Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
1515712
label
FY 1977 Presidential Review - HEW
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
1515712
sourceUrl
contentType
document
title
FY 1977 Presidential Review - HEW
citationUrl
collections
James M. Cannon Files (Ford Administration)
James Cannon's Budget Files
subjects
Federal budget
iiifBase
thumbnailUrl
largeImageUrl
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
1515712
coverageEndDate
dateQualifier
?
logicalDate
1975-11-30
month
11
year
1975
coverageStartDate
dateQualifier
?
logicalDate
1975-11-01
month
11
year
1975
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
url
mediaId
1a800399d44b0718
ocrText
The original documents are located in Box 64, folder "FY 1977 Presidential Review -
HEW" of the James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 64 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
1977 Presidential Review
Department of Health, Education, and Welfare
Table of Contents
TAB A Summary tabulation of the 1977 Budget amounts requested and recommended.
TAB B Summary of the principal budget decisions reflected in the OMB recommendation.
TAB C Issue Papers
Effect of issue on outlays
(dollars in millions)
Issue
1977
1978
H-1. Medicare
- 2,213
- 2,300
H-2. Medicaid/Special State Health Revenue Sharing
+
8
I
50
H-3. Health Resources Administration
-
61
I
259
H-4. National Institutes of Health
-
50
-
32
H-5. Health Services Administration
-
908
I
917
H-6. Alcohol, Drug Abuse, and Mental Health Admin
-
185
-
323
H-7. Other Health Programs
I
91
I
114
E-1. Higher Education Student Assistance
I
339
1
319
E-2.
Impact Aid
-
218
-
242
E-3. Education for the Handicapped
I
17
I
77
E-4. Emergency School Aid
XXX
I
7
E-5. Education for the Disadvantaged
-
198
-
315
E-6. Education Research
-
28
I
56
E-7. Library Resources
-
96
-
108
E-8. Office of Education--Administration
-
14
-
16
E-9. Higher Education Non-Student Assistance
I
9
I
79
I-1. Social Security Legislation
- 3,728
- 7,030
I-2. Cuban Refugees
XXX
XXX
I-3. Aging Nutrition
XXX
XXX
I-4. Vocational Rehabilitation
-
78
-
78
I-5. Social Services
I
400
I
500
TAB A
Department of Health Education, and Welfare
1977 Budget
Summary Data
($ In millions)
Budget
Full-time
Authority
Outlays
Permanent
TOTAL
1975 Actual
116,489
111,907
129,285
141,804
1976 February Budget
120,031
118,062
124,437
144,285
Agency request
125,296
127,102
140,288
153,919
OMB recommendation
124,132
126,183
134,630
147,130
OMB employment ceiling
XXX
XXX
136,550
148,898
TQ February Budget
32,432
31,290
XXX
XXX
OMB recommendation
33,012
32,491
XXX
XXX
1977 planning target
132,673
136,397
XXX
XXX
Reduction target
XXX
133,200
XXX
XXX
Agency request
140,873
144,811
147,177
159,701
OMB recommendation
136,963
135,400
125,697
138,197
1978 OMB estimate
156,774
145,409
122,137
134,637
1
1977 Budget
Department of Health, Education, and Welfare
Summary of Full-time Permanent Employment
1976
1977
9/30/75
HEW
OMB
HEW
OMB
1978
Actual
Request
Recom.
Request
Recom.
Est.
Health
Food and Drug Administration
6,556
6,431
6,431
6,892
6,500
6,500
Health Services Administration
15,432
16,216
15,000
17,296
9,000
9,000
Center for Disease Control
3,634
3,639
3,543
3,818
3,143
3,143
National Institutes of Health
10,627
10,399
10,323
10,883
10,323
10,323
Alcohol, Drug Abuse, and Mental
Health Administration
5,417
5,607
5,400
5,853
5,200
5,150
Health Resources Administration
1,879
2,090
2,018
2,204
1,662
1,662
Assistant Secretary for Health
1,000
1,106
1,000
1,114
1,000
1,000
Subtotal--Health programs
44,545
45,488
43,715
48,060
36,828
36,778
Education
Office of Education
2,755
3,019
2,995
3,368
2,936
2,936
National Institute of Education
317
330
330
330
330
330
Assistant Secretary for Education.
203
253
253
282
240
240
Subtotal--Education programs
3,275
3,602
3,578
3,980
3,506
3,506
Income Maintenance
Social and Rehabilitation Service.
1,715
2,223
1,728
2,745
1,033
1,033
Social Security Administration
73,808
81,273
78,359
83,613
77,010
73,500
Office for Human Development
1,355
1,485
1,383
1,570
1,391
1,391
Subtotal--Income Maintenance
programs
76,878
84,981
81,470
87,928
79,434
75,924
Departmental Management
5,401
6,217
5,867
7,209
5,929
5,929
TOTAL
130,099
140,288
134,630
147,177
125,697
122,137
2
1977 Budget
Department of Health, Education, and Welfare
Full-Time Permanent Employment
Health
The HEW proposed increase of 3,515 represents a 8% increase over the actual September 30,
1975, employment level of 44,545. HEW recommends that the Administration (1) accept over
$1 billion of congressional add-ons to the President's February 1976 Budget request of
$4.5 billion; and (2) seek an additional $500 million in 1977. The HEW employment in-
crease request is inconsistent with the current effort to hold down Federal employment
and outlays. In any event, the current employment level for health agencies is adequate
to handle likely congressional add-ons.
The OMB recommendation of 36,828 is a decrease of 7,717 below the actual September 30,
1975, employment level. This 17% decrease reflects:
-- recommended proposed program funding levels lower than requested by HEW;
-- proposed termination of the special status of merchant seamen as the only non-
Federal occupational group entitled to free services at the Public Health Service
hospitals; and
-- proposed consolidation into a State Health Revenue Sharing grant the health
service programs of Medicaid, the Center for Disease Control, Health Services
Administration, and the Alcohol, Drug Abuse, and Mental Health Administration,
as well as health planning and construction programs of the Health Resources
Administration.
Education
HEW requests 3,980 positions for FY 1977 for the Office of Education, the National Insti-
tute of Education, and the Assistant Secretary for Education arguing that increased staff
is needed to handle problems developing in such areas as Guaranteed Student Loans and Basic
Opportunity Grants. The OMB recommendation of 3,506 positions reflects the program re-
ductions proposed and our belief that the developing problems can be met through reallocating
positions from administrative and support areas. A 2% increase in productivity is also
assumed.
3
Income Maintenance
The OMB recommendation for the Social Security Administration (SSA) provides for no in-
crease from the February budget for FY 1976 and for a small increase in FY 1977. This
is a tight level and may require an upward adjustment in the ceiling if backlogs unexpectedly
increase beyond acceptable levels. OMB does not believe that this tight level carries
any risk of missing monthly check payments, but we will closely monitor the SSA workload
statistics.
For the Social and Rehabilitation Service (SRS) HEW requested 2,223 and 2,745 positions
for FY 1976 and FY 1977, respectively, compared to the September 30, 1975, on board strength
of 1,715. Increases were requested for administrative needs and penalty enforcement in
the social services program and for improved fraud and abuse control in the Medicaid program.
The OMB recommendation provides 1,728 positions for FY 1976 and 1,033 positions for FY
1977, on the basis that: (1) substantial capacity already exists in SRS to improve adminis-
tration and enforce penalty requirements; (2) the recently enacted Title X of the Social
Security Act took away Federal controls over the substance of State social services programs,
thus greatly reducing the need for Federal employees to review State decisions; and (3)
the proposal for a Health Services block grant eliminates most of the need for staff now
administering the Medicaid program.
For the Office of Human Development (OHD), HEW requested 1,570 positions in FY 1977, com-
pared to its September 30, 1975, employment of 1,355. OMB recommends 1,391 positions,
which recognizes that OHD has been able to manage its programs while operating below autho-
rized strength, allows the increases approved in the 1976 Budget, and provides added staff
to implement the Randolph-Sheppard (blind stand) Amendments of 1974.
Departmental Management
HEW requested a large increase in positions for FY 1977 in legal, accounting, and auditing
services and civil rights activities. OMB recommends no increases for FY 1977, except
for the Office for Civil Rights where substantial additional workload has been created
by new legislation (Title IX of the Education Amendments of 1972 and Section 504 of the
Vocational Rehabilitation Act of 1973) and court orders establishing stringent timetables
for complaint resolution by the Office for Civil Rights.
4
1977 Budget
Department of Health, Education, and Welfare
Summary of Recommended Program Reductions
($ in millions)
1976
TQ
1977
1978
Outlays
Outlays
B.A.
Outlays
Outlays
Health programs
Current base
31,806
8,399
38,084
37,419
41,892
Recommended level
30,625
7,913
36,304
32,521
36,686
Reduction
1,181
486
1,780
4,898
5,206
Education programs
Current base
7,657
1,566
8,058
7,800
7,981
Recommended level
7,486
1,502
6,229
6,694
6,231
Reduction
171
64
1,829
1,106
1,750
Income Maintenance programs
Current base
88,324
24,229
95,631
101,057
110,453
Recommended level
88,052
23,039
94,380
96,151
102,440
Reduction
272
1,190
1,251
4,906
8,013
Other
20
37
50
34
52
HEW Totals
Current base
127,807
34,231
141,823
146,310
160,378
Recommended level
126,163
32,454
136,913
135,366
145,357
Reduction
1,644
1,777
4,910
10,944
15,021
5
TAB B
1977 Budget
Department of Health, Education, and Welfare
Summary of Principal Budget Decisions
Reflected in the OMB Recommendation
The Department's share of the $395 billion 1977 outlay goal is $133.2 billion.
The current services outlays for the Department of HEW are projected to grow from $127.7 billion
in 1976 to $146.3 billion in 1977. Virtually all of this $18.6 billion increase is accounted for by
the relatively uncontrollable programs: OASDI, Medicare, Medicaid, SSI, Public Assistance, Social
Services, and coal miners benefits. The current services estimates for these seven programs alone
total $131.2 billion.
The need to take strong actions to hold down outlays has been the primary factor influencing our
recommendations for the HEW budget. The Department has requested $144.8 billion, close to the current
services estimate. OMB has found no practical way to hold down the growth in uncontrollable programs
to the extent necessary to reach the HEW total target of $133.2 billion.
Our recommendations hold the uncontrollable increases to $11 billion. These include (as
described in the following papers) holding Social Security and other cost-of-living increases to 60%
of the adjustment now provided in law; placing limits on the growth of hospital and physician charges
reimbursable under Medicare; merging the uncontrollable Medicaid and discretionary health service
programs into State health revenue sharing, with a fixed dollar limit; and reducing the present
ceiling on social services grants.
Therefore, despite the announced aim of reducing the growth in Federal programs, no growth can
be recommended in the totals for the discretionary health, education, and social service programs.
In fact, the OMB recommendation reduces discretionary programs $1.8 billion, or 12%, below our current
1976 estimate, and $1 billion, or 7%, below the 1975 actual.
The OMB recommendations would result in 1977 outlays for HEW of $135.4 billion, some $2.2 billion
higher than the target. Final economic assumptions may change our estimates. Decisions in other areas
may affect the actions needed here to achieve our $395 billion goal. We therefore recommend waiting
until later before deciding on any further reductions in HEW. If necessary, further reductions could
be made in the fixed dollar limit proposed for health services block grants (without going below the
1976 budget level), the limit on automatic cost-of-living adjustments in Social Security payments
could be lowered, or current administration policies, such as provision of capitation subsidies
to medical and dental schools, could be reconsidered.
Despite the primary emphasis on controlling outlay growth, the OMB recommendations are also
directed toward program improvements, including decreasing Federal control and increasing State,
local and individual choice. The block grant proposal for health services would enable States to
run their own medical programs for the needy by eliminating excessive Federal restrictions and
controls. Moreover, a fixed dollar limit should encourage States to become concerned with rising
health costs, and to find solutions which permit phase out of the Federal cost limits proposed
for Medicare. The Administration's efforts to revise higher education programs to provide greater
student choice would be continued. The reduction in social service grants would be accompanied
by removal of Federal restrictions and matching requirements.
The Domestic Council staff is considering other block grant proposals (education, social
services, research and development). If decisions are made to go ahead with any of these, the
amounts included in our recommendations for the programs to be merged can be proposed for the
block grant. The Domestic Council staff is also considering a welfare reform proposal and a
gradual approach to health insurance. If the first of these has a delayed effective date, no
change in our 1977 budget recommendations would be required. However, the desirability of
seeking a consolidation of health programs at the same time we are designing a health insurance
program which could eliminate the need for service support programs will have to be carefully
considered. A considerable revamping of our health activities might be required.
D PAB
HEALTH
1977 Budget
Department of 1
1, Education, and Welfare
Health Programs
($ in millions)
1973
1975
1976
1977
1978
President's
Exp. Cong.
ONB
Exp. Cong.
HEW
ONB
ONB
Actual
Actual
Budget
Action
Recom.
Action
Request
Recom.
Est.
Medicare
BA
11,248
16,890
18,573
18,532
18,668
22,399
22,218
22,218
26,900
O
9,479
14,781
14,990
17,464
16,723
21,659
20,962
18,749
21,600
Medicaid
BA
5,764
6,996
7,156
7,766
8,262
9,292
8,992
--
--
o
4,591
6,840
7,156
8,184
8,184
9,292
8,992
--
--
State Health Revenue Sharing BA
--
--
--
--
--
--
10,000
10,500
0
--
--
--
--
--
:
9,000
10,450
Health Resources Admin-
BA
630
814
626
910
517
954
833
431
442
istration
O
1,008
1,110
978
1,242
1,163
1,297
1,027
966
911
National Institutes of
BA
1,531
2,093
1,805
2,306
1,980
2,536
2,188
2,166
2,166
Health
0
1,516
1,889
1,832
2,225
2,095
2,453
2,238
2,188
2,156
Health Services Admin-
BA
1,032
1,213
1,007
1,297
1,007
1,384
1,493
531
523
istration
o
875
1,035
1,091
1,291
1,126
1,340
1,415
507
523
Alcohol, Drug Abuse, and
BA
743
848
702
924
714
1,041
954
561
437
Mental Health Admin-
o
606
950
786
924
877
900
865
680
617
istration
Center for Disease Control
BA
146
152
133
166
133
174
213
99
99
O
136
154
150
176
157
164
181
122
119
Food and Drug Admin-
BA
150
201
203
203
203
226
257
220
220
istration
O
143
201
215
216
216
224
247
219
220
Assistant Secretary for
BA
76
72
70
69
69
78
82
78
86
Health
O
57
66
93
84
84
90
94
90
90
Total
BA
21,320
29,279
30,275
32,173
31,553
38,084
37,230
36,304
41,373
O
18,411
27,026
27,291
31,806
30,625
37,419
36,021
32,521
36,686
H-1
Budget
Department of Hea.
