and Medigap
0
0
0
-1
-2
-3
-3
-4
-5
-5
-6
-7
do
do
-4
-24
-5
-5
-5
-5
6
9
-6
-7
-7
-7
-9
-36
Removal of DME 13
0
0
0
-4
Age of Eligibility
0
0
0
-1
-1
-1
-1
-2
-2
-3
-4
-4
-5
-5
-1
-11
Slowdown of Growth in Govt FFS plan 14
0
0
0
-1
-2
-4
-5
-7
-9
-10
-12
-14
-17
-19
-4
-39
Premiums
0
0
0
-2
-1
0
1
2
4
5
7
9
11
13
-4
9
Limit Enrollee Share to 12% in Areas Where
There is no Alternative to the FFS Plan
0
0
0
0
0
0
0
0
1
1
1
1
1
1
0
3
Total
4
4
5
-6
is
-11
-16
-20
-24
-29
-34
-41
-48
-55
-1
-102
Average Monthly Premium:
Government-run FFS plan
$76
$80
$84
$89
$93
$98
$103
$108
$114
$119
$125
Government-run plan in no alternative areas
$75
$79
$84
$88
$92
$96
$101
$106
$111
$116
$120
Private plans
$75
$79
$82
$86
$90
$93
$97
$102
$106
$110
$114
Average of all plans
$75
$79
$84
$88
$92
$96
$101
$106
$111
$116
$120
Monthly Part B Premium under Current Law
$71
$77
$84
$91
$98
$106
$115
$123
$132
$141
$151
Source: Medicare Commission Staff.
Notes: Stacking order is from top to bottom. Except for premium interaction, can peel off from bottom to top without affecting other items.
Estimate assumes enactment in 1999, with implementation of the premium support system and most other policies in 2003.
The estimate assumes that 30% of beneficiaries were in areas where FFS was the only alternative in 2003.
Over time, that percentage would gradually fall; if national private plans developed, it would fall to zero.
In this time period, the results are approximately the same using either of the Commission's baselines.
The premium support schedule is calibrated to Medicare spending after the home health transfer is fully phased in (2006).
\1 Assumes 100% federal funding with a state maintenance of effort for dually-eligible beneficiaries. Participation rate assumed to be about 60 percent.
\2 Assumes 100% federal funding for the cost of expanded participation in current assistance (premiums and cost sharing).
13 Savings to Medicare, but not necessarily to the overall budget.
\4 Follows the method of the nontraditional estimate of Feb. 17, which assumed that the fee-for-service plan would compete to some extent.
Table 2.
March 14 Proposal
DRAFT
14-Mar-99
Medicare
Medicare
Medicare as
Medicare
Part A or
Premiums as
Budgetary
Spending
Spending as
a Percent of
Spending
Combined
a Percent of
Costs (+) or
Growth
a Percent of
Federal
(in billions of
Fund
Beneficiaries'
Savings (-)
Rate, 2000-
GDP /1/2
Revenues
dollars) /3
Insolvency /4
Income
(in billions) /5
2015
2030
2015
2030
2015
2030
2015
2030
2015
2030
2015
2030
Baselines
Trustees Intermediate
8.2%
7.6%
4.4%
6.3%
19%
28%
801
2,212
2008
7%
7%
0
0
No Slowdown
8.3%
8.6%
4.5%
8.5%
19%
38%
817
2,972
2008
7%
10%
0
0
Viability Standard Based on Spending
Slow Growth of Per Beneficiary Spending to that of Per Capita GDP
Trustees Intermediate
6.0%
6.2%
3.2%
4.3%
14%
19%
591
1,501
~2028
5%
5%
-182
-615
No Slowdown
6.0%
6.2%
3.2%
4.3%
14%
19%
591
1,501
~2028
5%
5%
-195
-1272
Preliminary Estimate
March 14 Proposal
Trustees Intermediate
6.9%
6.4%
3.7%
4.5%
16%
20%
676
1,596
~2013
5%
5%
-99
-514
No Slowdown
7.1%
7.4%
3.8%
5.9%
17%
27%
688
2,087
~2013
5%
6%
-101
-740
Policy:
The Part B premium and the Medicare+Choice system for private plans would be replaced by a premium support
with standard and high options under formula that allowed zero-premium plans. Normal age of eligibility
would be gradually increased, but waiting period for eligibility for disabled would be waived or reduced for those
affected. Low-income subsidies expanded with drug coverage for qualifying beneficiaries under 135 percent of poverty
Benefits package change would include coinsurance for home health and lab services with combined
deductible (indexed to program costs). Direct education carved out. HCFA can organize public/private fee-for-service
plan, with standard and high option. Premium formula anchored to standard option/Medicare covered services.
SOURCE: Medicare Commission Staff.
1. In 2000, Medicare spending will be 3 percent of GDP and 12 percent of the federal budget (revenues). Total projected Medicare spending will be $247 billion in 2000.
2. Payroll is approximately half of GDP. For example, in 2015 under the Trustees Intermediate baseline, Medicare spending would be 9.0 percent of payroll.
3. All spending estimates after Part A fund insolvency are hypothetical.
4. Updated estimates from HCFA and CBO will probably extend insolvency date by 3 or 4 years under current law. This cost estimate does not include that update.
5. Medicare cost or savings in the year shown.
Table 3.
DRAFT
14-Mar
Medicare Spending: March 14 Proposal (Current Law Baseline = Trustees Intermediate)
(by selected calendar year)
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Medicare Spending as a Percent of GDP
Trustees Intermediate Baseline
0.7
1.0
1.3
1.7
1.9
2.5
2.7
3.1
3.7
4.4
5.0
5.7
6.3
March 14 Proposal
0.7
1.0
1.3
1.7
1.9
2.5
2.7
3.0
3.3
3.7
4.0
4.3
4.5
Medicare Spending as a Percent of Payroll \1
Trustees Intermediate Baseline
1
2
3
4
4
5
6
6
8
9
10
12
13
March 14 Proposal
1
2
3
4
4
5
6
6
7
8
8
9
9
Medicare Spending as a Percent of the Federal Budget \2
Trustees Intermediate Baseline
3
5
6
8
9
11
12
14
16
19
22
25
28
March 14 Proposal
3
5
6
8
9
11
12
13
14
16
18
19
20
Medicare Spending in Billions of Dollars
Trustees Intermediate Baseline
7
15
36
70
108
180
247
363
536
801
1,148
1,611
2,212
March 14 Proposal
7
15
36
70
108
180
247
341
476
676
922
1,217
1,596
Average Annual Growth in Spending from Previous Year Shown
Trustees Intermediate Baseline
16.7
18.1
14.5
9.0
10.8
6.5
8.0
8.1
8.4
7.5
7.0
6.6
March 14 Proposal
16.7
18.1
14.5
9.0
10.8
6.5
6.7
6.9
7.2
6.4
5.7
5.6
Average Annual Growth in Spending Above the Impact of Demographics (from Previous Year Shown)
Trustees Intermediate Baseline
8.2
14.7
11.8
6.8
8.5
4.8
6.4
6.3
6.0
4.9
4.3
4.2
8.2
14.7
11.8
6.8
8.5
4.8
5.1
5.1
4.9
3.8
3.0
3.2
March 14 Proposal
Memorandum: Monthly Part B Premium (as a percent of enrollees' average income) 13
3
4
5
6
7
7
7
7
Trustees Intermediate Baseline
3
4
5
5
5
5
5
5
March 14 Proposal
Source: Medicare Commission Staff.
Note: Trustees Intermediate scenario based on Congressional Budget Office (January 1998), using Trustees' Intermediate (1997) assumptions.
1. Total Medicare spending as a percent of wage and salary disbursements. Under current law, Part A of Medicare is funded by a 2.9 percent payroll tax.
2. Medicare spending net of premiums as a percent of federal receipts.
3. Assumes enrollees average income rises at the same rate as percapita GDP.
Table 4.
DRAFT
14-Mar
Medicare Spending: March 14 Proposal (Current Law Baseline = No Slowdown)
(by selected calendar year)
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Medicare Spending as a Percent of GDP
No Slowdown Baseline
0.7
1.0
1.3
1.7
1.9
2.5
2.7
3.1
3.7
4.5
5.5
6.9
8.5
March 14 Proposal
0.7
1.0
1.3
1.7
1.9
2.5
2.7
3.0
3.3
3.8
4.4
5.1
5.9
Medicare Spending as a Percent of Payroll \1
No Slowdown Baseline
1
2
3
4
4
5
6
6
8
9
11
14
17
March 14 Proposal
1
2
3
4
4
5
6
6
7
8
9
10
12
Medicare Spending as a Percent of the Federal Budget 12
No Slowdown Baseline
3
5
6
8
9
11
12
14
16
19
24
30
38
March 14 Proposal
3
5
6
8
9
11
12
13
14
17
19
23
27
Medicare Spending in Billions of Dollars
No Slowdown Baseline
7
15
36
70
108
180
247
363
537
817
1,258
1,949
2,972
March 14 Proposal
7
15
36
70
108
180
247
341
477
688
1,002
1,448
2,087
Average Annual Growth in Spending from Previous Year Shown
No Slowdown Baseline
16.7
18.1
14.5
9.0
10.8
6.5
8.0
8.2
8.7
9.0
9.2
8.8
16.7
18.1
14.5
9.0
10.8
6.5
6.7
6.9
7.6
7.8
7.6
7.6
March 14 Proposal
Average Annual Growth in Spending Above the Impact of Demographics (from Previous Year Shown)
No Slowdown Baseline
8.2
14.7
11.8
6.8
8.5
4.8
6.4
6.4
6.4
6.4
6.4
6.4
8.2
14.7
11.8
6.8
8.5
4.8
5.1
5.1
5.3
5.2
4.9
5.2
March 14 Proposal
Memorandum: Monthly Part B Premium (as a percent of enrollees' average income) 13
3
4
5
6
7
8
9
10
No Slowdown Baseline
3
4
5
5
5
6
6
6
March 14 Proposal
Source: Medicare Commission Staff.
Note: No Slowdown scenario created as an illustration by Commission staff. It assumes a constant rate of growth in Medicare
spending above the impact of demographics. That rate of growth is roughly consistent with Medicare's spending performance over the last decade.
1. Total Medicare spending as a percent of wage and salary disbursements. Under current law, Part A of Medicare is funded by a 2.9 percent payroll tax.
2. Medicare spending net of premiums as a percent of federal receipts.
3. Assumes enrollees average income rises at the same rate as percapita GDP.
Table 5.
