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Health Insurance [1]
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Health Insurance [1]
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Records of the First Lady's Office (Clinton Administration)
Melanne Verveer's Subject Files
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This is all health care
Sort + separate
medicaid
medicare
Golden Rule Insurance Takes Lead in Advocating
MSAs as Way of Controlling Health-Care Costs
them to employees.
options" for overhauling Medicare. Mr.
By PHIL KUNTZ
The idea behind such plans is to drive
Staff Reporter of THE WALL STREET JOURNAL
down costs by making consumers more
Gingrich told about 50 executives. "The
cognizant of their own health care ex-
I
Council for Affordable Health Insurance is
WASHINGTON - As congressional Re-
one of the groups that will play a leader-
publicans try to rein in Medicare costs,
penses because they could keep what they
ship role."
many health-care industry lobbyists are
don't spend each year. Moreover, the
Golden Rule Chairman J. Patrick
struggling to limit their losses. But a new
combined cost to the government of a
Rooney, a Republican candidate for gover-
set of well-connected players is scrambling
catastrophic insurance policy and the fed-
nor of Indiana, and Mr. Whelan have a
for gains.
eral MSA contribution presumably would
close relationship with Mr. Gingrich. In
Some smaller insurance companies are
be less than Medicare's average per-pa-
fact, the speaker is the largest individual
hard at work crafting proposais for Con-
tient cost, currently about $4,800. What is
beneficiary of the company's political lar-
gress that would allow retirees to opt out of
unclear is whether a program limited to
gess. Mr. Rooney and Mr. Whelan began
the Medicare system in favor of a product
the elderly would work; critics fear only
making large annual donations to Mr.
they could sell: high-deductible cata-
healthy and younger retirees would choose
Gingrich's political-action committee, Go-
strophic policies coupled with government-
the MSA option, raising the cost of insuring
everybody else.
pac, in 1991, and Golden Rule used to
funded "medical savings accounts" to de-
sponsor a conservative cable television
fray uninsured expenses.
Indianapolis-based Golden Rule, the
talk show hosted by the Georgia Republi-
"We'd pick up a lot of the opt-out
industry leader in marketing MSA plans
business." says Greg Scandlen, head of
can. Mr. Rooney was among the first to
to the private sector, has been touting the
the Council for Affordable Health Insur-
idea to politicians for years while pouring
introduce the MSA concept to Mr. Gin-
grich. who embraced it enthusiastically as
ance, a trade group of 30 small and midsize
hundreds of thousands of dollars into their
a key part of the conservative alternative
insurers that advocates MSAs as part of a
campaigns. Recently, the company's actu-
to Mr. Clinton's government-heavy health-
broader health care reform for all age
aries and policy analysts began crunching
groups. No company is in a better. position
the numbers on its own Medicare proposal,
care reform plan during last year's bat-
tle.
to influence the debate than Golden Rule
and its executíves visited Capitol Hill last
"Newt looks for good ideas wherever he
Insurance Co., which long has been the
week.
can find them," says Tony Blankley, the
industry's chief proponent of MSAs and in
"We're working on it, but we're not in a
speaker's spokesman. "There is no rela-
recent years also has become one of the
position to comment yet," says John Whe-
tionship between either friendships or le-
country's biggest contributors to Republi-
Ilan, Golden Rule's president. Mr. Whelan
gal contributions and the policy decisions
cans, most notably House Speaker Newt
insists his company's Medicare efforts are
akes."
Gingrich.
motivated not by a desire for profits but by
Golden Rule also has been a financial
Huge Medicare savings are critical to
an interest in public policy. "We're not
supporter of other groups advocating
GOP balanced-budget resolutions that the
trying to create a funnel" to pour federal
Medicare MSAs. The Progress and Free-
House and Senate will vote on this week. A
dollars into Golden Rule's coffers, he
dom Foundation, an influential new think
House Ways and Means subcommittee
says.
tank with ties to Mr. Gingrich, last week
begins Medicare-reform hearings tomor-
The company is well-known on Capitol
released a budget proposal that included
row. Sharp elbows are likely in the coming
Hill. In the two years before the Republi-
just such a provision. Golden Rule contrib-
months as Congress focuses on the details
cans took over Congress, Golden Rule went
uted money to the foundation for Mr.
and different players jockey for position.
on a political donation binge as it battled
Gingrich's cable show. "They had no influ-
The stakes are huge. Medicare serves a
President Clinton's health-care reform bill
ence," says Rick O'Donnell, a spokesman
market of 37 million senior citizens at a
and came under fire at congressional
for the foundation.
cost of more than $150 billion a year.
hearings for allegedly cherry-picking
The Progress and Freedom Founda-
Health maintenance organizations and
healthy customers and denying too many
tion's budget initially didn't include an
other managed-care providers, which now
claims. The company denies wrongdoing.