Education, and Welfare
Issue #H-1: Medicare
Statement of Issue. What measures should be proposed to limit the rise of Medicare program costs?
Background. Medicare provides health insurance coverage for 24 million aged and disabled persons. From
1974 to 1977, program outlays are expected to rise from $11 billion to $22 billion, and a further rise
to $36 billion is projected by 1981. These increases largely result from rising health costs. As a
result of inflationary trends, the hospital insurance (HI) trust fund is underfinanced and is expected to
be depleted by about 1990.
For the past two Congresses, the Administration has submitted cost-sharing proposals to restrain the
growth of Medicare outlays: (1) a requirement that beneficiaries pay 10% of hospital charges from the
2nd to 60th day of care to reduce overutilization; and (2) an increase in the SMI deductible for physicians'
services to reflect Social Security cash benefit increases. Hospital care is now free from the 2nd to 60th
day of care and the deductible for physician insurance is fixed by law at $60. Under the proposals,
separate $750 cost-sharing limits would be placed on cost-sharing for both hospital and physicians services
to provide catastrophic protection. The Administration has also requested legislation to deny excessive
rates of increase in hospital costs paid by Medicare.
HEW Request. The HEW proposal is for levels of $17.5 billion in 1976 (the same as current law) and $21
billion in 1977 (a $600 million saving). HEW recommends dropping the cost-sharing reform proposal.
Secretary Mathews has stated that it has a "measure of programmatic justification, but, in our opinion,
stands no chance of being seriously considered by Congress, much less adopted."
HEW proposes, instead, a national system for Federal regulation of all hospital reimbursements from Federal
and non-Federal payors. The Federal government would encourage States to assume these functions, but
would regulate hospitals permanently if States did not do SO. The hospital industry includes about 7,000
hospitals with $50 billion of annual expenditures. No limit would be set on physician fees.
HEW argues that a national control system is the only effective measure for coming to grips with the
hospital inflation problem. In HEW's view, limits on Federal reimbursement rates--which comprise about
35% of hospital revenues--would deal only with a symptom of the problem and would be insufficient to
affect overall health inflation. The Administration's health insurance program (CHIP) required State
regulation of hospital costs under Federal guidelines. HEW believes initiating a control system now is
consistent with a requirement that States adopt such a system under any national health insurance plan.
The HEW proposal would limit rises in hospital per diem costs to an average of 10% in 1977, in contrast to
an expected 15% rise, with 1977 savings of $600 million.
H-2
OMB Recommendation. The OMB level would be $16.7 billion in 1976 ($740 million less than HEW) and $18.7
billion in 1977 ($2.2 billion less than HEW) OMB recommends continued support of the cost-sharing
proposals with 1977 savings of $1.7 billion. These proposals have a relatively strong programmatic
justification in terms of incentives against overutilization of services and they would put the hospital
trust fund on a sounder financial footing. The proposals are already before the Congress and would not
have to be reintroduced.
И
Federal regulation of all hospital income would inevitably lead to Federal review of individual hospital
operations. HEW is unable to provide explicit standards for judging that hospital costs are too high
or too inflationary in relation to the value of the services. Thus, such hospital regulation would be
highly judgemental, controversial, and far more difficult than regulation of other industries. It would
also require substantial increases in Federal employment.
(McKoM)
The OMB alternative would place a limit of 7% on Medicare per diem hospital rates ($810 million in 1977
savings) and 4% on Medicare physicians' fees ($ 178 million in 1977 savings). Hospitals would not be
permitted to charge inflation above the 7% increase to Medicare patients. The 7% limit is about the same
as the projected 6-7% rise in the consumer price index (CPI). Over the past ten years, increases in
hospital daily costs have averaged 13% annually--about 7% per year faster than the CPI. In view of these
extraordinary increases, we do not believe that a 7% limit would prevent delivery of essential services or
quality improvements.
HEW maintains that hospitals should not be held to CPI increases because they are labor intensive. More-
over, HEW argues that too tight a limit would incite hospital opposition to the necessary legislation.
HEW and OMB agree that, whatever the limit policy initiated, it should be continued in order to prevent
later "catch-up" inflation.
The OMB recommendation of a 4% cap on physicians' fee increases would be substantially less than the 10.8%
rise expected in the absence of limits. Physicians have been among the major beneficiaries of the Medicare
program, and some limits are appropriate in a period of budget restraint. HEW opposes limits on Medicare
physician payments because physicians might (1) pass costs to patients or (2) refuse to see Medicare patients.
The hospital and physician limits would be retained for two years during which HEW would be directed to
develop reimbursement policies for longer term implementation.
The OMB recommendation would also tighten administrative cost screens on routine hospital costs for 1977
savings of $100 million. The present screens exclude routine costs if they are higher than those incurred
by about 85% of comparable hospitals. The proposed action would lower the screen to 75%, the same as used
for physicians' fees.
H-3
19, / Budget
Department of Health, Education, and Welfare
Medicare
(Outlays in $ millions)
1976
1977
Expected
1975
February
Congressional
OMB
HEW
OMB
Actual
Budget
Action
Recom.
Request
Recom.
Present law
14,781
16,369
17,463
17,463
21,562
21,562
Proposed legislation
-- Cost-sharing reform
--
-1,279
--
-740
--- -1,700
-- Reimbursement limits
--
-100
--
--
-600
-988
(Hospitals)
--
(-100)
--
--
(-600)
(-810)
(Physicians)
--
--
--
--
--
(-178)
Administrative savings
-- Tighter limits on
routine hospital costs
--
--
--
:
--
-100
-- Other
--
--
:
----
:
-25
Total
14,781
14,990
17,463
16,723
20,962
18,749
H-4
1977 Budget
Department of Health, Education, and Welfare
Issue #H-2: Medicaid/Special State Health Revenue Sharing
Statement of Issue. Should the 1977 budget propose State Health Revenue Sharing--the consolidation
of Medicaid and the narrow categorical health services, planning and construction programs into a
new formula grant?
Background. In 1975, HEW spent $7 billion on Medicaid in addition to $1.6 billion on 16 separate
health services, planning and construction programs. In the past, the Administration has sought to
reform the Federal Medicaid matching formula and to consolidate and reduce funding for a number of
health service programs. The Congress has not accepted the proposals and has added new categorical
programs and funding.
- Inappropriate Federal Role and Inequities. There is no sound conceptual basis for either selecting
or distinguishing among existing categories centered on population groups, types of services, diseases,
and delivery mechanisms. In the absence of a valid conceptual framework for determining the Federal
role, there will always be pressure to create new categorical programs that increase the Federal role,
and Federal spending.
The design and funding of these programs raise serious questions concerning national health strategy
to assist the poor. These programs inequitably single out for special Federal subsidies certain States
and communities, diseases, organizational mechanisms, and individuals from others similarly situated.
Federal assistance to States per poor person ranges from $921 in New York and $953 in the District of
Columbia to $166 in Florida and $76 in Arizona. In general, wealthier, urban States receive disproportionately
large amounts of Federal funds, reflecting those States' ability to meet matching requirements under
Medicaid, as well as "grantsmanship" in obtaining project grant funds. The narrow categorical health
service programs are also inequitable in providing a wide array of services to certain groups, generally
without the needs and eligibility tests of Medicaid. A number of these programs by-pass State and local
governments, thus depriving them of discretion in setting priorities.
- Duplication and Inefficiency. The narrow categorical health service programs also duplicate many
services provided by existing community health resources and financed by Medicaid; they frequently
provide "medical social services" in addition to "traditional" health services. These additional
services and personnel--combined with lower productivity than in the private sector--contribute to
higher costs. Some governors have estimated they could reduce program costs by 10% to 15%, if the funds
were allocated to the States by formula.
H-5
HEW Request. HEW proposes continuing Medicaid without major reform ($9 billion) and accepting across
the board congressional increases in 1976 and seeking further increases in 1977 for the other programs
($1.5 billion). HEW believes that additional Federal spending under a comprehensive national health
insurance plan will ultimately address most of the problems identified above and that, in the interim,
HEW must "build capacity" to address "unmet needs" through the categorical programs.
OMB Recommendation. As indicated above, the problems attending current programs require reform.
The OMB recommendation folds Medicaid, health services, planning, and construction programs into a
single $10 billion State Health Revenue Sharing program (Attachment A). Federal funds would be allocated
to States based solely on the number of poor in each State, i.e., $400 per capita or $1,600 per family
of four. An alternative level of $9 billion would provide $360 and $1,440, respectively. In 1975,
national health spending amounts to $420 per capita for the general population; existing programs at
current levels would amount to $378 per poor person in 1976.
The current debate focuses on overall funding levels for narrow program categories promoted by special
interest groups. Consolidated State Health Revenue Sharing, on the other hand, will permit a discussion
of the Federal role in terms of an identifiable per capita Federal contribution to the States for the
poor and will sharpen the issue of relative State and Federal responsibilities for funding and priorities.
$
This approach offers an equitable and easily comprehensible Federal policy for contributing to the
health care of the poor.
The proposal also places a "cap" of $10 billion on Federal health service spending. Medicaid has grown
over 16% annually and is estimated to grow from $9.3 billion in 1977 to $14.9 billion by 1981. Thus,
substantial Federal savings will result if a "cap" can be maintained or if growth can be limited to 5%
per annum or the CPI. A "cap" will encourage States to control health care costs through health plan-
ning, licensure, prospective hospital budgeting and rate regulation.
Attachment B shows the proposed State distribution of existing categorical and Medicaid programs and
State Health Revenue Sharing. The Southern, Midwestern and Mountain States generally gain from the
new distribution, e.g., Texas and Florida would gain over $200 million apiece. The wealthier, urban
States generally lose funds, e.g., New York loses nearly $1 billion and California more than $250 million.
Shifts of these magnitudes in the distribution of Federal funds indicate the irrationality and inequity of
current programs. A 3-5 year phase-in may be desirable to soften the impact.
Attachments
H-6
1977 Budget
Att
ent A
Departmen
Health, Education, and Welfare
Special
atc Health Revenue Sharing
($ BA in millions)
1976
1977
Expected
Expected
1975
February
Congressional
OMB
Congressional
HEW
OMB
Program and HEW Agency
Actual
Budget
Action
Recommendation
Action
Request
Recommendati
State Health Formula Grant
--
--
--
--
--
--
10,000
Medicaid
6,996
7,156
7,766
8,262
9,292
8,992
Alcohol, Drug Abuse and
Mental Health Administration
CMHC
214
160
235
160
267
217
Alcohol--projects
65
45
70
45
75
68
--
--formula
52
46
56
46
60
52
--
Center for Disease Control
Rat Control
13
5
13
5
13
7
--
Lead-based Paint
9
4
9
4
9
8
Immunizations
6
5
6
5
6
8
Venereal Disease
28
20
28
20
28
28
--
Health Services Administration
Comprehensive Health Centers
200
155
197
155
200
197
--
!amily Planning
101
79
101
79
101
101
--
Migrant Health
24
19
24
19
24
34
1
State Formula Grants
90
90
--
90
90
--
Maternal and Child Health
295
211
305
211
295
315
I
Emergency Medical Services
37
25
37
25
37
37
:
Health Resources Administration
Health Planning
90
66
86
66
90
137
--
Construction
136
100
222
--
217
84
:
Office of Human Development
Developmental Disabilities
54
54
56
54
56
56
--
Totals--BA
8,410
8,150
9,301
9,156
10,860
10,431
10,000
0
8,610
7,546
8,346
8,566
9,874
9,584
9,000
H-7
impact OI State Health Revenue Sharing
Obligations
Total Obligations ($ millions)
Per Low Income Individual
B
1976
1977
1976
1977
Current
Revenue
Current
Revenue
H
it
Law
Sharing
Difference
Law
Sharing
Difference
Alabama
$164
$316
$152
$208
$400
$192
Attach
Alaska
16
13
-3
503
400
-103
Arizona
19
97
78
76
400
324
Arkansas
111
193
82
230
400
170
California
1,050
792
-258
530
400
-130
Colorado
96
97
1
396
400
4
Connecticut
105
78
-27
537
400
-137
Delaware
15
21
6
287
400
113
District of Columbia
108
45
-63
953
400
-553
Florida
167
402
235
166
400
234
Georgia
240
341
101
282
400
118
Hawaii
33
25
-8
516
400
-116
Idaho
32
34
2
384
400
16
Illinois
459
409
-50
449
400
-49
Indiana
150
182
32
330
400
70
Iowa
72
118
46
246
400
154
Kansas
71
101
30
281
400
119
Kentucky
155
265
110
234
400
166
Louisiana
156
344
188
181
400
219
Maine
67
48
-19
551
400
-151
Maryland
151
143
-8
423
400
-23
Massachusetts
386
174
-212
885
400
-485
Michigan
410
302
-108
543
400
-143
Minnesota
198
147
-51
540
400
-140
Mississippi
133
283
150
188
400
212
Missouri
103
248
145
166
400
234
Montana
31
34
3
370
400
30
Nebraska
51
69
18
291
400
109
Nevada
14
16
2
357
400
43
New Hampshire
25
24
-1
422
400
-22
New Jersey
248
212
-36
469
400
-69
New Mexico
42
84
42
198
400
202
New York
1,690
734
-956
921
400
-521
North Carolina
187
367
180
204
400
196
North Dakota
26
34
8
303
400
97
Ohio
298
383
85
311
400
89
Oklahoma
144
171
27
336
400
64
Oregon
77
87
10
356
400
44
Pennsylvania
456
453
-3
402
400
-2
Rhode Island
59
37
-22
635
400
-235
South Carolina
107
219
112
195
400
205
South Dakota
26
44
18
231
400
169
Tennessee
130
308
178
169
400
231
Texas
494
756
262
261
400
139
Utah
41
43
2
378
400
22
Vermont
32
19
-13
677
400
-277
Virginia
137
255
118
215
400
185
Washington
146
124
-22
471
400
-71
West Virginia
47
140
93
135
400
265
Wisconsin
275
155
-120
709
400
-309
Wyoming
8
14
6
223
400
177
19
idget
Department of Health, Education, and Welfare
Issue #H-3: Health Resources Administration (HRA)
Statement of Issue. What Federal support levels should be included in the 1977 Budget for the support of
health professions schools and students, health planning, and hospital construction?