DRAFT
14-Mar
Medicare Financing: March 14 Proposal (Current Law Baseline = Trustees Intermediate)
(by selected calendar year)
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Billions of Dollars
Trustees Intermediate Baseline
Medicare Premiums
1
2
2
3
8
17
25
43
69
110
156
217
299
Payroll Taxes
5
12
24
48
72
98
130
164
206
259
324
401
497
General Revenue or Other Funding Needed
1
2
10
19
28
65
92
156
261
432
668
992
1,416
Total, Medicare Spending
7
15
36
70
108
180
247
363
536
801
1,148
1,611
2,212
March 14 Proposal
Medicare Premiums
1
2
2
3
8
17
25
43
59
84
114
150
196
Payroll Taxes
5
12
24
48
72
98
130
164
206
259
324
401
497
General Revenue or Other Funding Needed
1
2
10
19
28
65
92
135
211
333
484
666
902
Total, Medicare Spending
7
15
36
70
108
180
247
341
476
676
922
1,217
1,596
Percent Distribution
Trustees Intermediate Baseline
Medicare Premiums
12
12
5
5
8
9
10
12
13
14
14
13
13
Payroll Taxes
68
74
66
68
67
55
53
45
38
32
28
25
22
General Revenue or Other Funding Needed
20
14
29
28
26
36
37
43
49
54
58
62
64
Total, Medicare Spending
100
100
100
100
100
100
100
100
100
100
100
100
100
March 14 Proposal
Medicare Premiums
12
12
5
5
8
9
10
12
12
12
12
12
12
Payroll Taxes
68
74
66
68
67
55
53
48
43
38
35
33
31
General Revenue or Other Funding Needed
20
14
29
28
26
36
37
40
44
49
53
55
57
Total, Medicare Spending
100
100
100
100
100
100
100
100
100
100
100
100
100
Memorandum: Part A Fund (in billions of dollars)
Trustees Intermediate Baseline
Inflows
6
13
26
51
80
115
146
181
222
279
349
432
536
Outflows
5
12
26
48
67
118
146
192
262
388
607
949
1,450
Net
1
1
1
5
13
-3
1
-10
-40
-109
-258
-517
-914
Balance
3
11
14
21
99
130
110
87
(49)
(438)
(1,388)
(3,411)
(7,090)
Source: Medicare Commission Staff.
Note: Trustees Intermediate scenario based on Congressional Budget Office (January 1998), using Trustees' Intermediate (1997) assumptions.
Part A estimates here computed by Commission staff. All spending estimates after Part A Fund insolvency are hypothetical.
Includes interest paid and received. (Interest is an intragovernmental transfer, which does not affect the budget surplus.)
Table 6.
DRAFT
14-Mar
Medicare Financing: March 14 Proposal (Current Law Baseline = No Slowdown)
(by selected calendar year)
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Billions of Dollars
No Slowdown Baseline
Medicare Premiums
1
2
2
3
8
17
25
43
69
112
171
263
401
206
259
324
401
497
Payroll Taxes
5
12
24
48
72
98
130
164
General Revenue or Other Funding Needed
1
2
10
19
28
65
92
156
261
445
763
1,285
2,073
Total, Medicare Spending
7
15
36
70
108
180
247
363
537
817
1,258
1,949
2,972
March 14 Proposal
Medicare Premiums
1
2
2
3
8
17
25
43
59
85
124
179
257
Payroll Taxes
5
12
24
48
72
98
130
164
206
259
324
401
497
General Revenue or Other Funding Needed
1
2
10
19
28
65
92
135
211
344
555
868
1,333
Total, Medicare Spending
7
15
36
70
108
180
247
341
477
688
1,002
1,448
2,087
Percent Distribution
No Slowdown Baseline
Medicare Premiums
12
12
5
5
8
9
10
12
13
14
14
13
14
Payroll Taxes
68
74
66
68
67
55
53
45
38
32
26
21
17
General Revenue or Other Funding Needed
20
14
29
28
26
36
37
43
49
55
61
66
70
Total, Medicare Spending
100
100
100
100
100
100
100
100
100
100
100
100
100
March 14 Proposal
12
12
12
Medicare Premiums
12
12
5
5
8
9
10
12
12
12
Payroll Taxes
68
74
66
68
67
55
53
48
43
38
32
28
24
General Revenue or Other Funding Needed
20
14
29
28
26
36
37
40
44
50
55
60
64
Total, Medicare Spending
100
100
100
100
100
100
100
100
100
100
100
100
100
Memorandum: Part A Fund (in billions of dollars)
No Slowdown Baseline
6
13
26
51
80
115
146
181
222
279
349
432
536
Inflows
Outflows
5
12
26
48
67
118
146
192
263
397
669
1,159
1,969
Net
1
1
1
5
13
-3
1
-10
-41
-117
-320
-727
-1434
3
11
14
21
99
130
110
87
(49)
(457)
(1,581)
(4,308)
(9,872)
Balance
Source: Medicare Commission Staff.
Note: No Slowdown scenario created as an illustration by Commission staff. It assumes a constant rate of growth in Medicare
spending above the impact of demographics. That rate of growth is roughly consistent with Medicare's spending performance over the last decade.
Part A estimates computed by Commission staff. All spending estimates after Part A Fund insolvency are hypothetical.
Includes interest paid and received. (Interest is an intragovernmental transfer, which does not affect the budget surplus.)
Table 7. A Combined Trust Fund Under the March 14 Proposal
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Billions of Dollars
Inflows
Premiums
32
36
39
42
46
50
55
60
65
70
77
Payroll Taxes
149
156
164
171
180
188
197
206
216
226
237
General Revenues
117
128
140
150
161
172
184
198
212
228
245
Interest
9
9
9
9
9
8
7
5
3
0
0
Total, Inflows
307
329
352
373
395
418
443
469
496
525
559
Outflows
Medicare Spending
307
329
352
376
402
431
461
494
530
570
613
Interest
0
0
0
0
0
0
0
0
0
0
3
Total, Outflows
307
329
352
376
402
431
461
494
530
570
617
Net
0
0
0
(3)
(7)
(13)
(18)
(25)
(34)
(45)
(57)
Balance
150
150
150
147
140
127
109
84
49
4
(53)
Memorandum:
General Revenue Share of Medicare Financing
38%
39%
40%
40%
40%
40%
40%
40%
40%
40%
40%
Source: Medicare Commission Staff.
Note: The growth of Medicare spending slowed significantly in 1998, and will probably remain slow in 1999. Reasons for the slowdown
include payment restraints enacted in the Balanced Budget Act of 1997 and efforts to ensure compliance with billing rules spurred by
enactment of the Health Insurance Portability and Accessibility Act of 1996 and other laws.
Although those changes will reduce the projected path of Medicare spending in the next few years, they are not likely to slow the
long-run growth of spending in the program. Therefore, the 30 year baselines used by the Commission remain appropriate. Because
of interest payments, however, trust fund calculations can be greatly affected by short run changes in spending or revenues. Estimates
of the expected life of the Part A fund under current law will probably be extended from 2008 or 2009 to 2012 or 2013 by CBO and HCFA
in the coming months. To be consistent with the latest estimates, the insolvency date of the combined trust fund in this table should
be extended by 3 or 4 years as well, to 2016 or 2017.
TO. Melanne
(gare copy to Nees)
THE WHITE HOUSE
WASHINGTON
March 1, 1999
TO:
Steve R., Gene S., Bruce R., Larry S., Elena K.
FROM:
Chris J. and Jeanne L.
RE:
RESPONSE TO BREAUX PLAN BY ALTMAN AND TYSON
Today, Stuart Altman and Laura Tyson sent a list of suggested changes to Chairmen Breaux and
Thomas on their reform plan. They have informed us that it is their belief that these changes are
not negotiable but, rather, are what would be minimally acceptable for them to even consider
voting to report out a Commission plan. Their recommendations are generally consistent with
the principles for reform that the President outlined. For example, they suggest including the
surplus or an analogous proposal, adding an optional prescription drug benefit accessible and
affordable to all beneficiaries, ensuring guaranteed benefits, and allowing 62 to 64 year olds to
buy into Medicare.
However, the list also includes controversial elements such as raising the age eligibility from 65
to 67 so long as there is a subsidized Medicare buy-in and adding an income-related premium
beginning at $50,000 (which is twice as high as recommended by the Commission but much
lower than most of the Democratic base would contemplate). Although consistent with their past
statements, the document reiterates their openness to premium support that meets the goals that
they outline (e.g., adequate government payment, defined benefits).
This paper was sent confidentially, but we would be surprised if it doesn't soon become public.
If it does, Senator Daschle, Congressman Gephardt and others can be expected to be critical on
both substantive and political grounds. They will be particularly upset that the President's
appointees continue to negotiate with Senator Breaux and Congressman Thomas at a time when
they feel they have disregarded Democratic concerns. Having said this, it is unlikely that Senator
Breaux will be able to obtain Republican support for all of Stuart and Laura's recommendations.
If this is the case, then the Commission will likely report out with 9 or 10 votes, not the
supermajority (11 votes) needed. We will keep you posted on any news.
CONFIDENTIAL-NOT TO BE QUOTED
DRAFT 3/1/99
Recommended Changes to the Breaux Medicare Reform Plan
Stuart H. Altman
Laura Tyson
The Medicare program which began in 1965 has been among the most mccessful
programs developed by the Federal government. It has allowed millions of Americans,
mostly over age 65, to have access to the best health care our nation offers, and provided
critically needed funding to enable the health care system to support its ever changing
structure and the use of increasingly expensive technology. But, Medicare has croblems,
problems which will grow much worse in the years ahead. To greatly simplify these
problems can be put into three categories:
A. Inadequate Benefits
Medicare currently covers about 53 percent of the health care spendin: of
Americans 65 years of age and over. Among the benefits not covered the most
important are outpatient prescription drugs and long-term care.
B. Future High Cost
The combination of Medicare spending on a per capita basis growing mister than
the growth in GNP and the number of Medicare beneficiaries doubli over the
next 30 years, every projection indicates that spending under the current Medicare
program will consume an ever larger proportion of our national incon With
that said, it should also be emphasized that Medicare will be required cover a
much larger proportion of the US population and that Medicare spending per
capita must be related to the medical cost growth in the general economy or the
program will cease to provide adequate coverage for "mainstream" dical care.
C. Inflexible Program
Medicare is a major federal program which is governed by the laws Congress
and administered by an agency of the federal government. As a rest. it is often
restricted in its operation and the creation of new programs by polin infighting
within the Congress and between the Congress and the Administrat
These
political problems are compounded by the bureaucratic inertia of a
governmental program.
PROPOSED CHANGES TO BREAUX REFORM PLAN
To address the problems listed above and still maintain the integrity and valu..
this vital program requires that we not replace three of Medicare's critical underlying
principles:
1. A government guarantee that a specified set of benefits will be covered
approved and financed Medicare plan.