Background. - Health professions education. The President recently accepted an HEW proposal to address
the problems of geographic and speciality maldistribution through capitation grants of $1,500 per
student to medical, osteopathic, and dental (MOD) schools agreeing to meet national conditions. HEW
is proposing the following national conditions:
- 50% of medical school residencies must be in primary care fields;
- 25% of all medical and dental students must accept Federal service commitment scholarships, if
offered; and
- all schools must maintain fiscal effort and dental schools must increase, and medical schools maintain,
enrollment levels.
- schools' curriculums must be approved by HEW to provide a "significant part" of training stressing
"continuous, comprehensive, and integrated health care."
Until the recent decision, the Administration had proposed a gradual phase-out of institutional subsidies
for health professions schools, (1) out of concern for the precedent of providing operating support to
all colleges and universities, and (2) because of the inequity of special taxpayer support for the highest
income professions, i.e., physician and dentist.
- Health planning. P.L. 93-641, the "National Health Planning and Resource Development Act," authorizes
Federal support of a nationwide network of State and local planning agencies, as well as related Federal
activities.
- Construction. There is an excess of hospital beds nationally. Since 1946, HEW has spent $4.5 billion
on construction projects through grants, direct loans, loan guarantees, and interest subsidies. This is
in addition to depreciation financing included in Medicare and Medicaid. HUD provides facility construc-
tion assistance in the form of insured loans for which the private borrower pays a premium. Currently,
the private sector is supporting "record-breaking" amounts of bond issues as well as depreciation
financing through private health insurance.
HEW Request. HEW proposes accepting $284 million of anticipated Congressional add-ons in 1976 for a
total of $844 million. In 1977, HEW requests $833 million.
H-9
- Health professions education. The HEW request reflects its belief that--in addition to capitation--
student assistance and special project funds are necessary in order to achieve the national conditions
laid on in capitation. Phase-out costs associated with other health professions capitation and student
assistance programs is also requested.
- Health planning. HEW requests funding near the maximum amount permitted in law for grants to State and
local health planning agencies.
- Construction. HEW requests $500 million in new loan authority, the same as the 1976 request, and $84
million in grant authority--$69 million for medical facilities and $15 million for family practice
teaching clinics. HEW believes that its proposed medical facilities grant level is necessary to forstall
Congress from appropriating the full authorization level of $135 million.
OMB Recommendation. OMB recommends going below the February Budget level by eliminating new construction
funding. A level of $431 million is recommended in 1977.
- Health professions education. The OMB recommended funding level for capitation ($1,500 for every student)
and special projects maintains the 1976 requested level of $270 million--on the assumption that this
issue should not be reopened as part of the effort to hold down 1977 spending. Student assistance
would be limited to service-commitment scholarships. An additional 1,200 scholarships would be provided
over the last year's level of 2,250.
- Health planning. Health planning would be consolidated into the State Health Revenue Sharing grant
reflecting the traditional State and local responsibility for planning.
- Construction. Construction would be an activity for which States can use their State Health Revenue
Sharing grants. Grant and loan authority currently available in 1976 would be rescinded. The Federal
commitment through 2005 is already $570 million for interest subsidies alone. Under the HEW request,
an additional $631 million would be added to that commitment.
H-10
Department of Health, Education, and Welfare
Health r ources Administration
in millions)
1976
1977
Expected
Expected
1975
February
Congressional
OMB
Congressional
HEW
OMB
Program
Actual
Budget
Action
Recom.
Action
Request
Recom.
Health professions education:
MOD capitation
123
96
123
96
123
120
120
Other capitation
61
5
61
5
61
7
--
Student assistance
123
69
123
69
123
90
35
Special projects
178
169
179
169
179
216
150
Health planning
90
66
86
66
106
137
--
Facilities construction
138
103
225
2
217
87
--
Health statistics and health
services research
50
52
49
48
48
86
48
Program management
47
52
50
48
52
55
43
Medical facilities guarantee and
loan fund
--
10
10
10
41
31
31
Payment of sales
insufficiencies
and interest losses
4
4
4
4
4
4
4
total--BA
81,4
626
910
517
954
833
431
o
1,110
978
1,242
1,163
1,297
1,027
966
H-11
1977 Budget
Department of Health, Education, and Welfare
Issue #H-4: National Institutes of Health
Statement of Issue. What should be the level of Federal support for biomedical research in 1976
and 1977?
Background. The 1976 budget level for the National Institutes of Health (NIH) of $1.805 billion
assumed congressional acceptance of $351 million in rescissions in 1975 proposed by the President
which Congress subsequently denied. The 1976 appropriation bill is expected to top $2.5 billion.
The Administration has generally proposed a slower rate of growth for biomedical research funding,
limited training of researchers, termination of Biomedical Research Support Grants, and restriction
of funding of cancer research facilities to renovation. Congress has rejected these policies in
the past.
HEW Request. In 1976, HEW recommends acceptance of congressional add-ons of $298 million in 1975
for a level of $2.103 billion. In 1977, HEW requests an NIH funding level of $2.188 billion,
including $22 million for the first phase construction of an ambulatory care research facility.
HEW does not appeal previous budget decisions to phase out "old" training grant programs and
restrict the number of new postdoctoral fellowships, nor does HEW request further funding of
Biomedical Research Support Grants.
The HEW request holds the National Cancer Institute (NCI) to $695 million in both 1976 and 1977,
approximately its 1975 level. HEW recommends that $19 million be available for renovation of cancer
research facilities, but not for new construction. NCI, which by law makes a direct budget request
to OMB, recommends $948 million, including $49 million for both new construction and renovation.
HEW maintains that the NCI request places a "disproportionate" emphasis on cancer research at the
expense of other research priorities. HEW recommends elimination of the NCI direct budget request
authority.
H-12
OMB Recommendation. In 1976, OMB recommends a level of $1.980 billion- which is $175 million over
the February budget to permit funding of second-year commitments resulting from 1975 congressional
add-ons and a sharply limited number of new research grants. In 1977, OMB recommends acceptance of
the HEW request with a reduction of $22 million, on the grounds that the ambulatory care research
facility should compete within the total funds available. The OMB level accepts the HEW proposals
on the repeal of direct NCI budget requests, on the cancer research level, and on the prohibition of
new cancer construction support. In addition, the OMB recommendation consolidates 15 separate NIH
appropriation accounts into a single appropriation request. Consolidation is designed to allow
greater flexibility and to focus discussion on research opportunities within the total funds available
rather than upon individual research institutes.
H-13
1977 Budget
Department of Health, Education, and Welfare
National Institutes of Health
($ in millions)
1976
1977
Exp.
Exp.
1975
February
Cong.
OMB
Cong.
HEW
OMB
Actual
Budget
Action
Recom.
Action
Request
Recom.
National Cancer Institute (NCI)
691
605
772
682
850
695
695
NCI Request
--
--
(772)
--
--
(948)
--
Cancer Control
(51)
(47)
(60)
(47)
(66)
(55)
(55)
Cancer Construction-HEW
(30)
(22)
(25)
(22)
(25)
(19)
(19)
Cancer Construction-NCI
--
--
--
--
--
(49)
Other Research Institutes
1,352
1,149
1,446
1,247
1,596
1,410
1,410
Biomedical Research Support Grants
(43)
--
(43)
--
(43)
--
--
Research Training
(155)
(123)
(125)
(123)
(135)
(111)
(111)
Other NIH
50
51
88
51
90
83
61
Buildings and Facilities
(3)
(3)
(41)
(3)
(40)
(25)
(3)
Total, NIH
BA
2,093
1,805
2,306
1,980
2,536
2,188
2,166
NCI Request - BA
--
--
--
--
--
(2,441)
--
Total Outlays
O
1,889
1,832
2,225
2,095
2,453
2,238
2,188
NCI Request - O
--
--
--
--
--
(2,375)
--
H-14
1977 Budget
Department of Health, Education, and Welfare
Issue #H- 5: Health Services Administration (HSA)
Statement of Issue. What policies should the 1977 budget reflect with respect to the appropriate
Federal role in the project grant funding of health services and the direct Federal delivery of health
care?
Background. The Health Services Administration administers a variety of narrow categorical project and
formula grant health services programs, e.g., community health centers, migrant health centers, and
maternal and child health. HSA also directly provides health services to certain Federal beneficiaries,
e.g., American Indians and Alaska Natives, merchant seamen, members of the U.S. Coast Guard, and
employees of the Federal Government; and administers the Professional Standards Review Organization
(PSRO) program to assure the quality of medical care financed under the Medicare, Medicaid, and Maternal
and Child Health programs.
- Health Services Delivery. The narrow categorical health services delivery programs provide services,
generally without needs and eligibility tests, to many individuals already eligible for Medicare and
Medicaid--which cover most of the same services. These programs also provide services to persons with
other forms of health insurance or with incomes that exceed Medicaid eligibility levels. Many of these
programs also have as a program objective providing employment and training for local community workers.
The availability of these direct federally funded programs to a limited number of communities without
regard to relative need continues to be a serious equity issue.
The Administration has committed itself to a health financing strategy through broad national programs
of Medicare and Medicaid. The President's 1976 Budget proposed a reduction of 20% in the Federal share
for these programs on the basis that State and local governments should assume a greater role in the
direct delivery of health care and since financing is available through Medicare and Medicaid.
- PHS Hospitals. The maintenance of the PHS hospital system primarily to provide health services for one
occupational category, i.e., merchant seamen, is of questionable equity and program merit. Since 1798,
when the Federal Government began providing this free health care, the health status of the merchant
seaman has greatly improved. The primary purpose for this assistance--to prevent merchant seamen
H-15
from spreading communicable diseases--no longer exists. Moreover, access to health care by seamen
is no longer a problem, and most seamen union funds that originally covered only dependents have
been extended to cover seamen as well.
HEW Request. In 1976, HEW proposes a level of $1,297 million, including acceptance of $290 million
of anticipated congressional add-ons. In 1977, HEW proposes $1,493 million, an additional increase
of $196 million. HEW recommends these increases to maintain services at the 1975 level, to further
decrease the estimated "unmet needs" in Indian health; to fund the provisions of P.L. 94-63, the
"Health Services and Nurses Training Act of 1975" that the President vetoed and Congress overrode;
and to implement a rural health initiative "as a means to building capacity in anticipation of
national health insurance." HEW believes the PSRO program should be funded as rapidly as qualified
applicants apply and that the National Health Service Corps field strength should be increased from
551 to 826, an increase of 50%.
OMB Recommendation. For 1976, OMB recommends staying at the 1976 February budget level of $1,007
million. In 1977, OMB recommends $531 million. The narrow categorical health service grants would
be consolidated with Medicaid and other health service programs into a State Health Revenue Sharing
grant. As part of overall effort to limit Federal spending, the National Health Service Corps, the
Health Maintenance Organizations program, the PSRO program, and the Indian Health Service should
continue under a "no expansion" policy. The PSRO program would be held level pending the evaluation
of the best procedures since current data indicates more than 95% of claims reviewed by PSRO are approved.
The $1.2 million annual payment to the state of Hawaii begun in 1953 for care to persons with Hansen's
disease would be eliminated since funds for this purpose would be available, at the State's discretion,
within the State Health Revenue Sharing grant. Legislation would be submitted in 1977 to transfer the
Coast Guard medical care program from HEW to the Department of Transportation, to assign the Justice
Department the responsibility for medical care for Federal prisoners and to repeal the Act of 1798,
"An Act to Provide Relief to Sick and Disabled Merchant Seamen."
H-16
17 Budget
Department of He
-h, Education, and Welfare
Health Services Administration
($ in millions)
1976
1977
1975
February
Exp.Cong.
OMB
Exp.Cong.
HEW
OMB
Actual
Budget
Action
Recom.
Action
Request
Recomm.
Community health services:
Community health centers
200
155
197
155
197
197
--
Comprehensive grants to States
90
--
90
--
90
90
--
Maternal and Child health
295
211
305
211
305
315
--
Family planning
101
79
101
79
101
101
--
Migrant health
24
19
24
19
24
34
--
Health Maintenance Organization
8
19
19
19
19
22
19
National Health Service Corps
13
13
18
18
25
31
18
Quality Assurance
5
55
50
55
55
167
50
Patient Care and Special Health
services:
Patient care
108
105
121
105
130
131
105
Coast Guard
8
8
9
8
9
10
8
Federal Employee Health
1
1
1
1
1
1
1
Payment to Hawaii
1
1
1
1
1
1
--
Emergency Medical Services
37
25
37
25
37
37
--
Indian Health Service
293
311
316
311
370
391
330
Buildings and facilities
1
--
--
--
--
5
--
Program Management
33
30
35
30
40
39
25
Less Trust Fund (QA)
-5
-25
-27
-25
-25
-79
-25
Total--BA
1,213
1,007
1,297
1,007
1,384
1,493
531
o
1,035
1,091
1,291
1,126
1,340
1,415
507
H-17
15 Budget
Department of Health, Education, and Welfare
Issue #H-6: Alcohol, Drug Abuse, and Mental Health Administration (ADAMHA)
Statement of Issue. What should the 1977 budget contain for ADAMHA alcoholism, drug abuse, and general
mental health programs?
Background. The February 1976 budget proposes: (1) maintaining research at the 1975 level; (2) continuing
phase-out of training support, except for a limited number of postdoctoral fellowships; and (3) no new
funding for and decreasing Federal matches for alcohol, drug abuse, and community mental health center
(CMHC) service programs. Saint Elizabeths Hospital is proposed for transfer to the District. The 1975
appropriation, however, permitted new awards and increased the 1976 "commitment" base. In order to
maintain the 1976 February budget, research, training, and alcoholism services grants which are up for
renewal the rest of this year will have to be funded up to 50% below the normal commitment levels. The
Saint Elizabeths Hospital transfer legislation was not sent to Congress because of HEW-D. C. disagreement
on some specifics.
HEW Request. HEW recommends accepting $222 million of expected congressional add-ons to the February
Budget request of $702 million because Congress has "uniformly rejected" proposed ADAMHA reductions.
In 1977, HEW proposes a level of $954 million generally reflecting further across the board increases.
- Research and Training. In 1977, HEW requests a 12% increase in research funding over the expected 1976
appropriation level to "make up for past slow growth," to take advantage of recent research findings,
and to initiate new research efforts. In training, HEW accepts phase-out of clinical training, but
proposes that the phase-out policy of research training proposed over the last 3 years be abandoned
in order to attract and assure quality mental health researchers.
- Services Programs. HEW proposes a new policy to extend Federal support for alcoholism projects from
3 to 6 years. The current 3-year commitment should be dropped because the anticipated State, local,
third party, and private resources have not materialized and historically Congress has appropriated
funds to continue the projects beyond 3 years. HEW believes there would be more likelihood of
phasing out existing projects. In addition, if Congress continues current appropriation levels, HEW
would be able to fund new alcoholism projects. HEW proposes maintaining current drug abuse treatment
capacity--35% of national treatment capacity--because the demand for treatment continues to be high.
HEW also proposes a "maintenance budget concept" under which the Federal match for drug abuse projects
would not decrease below 60% indefinitely. New community mental health center (CMHC) authorities--
contained in the vetoed health services law--would be funded by HEW because congressional intention.
is to create CMHCs across the nation. HEW believes funding of the new CMHC financial assistance
programs is necessary to assure that existing CMHCs continue and expand their services. HEW proposes
maintaining alcoholism and drug abuse State formula grants to assist State efforts in these areas.
H-18
- St. Elizabeths Hospital. Transfer should be delayed 4-5 years until the facilities are brought up to
accreditation standards and a new transfer proposal should be developed that satisfies all of the
involved parties.
OMB Recommendation. In 1976, the OMB recommendation of $714 million holds near the February Budget
with reductions significantly below normal commitments for training and alcoholism projects, in light
of the tight fiscal situation. In 1977, OMB recommends $561 million, reflecting continuation of the
1976 policies and State Health Revenue Sharing.
- Research and Training. Research would be held to the 1976 level in 1977. A research level of $127
million should be sufficient to undertake work in promising and priority areas. ADAMHA research is
similar to research conducted by other Federal programs, e.g., NIH, SRS, NSF, and other HEW agencies.
In training, continuation support for most student stipend commitments would be provided, but institu-
tional support would be virtually terminated. Over the years, psychology and social work faculties
have had ample ADAMHA and other Federal subsidies to build up teaching capacity and curriculums. These
professions should no longer be singled out for special Federal subsidies.
- Services. Alcoholism and CMHC service programs would be consolidated into State Health Revenue Sharing,
reflecting traditional State and local responsibility for providing these health services. This would
remove the inequity of singling out selected communities from all other communities similarly situated
for special Federal grant subsidies. HEW's proposed 6-year alcohol project commitment policy would be
denied. In effect HEW argues that because the Federal Government's 3-year seed money was not effective
in generating other sources of support, 6 years might prove effective. Why more non-Federal funds to
support these activities will become available than would not otherwise exist now is not apparent. The
real result is likely to be never-ending Federal support as has been the case with CMHCs.
- Drug abuse service funding would be the only exception to the State Health Revenue Sharing. The
categorical drug abuse treatment programs would increase from $173 million in 1976 to $195 million
in 1977. A continued and increased Federal role is consistent with the recent White Paper on Drug Abuse
recommendations.
- St. Elizabeths Hospital. Transfer would be sought in 1980, but with construction funds ($100 million)
tied in legislation to a definite transfer date commitment on the part of HEW, the District, and
Congress.
H-19
1977 Budget
Department of Health, Education, and Welfare
Alcohol, Drug Abuse, and Mental Health Administration
($ in millions)
1975
1976
1977
Exp.
Exp.
February
Cong.
OMB
Cong.
HEW
OMB
Actual
Budget
Action
Recom.
Action
Request
Recom.
General Mental Health (NIMH)
(421)
(305)
(439)
(308)
(481)
(429)
(130)
Research
93
80
96
83
103
109
83
Training
94
45
86
45
86
79
30
Community Mental Health Centers
214
160
235
160
267
217
--
Management and Information
20
20
22
20
25
25
17
Drug Abuse (NIDA)
(220)
(222)
(259)
(222)
(275)
(252)
(248)
Research
34
32
34
32
35
35
34
Training
14
3
12
3
10
10
4
Project Grants
122
138
154
138
168
154
160
Grants to States
35
35
45
35
45
35
35
Management and Information
15
14
14
14
17
19
15
Alcoholism (NIAAA)
(146)
(114)
(154)
(115)
(165)
(150)
(18)
Research
11
9
12
10
13
15
10
Training
8
8
9
8
9
6
3
Project Grants
65
45
70
45
75
68
--
Grants to States
52
46
56
46
60
52
--
Management and Information
10
6
7
6
8
10
5
Program Direction
11
12
11
11
12
13
11
Saint Elizabeths Hospital (SEH)
(50)
(48)
(61)
(58)
(108)
(108)
(154)
Operating Costs
50
48
56
53
58
58
54
Buildings and Facilities
5
5
50
50
100
Total
BA
848
702
924
714
1,041
954
561
O
950
786
924
877
900
865
680
H-20
1977 Budget
Department of Health, Education, and Welfare
Issue #H-7: Other Health Programs
Statement of Issue. What should be the 1976 and 1977 funding levels for the Center for Disease
Control (CDC), the Office of the Assistant Secretary for Health (OASH), and the Food and Drug
Administration (FDA) ?
Background. The February budget included $406 million for CDC, OASH and FDA. Congress is expected
to increase 1976 funding for CDC by $33 million over the request of $133 million and decrease 1976
OASH funding $1 million below the $70 million request. The 1976 FDA appropriation is identical to
the Administration's request of $203 million.
HEW Request. HEW recommends accepting all expected congressional add-ons of $32 million in 1976
for a level of $438 million. In 1977, HEW would seek an additional $114 million primarily for
occupational health research, clinical laboratory improvement, and food and drug safety programs.
HEW considers these areas of increasing public concern that warrant additional Federal effort.
OMB Recommendation. OMB recommends maintaining the 1976 February budget level in 1977 and
incorporating the CDC health services grants ($34 million) into the new State Health Revenue
Sharing. The OMB recommendation includes a $17 million increase for FDA in 1977 and a $7 million
increase for OASH mandatory retirement benefits.
H-21
1977 Budget
Department of Health, Education, and Welfare
Other Health Programs
($ in millions)
1975
1976
1977
February
Exp. Cong.
OMB
Exp. Cong.
HEW
OMB
Actual
Budget
Action
Recom.
Action
Request
Recom.
Center for Disease Control
152
133
166
133
174
213
99
Office of the Assistant
Secretary for Health
72
70
69
69
78
82
78
Food and Drug Administration
201
203
203
203
226
257
220
Total
BA
425
406
438
405
478
552
397
0
421
458
476
457
478
522
431
H-22
977 Budget
Department of Health, Education, and Welfare
Summary of Recommended Program Reductions, by Program
($ in millions)
1975 Actual
1976
TQ 1
1977
1978
Health Programs
BA
O
BA
O
BA
O
BA
O
BA
o
Medicare Current Base
16,890
14,781
18,532
17,464
4,836
4,889
22,399
21,659
24,800
24,800
OMB Recommendation
--
--
18,668
16,723
4,639
4,489
22,218
18,749
26,900
21,600
Reduction
--
---
+136
-741
-197
-400
-181
-2,910
+2,100
-3,200
Medicaid Current Base
6,996
6,840
7,766
8,184
2,220
2,220
9,292
9,292
10,500
10,500
OMB Recommendation
--
--
8,262
8,184
2,220
2,220
--
--
--
Reduction
--
--
+496
--
--
--
-9,292
-9,292
-10,500
-10,500
State Health Revenue Sharing
--
--
--
--
--
--
10,000
9,000
10,500
10,450
Health Resources Administration Current
Base
814
1,110
910
1,242
142
174
954
1,297
961
1,173
OMB Recommendation
--
--
517
1,163
142
157
431
966
442
911
Reduction
--
--
-393
-79
--
-17
-523
-331
-519
-262
National Institutes of Health Current
Base
2,093
1,889
2,306
2,225
456
513
2,536
2,453
2,789
2,600
OMB Recommendation
---
--
1,980
2,095
431
476
2,166
2,188
2,166
2,156
Reduction
--
--
-326
-130
-25
-37
-370
-265
-623
-444
Health Services Administration Current
Base
1,213
1,035
1,297
1,291
324
323
1,384
1,340
1,384
1,384
OMB Recommendation
--
--
1,007
1,126
284
291
531
507
523
523
Reduction
--
--
- 290
- 165
-40
-32
-853
-833
-861
-861
Alcohol, Drug Abuse, and Mental Health
Administration Current Base
848
950
924
924
97
155
1,041
900
950
950
CMB Recommendation
--
I
714
877
97
155
561
680
437
617
Reduction
:
--
-210
-47
:
:
-480
-220
-513
-333
Center for Disease Control Current Base
152
154
166
176
33
47
174
164
174
169
OMB Recommendation
--
--
133
157
33
47
99
122
99
119
Reduction
:
--
-33
-19
:
--
-75
-42
-75
-50
Food and Drug Administration Current
Base
201
201
203
216
50
55
226
224
226
226
OMB Recommendation
:
--
203
216
50
55
220
219
220
220
Reduction
I
--
:
--
--
:
-6
-5
-6
-6
Assistant Secretary for Health Current
Base
72
66
69
84
20
23
78
90
86
90
OMB Recommendation
1
--
69
84
20
23
78
90
86
90
Reduction
:
--
:
--
:
--
--
--
:
--
Subtotal, Health Programs
29,279
27,026
31,553
30,625
7,916
7,913
36,304
32,521
41,373
36,686
H-22
EDUCATION
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #1: Higher Education Student Assistance
Statement of Issue
What should be the Administration's policy with respect to student assistance?
Background
The authorizing legislation for the student assistance programs under the automatic 1-year extension
now in effect expires June 30, 1976. The issues in student assistance fall into two broad program areas:
(1) basic grants and campus-based student assistance, and (2) the guaranteed student loan program.
I. Basic Grants and Campus-Based Student Assistance
The basic policy issues in this area are:
-- Issue of Access. Should the Administration seek full funding for BOGs, some funding
for college work-study, and elimination of the other campus-based programs.
-- Issue of Choice. Should the Administration propose an initiative in the 1977 budget to
assist students, including those from middle income families, to afford the choice of more
expensive institutions.
Alternatives
#1. Provide $1.6 billion for student assistance. Fully fund BOGs. Provide $340 million for work study,
$200 million for national direct loans, and $60 million for the State Student Incentive Grant
(SSIG) program ( Agency req.)
#2. Provide $1.3 billion for student assistance. Fully fund BOGs, eliminate all campus-based programs
except work-study; keep the SSIG program at its current funded level ($44 million), but impose more
rigorous and uniform requirements upon States; request $180 million for work-study reflecting a
proposed reduced Federal share (OMB rec.).
E-1
#3. Provide $1.4 billion for student assistance. Fully fund BOGs and increase the maximum award
ceiling to $1,500 ($1.2 billion); increase the level of funding in the SSIG program to $50 million
and require the same needs test as in BOGs; in all other respects, this is the same as Alternative #2.
Analysis
July 1 - Sept.
1975
1976
30, 1976
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Student Assistance:
Alt. #1 (Agency req.)
1550 1130
1841 1597
---
215
1600
1661
1600 1625
1600
1615
1600
1599
1600
1600
Alt. #2 (OMB rec.)
1550 1130
1473
1597
--- 215
1336
1356
1336
1357
1336
1337
1336
1338
1336
1336
Alt. #3
1550 1130
1473 1596
--- 215
1422
1356
1422
1433
1433
1422
1422
1424
1422
1422
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays)
(
Alt. #2 (OMB recommendation)
-305
-268
(
Alt. #3
-305
-192
Agency Request: Alternative #1.
OMB Recommendation. Alternative #2.
II. Guaranteed Student Loan Program
The major purpose of this program is to provide financial support to both complement basic opportunity
grants and help students from middle income families attend schools of their choice. The issues are: (1) should
the 7% in-school interest subsidy be discontinued?; (2) should the maximum special allowance be raised from
3% to 4%?
Alternatives
#1. Continue the 7% in-school interest subsidy and raise the maximum special allowance to 4% (Agency req.).
E-2
#2. Eliminate the 7% in-school subsidy. Raise the maximum student interest rate from 7% to 8% on loans
made after enactment of legislation and provide for a dual special allowance system in which there
would be two maximum special allowances: 3% on "new" loans, and 4% on "old" loans (OMB rec.).
Analysis
July 1 -Sept.
1975
1976
30, 1976
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
GLSP:
Alt. #1 (Agency req. ) 382
330
452
434
124
103
400
458
410
408
410
410
410
410
410
410
Alt. #2 (OMB rec.)
382
330
452
434
124
103
354
424
326
332
256
274
181
200
109
127
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays)
(
Alt. #2 (OMB recommendation
-34
-76
If interest is accrued during the in-school period and added to the principal amount of the loan, then monthly
repayments would not be significantly increased. On an assumed student indebtedness of $3,200 (twice the
average level of student indebteness) without an in-school subsidy, monthly payments would be $43.90; with the
in-school interest subsidy, monthly payments would be $37.12.
On the other hand, there is a minimum cash flow requirement in any case. In addition, the interest subsidy
permits lenders to bill the Federal Government for interest charges for loans on a bulk basis.
The elimination of the in-school interest subsidy would free up annually nearly $297 million after a 5-year
phase-out period and would represent a major change in the current program.
Agency Request: Alternative #1.
OMB Recommendation. Alternative #2.
E-3
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #2 : Impact Aid
Statement of Issue
What should be the Administration's strategy for this program in the FY 1977 President's Budget?
Background
This program provides direct, general support to school districts intended to offset property tax
revenue lost due to Federal activities in the district. The last two President's Budgets proposed
distinct initiatives aimed at reforming the inequities in this program:
FY 1975: This proposal requested $340 million and would have terminated all funding for the "b"
category students. However, provision was made to insure that no district would lose more than 5%
of its total operating budget as a result of this termination. This proposal was not given serious
consideration by the Congress. The Congress rejected this strategy and provided $656 million, an
increase of some $316 million.