2. A sufficient government contribution such that adequate coverage will
available and affordable to all beneficiaries regardless of their income
geographic location.
3. A premium and cost sharing structure that does not invalidate the social
insurance aspects of Medicare such that it no longer is a preferred plan
income groups.
A premium support plan with defined benefits and expanded coverage for
outpatient prescription drug expenses that has limited income related premium
and/or co-payments can meet these requirements if it is designed correctly and
adequately financed.
The specifics outlined by Senator Breaux could be the foundation for such
but, fails to include a number of important factors and includes other components
could undermine the basic integrity of Medicare as a social insurance program.
summarized these issues below along with proposed changes we believe are nece
to
make the reform plan adequate for the 21ˢᵗ century and meet the high goals origni
established for the Medicare program.
1.
Lacks a specified and adequate set of benefits.
In order for adequate benefits to be available and affordable to all Medical
beneficiaries they must be specified in law and available in all approved
plans including the one administered by the federal government. They al
include sufficient payments to providers that they will in fact be available
sufficient funds from the Medicare program that they will be affordable
beneficiaries. To that end, we would propose the following additions to
Breaux plan.
A. All health insurers approved by Medicare including the program op
by
the federal government must provide for beneficiaries to select as an
(()
basic coverage a plan which includes at least the following coverage
outpatient prescription drug expenses.
-- Following a special drug benefit deductible of $500, the plan will pay
75 per cent of all outpatient drugs prescribed by an approved Medicare
provider. After an individual reaches an out-of-pocket payment including
the deductible of $2500 per year, the plan would pay all additional drug
expenses. For a couple living together the spending limit would be $4000.
For the basic Medicare plan, the federal government will contract with a
limited number of private prescription drug benefit managers to administer
the program. It is expected that such PBMs will use the same techniques
developed by private health plans to help control spending including
volume discounting, mail order dispensing and approved pharmacy
formularies. The prescription drug option would require a special
premium which would equal 50 percent of its expected costs.
Beneficiaries would pay more or less than this average premium based on
an income related schedule consistent with the design established for the
basic Medicare plan. For low income beneficiaries, the deductible would
vary from $0 up to 135% of poverty to the full $500 at 300% of poverty.
B. A detailed set of benefits covered under all Medicare plans must be specified
in law. At a minimum, benefits would include all services covered under the
existing Medicare program plus an option for outpatient prescription drugs.
All plans, including the one administered by the federal government, can
establish their own rules as to how these benefits will be provided. Also
permitted will be small variations requested by plans from the exact
magnitude of the benefits subscribed in law. The Board which will oversee
the operation of the premium support plan must approve all benefit designs
and develop sufficient oversight competence that it can assure the Congress
and the President that all plans do in fact provide the approved benefits and
comply with all other aspects of the relevant statutes.
2.
Income related payments could jeopardize social insurance aspects of
Medicare
A. Any income related aspects of the reform plan will not consider family
income below $75,000 ($50,000 for an individual) to be subject to a higher
than average payment amount. The income related schedule should also
recognize that some government payment amount is appropriate even for the
highest income groups as they are also the groups which pay the largest tax
amounts. Furthermore, any individual whose annual income is equal to or less
than 135% of the poverty level will not be required to pay any premium or co-
payment amounts.
3.
Raising age could increase uninsured
A. The age when an individual becomes eligible for the full Medicare program
will gradually be raised from age 65 to age 67. In tandem with this change all
otherwise eligible individuals could buy into the Medicare program at age 62.
For those aged 65-67, the premium charged would be income related for the
lowest income groups using the same schedule as discussed above.
4.
The core Medicare program must continue to be affordable to all
A. The modernized Medicare plan operated by the federal government must
continue to be primarily a fee-for-service plan open to all qualified and
approved providers except for certain select high cost procedures and where
clear quality differences are shown to exist. The basic Medicare plan should
also be given the necessary authority to engage in the kinds of competitive
bidding schemes used by private health plans for laboratory services, durable
medical equipment and other similar services. Since this plan will retain
much of its current character it should continue to have the power of federal
government pricing and contracting authority.
B. The system used to allocate funds to different regions of the US and to price
the national basic Medicare plan must not create a regional bias against
particular regions or in favor of the non basic plan except where clear regional
or plan inefficiencies exist. To this end, all extra legislated payments to
providers beyond what the market for patient care requires should be
calculated on a per patient basis (including both basic Medicare and private
health plans) and paid by the government from the Medicare trust fund
independent of the calculations used to determine beneficiary premiums and
the regional payment to private health plans.]
Specifically, the extra payments for Indirect Teaching Costs and
Disproportionate Share, or the special subsidies to rural providers should not
be paid only by the Basic Medicare plan or required of patients of private
plans who live in areas where such programs exist.
5.
Need an adequate financing plan
A. The plan must include a detailed structure on how it will be financed. While
the exact dollar amounts need not be included since predictions of future
spending become increasing suspect beyond 10 years, the proportions required
from the different sources of funds should be specified and in general how
such funds will be generated. Specifically, while the Breaux plan includes a
number of provisions which will increase beneficiary liabilities, it does not
mention how the additional governmental funds will be raised. This is a
serious omission since the legislation which established the Commission
required that we develop plans to restore the solvency of the Federal Hospital
Insurance Trust Fund and maintain the financial integrity of the Supplemental
Medical Insurance plan. In that connection, the plan should include either the
proposal stated by the President to use a portion of the expected federal
surplus to help fund Medicare in the future or indicate how the needed federal
revenues will be generated. Most importantly, the plan should indicate what
proportion of the expected costs of the program should come from
beneficiaries and the federal government, and how much should come from
reduced payment growth to providers.
6.
No discussion of Long-term care needs.
A. No mention is made in the Breaux plan for how the aged will pay for the
increasingly expensive costs of long-term care in the future. At a minium,
recognizing the complex nature of this problem and its very high costs, the
plan should contain some general statements about a preferred direction of
future policy.
002/008
03/23/99 13:21 FAX
DISCUSSION OF
COMPETITIVE APPROACHES TO MEDICARE
DRAFT: March 22, 1999
I.
Concept of "Premium Support"
II.
Issues and Alternatives
III. Policy Pros and Cons
IV. Political Pros and Cons
003/008
03/23/99 13:21 FAX
I. CONCEPT OF "PREMIUM SUPPORT"
Current Medicare Managed Care:
Government payments: Medicare pays managed care plans based on a
payment schedule. This schedule is set using the local costs of
traditional Medicare. All plans in the area get paid the same rate. If a
plan can offer Medicare benefits for less than the payment rate, it must
use the excess payments to give beneficiaries extra benefits.
Beneficiary premiums: All Medicare beneficiaries pay the same
premiums regardless of their plan choices or place of residence.
Enrollment: Today, about 16 percent or 6 million beneficiaries are
enrolled in Medicare managed care. About 70 percent of beneficiaries
live in areas where managed care plans operate. Over two-thirds of
managed care enrollees receive prescription-drug coverage, reduced
cost sharing or other supplemental benefits.
The Concept of Premium Support:
Government payments: Medicare would pay plans an amount per
beneficiary up to a limit. This limit could be a percent up to a cap
(e.g., the national average premium) or a regional average premium.
Beneficiary premiums: Beneficiaries' premium would vary based on
their plan choices. In general, those choosing higher-cost plans would
pay more, those choosing lower-cost plans would pay less. In most
models, traditional Medicare's premiums would be included in the
formula, and could be higher if Medicare is a high-cost plan.
Savings: Medicare costs would be reduced if (a) the new payment
system pays managed care plans less than they are paid today; and (b)
more beneficiaries enroll in private plans.
004/008
03/23/99 13:21 FAX
BREAUX-THOMAS PREMIUM SUPPORT PROPOSAL
Flexible Benefits: Requires that private plans offer at least the same benefits
as traditional Medicare, but allows flexibility in how benefits are delivered.
Government Payments: Percent to a cap: Medicare's payments would be
based on the national weighted average premium for all plans. The
government would pay:
100 percent of the premium if the plan's premium is less than 85
percent of the national average premium;
From 100 to 88 percent of the premium if the plan's premium is
between 85 and 100 percent of the national average premium; and
No more than 88 percent of the national average premium if the plan's
premium is above 100 percent of the national average premium.
Beneficiary payments: Beneficiaries would pay the difference between the
government payment and the plan's premium - including all of the
additional premium for plans above the national average premium.
EXAMPLE: HOW PLANS WOULD BE PAID
Total Premium
Gov't Payment
Beneficiary Payment
$
% of Nat'l
$
% of Total
$
% of Total
Average
$5,100
85%
$5,100
100%
0
0%
$5,500
92%
$5,180
94%
$320
6%
$6,000 Avg
100%
$5,280
88%
$720
12%
$6,100 FFS
102%
$5,280
87%
$820
13%
$6,500
108%
$5,280
81%
$1,320
20%
*
If beneficiaries in fee-for-service pay 12% of costs, they would pay $732.
005/008
03/23/99 13:22 FAX
II. ISSUES AND ALTERNATIVES
MAJOR ISSUES
Most beneficiaries would pay more for traditional Medicare: The
Breaux-Thomas plan would result in Medicare premiums that are 10 to 20
percent above current law, according to the independent Medicare actuary.
Although the plan limits the Medicare premium for beneficiaries with no
private plan option, it does nothing for people with limited or unattractive
plan options.
Competition based on benefits, not price: The proposal would allow
private plans to vary their benefits within some limits. This could result in
adverse selection as plans tailor their benefits to attract the healthiest
beneficiaries.
Beneficiaries would pay more or less for private plans, depending on
where they live: Although the final version of the plan included no
reference to how it would adjust payments for geographic differences, the
previous versions suggested that the government would only pay part of the
local costs of care -- in an effort to constrain the current, wide variation in
payments. However, the consequences of this approach are that plans will
over- or under-charge for their benefits to compensate for the partial
geographic adjustment. As a result, beneficiaries will pick up part of the
local costs -- paying more in high-cost areas and less in low-cost areas for a
typical plan.
Somewhat aggressive transition: The Breaux-Thomas premium support
plan would be implemented in 2003. HHS would probably be better able to
transition to a change as large as this over a longer period of time.
006/008
03/23/99 13:22 FAX
ALTERNATIVE: MANAGED CARE PAYMENT REFORM
Guarantee defined benefits: Clear, defined guaranteed benefits. Private
plans could buy down Medicare's cost sharing, but could not offer extra
benefits (note: assuming that prescription drug benefit is added).
Protecting the fee-for-service premium and improving adjustments:
Options include: (1) anchoring the Medicare's payments to the national fee-
for-service premium (not the national weighted average premium) so that
beneficiaries would always pay the same percent premium; or (2) exempting
fee-for-service from the private plan payment system..