FY 1976: Reform was proposed from the fiscal equity viewpoint. Payments would be calculated for
school districts, but before these payments would be awarded, 5% of the previous year's total
operating budget would be subtracted. This would have resulted in some 3,400 out of 4,400 eligible
districts dropping out of the program.
The Administration requested $266 million to carry this proposal out. The Congress rejected this
new initiative and provided $680 million, an increase of $414 million.
Alternatives
#1. Provide some $726 million. (The likely congressional level.)
#2. Provide some $545 million. (HEW req.)
#3. Provide some $300 million. (OMB rec.)
E-4
Analysis
July 1 -
Sept. 30
1975
1976
1976
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Impact Aid:
Alt. #1
656
619
680
658
70
57
726
713
775
756
825
799
879
855
929
907
Alt. #2 (Agency req.)
656
619
680
658
70
57
545
569
545
557
545
543
545
544
545
545
Alt. #3 (OMB rec.)
656
619
460
502
24
37
300
351
300
315
300
304
300
301
300
300
Agency Request
(Difference from Alt. #2 (Agency request)
1977 Outlays
1978 Outlays)
~
Alt. #3 (OMB recommendation)
-218
-242
Alt. #1 (Likely congressional level)
+144
+199
The HEW proposal would:
-- Fund "a" category children at 88% to 100% of entitlement, depending upon their actual impact.
-- Fund "b" children at 40% of entitlement.
-- Fund those payments to other Federal agencies and the special discretionary provisions at
100% of entitlement.
-- Provide no funding for either "c" category students or hold-harmless provisions.
The OMB proposal would provide:
-- Full funding for "a" category children
-- No funding for "b" and "c" category children and none for hold-harmless provisions.
-- Regular funding for the other minor provisions.
The HEW proposal ($545 million) would provide a middle ground between the likely congressional action
of $726 million and the OMB proposal ($300 million). However, the central issue hinges on the tension
between overall program reform and the HEW request for moderate program reform coupled with a budget posture
designed to render the Congress willing to compromise.
Agency Request: Provide $545 million in FY 1977 and propose moderate reforms of the program. HEW maintains
that this proposal stands the best chance of achieving success in lowering funding levels.
OMB Recommendation: Continue to press for significant reform. Submit substantive legislation and request $300
million for FY 77. We believe this approach is programmatically the most sound and justifiable.
E-5
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #3 : Handicapped
Statement of Issue
What should be the Administration's response to S. 6 and H.R. 7217, bills to provide Federal funding
toward the "excess cost" of educating handicapped children and what should be the level of support for the
State Grant program in FY 1977?
Background
Federal aid to the handicapped is designed to build the capacity of local and State agencies to provide
equal educational opportunities for all handicapped children. While the Administration has steadily in-
creased its requests for Education of the Handicapped, during the past several years Congress has raised
appropriations above the Administration's request and rejected the Administration's attempts to rescind
these increases. Congress has recently completed conference action on (S. 6 and H.R. 7217) that would
increase the Federal role in providing education for the handicapped. Authorizations would be $100 million
for 1976; $200 million for 1977, $448 million for 1978, $1.2 billion for 1979, $1.8 billion for 1980, $2.9
billion for 1981 and $3.9 billion for 1982 and beyond. The State Grant program is advance funded. S. 6
addresses the State Grant program only.
This program is included in the Domestic Council education block grant proposal.
Alternatives
#1. Fund the program at a high enough level to possibly ward off excess cost appropriations. $300
million: (State Grant program - $150 million; Discretionary programs - $150 million) (HEW req.).
#2. Resist the excess cost concept and level fund at the 1976 appropriation level of $236 million
(State Grant - $110 million; Discretionary programs - $126 million).
#3. Resist the new legislation and fund at the requested 1976 rescission level of $200 million
(State Grant program - $75 million, Discretionary programs - $125 million) (OMB rec.).
E-6
Analysis
1975
1976
TQ
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Handicapped:
Alt. #1 (Agency req.)
200
151
236
200
121
57
300
250
300
250
300
300
300
300
300
300
Alt. #2
200
151
236
200
121
57
236
239
236
204
236
236
236
236
236
236
Alt. #3 (OMB rec.)
200
151
225
200
86
56
200
233
200
173
200
200
200
200
200
200
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays)
(
Alt. #3 (OMB recommendation)
-17
-77
)
(
Alt. #2
-11
-46
)
The major issue associated with formulating the budgetary strategy for the education of handicapped
children is determining what should be the appropriate Federal role and what level of funding should be
requested to support it.
Agency Request: Alternative #1. The Department places high priority on this program for FY 1977 and seeks
to strengthen their position during debate before the Congress on the FY 1977 request for this activity.
Alternative #2. Would strengthen the HEW position but at a lower budget level.
OMB Recommendation: Alternative #3. Continues to disagree with the Congress that payment of "excess cost"
is a proper Federal role and provides for a reduced FY 1977 level.
E-7
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #4 : Emergency School Aid/Civil Rights Advisory Services
Statement of Issue
At what level should these programs be funded in FY 1977 and should they remain in their current form?
Background
The Emergency School Aid Act is a program designed to provide assistance to school districts that are
in the process of desegregating. Within this program there are both discretionary, special purpose activ-
ities; as well as a State apportionment section that provides an allotment for each State on a formula
basis. In both FY 1975 and FY 1976, the President's Budget requested $75 million for this program and
requested legislation to place it on a fully discretionary basis. The Congress rejected this legislative
strategy and provided $215 million in each year.
The Civil Rights Advisory Services program primarily provides technical assistance to both school
districts and institutions of higher education to assist them in complying with the Civil Rights Act of
1964. It is a separate program authority that often works in tandem with the Emergency School Aid program.
However, its possible scope encompasses both school desegregation and equality of opportunity in the
bilingual and sex discrimination areas. In both FY 1976 and FY 1977, the Administration proposed, and the
Congress provided, $26.7 million for this program. Total for both programs: $241.7 million.
The Domestic Council has included this program in its education block grant proposal.
Alternatives
#1. Provide $215 million for the Emergency School Aid program and $34.7 million for the Civil
Rights Advisory Services: Total: $249.7 million. This continues the FY 1976 appropriation
level for the Emergency School Aid program and increases the Civil Rights Advisory activity
by $8 million (Agency req.).
#2. Provide $215 million for the Emergency School Aid program and $26.7 million for the Civil
Rights Advisory program. Total: $241.7 million. This continues the FY 1976 level for both
programs (OMB rec.).
E-8
#3. Provide funding at the $75 million level for Emergency School Aid and $26.7 million level for
the Civil Rights Advisory Services. Total: $101.7 million. This returns the support levels
back to the original FY 1975 and FY 1976 requests.
Analysis
July 1 -
Sept. 30
1975
1976
1976
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Emergency School Aid:
Alt. #1 (Agency req.)
242
216
242
235
.3
59
250
187
250
240
250
248
250
249
250
250
Alt. #2 (OMB rec.)
242
216
242
235
.3
59
242
187
242
233
242
240
242
241
242
242
Alt. #3
242
216
242
235
.3
59
102
171
102
116
102
104
102
102
102
102
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays)
(
Alt. #2 (OMB recommendation)
--
-7
)
(
Alt. #3
-16
-124
)
The FY 1977 HEW proposal and OMB recommendation provide for continuation of the Emergency School Aid
Act at the FY 1976 appropriation level and would not propose legislative changes. The HEW proposal provides
for an increase of $8 million for the Civil Rights Advisory Services program. HEW maintains that this
increase is necessary to accommodate increased demand for assistance due to broader responsibilities in
the bilingual and sex discrimination areas.
Agency Request. Alternative #1. Provide for continuation at the FY 1976 level for Emergency School Aid
and provide for an increase of $8 million for Civil Rights Advisory Services tied to expanded bilingual
and new sex discrimination activities.
OMB Recommendation. Alternative #2. Continue both programs at the FY 1976 appropriation level and require
any change in activities be carried out within currently budgeted levels. We believe that this level will
continue to demonstrate a commitment to support activities in this area and will provide sufficient support
for emphasis in bilingual or sex discrimination activities.
E-9
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #5 : Education for the Disadvantaged - Title I, ESEA
Statement of Issue
What should be the level of support for this advance-funded program for use during FY 1978?
Background
Title I, ESEA is a 10-year old program designed to provide compensatory educational and other
services to disadvantaged children.
In FY 1976, the President's Budget provided for $1.9 billion, to be available in the Transition Quarter
and for use in FY 1977. Congress increased this amount by $150 million to a level of $2,050 million. The
Administration has proposed rescission of this increase. The Domestic Council has included this program
in its education block grant proposal.
Alternatives
#1. Provide for an FY 1977 advance funded request (for obligation in FY 1978) of $2,165 million
(Agency req.).
#2. Provide for an FY 1977 advance funded request at the FY 1977 rescission obligational level of
$1.9 billion.
#3. Provide funding in the FY 1977 Budget at a level $100 below the current rescission request
level for FY 1976 of $1.9 billion (OMB rec.).
Analysis
July 1 -
Sept. 30
1975
1976
1976
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Title I, ESEA
Alt. #1 (Agency req.)
1876
1950
1900
1883
2050
506
2165
1914
2200
2087
2300
2178
2400
2275
2500
2374
Alt. #2
1876
1805
1900
1883
1900
484
1900
1788
1900
1863
1900
1888
1900
1896
1900
1899
Alt. #3 (OMB rec.)
1876
1805
1900
1883
1900
484
1800
1773
1800
1780
1800
1790
1800
1797
1800
1899
E-10
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays)
--
Alt. #3 (OMB recommendation)
-141
- 307
)
(
Alt. #2
-126
-224
)
-- Alternative #1 would increase the FY 1976 requested level of $1.9 billion by $265 million
and continue congressionally initiated growth inviting further increases.
-- Alternative #2 would continue a substantial commitment but without a pattern of growth.
-- Alternative #3 would reduce the Federal role and require additional State/local funding
to offset this reduction, if the program is to be retained at current levels.
The following table shows the approximate average per pupil expenditure in local educational agencies
under the three alternatives.
(BA in millions of $)
Program
Local Educational Agency
Operating Total
Average Per Pupil Expenditure
Alternative #1
2,165
388
Alternative #2
1,900
344
Alternative #3
1,800
324
Agency Request. Alternative #1. This would indicate a continued commitment to expansion of support in
this area. In addition, it would reflect what HEW maintains is' the likely outcome of congressional action.
OMB Recommendation. Alternative #3. Although this would represent a reduction against previous support
levels, it would still provide funding to local educational agencies that would provide an average per
pupil expenditure of more than $320 per child.
E-11
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue # E-6: Education Research and
Development (R&D)
Statement of Issue
What should be the Administration's budgetary strategy for support of educational research and development
as administered by the Education Division?
Background
-- The Federal Government has a role in supporting educational R&D because the conduct of research is
costly and speculative resulting in the under investment of private risk capital.
-- R&D is a public good whose benefits accrue to a broader universe than served by the market mechanism
which must exact price payments.
-- Payoff in terms of cost effective research or high yield policy relevant information has been minimal.
-- The educational R&D system is characterized as small, decentralized, maldistributed and poorly focused.
-- Formal evaluations of the Education Division R&D programs reveal some successes in academic achievement
(Follow Through) and progress in the establishment of an R&D agenda by the National Institute of Education
(NIE).
Alternatives
#1.
Increase the Education Division R&D level of support (Agency req.).
#2. Provide level funding for education R&D by delaying new starts for one-year in Office of Education and
Assistant Secretary for Education programs. Provide a modest increase in focused R&D for the National
Institute of Education (OMB rec.).
E-12
Analysis
July 1 -Sept.
1975
1976
30, 1976
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Education Research:
Alt. #1 (Agency req.)
205
187
224
182
20
41
286
229
286
267
286
277
286
281
286
285
Alt. #2 (OMB rec.)
205
187
206
181
20
39
197
201
206
206
188
207
188
200
188
199
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays)
(
Alt. #2 (OMB recommendation)
-28
-61
Arguments for Alternative #1:
-- Current educational R&D funding is insufficient to attain a critical mass of capability and therefore
cannot attract potential researchers or sustain high quality research.
-- Educational R&D could serve to guide the direction of larger Federal investments and can result in
significant cost savings.
-- The number and complexity of contemporary issues before educational decision makers merits increased
support for R&D.
Arguments for Alternative #2.
-- Resources should be allocated so as to build capacity and optomize the probability of conducting high
quality, productive R&D.
-- The NIE mission to provide leadership to educational R&D should be reinforced. The NIE budget, as
constituted, contains no flexibility for new starts, thereby, negating the establishment of an R&D agenda
-- A one-year hold on new starts for other than NIE research would not seriously effect the filling of
educational research knowledge gaps.
Agency Request: Alternative #1. The Department seeks an increased commitment to R&D funding recognizing the
need for additional knowledge to guide problem-solving and prepare the educational system for change.
OMB Recommendation. Alternative #2. Given the legitimacy of the Federal presence, the optimum strategy
should maximize probability of high yield R&D.
E-13
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #E-7: Library Resources
Statement of Issue
What is the optimum approach for achieving the Administration's budgetary and legislative objectives
concerning library programs administered by the U.S. Office of Education?
Background
-- The Federal Government has provided financial assistance to public, school and college libraries
since 1965.
-- The enabling legislation for libraries was formulated for catalytic purposes; to stimulate or
supplement governments, schools and universities to provide their own resources for library staff
and materials acqusition.
-- Legislative and budgetary efforts dating from 1974 to alter the nature of Federal support (from under-
writing basic services to demonstrating resource sharing and information networking) have been
rejected by the Congress.
-- The Domestic Council will likely include this program in its education block grant proposal.
Alternatives
#1. Continue funding school libraries under the existing consolidated library and learning resources
package. Retain public library support at the 1976 appropriations level. Terminate college library
assistance programs (Agency req.).
#2. Resubmit the legislative proposal to demonstrate resource sharing and information networking.
Terminate all other existing library assistance programs (OMB rec.).
E-14
Analysis
July 1 - Sept.
1975
1976
30, 1976
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Library Resources:
Alt. #1 (Agency req.)
167
226
71
122
147
40
189
181
189
161
189
175
189
185
189
189
Alt. #2 (OMB rec.)
167
226
72
126
137
38
40
136
40
84
40
63
40
55
40
53
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays
(
Alt. #2
-45
-77
Arguments for Alternative #1:
-- Strong congressional support for public library programs is recognized.
-- Additional time to prepare for withdrawal of Federal support is provided.
-- The fiscal crisis facing general purpose units of government is recognized and library service
to the disadvantaged, institutionalized and handicapped is maintained.
Arguments for Alternative #2:
-- Library support is essentially a State and local responsibility.
-- Alternative revenue sources are available to finance library services.
-- Federal resources should be committed to stimulate only interstate and cost sharing, networking, and
other economizing measures.
Agency Request: Alternative #1. The Department offers a programmatic strategy for changing the Federal role
in lieu of the enactment of the Administration's legislative and budgetary proposals.
OMB Recommendation. Alternative #2. This strategy provides a more appropriate scope of Federal responsibility.
E-15
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #8: Office of Education Program Administration
Statement of Issue
What should be the program administration budget and staff level for the Office of Education in FY 1977?
Background
-- The FY 1977 budget request of $116.4 million supports 3,307 permanent positions, a sizeable
increase above the 1975 level of $91.9 million and 2,867 persons and the 1976 current estimate
of $98.2 million and 2,972 persons.
-- The Commissioner of Education believes staff and support cost increases are essential to perform
administrative and stewardship functions.
-- Staff calculations are predicated on a Work Measurement System established in 1975 to improve and
measure management capability, as well as to provide the framework for allocating staff resources.
Alternatives
#1. Increase the program administration budget to $116.4 million supporting 3,307 permanent positions
(Agency req.).
#2. Reduce the personnel base by cutting non-essential staff from administrative and support areas as
well as programs proposed for termination (OMB rec.).
Analysis
1975
1976
TQ
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Program Administration:
Alt. #1 (Agency req.)
92
88
98
100
24
31
116
107
116
116
116
116
116
116
116
116
Alt. #2 (OMB rec.)
92
88
98
100
24
31
100
93
100
100
100
100
100
100
100
100
E-16
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays)
(
Alt. #2 (OMB recommendation)
-14
-16
)
Argument for Alternative #1:
-- Matches the request for personnel with the analysis of the Work Measurement System.
-- Provides a commitment to increase the monitoring of grants and contracts.
-- Promotes greater contact between recipients of Federal education funds and Office of Education staff.
Argument for Alternative #2:
-- Provides a rational and concrete basis for allocating administrative costs.
-- Supports manpower utilization planning without acceeding to the limitations of the present Work
Measurement System.
-- Promotes accountability and results oriented management.
-- Accomplishes programmatic and administrative objectives at a more efficient dollar level.
Agency Request: Alternative #1. The Agency strongly believes that an increase in program administration
dollars is a sound investment both in increasing Federal administrative responsibilities and as an ultimate
cost saving initiative.
OMB Recommendation: Alternative #2. Non-programmatic staff are reduced in favor of the performance of
programmatic duties. Program staff levels are set commensurate with functional responsibilities and levels
of effort required to achieve monitoring objectives. Productivity gains are applied through expected
increases in the quality of work.
E-17
Issue #E-9: Higher Education Non-Student Assistance
($ in millions)
1976
1977
Rescission
OMB
Enacted
Level
Agency Req.
Recomm.
Higher Education Institutional
Assistance
30
18
30
-0-
These programs cover all Institutional Assistance programs (except the Developing Institutions program) for
which the Department is requesting funds: Language Training and Area Studies, State Postsecondary Education
Commissions, and Cooperative Education. Language Training and Area Studies includes the Fulbright-Hays
Scholarship program.
HEW Request
The Department's request for 1977 is equal to the 1976 appropriated level in these three program areas:
$11 million in Cooperative Education, $16 million in Language Training and Area Studies, and $3.5 million in
State Postsecondary Education Commissions. The Department believe that funding of these programs is
necessary if meaningful dialogue with Congress on the overall education budget is to be achieved. HEW
strongly believes that funds should be provided for State Postsecondary Commissions for discretionary grants
to selected States to improve postsecondary education planning.
OMB Recommendation
Eliminate all three programs and concentrate educational dollars on student assistance. In all three programs,
OMB believes that there is no valid rationale for Federal involvement.
Special Programs for the Disadvantaged
70
70
70
-0-
This program assists low-income, disadvantaged youth in obtaining access to college or other postsecondary
school opportunities. The program has four components: the Upward Bound program, the Educational Talent
E-18
Search program, Educational Opportunity Centers, and the Special Services for Disadvantaged Students.
Studies attempting to measure the effectiveness of these programs in assisting low-income disadvantaged
youth have had mixed results.
HEW Request
Continue the program at the same level of funding as over the past several fiscal years. Many of the
Trio programs, particularly Upward Bound, are visible and remain popular.
OMB Recommendation
Eliminate the program. OMB believes that ten years of the Federal funding of these programs is sufficient
to demonstrate successful methods of assisting low-income youth in this area.
E-19
1977 Budget
Department of Health, Education, and Welfare
Education Division
Summary of Recommended Program Reductions
($ in millions)
1976
TQ
1977
1978
Elementary and Secondary Education
BA
0
BA
0
BA
0
BA
0
Current base
2,401
2,296
2,235
657
2,404
2,308
2,404
2,310
Recommended level
2,340
2,290
2,073
584
2,092
2,168
2,080
2,086
Reduction
- 61
-6
-162
-73
-312
-140
-324
-224
Program reductions:
1976 - Immediately rescind increases above
the budget for the Reading Improvement pro-
gram, Follow Through, Environmental Education,
Bilingual, Drug Abuse Education, Educational
Broadcasting Facilities
61
6
--
15
--
28
--
3
TQ - Rescind the increases in the advance
funded appropriation for Title I, ESEA
and Support and Innovation
--
;
162
58
--
72
--
12
1977-78 - Lower appropriations request for
the Disadvantaged Consolidation, Bilingual
Education; continue phase-out of Follow
Through; hold Reading Improvement level
and provide no funds for Environmental
Education and Drug Abuse Education
--
--
--
--
312
40
--
209
E-20
1976
TQ
1977
1978
Impact Aid
BA
0
BA
0
BA
0
BA
0
-
Current base
680
658
70
60
680
680
680
680
Recommended level
460
502
24
37
300
351
300
315
Reduction
-220
-156
-46
-23
-380
-329
-380
-365
Program reductions:
1976 - Rescind some $220 million in FY 1976
BA to provide for implementation in the 3rd
and 4th quarters of FY 1976 of a revised
reform strategy
220
156
--
16
--
48
--
--
TQ - Rescind amount above the request level
--
--
46
7
--
27
--
12
1977 - Reduce program level to $300 million
to carry out reform strategy
--
--
--
--
380
254
--
88
1978 - Continue reform strategy
--
--
--
--
--
--
380
265
Education for the Handicapped
Current base
226
209
121
56
336
251
336
359
Recommended level
225
200
86
56
200
233
200
173
Reduction
-1
-9
-35
-0
-136
-18
-136
-186
Program reductions:
Rescind FY 1976 and the TQ appropriation
increases and hold at the rescinded level
in FY 1977
E- 21
1976
TQ
1977
1978
Vocational and Adult Education
BA
0
BA
0
BA
0
BA
0
Current base
674
674
230
111
677
713
677
713
Recommended level
663
665
226
110
607
615
607
465
Reduction
-11
-9
-4
-1
-70
-98
-70
-248
Program reductions:
Rescind FY 1976 and the TQ appropriation
increases and fund at that level in FY 1977
with no new starts in research
Higher Education
Current base
2,562
2,450
124
383
2,562
2,430
2,562
2,430
Recommended level
2,126
2,432
124
362
1,800
2,003
1,772
1,800
Reduction
-436
-18
-0
-21
-762
-427
-790
-630
Program reductions:
1976 - Rescissions
436
18
--
21
433
358
433
93
1977-78 - Eliminate in-school interest
subsidy, direct loans, supplemental
grants, Trio, and all institutional
assistance programs except developing
institutions
--
--
--
--
329
68
357
537
E- 22
(
1976
TQ
1977
1978
Library Resources
BA
0
BA
0
BA
0
BA
0
Current base
91
128
147
40
238
203
238
210
Recommended level
72
126
137
38
40
136
40
84
Reduction
-19
-2
-10
-2
-198
-67
-198
-126
Program reductions:
Terminate all library resource programs
except the legislative proposal (Library
Partnership Act)
Other Education Programs
Current base
1,322
1,242
233
259
1,161
1,215
1,161
1,279
Recommended level
1,331
1,271
224
315
1,190
1,188
1,305
1,308
Reduction
+9
+29
+1
+56
+29
-27
+144
+29
Total reductions
Total, Education Programs:
Current base
7,956
7,657
3,150
1,566
8,058
7,800
8,058
7,981
Recommended level
7,217
7,486
2,894
1,502
6,229
6,694
6,304
6,231
Reduction
-739
-171
-256
-64
-1,829
-1,106
-1,754
-1,750
E-23
INC. MAINT.
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #I-1: Social Security Legislation
Statement of Issue
What Social Security legislation should be proposed in the 1977 Budget?
Background
Under present law, Social Security benefits would compose 21% ($85.1 billion) of the 1977 current
services outlays. From 1976 to 1977, Social Security outlays will grow 15.4%, from $73.7 billion to
$85.1 billion. Alternatives are now under development to put the trust funds back on a sound financial
basis; under present projections, the funds fall below the desired 1/3 ratio between reserves and annual
outgo by the end of 1979.
Changes in Social Security program outlays can result only from legislation which modifies:
(a) eligibility for benefits and the benefit amount to which the recipient is entitled, or
(b) the automatic cost-of-living provisions in current law, or
(c) a combination of both.
(Outlays in millions)
Recommended by HEW
Recommended by OMB
A. Possible Program Changes
1976
TQ
1977
1976
TQ
1977
1. Do not pay retroactive benefits for the
months before an application is filed
if such a lump-sum payment would require
a permanent actuarial reduction in future
monthly benefits
-160
-136
-477
-160
-136
-477
2. Eliminate the monthly retirement test,
making the retirement test on cumulative
annual earnings
-50
-56
-233
-50
-56
-233
(Outlays in millions)
Recommended by HEW
Recommended by OMB
1976
TO
1977
1976
TQ
1977
3. Reduce Social Security benefits to
beneficiaries also entitled to benefits
under a retirement plan from employment
not covered by Social Security
0
0
-50
0
0
0
4. Eliminate over a 4-year period special
benefits for those aged 18 to 22 in
school full-time
0
0
0
0
0
-313
5. Eliminate the lump-sum death benefit
from Social Security
0
0
0
0
0
-325
HEW Recommended Reductions
-210
-192
-760
--
--
--
OMB Recommended Reductions
--
--
--
-210
-192
-1,348
OMB does not recommend offsetting Social Security benefits against pension benefits from non-covered
employment, as the full rationale and operation of the proposal is not clear. OMB recommends the phased
elimination of students benefits since Basic Opportunity Grants can be utilized by low income students
and higher income students do not need the student benefit. OMB recommends eliminating the $255 lump-sum
death benefit as it is unrelated to earnings and it is not a benefit that is properly associated with
retirement. As a matter of policy, we do not see why the Federal Government should pay death benefits,
especially when they are not based on need. The same argument can be made against any VA burial allowance.
B.
Cost-of-Living Increases
60% Cap
0% Cap
1976
TO
1977
1978
1976
TO
1977
1978
OASDI, present law
73,703
20,036
85,117
92,422
73,703
20,036
85,117
92,422
OASDI, cap
73,703
19,196
82,877
87,322
73,703
18,636
79,517
83,922
Reduction
0
840
2,240
5,100
0
1,400
5,600
8,500
SSI, present law
5,317
1,425
5,887
6,367
5,317
1,425
5,887
6,367
SSI, cap
5,317
1,390
5,747
6,162
5,317
1,367
5,657
6,027
Reduction
0
35
140
205
0
58
230
340
IM-2
Under present law, with present economic assumptions, Social Security and Supplemental Security
Income (SSI) benefits will increase by 7.1% on July 1, 1976, and by 5.2% on July 1, 1977. The 1977
costs associated with these increases is $5.6 billion for Social Security and $230 million for SSI.
Secretary Mathews suggests you consider a no cost-of-living increase proposal as a means of
meeting the budget target. He believes that such a proposal is attractive in helping to meet the
target, but "stands no chance of being seriously considered by Congress, much less adopted."
The OMB recommendation includes a proposal for a 60% "cap" on the Social Security and SSI cost-
of-living increases. OMB believes this more moderate cap stands a better chance of congressional
approval. However, if a lower or even zero cap is desired, it can be defended on program as well as
fiscal policy grounds in view of the strain now being placed on the Social Security Trust Fund and
through payroll taxes on the working population.
C. Other Issues in Social Security
The Domestic Council is developing alternatives with respect to "decoupling" (removing the double
indexing of benefits to the Consumer Price Index) and short-term financing. Decoupling will remove
approximately one-half of the long-term actuarial deficit. The tax rate and wage base changes under
consideration would raise revenues by $2.5 billion in the first year. These are extremely complex
issues, and we will probably not be able to (nor should we) resolve them all until next spring.
That timing has advantages, however, for the Congress will not turn to these Social Security issues
until it receives a special staff report in May.
IM-3
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #I-2: Cuban Refugee Program
Statement of Issue
How can the termination of the Cuban Refugee program be effected?
Background
The Cuban Refugee program began as a temporary emergency effort in 1961 but has continued without
halt since. Acting on a phase-out recommendation of the Passman Subcommittee on Foreign Affairs
Appropriations, HEW attempted a phase-out in 1974, to be completed by 1977. This phase-out would have
terminated present 100% federally-funded welfare and Medicaid assistance to refugees in the U.S. five
years or more. The Congress, instigated by the Florida delegation, prohibited the phase-out by appro-
priation action or continuing resolution each year from 1974 to 1976. Florida receives over half of
the program funds ($50 million), primarily Dade County, where over 400,000 Cubans reside.
Phase-out is not a full loss of funds, since AFDC and Medicaid caseload would receive 55% Federal
matching, rather than 100%. Florida would lose about $20 million in welfare funds plus $12.5 million
in education assistance annually by 1980. The State would assume the full cost ($4 million) of the
general assistance caseload.