The government would pay the full amount of risk adjustment and all (not
part) of the geographic adjustment.
Lower savings: Relative to the Breaux-Thomas plan, this approach will save
much less money - in large part, because it does not rely on higher fee-for-
service premiums for its savings. It is not clear how much more efficient
than current law this would be.
d.
007/008
03/23/99 13:22 FAX
III. POLICY PROS AND CONS
PROS
Would likely reduce Medicare costs through competition. Although
there would not be significant savings from a well-designed model, this
approach probably saves more than current managed care payment systems.
Better aligns Medicare with private health insurance. Relies less on
explicit changes to Medicare reimbursement levels to control program costs.
Medicare spending growth would be affected by private plans' ability to
achieve efficiency and attract beneficiaries, which should better align
Medicare with private spending growth.
Gives beneficiaries lower-cost options. Beneficiaries could lower their
Medicare premiums by enrolling in low-cost plans.
CONS
Variable and less beneficiary premiums. Unlike today, all beneficiaries
would not pay the same premiums. The Medicare fee-for-service premium
would likely be higher than that of private plans - even if it is protected
against being higher than current law. Also, beneficiaries choosing private
plans could face premiums that vary considerably from year to year.
Could reduce extra benefits that current Medicare managed care
enrollees receive. Currently, Medicare managed care plans compete for
enrollment by offering beneficiaries additional benefits such as lower cost
sharing, preventive care, and outpatient prescription drugs. Under
competitive approaches, a greater share of the efficiency accrues to the
government, reducing the amount that can be provided as additional benefits.
Significant regulation would be required to avoid two-tiered Medicare.
To promote competition based on price and quality -- not enrollment of the
healthiest beneficiaries -- significant new rules and oversight would be
needed. Without such rules, or because of imperfect implementation, this
policy could have the unintended effects of creating higher premiums for
people who are sick and low-income.
J.
008/008
03/23/99 13:23 FAX
IV. POLITICAL PROS AND CONS
PROS
Increases the likelihood of bipartisan agreement on Medicare and
Social Security. Without some variation of premium support, it is unlikely
that Republicans will consider any type of Medicare legislation - especially
a bill that includes the surplus or a prescription drug benefit.
A drug benefit and the dedication of the surplus could be worth some
version of premium support. The complexity and controversy surrounding
premium support will necessitate it being phased in and otherwise altered to
make it more acceptable. However, it is possible that the drug benefit, the
surplus transfer and other reforms would begin sooner and remain intact.
Confirms willingness to reform Medicare. Most economist and elite
media consider premium support "real" reform. An openness to it would
end Republican criticism that we only want an election issue or only more
revenues and benefits for Medicare.
CONS
Would alienate Democratic base, particularly in the House, who think
that premium support undermines Medicare's guarantees. Base
Democrats generally think that the risk of something bad coming out of any
negotiation with Republicans far exceeds any potential for a positive
outcome - even if that means a prescription drug benefit.
Even if accompanied by a drug benefit and the surplus, the fear of
higher premiums and elderly dissatisfaction may outweigh benefits.
High costs and less certainty will always be much more threatening and
politically volatile to the elderly than the promise of a new benefit. This is
particularly the case given the low odds that a good drug benefit and
premium support proposal could emerge from a Republican Congress.
Opposition to premium support could unify beneficiary and provider
groups.
BACKGROUND ON PRESCRIPTION DRUGS
DRAFT: April 12, 1999
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.
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.
Rising share of national health spending. The increased
Prescription Drugs as a
Percent of National Health
importance of prescription drugs is reflected in national
Spending
9%
health spending trends. In the past 10 years, spending on
10%
8%
7%
prescription drugs has risen as a percent of total spending
8%
6%
6%
by 20 percent. In the next 10 years, its share of national
6%
4%
health spending is projected to increase by nearly 30
2%
percent. This means that nearly one in ten health care
0%
dollars will be spent on drugs.
1988
1993
1998
2002
2007
Drugs may reduce need for other services. Studies have found that elderly, ill Medicare
beneficiaries whose Medicaid drug coverage was limited were twice as likely to enter nursing
homes. The increased cost of institutionalization exceeded the savings from reduced drug
utilization by 20 fold. And, stroke patients treated promptly with drugs to thin clots had
lower health care costs.
DRUG COVERAGE AMONG MEDICARE BENEFICIARIES
Medicare Beneficiaries' Drug
Coverage, 2000
Private supplemental drug coverage is low and
Changed
During Year
No Coverage
declining: Only 23 percent of Medicare
(2.2 m) 6%
(15.5m) 40%
beneficiaries are expected to have private insurance
for drug coverage (retiree coverage or Medigap) in
Employer
(6.6 ml 17%
2000 (according to the Medicare actuary) -- down
Medicaid
(4.3 ml 11%
from 38 percent in 1995. Both sources of coverage
Medigap
(2.4 m) 6%
Medicare
have been declining rapidly as the cost of coverage
HMOs
rises and therefore cannot be relied upon to provide
(7.8 m) 20%
needed insurance in the future.
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. The Medicare actuaries project that, by
2000, only 17 percent of beneficiaries will have retiree drug coverage -- down from [28
percent] in 1995.
Medigap: Medigap, the standardized private insurance supplement for Medicare, offers
prescription drugs in some of its plans. Its drug benefit has a $250 deductible, 50 percent
coinsurance, and a cap on benefits spending of $1,250 or $3,000. Medigap premiums are
expensive and virtually always underwritten, meaning that premiums are based on the
person's health. The median premium for a plan with prescription drug coverage is about
$1,100 more than a Medigap plan without drug coverage ($2,073 V $913 in 1998).
Medigap premiums have been rising at double-digit inflation. At the same time, Medigap
coverage has been declining. The actuaries project that only 6 percent of beneficiaries
will have Medigap drug coverage in 2000, down from 10 percent in 1995.
Public coverage exceeds private coverage: More beneficiaries are projected to have public
(30%) than private (23%) drug coverage -- suggesting that concerns about a new benefit
"crowding out" private coverage are exaggerated.
Medicare managed care: Over 90 percent of beneficiaries in Medicare HMOs have 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, 42
percent of beneficiaries had coverage limited to $1,000 or less. Rising costs and lower
Medicare payments could reduce benefits in the future.
Medicaid: Only about 4.3 million Medicare beneficiaries who are fully eligible for
Medicaid (e.g., who receive Supplemental Security Income (SSI) or are medically needy)
receive prescription drug coverage. This represents less than half of Medicare
beneficiaries below poverty since Medicaid eligibility is typically only up to 75 percent
of poverty. Moreover, even those beneficiaries who are eligible have low participation
rates; only about 55 percent of beneficiaries eligible for SSI participate.
BENEFICIARIES WITHOUT DRUG COVERAGE: CHARACTERISTICS AND CONSEQUENCES
About 16 million beneficiaries (40%) are projected to have no drug coverage in 2000.
Lack of drug coverage is not just a problem for low-income beneficiaries; 40 percent of
beneficiaries without drug coverage have income
above 200 percent of poverty (about $17,000 for a
Medicare Beneficiaries Without Any
4.,rug Coverage By Income: 2000
single, $23,000 for a couple in 2000). Nearly one in
5
3.6
4
three (30 percent) of nonelderly Medicare
2.7
2.6
beneficiaries with disabilities does not have any
Millions
1.9
coverage for prescription drugs. Older beneficiaries
0
are less likely to have drug coverage, as are rural
400%
100- 130%
130-200%
200-300%
300+
Income As %Poverty
beneficiaries. Nearly half of rural beneficiaries have
no insurance coverage for drugs.
Many beneficiaries with drug coverage have high drug spending. According the
Medicare actuaries' projections for 2000, beneficiaries with some type of insurance coverage
(private or public) have higher spending and
Medicare Beneficiaries' Drug
9.5
utilization than those with no insurance coverage for
10
Spending: By Drug Coverage
8
prescription drugs. Most research has found that lack
Coverage
No Coverage
Millions
6
4.1
4.1
4.4
3.8
of coverage reduced needed drug utilization. Despite
3.1
3
4
2.5
2.5
1.8
this, nearly half of beneficiaries without any insurance
2
o
coverage for prescription drugs have annual out-of-
so
$1-250
$250-500
$500-1000
$1000
+
pocket spending of greater than $500.
Drug Spending in 2000
Elderly without coverage pay higher prices.
Medicare beneficiaries without drug
coverage pay higher prices than large HMOs,
employers and the Veterans' Administration
COMPARISON OF PRICES FOR DRUGS
pay for the same drugs. Moreover, American
Drug
Use
Price for Preferred
Regular
senior citizens pay higher prices for drugs
Customers
Price
Prilosec
Ulcers
$56.38
$111.94
than citizens in other nations. For example,
Zocor
Cholesterol
$42.95
$104.80
the average retail price for the top ten drugs
Procardia
Heart
$67.35
$126.86
for seniors are 72 percent higher in the U.S.
Zoloft
Depression
$123.88
$213.72
versus Canada.
Source: Minority staff report to Committee on Gov't Reform
Larger financial burden. Elderly with private insurance for drugs have about half the out-
of-pocket financial burden for drugs than those without coverage. About 1 million
beneficiaries without drug coverage have annual out-of-pocket expenses that exceed $3,000 -
which more than 20 percent of income for at least half of these beneficiaries. Rural elderly
have out-of-pocket 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.
ISSUES WITH RAISING THE AGE ELIGIBILITY FOR MEDICARE
DRAFT: April 12, 1999
PROPOSAL: Increase the Medicare age eligibility from 65 to 67, one month per year, parallel
to Social Security. Some proposals include an unsubsidized Medicare buy-in proposal, similar
to what the President has proposed for certain people ages 55 to 65.
ISSUES:
There has been no improvement in the availability or affordability of health insurance
for people in their early 60s that would justify raising Medicare's eligibility age.
-
People ages 55 to 65 are the fastest growing group of uninsured. The number of
uninsured ages 55 to 65 increased by nearly 7 percent in 1998 -- as fast as people ages 35
to 45 and faster than all other age groups.
-
Fewer have employer-based health insurance. Compared to younger adults, people
approaching retirement are less likely to have employer-sponsored health insurance --
which is the least expensive type of insurance. For example, about 73 percent of people
ages 45 to 55 have employer-based health insurance, but this drops to 64 percent for all
people ages 55 to 65 -- and only 54 percent of 64 year olds. In part, this reflects changes
in employment as workers retire, cut down on hours, or take "bridge" jobs (e.g.,
consulting, new careers), forfeiting health insurance. It also results from younger spouses
losing their health coverage when their older spouses retire and goes on Medicare.
-
More are forced to turn to expensive individual insurance or have no options at all.