Alternatives
#1. Propose a new administrative phase-out plan, running from fiscal years 1977 to 1980, which
would limit the 100% welfare and medical assistance to beneficiaries on the rolls as of
September 30, 1976 (HEW and OMB rec.).
#2. Issue a Presidential order, under the authority of the Migration and Refugee Assistance
Act, limiting participation according to the schedule in Alternative #1.
IM-4
Analysis
July 1 - Sept.
1975
1976
30, 1976
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
O
BA
O
BA
0
BA
0
BA
O
BA
O
BA
O
BA
O
($ Millions)
Alt. #1 (HEW & OMB)
90
88
90
85
20
20
76
76
69
69
58
58
46
46
I
16
Alt. #2
90
88
90
85
20
20
76
76
69
69
58
58
46
46
-
16
Increase associated with phase-over to AFDC and Medicaid
Alts. #1 and #2
NA
NA
NA
NA
NA
NA
4
4
5
5
9
9
14
14
25
25
Cong. action
90
88
90
85
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
A preliminary tax and benefit analysis indicates that in Dade County, Cubans are one-third of the
population and generate about one-fourth of the tax receipts attributable to residents, or 75% of their
"share." Comparable data are not yet available for other jurisdictions, but we do not believe there is
a great economic disparity between Cubans and the general population. Therefore, full Federal funding
of welfare and medical program costs does not seem warranted.
OMB Recommendation: Alternative #1, the HEW request. In carrying out this option, HEW should contract
for a quick tax and benefit study limited to Florida (possibly with State/county participation) to
determine the ratio of the Cubans' tax contributions to their share of governmental expenses and the
extent to which the presence of the Cubans raises the Federal matching of AFDC, Medicaid, and other
funding due to matching formulas linked to the State low income population. This information should
be available before the transition quarter to buttress the argument for the phase-out plan, especially
with the State of Florida and its congressional delegation.
IM-5
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #I-3: Administration on Aging - Nutrition Program for the Elderly
Statement of Issue
Should the Aging Nutrition program be income tested? What is the appropriate request level for
budget authority in FY 1977?
Background
The Older Americans Act (OAA) Amendments of 1972 (P.L. 92-258) authorized this program which funds
special projects to serve meals to the elderly. Congressional appropriation action in FY 1974 provided
funds for two fiscal years, placing the program on an advance funding basis. The 1975 First Supplemental
Appropriations Bill raised the annual program operating level from $100M to $150M, utilizing $25M of the
available advance-funded budget authority. Senator Magnuson indicated to the Secretary, "This would
still leave $74,600,000 to be forward-funded into FY 1976, although it is our intent to eliminate this
remaining forward-funding entirely before FY 1977.' For FY 1976, the House-passed Labor/HEW Appropri-
ations Bill provides for maintaining the program at the $150M-level; however, the Senate version directs
a $200M program level "to reduce forward-funding into subsequent fiscal years."
Recent economic conditions have highlighted the absence of an income test for participants. Although
the statute does not bar such a test, the legislative history supports the present practice. Meal sites
in low income areas are the sole mechanism now used to target benefits to low income-aged. HEW indicates
they will review the present meal sites to better assure the access of low-income aged.
Alternatives
#1. Request advance funding and do not address participants' income qualifications in appropriation
language (Agency Request).
#2. Place the program on a current funding basis and add appropriation language to limit new
participants to those below the poverty line (OMB Recommendation).
IM-6
Analysis
July 1 - Sept.
1975
1976
30, 1976
1977
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
($ Millions)
Nutrition Program for the Elderly:
Alternative #1 (HEW req.)
125
116
100
159
25
39
125
151
Alternative #2 (OMB rec.)
125
116
100
159
25
39
75
151
The nutrition program provides older persons approximately 280,000 daily meals served primarily in
congregate settings in conjunction with supportive social services, offering an opportunity for the
elderly to socialize and obtain services which may delay institutionalization. Data is not available to
substantiate such impact. The program does not provide universal coverage--participation is often
determined by "lottery type" luck. A recently completed sample survey by the Administration on Aging
indicates 67% of the nutrition program participants had an income under $4,000. This nutrition and
service program duplicates or overlaps authority available under OAA Area Planning and Social Services,
USDA Food Stamp, Social Services (Title XX, Social Security Act), HUD Community Development Block Grant,
and Department of Transportation programs.
The OMB recommendation would, without decreasing the current level of effort, eliminate future
congressional opportunities to raise the program operating level without increasing the budget authority
and require new participants to meet the same income test proposed for elderly in the Food Stamp program.
The HEW request would make no changes in program criteria and avoid any appearance of a lower program
by seeking budget authority for advance funding.
IM-7
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #I-4: Vocational Rehabilitation - Social Security Administration (SSA) Programs
Statement of Issue
What is the appropriate level of funding for vocational rehabilitation (VR)?
Background
A White House Conference on Handicapped Individuals is scheduled for December 1976 to identify
problems facing the handicapped and solutions. VR has developed a broad-base of support, defining
its role as processing "tax-eaters" into tax-payers. The 1973 Rehabilitation Act Amendments require
greater emphasis on the severely disabled. VR has three components: (1) Direct VR programs--Research,
Training, and Service Projects (the discretionary Federal support activities lack evaluations, duplicate
and overlap other Federal programs as well as each other, and are not well related to the Basic State
Grant program) ; and (3) 100% funding of State VR for Disability Insurance (DI) beneficiaries from
trust funds and for SSI beneficiaries from general funds. In 1972, Congress authorized use of up to
1.5% of prior year DI benefit payments for VR based on HEW assurances of "investment"-type returns to
the trust fund of 2.5:1. DI payments are growing 25% annually. Persons eligible for DI and SSI are
routinely referred to State VR agencies; however, eligibility criteria for VR benefits under DI and
SSI are more stringent and assume a more severe handicap than State VR criteria. Many DI and SSI
beneficiaries do not meet the standards required for DI and SSI funding for VR services.
Alternatives
#1. Continue VR programs at increasing levels (Agency req.).
#2. Fully fund the State basic VR grants, modestly reduce Federal supporting activities and
limit the use of DI and SSI funds to rehabilitation of those that meet the SSA special
criteria.
IM-8
Analysis
July 1 - Sept.
1975
1976
30, 1976
1977
1978
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Vocational Rehabilitation Programs:
Alternative #1 (Agency req.)
Basic State Grants
680
736
680
621
170
162
720
705
720
705
Federal Support Programs
83
96
85
96
14
23
70
66
70
66
SSA Program Transfers (DI and SSI)
120
120
161
161
36
36
190
190
190
190
TOTALS
883
952
926
878
220
221
980
961
980
961
Alternative #2 (OMB rec.)
Basic State Grants
680
736
680
621
170
162
720
705
720
705
Federal Support Programs
83
96
60
63
14
23
56
51
56
61
SSA Program Transfers (DI and SSI)
120
120
120
120
23
23
120
120
120
120
TOTALS
883
952
860
804
207
208
896
886
896
886
Agency Request
(Difference from Alt. #1 (Agency req.)
1976 Outlays
T.Q. Outlays
1977 Outlays
1978 Outlays
Alt. #2 (OMB rec.)
-74
-13
-75
-75
GAO, in an advance briefing to HEW and OMB of an audit report, has determined a cost-benefit substantially
below prior HEW estimates--1.15:1 investment- for the DI-VR program and the diversion of DI/SSI funds for
general State VR purposes. An HEW research study (October 1975) indicated that DI beneficiaries not
accepted for services by State VR agencies achieved higher levels of earnings than those accepted and not
rehabilitated (those identified by VR agencies as having vocational "potential" and meeting the SSA
special selection criteria).
Agency Request: Alternative #1. HEW does not wish to reduce the Basic State Grants and Federal support
levels in light of the focus on the severely disabled. HEW acknowledges the need to re-examine the proper
funding of the DI-SSI vocational rehabilitation programs. For FY77, they would retain budgeting
procedures used in prior years.
IM-9
OMB Recommendation: Alternative #2. Our recommendation would increase the Basic State Grant
program consistent with the Rehabilitation Act Amendments of 1974. However, we recommend a modest
reduction in the Federal support programs with full funding of the authorization for the Basic State
program. In addition, we recommend apportioning the SSI-DI transfers in FY76, holding the SSA transfers
of funds to the FY75 level, and restricting their use to those eligible under SSA special criteria.
If the projected levels of SSI/DI beneficiaries meeting the criteria are exceeded, we would provide
added funding up to authorized levels. We recommend internal HEW review and evaluation of the effective-
ness of the Federal support programs to assure they support an overall VR strategy.
IM-10
Issue Paper
Department of Health, Education, and Welfare
1977 Budget
Issue #I-5: Social Services Program (Title XX)
Statement of Issue
Should the Social Services program (Title XX of the Social Security Act) be transformed into a
block grant to give the States greater flexibility and responsibility, and to reduce Federal costs?
Background
In response to the rapid uncontrolled growth of the Social Services program in the early 1970's,
Congress placed a $2.5 billion ceiling on Federal matching costs for fiscal year 1973. This ceiling
was allocated among the States on a population basis and required the States to put up $1 for $3 of
Federal funds (i.e., a 75% Federal matching share). The States are entitled to as much Federal funds
as they can match up to their allotment within the $2.5 billion ceiling.
The recently enacted title XX, which superseded the old titles IV-A and VI of the Social Security
Act, eliminated virtually all of HEW's ability to control the program substance, leaving only procedural
checks on the State planning process. Under this new title, we expect the States to use approximately
$2.2 billion of their ceiling in 1976, $2.4 billion in 1977, and practically all of the $2.5 billion in
1978. Several larger States are already overmatching their allotment and are seeking to increase the
ceiling.
A number of Governors, among others, have expressed dissatisfaction with Federal regulation and
oversight of the programs the States administer, and they assert that they could manage such programs
better without Federal interference.
Alternatives
#1. Continue program with the expectation that most States will use their full allotment by 1978.
#2. Re-propose legislation to reduce Federal matching share from 75% to 50% (HEW request).
#3. Propose legislation to reduce ceiling from $2.5 billion to $2.0 billion and eliminate the
States' 25% matching requirement (OMB recommendation).
IM-11
Analysis
July 1 1 Sept,
1975
1976
30, 1976
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
o
BA
O
BA
O
BA
O
BA
0
BA
0
BA
0
BA
O
($ Millions)
Alt. #1
1892
1959
2654
2213
580
580
2400
2400
2500
2500
2500
2500
2500
2500
2500
2500
Alt. #2 (HEW)
1892
1959
2654
2213
580
580
1000
1000
1100
1100
1200
1200
1300
1300
1400
1400
Alt. #3 (OMB)
1892 1959 2654 2213 580
580
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
In the 1976 Budget, the Administration proposed legislation to reduce the Federal matching rate to
65% in 1976 and 50% in 1977. This proposal has not yet been introduced in the Congress, and it is highly
unlikely that Congress will act on it. In his October 7 letter transmitting the HEW budget request,
Secretary Mathews renewed this proposal to reach the Department's 1977 ceiling, although he noted that
Congress would probably continue to ignore it.
Agency Request: Alternative #2. This is a pro forma proposal by HEW, with little hope of enactment.
OMB Recommendation: Alternative #3. States would obtain greater flexibility in the use of funds,
including their own matching funds which they could transfer to higher priority activities if they
choose to do SO. Responsibility for program performance would be squarely on the States, and HEW would
not interfere with or hinder their operations by unnecessary regulations, program review, and other
controls.
IM-12
1977 Budget
Department of Health, Education, and Welfare
Summary of Recommended Program Reductions
($ in millions)
Income Maintenance Programs
1976
TQ
1977
1978
0
0
BA
0
0
Current base
88,324
24,229
95,631
101,057
110,453
Recommended level
88,052
23,039
94,380
96,151
102,440
Reduction
272
1,190
1,251
4,906
8,013
Program reductions:
Social and Rehabilitation Services,
Social Service re-estimates
39
1
22
23
0
AFDC re-estimates
+62
101
237
237
0
All other SRS
11
8
98
106
71
Social Security Administration,
Cost-saving package (legislation
required)
210
192
0
1,348
1,725
OASDI 60% cap (legislation required)
0
840
0
2,240
5,100
SSI 60% cap (legislation required)
0
35
140
140
205
Social and Rehabilitation Services,
AFDC cost-savings (legislation
required)
0
0
337
337
337
Social Services reduced ceiling
(legislation required)
0
0
400
400
500
Office of Human Development,
Vocational rehabilitation program
74
13
17
75
75
Total reductions
272
1,190
1,251
4,906
8,013
IM-13
1977 Budget
Department of 1
1, Education, and Welfare
Health Programs
($ in millions)
1973
1975
1976
1977
1978
President's
Exp. Cong.
ONB
Exp. Cong.
HEW
OMB
ONB
Actual
Actual
Budget
Action
Recom.
Action
Request
Recom.
Est.
Medicare
BA
11,248
16,890
18,573
18,532
18,668
22,399
22,218
22,218
26,900
o
9,479
14,781
14,990
17,464
16,723
21,659
20,962
18,749
21,600
Medicaid
BA
5,764
6,996
7,156
7,766
8,262
9,292
8,992
--
--
o
4,591
6,840
7,156
8,184
8,184
9,292
8,992
--
--
State Health Revenue Sharing BA
--
--
--
--
--
:
10,000
10,500
o
--
--
--
--
--
--
9,000
10,450
Health Resources Admin-
BA
630
814
626
910
517
954
833
431
442
istration
O
1,008
1,110
978
1,242
1,163
1,297
1,027
966
911
National Institutes of
BA
1,531
2,093
1,805
2,306
1,980
2,536
2,188
2,166
2,166
Health
o
1,516
1,889
1,832
2,225
2,095
2,453
2,238
2,188
2,156
Health Services Admin-
BA
1,032
1,213
1,007
1,297
1,007
1,384
1,493
531
523
istration
o
875
1,035
1,091
1,291
1,126
1,340
1,415
507
523
Alcohol, Drug Abuse, and
BA
743
848
702
924
714
1,041
954
561
437
Mental Health Admin-
o
606
950
786
924
877
900
865
680
617
istration
Center for Disease Control
BA
146
152
133
166
133
174
213
99
99
o
136
154
150
176
157
164
181
122
119
Food and Drug Admin-
BA
150
201
203
203
203
226
257
220
220
istration
o
143
201
215
216
216
224
247
219
220
Assistant Secretary for
BA
76
72
70
69
69
78
82
78
86
Health
o
57
66
93
84
84
90
94
90
90
Total
BA
21,320
29,279
30,275
32,173
31,553
38,084
37,230
36,304
41,373
o
18,411
27,026
27,291
31,806
30,625
37,419
36,021
32,521
36,686
H'-1
Budget
Department of Hea. Education, and Welfare
Issue #H-1: Medicare
Statement of Issue. What measures should be proposed to limit the rise of Medicare program costs?