People ages 55 to 65 are twice as likely as younger people to purchase individual private
health insurance -- despite the fact that, in virtually all states, it is most expensive and
inaccessible for older Americans. In 1998, 36 states allowed insurers to deny people
individual insurance outright and many more allow insurers to charge more for older
and/or sicker people.
Thus, unlike Social Security, where the effects of gradually raising age eligibility to 67 are
mitigated by the increased wealth and longer work lives of Americans, there is no
comparable improvement in the health insurance system -- making it hard to extend it if the
age eligibility for Medicare were raised.
More difficult to postpone health care needs than retirement. Retirement is a fairly
predictable event that most families plan for years in advance. Illness and disability, in
contrast, are rarely foreseeable and are increasingly likely as people age. People ages 55 to
65 are twice as likely to experience health problems such as heart disease, emphysema, heart
attack, stroke and cancer than those ages 45 to 55. The likelihood of developing health
problems is even greater at ages 65 and 66. Thus, raising Medicare's eligibility age would
take away guaranteed health insurance from people with the greatest risk of health problems
and lowest probability of finding affordable private health insurance options.
Raising Medicare's age eligibility could have serious consequences. Although the Federal
government and Medicare Trust Fund would save from raising Medicare's eligibility age, it
could create other costs and problems.
Increase the uninsured. In 1998, 16 percent of people age 64 were uninsured. If the 3.7
million people age 65 and 66 were to lose
Medicare, it could be assumed that 16 percent
Health Insurance Coverage:
of this group would also be uninsured -- nearly
Americans Age 64
600,000. This would likely be higher since
Medicare
Medicaid
Uninsured
more people in this age group have health
6%
8%
16%
problems and would be unable to access or
VA/Other
afford private individual health insurance.
Individual
2%
14%
Similarly, it is not clear that all of those who
Employer-
Based
had employer-based insurance when they were
54%
64 could maintain it until they are 67.
Cost shift to employers. About half of people age 64 have insurance through their
employers. If Medicare's eligibility age were raised, these employers would have to
continue coverage of these older workers. Costs would result not only from covering
workers longer, but from higher premiums for all workers. This is because the older
workers would raise the average costs of all employees. The Federal government would
also incur costs since employer-based health coverage gets special tax treatment.
Unfunded mandate to states. State Medicaid programs would incur significant new
costs from raising Medicare's eligibility age. Not only would states continue to be the
primary payer for the 8 percent of the 64 year olds on Medicaid who turn 65, but
Medicaid would become primary payer for the additional elderly who become eligible for
Supplemental Security Income (SSI) at age 65.
No viable policy has been offered to prevent the elderly uninsured from increasing.
Medicare buy-in cannot replace Medicare. Some proponents of raising the age
eligibility of Medicare have suggested that the President's Medicare buy-in proposal as a
health insurance alternative for people ages 66 and 67. It is true that, relative to the
coverage options facing people ages 55 to 65, it is an affordable, attractive option, even
without a subsidy. However, it is not designed to be a substitute for Medicare.
According to the Congressional Budget Office, about 9 percent of the uninsured and 5
percent of the total eligible population ages 62 to 65 would participate in the buy-in.
Applying these rates to the population age 65 to 67, this suggests that only about 185,000
of the 3.7 million who would lose Medicare would opt for coverage through the buy-in.
Costs of subsidies for buy-in would reduce savings. The Medicare buy-in proposal
could be subsidized to encourage low-income people to participate. However, since
about 35 percent of people ages 65 and 66 have income below 200 percent of poverty
(about $18,000 for a single, $22,000 for a couple), the savings would be much lower.
ADDRESSING MEDICARE'S CHALLENGES
DRAFT
April, 1999
ADDRESSING MEDICARE'S CHALLENGES
I. Overview
Importance of Medicare
Challenges Facing Medicare
II. Medicare Commission
III. President's Plan for Strengthening Medicare
1
I. OVERVIEW
IMPORTANCE OF MEDICARE
Medicare now pays for health care for 39 million elderly and disabled Americans:
About 34 million elderly and 5 million people with disabilities receive Medicare.
Helps those who would otherwise be uninsured: Before Medicare, almost half (44
percent) of the elderly were uninsured. Given the recent rapid rise of the uninsured
ages 55 to 65, this problem would inevitably be worse today.
Improves life expectancy, access to care and reduces poverty: Since 1965:
Life expectancy of the elderly has increased by 20 percent (79 to 82 years)
Access to care has increased by one-third (elderly seeing doctors: 68 to 90%)
Poverty has declined by nearly two-thirds (29.0 to 10.5%)
2
RECENT SUCCESS IN SLOWING MEDICARE GROWTH
In the early 1990s, Medicare spending growth outpaced private health insurance
growth. However, due to the policy changes in 1993 and 1997, as well as aggressive
efforts to reduce fraud, Medicare spending growth has slowed. In 1999, it is projected
to be below inflation.
The slow Medicare spending growth is expected to continue through 2002 -- at which
point many of the policies in the Balanced Budget Act (BBA) of 1997 expire.
Medicare and Private Spending Growth Per Capita
12.0%12.1%
11.4%
12.0%
Medicare
Private
8.7%
9.0%
7.1%
7.3%
6.7%
6.2%
6.0%
4.9%
4.1%
3.0%
0.0%
1980-85
1985-90
1990-95
1995-00
2000-05
3
MEDICARE'S TRUST FUND STATUS HAS IMPROVED
In 1993, when President Clinton took office, the Hospital Insurance (HI) trust fund
was projected to be exhausted in 1999.
Through commitment to a strong economy, coupled with actions that improves
Medicare benefits while constraining cost growth, the trust fund now is projected to
be solvent until 2015. Its actuarial deficit (measure of long-run solvency) is the best
that it has been since this measure has been reported.
Medicare Trustees' Projections for When
2020
Medicare Becomes Insolvent
2010
2000
1990
1980
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
4
CHALLENGES FACING MEDICARE:
FINANCIAL STRAIN OF CHANGING DEMOGRAPHICS
More beneficiaries: Enrollment in Medicare
Medicare Hospital Insurance Enrollment:
80
76
will climb when the baby boom generation
80
2000-35
69
61
retires: from 39 to 80 million by 2035 -- from 13
60
53
47
40
42
percent to about 20 percent of the population.
Millions
40
20
Fewer workers: The ratio of workers who
support Medicare to beneficiaries is expected to
0
2000
2005
2010
2015
2020
2025
2030
2035
decline by 40 percent by 2030 (3.6 workers per
beneficiary in 2010; 2.3 in 2030).
Cost growth will rise: Although Medicare has recently reined in cost growth, as recent
policy changes wear off, it is expected to rise to the level of private health growth.
Inadequate financing: Medicare's Trust Fund will become insolvent in 2015 -- about
20 years earlier than Social Security and just as the baby boom generation starts to
retire. Even with reforms that substantially slow cost growth, the revenues coming to
the Medicare trust fund will not support this larger number of beneficiaries.
5
ADDITIONAL CHALLENGES FACING MEDICARE
Inadequate benefits: Medicare's benefits are not very generous. In particular:
No prescription drug coverage: Even though pharmaceuticals are an increasingly
important part of health care, Medicare does not pay for them. As a result,
America's elderly pay the highest price for drugs -- either by buying them
without discounts or by paying for expensive Medigap insurance.
High beneficiary payments for hospital care: Today, Medicare beneficiaries pay
a $768 deductible for hospital care, and $192 per day after two months, when
beneficiaries are the sickest.
Cost sharing for preventive care: Requiring beneficiary payments for preventive
services (e.g., screening mammography) can discourage use.
Medigap insurance: Because of Medicare's sub-standard benefits, about one-third
of beneficiaries pay for expensive and inefficient Medigap coverage.
Insufficient private tools for reducing costs: Current law does not permit Medicare
to adopt the most effective private sector tools to increase competition and save
Medicare money.
6
II. MEDICARE COMMISSION
SUMMARY OF THE BREAUX-THOMAS PROPOSAL
Breaux-Thomas Proposal: Its centerpiece is a
SAVINGS UNDER THE
BREAUX-THOMAS PROPOSAL
"premium support" proposal which saves a net of
(Dollars in Billions, Commission estimates)
$53 billion (Commission staff estimates) over 10
years. Most of the proposal's savings come from
00-04
00-09
other policies, including:
Premium Support
-9
-56
Rural Adjustment
+0
+3
Modernizing traditional Medicare
Modernizing Medicare
-4
-39
Plus Extenders
Extending the BBA savings proposals
Adding an unlimited home health copay
Raising Age Eligibility
-1
-11
Raising Medicare's eligibility age to 67
Cost Sharing Changes
-4
-24
Savings small relative to the size of Medicare's
Removing medical ed.*
-9
-36
problem. Commission staff claims $102 billion in
Medicaid Drug Benefit,
net savings (including the $36 billion GME shift).
Increased Participation
+24
+61
These savings are less than:
MEDICARE SAVINGS
-3
-102
BUDGET SAVINGS*
+6
-66
One-third of BBA savings proposals and
One-third of amount from committing 15
* Graduate medical education would still be funded
but not by Medicare; thus, not budget savings.
percent of the surplus to Medicare.
7
CONTRIBUTIONS OF THE MEDICARE COMMISSION
Focused attention on Medicare: The year-long deliberations of the Medicare
Commission, along with President's call for Medicare reform in the State of the Union,
helped highlight the challenges facing the Medicare program.
The Breaux-Thomas proposal has advanced the debate. The plan has recommended
a number of ideas worth serious consideration, including:
Making Medicare's traditional plan more competitive: It recommends that
Medicare adopt many of the competitive management tools that are used in the
private sector.
Rationalizes Medicare's complicated, confusing cost sharing: It takes important
steps like eliminating cost sharing for preventive services.
Recognizing the need for expanded coverage of prescription drugs: By
expanding Medicaid drug coverage for beneficiaries with income below 135
percent of poverty, the Breaux-Thomas proposal takes a modest but positive step
towards providing drug coverage to Medicare beneficiaries.
8
SHORTCOMINGS OF PREMIUM SUPPORT PROPOSAL
Increases premiums for millions of beneficiaries: The Breaux-Thomas "premium support"
proposal caps the government contribution at the national average, which would cause the
premium for the traditional program to rise by 18 to 30 percent (or 10 to 20 percent if traditional
program reforms were enacted), according to the independent Medicare actuary (2/24/99).
Although beneficiaries in an areas without private plan options are supposed to be protected
against higher premiums in traditional Medicare, this protection ends if even one private
plan becomes available. For these beneficiaries, traditional premiums would rise suddenly.
States would face a significant increase in costs since Medicaid pays for premiums for
beneficiaries with income below 135 percent of poverty.
Unclear commitment to defined guarantee of benefits: Allowing a board to approve benefit
variations over time could erode Medicare's promise of a defined benefit package.
Creates regional inequities by failing to adequately adjust for regional cost differences.
Urban Areas. Beneficiaries in urban areas would face higher premiums in both traditional
Medicare and private plans, since the government would pay for only part of the local costs.
Rural Areas. Rural beneficiaries would face a dilemma. When no private plans are available,
their premiums remain at current levels. If a private plan becomes available, they would face
lower premiums for the private plan (because the government overpays plans in low-cost
areas), but their premium for traditional Medicare would increase significantly.
9
OTHER SHORTCOMINGS OF THE BREAUX-THOMAS PLAN
Does not address Medicare's long-term solvency: The Breaux-Thomas proposal
ignores the need for new revenues to finance the care of the growing numbers of new
beneficiaries. The plan's net Medicare savings of around $100 billion over 10 years are
not nearly large enough to meaningfully address the long-term shortfall -- trust fund
solvency will only be extended by several years. The lack of financing makes the
problem much larger to solve in the future and shifts more of the burden to our
nation's children.
Raises the age eligibility for Medicare: The most rapidly growing group of the
uninsured are ages of 55 to 65. Raising the Medicare eligibility age without a policy to
prevent even more uninsured would exacerbate this problem.
Includes an unlimited home health copay: Beneficiaries would be charged 10
percent coinsurance for all home health visits. For the over 1 million beneficiaries who
have more than 60 visits in a year, this copay could represent a large financial burden.
Removes Direct Medical Education from Medicare: Shifts funding for direct medical
education from Medicare to an unspecified part of the budget. This policy does not
produce Federal budget savings and does not assure that the nation's teaching
hospitals are funded to continue their important mission.
10
INADEQUATE & INEFFICIENT PRESCRIPTION DRUG BENEFIT
Not a Medicare benefit. One of Medicare's strengths is that it provides all
beneficiaries, regardless of their residence, income or health status, with basic health
services. The Breaux-Thomas proposal to extend Medicaid to beneficiaries with
income below 135 percent of poverty (about $11,000 a year for a single senior) does
not constitute a Medicare prescription drug benefit.
Helps only a fraction of beneficiaries without drug coverage: Nearly 60
percent of beneficiaries without drug coverage would not qualify. For example,
a widow with $15,000 in income would not receive drug coverage.
Fewer people enroll in Medicaid programs: Experience with Medicare
premium assistance programs shows that usually only about half of people
eligible for Medicaid-run benefits enroll (barriers include the welfare stigma,
administrative complexity, lack of knowledge of eligibility). In contrast, nearly
100 percent of beneficiaries enroll in the voluntary Part B program.
Medigap proposal is unworkable. The Breaux-Thomas proposal would also require
all Medigap insurance plans to include drug coverage. However, premiums would be
high and rise rapidly since the heavy users would sign up first, driving up costs. Over
time, insurers would likely stop offering coverage, leaving less access than before.
11
III. PRESIDENT'S PLAN TO STRENGTHEN MEDICARE
President's commitment to develop a plan to strengthen Medicare:
Neither the President nor his four appointees to the Commission could endorse
all of aspects of the Breaux-Thomas proposal. However, the President is
committed to working with Congress to develop and pass a plan this year to
strengthen Medicare for the next century. To that end, he has instructed his
advisors to develop a plan that conforms to the principles that he outlined in
January:
Making Medicare more efficient and competitive;
Maintaining and improving Medicare's guaranteed benefits, including a
prescription drug benefit; and
Assuring adequate financing by dedicating 15 percent of the surplus to
Medicare.
12
MAKING MEDICARE MORE EFFICIENT AND COMPETITIVE
Providing private sector purchasing tools for traditional Medicare: Medicare
should be allowed to use the same, effective practices that private health insurers
use to constrain costs, including:
Competitive pricing for services like medical supplies; and
Selectively contracting with lower-cost, high-quality providers.
Examining other policies to reduce overpayment and increase competition: The
Administration will also examine specific options to reduce fraud, constrain costs
and make both the traditional program and managed care payments more
competitive and efficient.
13
MAINTAINING AND IMPROVING
MEDICARE'S GUARANTEED BENEFITS
Ensuring that Medicare's guarantee is strong: Medicare protects some of our
most vulnerable citizens -- the elderly and people with disabilities -- from
excessive health care costs. Proposal to strengthen Medicare must not do so at
the expense of this guarantee to a defined set of benefits.
Providing a long-overdue prescription drug benefit:
Critical to modern medicine: Nearly all Medicare beneficiaries use
prescription drugs, and their costs are over three times as high as that of
other adults, and nearly 10 times that of children.
Medicare Beneficiaries' Drug
Coverage, 2000
Changed
Existing coverage is unstable and expensive: The
During Year
No
(2.2 m) 6%
Coverage
few beneficiaries who have private coverage are
(15.5% 40%
Employer
vulnerable, since employers are dropping retiree
(6.6 m) 17%
Medicaid
coverage and Medigap is becoming more costly and
(4.3 m) 11%
Medigap
(2.4 m) 6%
Medicare
less accessible.
HMOs
(7.8 m) 20%
Essential component of legislation to strengthen Medicare: Any proposal
should provide prescription drug coverage that is available and affordable.
14
DEDICATING PART OF THE SURPLUS TO MEDICARE
Providing new financing by dedicating part of the surplus to Medicare: The
President's proposal would transfer 15 percent of the projected unified budget
surplus to the Medicare Hospital Insurance (HI) Trust Fund for the next 15 years.
This amount would equal $686 billion over the period and extend the life of the
trust fund for another decade.
Investing now prevents larger problem later. Even though the Medicare
shortfall is projected to accumulate to over $1 trillion over the next quarter
century, the President's $686 billion investment can fill this hole because it is
done now -- allowing it to build interest and prevent borrowing later.
One-time, fixed contribution: The plan does not create an unlimited tap on
general revenues. Instead, it invests a fixed proportion of the surplus in
Medicare to cover the temporary but overwhelming influx of retirees.
Funded by the baby boom generation -- not tomorrow's workers: The
surplus was largely created by the baby boom generation, and makes sense
as a one-time funding source for Medicare. In contrast, waiting until future
generations are faced with raising taxes to support Medicare would shift
this burden to younger and low-income workers.
15
HELPING WORKING FAMILIES
REACH THE POVERTY LINE, 1998
$17,117
99.9%
Poverty Line
for Family
Food Stamps
of Four
$3,444
79.7%
EITC
EITC
Annual Income
$3,756
$3,756
Full-time Minimum Wage
Full-time Minimum Wage
Job (less withholding)
Job (less withholding)
$9,893
$9,893
With Food Stamps
Without Food Stamps
How Much Can Food Stamps Raise
the Incomes of Low-Income Working Families
(Table assumes families spend $350 monthly for rent and utilities)
Earnings
30 hours,
34 hours,
Full-time,
minimum wage
$6.50 per hour
$7.50 per hour
Monthly take-home
earnings:
$618
$884
$1,200
Food Stamps for a
family of 3:
$253
$149
$57
% Increase in monthly
take-home earnings:
41%
17%
5%
Note: "Take-home" earnings equals earnings minus federal payroll taxes and does not
include the EITC or the effects of state taxes.
Changes in the Number of Poor People
and Food Stamp Participation 1995-1997
0%
-2.3% or
-5%
850,000
-10%
-16.6% or
-15%
4.4 million
-20%
Change in the
Change in Average
Number of Poor
Monthly Food
Stamp Participation
Child Program Participants As a Percent of Children Poor
After Receiving Social Insurance Benefits
(in thousands)
Number of Children
Number of
Percent of Poor
Number of
Percent of Poor
Poor After Receiving
Child Food Stamp
Children Receiving
Child AFDC
Children Receiving
Social Insurance
Recipients
Food Stamps
Recipients
AFDC
1994
16,324
14,391
88.2%
9,440
57.8%
1997
14,890
11,871
79.7%
7,527
50.6%
1998*
14,454
10,585
72.8%
6,898
47.4%
Change:
'94 - '97
-8.8%
-17.5%
-9.6%
-20.3%
-12.6%
'94 - '98
-11.5%
-26.4%
-17.5%
-26.9%
-18.0%
Source: CBPP calculations based on Census and HHS data
. Based upon decline in total recipients and average decline in poverty
Estimated vs. Actual Food Stamp Spending
$34
$32
$30
CBO March 1996
CBO Post-PRWORA
$28
$26
OMB FY 1998
CBO March 1997
(Billions)
$24
$22
CBO March 1997
(adjusted for lower
$20
unemmployment)
$18
Actual Food
$16
Stamp Spending
$14
$12
1997
1998
1999
2000
2001
2002
*Projected from data for first five months of fiscal year.
Comparing Current Participation Path
with OMB Baseline
26
24
Average Participation in Millions
22
OMB FY2000 Baseline
20
18
FY99 Actual*
Decline Continues
16
14
1996 1997 1998 1999 2000 2001 2002 2003 2004
*Average FY99 participation to date.
Fiscal Year
Budget
1999
DRAFT-FY2001 BUDGET ROLLOUT ITEMS--DRAFT
(A/O 12/23/99)
POSSIBLE HOLIDAY SEASON ADVANCES:
NOTE: Rollout strategy should be coordinated with both the Office of the Vice President and
the Office of the First Lady.
Expanding Charter Schools, Second-Chance Schools, and Public School Choice. With a
$30 million increase in the FY01 budget, from $145 to $175 million, the President will
surpass his goal of creating 3,000 charter schools. We are also providing seed money for
innovative public school choice projects, and are continuing to support universal public
school choice for students in failing schools. At the same time, the Department of
Education's 4th Year Charter School Report, which details the continued growth of charter
schools, is ready for release. (Now planned for January 3).
Enhancing the Nation's Food Safety System. CDC estimates that contaminated food kills up
to 5,000 Americans and sickens 76 million more each year. This $35 million initiative will
increase the number of imported and domestic food inspections by over 7,000, with a special
emphasis on high-risk domestic foods such eggs and unpasteurized juice. It will also place an
additional 100 inspection agents in the field. The FDA expects that this new investment will
prevent over 100,000 illnesses per year.
120,000 New Housing Vouchers for America's Hard-Pressed Working Families. The FY 01
budget will include $690 million for 120,000 additional rental assistance vouchers to meet
the critical housing needs of America's low income families, including 18,000 vouchers for
homeless families and 32,000 to help those moving from welfare to work. These vouchers
will subsidize the rents of America's hard-pressed working families and enable families to
move closer to economic opportunities. Families with such vouchers pay about a third of
their income in rent, with the vouchers paying the remainder of the cost. This November,
only because of the President's leadership, were 60,000 new vouchers added to the final
budget after having been left out of both the House and Senate bills and last year, the
President secured 50,000 vouchers, the first in four years. (Now planned December 29).