Background. Medicare provides health insurance coverage for 24 million aged and disabled persons. From
1974 to 1977, program outlays are expected to rise from $11 billion to $22 billion, and a further rise
to $36 billion is projected by 1981. These increases largely result from rising health costs. As a
result of inflationary trends, the hospital insurance (HI) trust fund is underfinanced and is expected to
be depleted by about 1990.
For the past two Congresses, the Administration has submitted cost-sharing proposals to restrain the
growth of Medicare outlays: (1) a requirement that beneficiaries pay 10% of hospital charges from the
2nd to 60th day of care to reduce overutilization; and (2) an increase in the SMI deductible for physicians'
services to reflect Social Security cash benefit increases. Hospital care is now free from the 2nd to 60th
day of care and the deductible for physician insurance is fixed by law at $60. Under the proposals,
separate $750 cost-sharing limits would be placed on cost-sharing for both hospital and physicians services
to provide catastrophic protection. The Administration has also requested legislation to deny excessive
rates of increase in hospital costs paid by Medicare.
HEW Request. The HEW proposal is for levels of $17.5 billion in 1976 (the same as current law) and $21
billion in 1977 (a $600 million saving). HEW recommends dropping the cost-sharing reform proposal.
Secretary Mathews has stated that it has a "measure of programmatic justification, but, in our opinion,
stands no chance of being seriously considered by Congress, much less adopted."
HEW proposes, instead, a national system for Federal regulation of all hospital reimbursements from Federal
and non-Federal payors. The Federal government would encourage States to assume these functions, but
would regulate hospitals permanently if States did not do SO. The hospital industry includes about 7,000
hospitals with $50 billion of annual expenditures. No limit would be set on physician fees.
HEW argues that a national control system is the only effective measure for coming to grips with the
hospital inflation problem. In HEW's view, limits on Federal reimbursement rates--which comprise about
35% of hospital revenues--would deal only with a symptom of the problem and would be insufficient to
affect overall health inflation. The Administration's health insurance program (CHIP) required State
regulation of hospital costs under Federal guidelines. HEW believes initiating a control system now is
consistent with a requirement that States adopt such a system under any national health insurance plan.
The HEW proposal would limit rises in hospital per diem costs to an average of 10% in 1977, in contrast to
an expected 15% rise, with 1977 savings of $600 million.
H-2
OMB Recommendation. The OMB level would be $16.7 billion in 1976 ($740 million less than HEW) and $18.7
billion in 1977 ($2.2 billion less than HEW). OMB recommends continued support of the cost-sharing
proposals with 1977 savings of $1.7 billion. These proposals have a relatively strong programmatic
justification in terms of incentives against overutilization of services and they would put the hospital
trust fund on a sounder financial footing. The proposals are already before the Congress and would not
have to be reintroduced.
И
Federal regulation of all hospital income would inevitably lead to Federal review of individual hospital
operations. HEW is unable to provide explicit standards for judging that hospital costs are too high
or too inflationary in relation to the value of the services. Thus, such hospital regulation would be
highly judgemental, controversial, and far more difficult than regulation of other industries. It would
also require substantial increases in Federal employment.
(incerer)
The OMB alternative would place a limit of 7% on Medicare per diem hospital rates ($810 million in 1977
savings) and 4% on Medicare physicians' fees ($ 178 million in 1977 savings). Hospitals would not be
permitted to charge inflation above the 7% increase to Medicare patients. The 7% limit is about the same
as the projected 6-7% rise in the consumer price index (CPI). Over the past ten years, increases in
hospital daily costs have averaged 13% annually--about 7% per year faster than the CPI. In view of these
extraordinary increases, we do not believe that a 7% limit would prevent delivery of essential services or
quality improvements.
HEW maintains that hospitals should not be held to CPI increases because they are labor intensive. More-
over, HEW argues that too tight a limit would incite hospital opposition to the necessary legislation.
HEW and OMB agree that, whatever the limit policy initiated, it should be continued in order to prevent
later "catch-up" inflation.
The OMB recommendation of a 4% cap on physicians' fee increases would be substantially less than the 10.8%
rise expected in the absence of limits. Physicians have been among the major beneficiaries of the Medicare
program, and some limits are appropriate in a period of budget restraint. HEW opposes limits on Medicare
physician payments because physicians might (1) pass costs to patients or (2) refuse to see Medicare patients
The hospital and physician limits would be retained for two years during which HEW would be directed to
develop reimbursement policies for longer term implementation.
The OMB recommendation would also tighten administrative cost screens on routine hospital costs for 1977
savings of $100 million. The present screens exclude routine costs if they are higher than those incurred
by about 85% of comparable hospitals. The proposed action would lower the screen to 75%, the same as used
for physicians' fees.
H-3
19 / / Budget
Department of Health, Education, and Welfare
Medicare
(Outlays in $ millions)
1976
1977
Expected
1975
February
Congressional
OMB
HEW
OMB
Actual
Budget
Action
Recom.
Request
Recom.
Present law
14,781
16,369
17,463
17,463
21,562
21,562
Proposed legislation
-- Cost-sharing reform
--
-1,279
--
-740
-- -1,700
-- Reimbursement limits
--
-100
--
---
-600
-988
(Hospitals)
--
(-100)
--
--
(-600)
(-810)
(Physicians)
--
--
--
--
--
(-178)
Administrative savings
-- Tighter limits on
routine hospital costs
--
--
--
--
--
-100
-- Other
--
--
--
--
--
-25
Total
14,781
14,990
17,463
16,723
20,962
18,749
H-4
1977 Budget
Department of Health, Education, and Welfare
Issue #H-2: Medicaid/Special State Health Revenue Sharing
Statement of Issue. Should the 1977 budget propose State Health Revenue Sharing--the consolidation
of Medicaid and the narrow categorical health services, planning and construction programs into a
new formula grant?
Background. In 1975, HEW spent $7 billion on Medicaid in addition to $1.6 billion on 16 separate
health services, planning and construction programs. In the past, the Administration has sought to
reform the Federal Medicaid matching formula and to consolidate and reduce funding for a number of
health service programs. The Congress has not accepted the proposals and has added new categorical
programs and funding.
- Inappropriate Federal Role and Inequities. There is no sound conceptual basis for either selecting
or distinguishing among existing categories centered on population groups, types of services, diseases,
and delivery mechanisms. In the absence of a valid conceptual framework for determining the Federal
role, there will always be pressure to create new categorical programs that increase the Federal role,
and Federal spending.
The design and funding of these programs raise serious questions concerning national health strategy
to assist the poor. These programs inequitably single out for special Federal subsidies certain States
and communities, diseases, organizational mechanisms, and individuals from others similarly situated.
Federal assistance to States per poor person ranges from $921 in New York and $953 in the District of
Columbia to $166 in Florida and $76 in Arizona. In general, wealthier, urban States receive disproportionately
large amounts of Federal funds, reflecting those States' ability to meet matching requirements under
Medicaid, as well as "grantsmanship" in obtaining project grant funds. The narrow categorical health
service programs are also inequitable in providing a wide array of services to certain groups, generally
without the needs and eligibility tests of Medicaid. A number of these programs by-pass State and local
governments, thus depriving them of discretion in setting priorities.
- Duplication and Inefficiency. The narrow categorical health service programs also duplicate many
services provided by existing community health resources and financed by Medicaid; they frequently
provide "medical social services" in addition to "traditional" health services. These additional
services and personnel--combined with lower productivity than in the private sector--contribute to
higher costs. Some governors have estimated they could reduce program costs by 10% to 15%, if the funds
were allocated to the States by formula.
H-5
HEW Request. HEW proposes continuing Medicaid without major reform ($9 billion) and accepting across
the board congressional increases in 1976 and seeking further increases in 1977 for the other programs
($1.5 billion). HEW believes that additional Federal spending under a comprehensive national health
insurance plan will ultimately address most of the problems identified above and that, in the interim,
HEW must "build capacity" to address "unmet needs" through the categorical programs.
OMB Recommendation. As indicated above, the problems attending current programs require reform.
The OMB recommendation folds Medicaid, health services, planning, and construction programs into a
single $10 billion State Health Revenue Sharing program (Attachment A). Federal funds would be allocated
to States based solely on the number of poor in each State, i.e., $400 per capita or $1,600 per family
of four. An alternative level of $9 billion would provide $360 and $1,440, respectively. In 1975,
national health spending amounts to $420 per capita for the general population; existing programs at
current levels would amount to $378 per poor person in 1976.
The current debate focuses on overall funding levels for narrow program categories promoted by special
interest groups. Consolidated State Health Revenue Sharing, on the other hand, will permit a discussion
of the Federal role in terms of an identifiable per capita Federal contribution to the States for the
poor and will sharpen the issue of relative State and Federal responsibilities for funding and priorities.
This approach offers an equitable and easily comprehensible Federal policy for contributing to the
health care of the poor.
The proposal also places a "cap" of $10 billion on Federal health service spending. Medicaid has grown
over 16% annually and is estimated to grow from $9.3 billion in 1977 to $14.9 billion by 1981. Thus,
substantial Federal savings will result if a "cap" can be maintained or if growth can be limited to 5%
per annum or the CPI. A "cap" will encourage States to control health care costs through health plan-
ning, licensure, prospective hospital budgeting and rate regulation.
Attachment B shows the proposed State distribution of existing categorical and Medicaid programs and
State Health Revenue Sharing. The Southern, Midwestern and Mountain States generally gain from the
new distribution, e.g., Texas and Florida would gain over $200 million apiece. The wealthier, urban
States generally lose funds, e.g., New York loses nearly $1 billion and California more than $250 million.
Shifts of these magnitudes in the distribution of Federal funds indicate the irrationality and inequity of
current programs. A 3-5 year phase-in may be desirable to soften the impact.
Attachments
H-6
1977 Budget
Atti ent A
Departmen
Health, Education, and Welfare
Special
.ate Health Revenue Sharing
($ BA in millions)
1976
1977
Expected
Expected
1975
February
Congressional
OMB
Congressional
HEW
OMB
Program and HEW Agency
Actual
Budget
Action
Recommendation
Action
Request
Recommen
State Health Formula Grant
--
--
--
--
--
--
10,000
Medicaid
6,996
7,156
7,766
8,262
9,292
8,992
Alcohol, Drug Abuse and
Mental Health Administration
CMIIC
214
160
235
160
267
217
Alcohol--projects
65
45
70
45
75
68
--formula
52
46
56
46
60
52
Center for Disease Control
Rat Control
13
5
13
5
13
7
Lead-based Paint
9
4
9
4
9
8
Immunizations
6
5
6
5
6
8
Venereal Discase
28
20
28
20
28
28
Health Services Administration
Comprehensive Health Centers
200
155
197
155
200
197
!amily Planning
101
79
101
79
101
101
Migrant Health
24
19
24
19
24
34
State Formula Grants
90
--
90
--
90
90
Materral and Child Health
295
211
305
211
295
315
Emergency Medical Services
37
25
37
25
37
37
Health Resources Administration
Health Planning
90
66
86
66
90
137
Construction
136
100
222
--
217
84
Office of Human Development
Developmental Disabilities
54
54
56
54
56
56
Totals--BA
8,410
8,150
9,301
9,156
10,860
10,431
10,000
o
8,610
7,546
8,346
8,566
9,874
9,584
9,000
FORD
GERALD
H-7
Total Obligations ($ millions)
Per Low Income Individual
B
1976
1977
1976
1977
Current
H
Revenue
Current
Revenue
it
Law
Sharing
Difference
Law
Sharing
Difference
Alabama
$164
$316
$152
$208
$400
$192
Attach
Alaska
16
13
-3
503
400
-103
Arizona
19
97
78
76
400
324
Arkansas
111
193
82
230
400
170
California
1,050
792
-258
530
400
-130
Colorado
96
97
1
396
400
4
Connecticut
105
78
-27
537
400
-137
Delaware
15
21
6
287
400
113
District of Columbia
108
45
-63
953
400
-553
Florida
167
402
235
166
400
234
Georgia
240
341
101
282
400
118
Hawaii
33
25
-8
516
400
-116
Idaho
32
34
2
384
400
16
Illinois
459
409
-50
449
400
-49
Indiana
150
182
32
330
400
70
Iowa
72
118
46
246
400
154
Kansas
71
101
30
281
400
119
Kentucky
155
265
110
234
400
166
Louisiana
156
344
188
181
400
219
Maine
67
48
-19
551
400
-151
Maryland
151
143
-8
423
400
-23
Massachusetts
386
174
-212
885
400
-485
Michigan
410
302
-108
543
400
-143
Minnesota
198
147
-51
540
400
-140
Mississippi
133
283
150
188
400
212
Missouri
103
248
145
166
400
234
Montana
31
34
3
370
400
30
Nebraska
51
69
18
291
400
109
Nevada
14
16
2
357
400
43
New Hampshire
25
24
-1
422
400
-22
New Jersey
248
212
-36
469
400
-69
New Mexico
42
84
42
198
400
202
New York
1,690
734
-956
921
400
-521
North Carolina
187
367
180
204
400
196
North Dakota
26
34
8
303
400
97
Ohio
298
383
85
311
400
89
Oklahoma
144
171
27
336
400
64
Oregon
77
87
10
356
400
44
Pennsylvania
456
453
-3
402
400
-2
Rhode Island
59
37
-22
635
400
-235
South Carolina
107
219
112
195
400
205
South Dakota
26
44
18
231
400
169
Tennessee
130
308
178
169
400
231
Texas
494
756
262
261
400
139
Utah
41
43
2
378
400
22
Vermont
32
19
-13
677
400
-277
Virginia
137
255
118
215
400
185
Washington
146
124
-22
471
400
-71
West Virginia
47
140
93
135
400
265
Wisconsin
275
155
-120
709
400
-309
Wyoming
8
14
6
223
400
177