THE CHILD AND DEPENDENT CARE TAX CREDIT AND REFUNDABILITY
December 20, 1999
Currently, the Child and Dependent Care Tax Credit (CDCTC) is not refundable, meaning that
only families with incomes high enough to have a tax liability can benefit from it. For a
single parent with 2 children, that would be $14,000. However, because of interactions with
other refundable or partially-refundable tax credits (e.g. the EITC and the Child Tax Credit,
which are claimed first), families do not actually benefit from the CDCTC unless they make
roughly $21,000.
While subsidies for child care are the most effective mechanism to help families with child care
costs, we know that the Child Care and Development Block Grant (CCDBG) serves a
fraction of the need. In 1998, the CCDBG served 1.5 of the 15 million children who are
eligible under federal law. And, states set eligibility levels far below what is allowed by
federal law.
Therefore, there is a real gap in assisting working families with the high costs of child care. The
CCDBG today effectively provides subsidies to the very lowest end of the income ladder.
And, the CDCTC serves moderate to higher income families. Families between 100-200
percent of poverty, however, can receive no assistance with child care costs through either
mechanism. Making the CDCTC refundable could help to close that gap and ensure that
these working families can stay afloat and out of poverty.
JANUARY EVENT RECOMMENDATIONS:
NOTE: Rollout strategy should be coordinated with both the Office of the Vice President and
the Office of the First Lady.
Federal Firearms Enforcement Budget Initiatives and Gun Violence Reduction Strategy.
This initiative puts an unprecedented level of resources into firearms enforcement, and
includes: 1) 500 new ATF agents and inspectors, to investigate more gun trafficking cases
and to bring the successful Youth Crime Gun Interdiction Initiative to more cities, and to
crack down on unscrupulous dealers, manufacturers and distributors; 2) a comprehensive
crime gun tracing package; 4) 1,000 new gun prosecutors and additional funds to help cities
create community gun prosecutors; 5) a major expansion of existing ballistics testing
systems; 6) funding for better Brady background checks; and 7) a new national notification
system tied to NICS that speeds certain Brady denials (felons and other restricted persons) to
local authorities. We could also release our gun violence reduction strategy, developed in
response to the President's directive earlier this year. The report will also lay the
groundwork for current and new legislative/budget proposals: more resources at the
state/federal level, stronger gun laws, industry accountability, prevention and local
partnerships. NOTE: This is our highest priority event, and must be done before the
January 21st Gun Industry Annual Trade Show.
Medicare Fraud. This new $30 million initiative will create a team of over 100 anti-fraud
analysts to be placed in the offices of Medicare contractors nationwide to ensure a
swift and coordinated response to suspected instances of fraud. In addition, it will
invest new funds to implement new, financial management computer systems to
accurately track and identify claims payments and prevent Medicare claims
processors and auditors from defrauding the program. This initiative was developed
in response to a critical GAO report detailing a myriad of abuses and a range of
fraudulent activity by Medicare contractors. Any announcement on this front should
be coordinated with the early January release of an HHS-DOJ report detailing our
current success in fighting fraud, waste and abuse in Medicare.
Teacher Quality Initiatives. The Teaching to High Standards block grant is a $1 billion
initiative that includes: 1) a pay-for-pcrformance and peer review program; 2) Troops to
Teachers; 3) teacher recruitment proposal that would provide a down payment on the Vice
President's 21st Century Teachers Corps (modeled after Teach for America), and an OMB
initiative to recruit future teachers while they're still in high school; 4) principals initiative to
fund independent School Leadership Centers to recruit nontraditional candidates and to focus
on effective management, school design, technology, and district governance; and 5) a
continuation of the President's class size reduction initiative. The President could
announce this budget initiative at the Department of Education's Teacher Quality
Summit, January 10-12, which will include participation by university presidents,
deans, professors, and teachers (approx. 800 participants).
Health Insurance Coverage. This initiative to expand access to affordable health
insurance to working Americans represents the most significant investment in health
coverage in recent years. Its cénterpiece is a proposal to give states financial
incentives to cover uninsured parents of children eligible for Medicaid or the
Children's Health Insurance Program (CHIP). The initiative could also help: (1)
people without access to job-based insurance by offering a 15 percent tax credit
towards individual health insurance; (2) people ages 55 to 65 buy into Medicare and
offers them a new tax credit to make this option more affordable; (3) workers in
small businesses by providing firms a 25 percent tax credit for small businesses that
join purchasing coalitions; (4) workers between jobs by providing them and their
former employers a tax credit towards COBRA coverage; and (5) legal immigrants
by allowing states to cover them in Medicaid or CHIP at states' option. These
policies to expand access to affordable insurance would be complemented by an
investment of an additional $175 million in community-based efforts to strengthen
the safety-net (e.g., community health centers, public hospitals). This announcement
could be timed to coincide with the January 13 release of a HIAA / Families USA /
RWJ study on this issue.
Preventing Medical Errors and Improving Health Care Quality. This initiative will
respond to the recent Institute of Medicine study and the President's request to
develop new avenues for the prevention of medical errors. It will include new
funding to increase medical errors prevention, patient safety research, information
dissemination, and create a new Center for Patient Safety at HHS. It will also
include new funds to strengthen FDA's post-market surveillance system for
prescription drugs and its voluntary adverse event reporting system for health
professionals and consumers, and to implement new requirements for the naming,
labeling, and packaging of drugs designed to prevent medical errors. The FY 2001
budget will include steps to develop a consistent national architecture for health care
information technology. This could be combined with patient safety regulatory
actions at both the DVA and HCFA - for instance, requiring hospitals participating in
Medicare to implement error reduction programs. Any action we take on this front
could be timed with an announcement that we are creating a private sector Task
Force on this issue to complement ongoing Federal efforts. (This piece is currently
being reviewed to ensure that it is not duplicative.)
Tax Cut Radio Address (i.c., long-term care, faith-based) (DEFER TO NEC)
AVAILABLE FOR ADVANCES BEFORE STATE OF THE UNION:
NOTE: Rollout strategy should be coordinated with both the Office of the Vice President and
the Office of the First Lady.
EDUCATION
SAT and ACT Test Preparation. This program would support partnerships among high
schools, proven providers of college test prep courses (such as Kaplan and Princeton
Review), and community-based organizations to offer high-need students college test
preparation and other services related to college admissions. (Policy still in development.)
AP Online. This distance learning initiative aims to ensure that students in underserved areas get
access to high-quality academic courses and ESL programs online. In order to ensure high-
quality content, the proposal also calls for a partnership with leading course software
developers like APEX, which would subsidize the cost of high quality Web-based course
development in return for cut-rate prices for high poverty school districts.
Higher Education Initiatives (DEFER TO NEC)
Special Education.
HEALTH CARE
Internet Drug Sales Initiative. This $10 million initiative would invest new funds in the
investigation and prosecution of entities selling drugs illegally over the Internet. It
would establish new Federal certification requirements for all Internet pharmacy
sites to ensure that they meet all state and Federal requirements. It would also
update the current penalty structure to create new civil money penalties of up to
$500,000 for dispensing without a valid prescription over the internet or for selling
drugs without Federal certification; give Federal agencies authority to require
internet service providers to verify the identity and business location of domain
name registrars; and provide FDA with new administrative subpoena authority in
order to gather the information necessary to build a case against offenders.
Children's Health Insurance Program Outreach Initiative. This initiative promotes
school-based CHIP and Medicaid enrollment by: (1) allowing school lunch
application information to be shared with Medicaid and CHIP for outreach; (2) letting
enrollment in the school lunch program serve as a proxy for Medicaid or CHIP
eligibility while formal applications are being processed; and (3) allowing additional
sites like child care referral centers and homeless programs to determine presumptive
eligibility. The initiative would also simplify the enrollment process. Finally, it
creates a $10 million competitive state grant program in Medicaid to coordinate
programs and increase enrollment of homeless children and families in Medicaid,
CHIP, and other social service programs. Its rollout could be combined with the
release of a new report announcing that 2 million children have been enrolled in
CHIP - a doubling in enrollment in the past year. This announcement could be
timed to coincide with the January 4 release of a RWJ / Kaiser Family Foundation
study on outreach and enrollment. Cost: TBD, about $1-1.5 billion/5 years.
Finishing The Job on Kennedy-Jeffords. This proposal rounds out the Work Incentives
Improvement Act by removing the arbitrary limit on Medicare coverage imposed in
the final compromise. The final legislation limits Medicare coverage for people
returning to work, postponing rather than eliminating the disincentive to work.
of
Announcing A Major Increase In The War On Emerging Infectious Diseases. This $20
million initiative will dedicate new funds to further the development of a national electronic
disease surveillance network to track newly emerging infectious diseases, such as West Nile-
like encephalitis, new strains of influenza, and new hospital acquired infections, and provide
essential information to public health clinics, hospitals, and health care providers. Funds will
also be used to enhance local investigations, education, and focused disease monitoring
nationwide, and promote the dissemination of new software for outbreak detection.
&
Determining The Environmental Causes Of Diseases, Including Breast And Prostate
Cancer. This initiative will invest $7.5 million to: evaluate the exposure of men,
women, and children to toxic substances that cause cancer; assist state and local
public health officials to ensure the thorough investigation of cancer clusters; and
support local efforts to rapidly evaluate the impact of public health disasters, such as
chemical spills and groundwater contamination, on local residents. It will also
provide an additional $5 million for breast cancer screening programs at CDC.
Unveiling Major New Investment To Combat HIV And AIDS. This initiative would invest
an additional $50 million in domestic community based interventions to: help
150,000 individuals who are not aware of their infection learn their status and
access prevention counseling and treatment services; expand community
prevention planning, with a special emphasis on racial and ethnic minorities,
women, injection drug users and their partners, and young gay men; and building a
data infrastructure to assist local public health officials in targeting their prevention
efforts. It will also invest an additional $40 million in efforts in activities to prevent
AIDS worldwide, including: providing care for children who have been orphaned by
AIDS; implementing workplace prevention programs through international labor
unions; and providing treatment for the opportunistic infections associated with the
disease. Finally, the new investment in Ryan White and ADAP would shorten the
waiting time to access the comprehensive range of drugs needed to effectively treat
this disease. Total investment $225 million. (Note: Ryan White is up for
reauthorization this year.)
Increasing Prevention And Treatment Services For Mental Illness And Substance Abuse.
This $170 million proposal would invest new funds in treatment for the severely
mentally ill and establish a new local mental health enhancement program that
would provide new prevention, early intervention, and treatment services for
Americans with less severe mental illnesses. It would also provide new funds for
substance abuse treatment services nationwide, with an emphasis on ethnic and
racial minorities. (POTENTIAL MEG EVENT.)
Eradicating Polio Worldwide. Medical and scientific experts estimate that we will be
able to eradicate polio worldwide by the end of the year 2000. HHS believes that a
$15 million increase will intensify current efforts to eradicate this disease, including:
providing estimate 187 million doses of polio vaccine for use during worldwide
National Immunization Days. In addition, funds will be used to develop permanent
systems of disease surveillance, especially important for polio, where only one in
200 cases causes weakness or paralysis, thus allowing most polio infections to go
undetected.
Improving Nursing Home Quality. This $16.8 million initiative provides new funds to
help states strengthen nursing home enforcement tools and increase Federal
oversight of nursing home quality and safety standards. Funding will be provided for
new enforcement provisions and increased surveys of repeat offenders and improve
surveyor training, to address the backlog of nursing home appeals, and handle
increased legal advice, litigation support, and hearings on nursing home
enforcement cases. This initiative could be combined with new regulatory actions by
HCFA to improve its survey and certification efforts.
Increasing Family Planning Efforts Nationwide. These grants fund family planning
clinics providing reproductive health services and clinical care to over 5 million low
income women. These new funds ($35 million) will be used to prevent over a million
unintended pregnancies year by improving the delivery of comprehensive
reproductive health services, including STD and cancer screening and prevention,
and HIV prevention, education and counseling; providing educational programs that
encourage adolescents to postpone of sexual activity; increase the accessibility of
contraceptive counseling and services; increasing efforts to provide effective
contraceptives to those in need; and developing partnerships with other community
based providers to conduct outreach to adolescents at risk.
&
Providing Education Funds To Children's Hospitals. This initiative doubles to $80 million
our funding level to provide freestanding children's hospitals with Federal financing for the
cost of providing direct graduate medical education (GME) associated with the provision of
care to Medicaid patients. While some states have funded GME through Medicaid, most
programs are ending as more states move to Medicaid managed care.
NON-BUDGET EVENTS:
Releasing Prescription Drug Cost Report. In October, the President directed the
Secretary Donna Shalala to produce the first-ever Health and Human Services
(HHS) study of prescription drug costs and trends for Medicare beneficiaries with
and without coverage. The study will investigate: price differences for the most
commonly used drugs between people with and without coverage; drug spending by
people of different ages, as a percentage of income and as a percentage of total
health spending: and trends in drug expenditures by people of different ages, as a
percentage of income and total health spending.
CHILDREN AND FAMILIES
Create a New Paid Leave Demonstration Program. This is a new $18.5 million
competitive grant fund to support innovative state efforts to provide partial wage
replacement to workers on some form of family leave. States could use the
Unemployment Insurance system (subject to final DOL rule-making), Temporary
Disability Insurance programs; or some other vehicle.
CRIME
Smart Gun Technology. (Anytime in January). We could highlight the $10 million that will be
provided in the budget to fund smart gun and other personalized gun technology development
at DOJ/National Institute for Justice.
Ex-Offenders Initiative. We could highlight a new Justice-Labor initiative that funds a range of
programs to prisoners after their release make the transition to work and community life
and also creates police-social service partnerships to provide effective supervision of these
ex-offenders. The budget will contain $60 million for a DoJ initiative to establish reentry
partnerships and reentry courts, and $75 million for a complementary DoL initiative to
connect ex-offenders to jobs skills training.
HUD Gun Initiative. We could announce a new $30 million HUD gun violence reduction
initiative to promote public education on gun safety, implement local gun violence reduction
programs, and fund technology such as computer crime mapping to target gun crimes.
IMMIGRATION AND CIVIL RIGHTS
ESL/Civics Initiative. This proposal funds English as a Second Language Programs that are
linked to civics and lifeskills instruction. In FY2000, the President requested $70 million
and received $25.5 million. In FY2001 budget request is $75 million.
Naturalization Testing Process Streamlining. This proposal would streamline and improve the
current naturalization citizenship test process.
NATIVE AMERICANS INITIATIVE
Native American Initiative. We could announce our over $1 billion Native American FY2001
budget initiative, which brings together all agencies to address the needs of Native American
communities. Highlights include: increased funding for BLA school construction; initiatives
to address the "digital divide" such as encouraging Native Americans to enter information
technology fields; funding 500 new Native American school administrators; an over $200
million increase for the Indian Health Service, and over $100 million for new roads in Indian
Country.
HOMELESSNESS
HUD Budget and Mainstream Homeless Initiative. We could announce our FY2001
homelessness budget, which is over $1 billion in HUD funding and includes continuum of
care and emergency shelter grants. We could also highlight a new initiative that would
create, for the first time, a mechanism by which states are provided assistance in order to
ensure that so-called "mainstream" programs - - Medicaid, CHIP, TANF, Food Stamps, and
the Mental Health and Substance Abuse Block Grant -- are accountable to the homeless.
ENVIRONMENT
Lands Legacy Initiative. The POTUS would announce a major increase in funding to protect
sensitive lands at all levels of government and would once again call for creation of a
permanent trust to provide dedicated funding for this purpose in the future. The
announcement could also be combined with a POTUS status on the possible creation of new
national monuments.
Climate Change Initiative. The POTUS would announce a major increase in support for
climate activities. The announcement would have four major parts: (1) the next installment
in the multi-year Climate Change Technology Initiative, including tax proposals; (2) a
renewed call for the EPA's innovative Clean Air Partnership Fund; (3) vigorous
implementation of the President's executive order on biofuels to promote renewable energy
sources; (4) increased funding for the Global Environment Facility, the lead U.S. entity for
promoting positive international action on climate change; and (5) a new international effort
to promote clean U.S. technologies abroad.
Tropical Forest Conservation. The proposal would expand AID's work on tropical forest,
implement the Congressionally authorized Tropical Forest Conservation Act at Treasury, and
provide technical assistance to struggling developing countries through USDA. The
initiative would be designed in part to help the U.S. to respond to criticisms heard during the
WTO process about the impacts of international trade on forests.
Salmon Recovery. This proposal consists of a Salmon Recovery Fund, which funds state efforts
in the Pacific NW and the implementation of the treaty with Canada, and Endangered Species
Act money for NOAA. The FY 2001 proposal maintains FY 2000 proposed level of $160
million for the Fund.
SCIENCE & TECHNOLOGY
Research and Development Initiative ($1.5 billion)
-including restoration of balance between biomedical and other scientific research
-clean energy
AGRICULTURE (DEFER TO NEC)
-Farm Safety Net
-AgNet Registry for Farmworkers
OTHER
Equal Pay Initiative. We could rollout our joint Department of Labor and Equal Employment
Opportunity Commission equal pay. initiative. This rollout would include announcement of a
20m
new $10 million initiative (paid for by the fees from HIB visas) in order to provide training
to women in nontraditional jobs in the high tech industry.
Supporting Youth-Driven Solutions to Community Problems through National Service
Three new initiatives to support the President's continuing commitment to community service
and to respond to the growing need to empower youth in developing their own solutions to
community problems. The budget for the Corporation for National Service includes: a $5
million Community Coaches initiative: $3 million for Youth Empowerment Fellowships; and
$5 million to begin an AmeriCorps Reserves.
Philanthropy/Faith-Based Initiatives. Among the possible announcements we can make are 1)
steps to increase involvement of community- and faith-based groups in after-school and other
important programs; and 2) new tax incentives to promote increased charitable giving by all
taxpayers.
Hispanic Agenda Budget Items.
-Education Package
-Welfare
-Food Stamps
-Immigration
Tobacco Penalty.
TO BE HELD FOR STATE OF THE UNION:
NOTE: Rollout strategy should be coordinated with both the Office of the Vice President and
the Office of the First Lady.
Universal After-School to Lift Standards in Failing Schools. This package includes the
following initiatives: 1) Universal After-School: by more than doubling after-school
funding in the FY 2001 budget (from $453 million in FY 2000 to $1 billion in FY
2001), we can meet an urgent goal, which is to provide after-school and summer
school to every student in a failing school; 2) Reward High Performance: from FY 2001-
2003, states would receive awards for adopting statewide accountability systems --- including
high school exit exams, teacher quality requirements, and school report cards - ahead of the
timetable called for in the President's ESEA proposal. After 2003, the Reward Fund would
incorporate student performance measures as well; 3) Title I Accountability Fund: This year
the President's budget will increase the set-aside for Title I accountability from $134 million
to $250 million. This funding helps states and localities fix failing schools or shut them
down.
School Construction: A New Initiative to Repair Existing Schools. In addition to our existing
plan which would leverage $20 billion in school construction over 5 years, this year we are
proposing a discretionary initiative for FY2001 that would provide funds for immediate
repairs. As part of the discretionary budget, this plan will make it more difficult for Congress
to ignore school construction in the budget debate next fall.
A Small Schools Initiative to Reform the American High School. This initiative would offer
competitive grants to school districts for opening smaller schools (including charter schools),
or for breaking up larger schools and using strategies such as schools-within-schools, career
academics, or restructured school days.
Child Care Initiative. (1) $818 million increase in the Child Care and Development Block
Grant (discretionary) to serve 275,000 additional low-income children with child care
subsidies; (2) Early Learning Fund (funding TBD) to help local communities promote
early learning and improve child care quality, through a variety of allowable activities
including licensing, accreditation, parent education, etc.; (3) Expansion of the Child
and Dependent Care Tax Credit to provide low and moderate income families with
greater tax relief for child care costs (cost/refundability TBD); (4) new tax credit for
businesses that offer child care services to their workers; (5) increase in campus-
based child care ($ TBD); and (6) new Early Childhood Professional Development
Grants to provide grants to partnerships between universities, child care providers,
and school districts to offer training and professional development to child care
providers around language and literacy ($ TBD).
Dramatic increase in Head Start funding. Announce $1 billion increase in Head Start funding
for FY 01, the largest increase in the program's history. The $1 billion could provide
2014
resources to reach nearly 1 million children with Head Start services (roughly 950,000).
Responsible Fatherhood Initiative: Promoting responsible fatherhood is the critical
next stage of welfare reform and one of the most important things we can do to
reduce child poverty. We could a) announce new data showing the dramatic
increases in child support collections made by this Administration and at the same
time put forward a package of proposals to b) ensure every unemployed parent who
owes child support goes to work and supports his children; c) collect more child
support from parents who can afford to pay; d) revise outdated rules to ensure
mothers and children receive more of the support the father pays; and e) promote
efforts to ensure fathers returning from prison become responsible fathers and
responsible members of society.
Digital Divide. New initiatives: subsidized home Internet access for low-income familics, and
major boost for community technology centers. (NEC has more information).
Gun Initiatives.
Universal Banking. (NEC)
One of Several Possible Tax Cuts (i.e., DCTC, faith-based, EITC) (NEC)