MSA option. But then the foundation sent
serve 9% of all Medicare consumers,
Golden Rule and its associates from
an advance copy to the National Center for
want to continue expanding their share.
1993-94 reportedly gave Republicans
Policy Analysis, which urged the founda-
MSA advocates already have cried foul
nearly S1 million-more than three-and-a-
tion to endorse the proposal. Golden Rule
over what they considered an early at-
half times what they gave the GOP in the
contributes about $65,000 a year to the
tempt by House bill drafters to coerce
previous two years and far more than they
conservative Dallas-based center, a
Medicare consumers into HMOs.
gave Democrats. Only two other compa-
spokesman for the center says.
A Recent Debate
nies - Amway Corp. and Philip Morris
The center's senior fellow in Washing-
Co. gave more to the national Republican
Long promoted as a free-market reform
ton, Peter Ferrara, also has been pushing
Party.
for the entire health care system and
the Medicare MSA proposal on Capitol Hill.
embraced by congressional Republicans,
"It wouldn't surprise me if they [con-
And he wrote a Medicare MSA proposal for
MSAs have become part of the Medicare
gressional Republicans] didn't take our
the United Seniors Association, a group
debate only in recent weeks. Speaker Gin-
existence more seriously because Golden
representing conservative elders whose
grich and other top Republicans have
Rule is a member," says Mr. Scandlen of
lobbyist, former GOP Rep. Beau Boulter of
endorsed the idea as one of several
the Council for Affordable Health Insur-
Texas, also is promoting the concept to
alternatives they want to give Medicare
ance, whose members specialize in indi-
Congress.
participants. Some see that as Congress's
vidual and small group policies. Though
Mr. Ferrara notes that his group devel-
first step toward making MSAs widely
Golden Rule is working on its own Medi-
oped the MSA concept long before Golden
available to all age groups by using tax
care proposal, Mr. Whelan also heads a
Rule officials began promoting it.
breaks to entice more businesses to offer
committee that is drafting a separate
"They're picking up on our idea," Mr.
proposal for the council. "We've got access
to the right people," Mr. Scandlen adds.
Ferrara says. "We're pie-in-the-sky peo-
Indeed, Speaker Gingrich spoke to the
ple, and they pull the pie down and cash in
on it."
council's annual meeting last Wednesday.
"I hope all of you will help us develop
"I would like a chance to explain to the
customers the benefits of this nmgram and
compete with everybody else," says
THE WALL STREET JOURNAL MONDAY, MAY 15, 1995
Golden Rule's Mr. Whelan. "The question
is. can we create a free market? Because
that's the environment in which we will all
succeed."
E. J. Dionne Jr.
Health Care All Over Again
Consider this statement:
Congress is serious about anything it has
But as Clinton learned, Americans
punmeting the Republicans, some Dem-
The government in Washington is
said about reducing the size of govern-
are very sensitive on these issues.
ocrats think it would be worth testing
about to take health care decisions away
ment, it needs to deal with the deficit and
They are skeptical of promises that
the chances for a broader health care
from you It will make it harder for you to
cut spending in a big way. Speaker Newt
more can be done with less. The elder-
accord. Both sides, after all, will have
pick your own doctor or get the kind of
Gingrich has said as much, promising
ly are as aware as anyone of medical
already admitted that government
care you need. Doctors will answer not to
flatly that the Republicans will produce a
cost inflation, so they know that "re-
spending on health care has to come
you, but to bureaucrats wholl be looking
plan to get the budget into balance by the
stricting the growth in spending"
down somehow, and each side will have
over their shoulders. And the government
year 2002. Gingrich knows that will be
means less money going into the
made its own case for change.
will just keep cutting back on your cover-
impossible if the government's health
health system. That could prove quite
The grand bargain would involve
age.
care costs aren't brought under control.
threatening to them and their care-
Democrats agreeing to cap spending
Is this: (a) a rough approximation of
The main causes of the deficit aire
no matter what Gingrich promises.
on Medicare and Medicaid over time
what the Republicans said in 1994 about
not mysterious. The deficit ballooned
The Democrats can't wait for this
and Republicans agreeing to expand
President Clinton's health plan, (b) a
because (1) taxes were cut deeply in
fight. They think that many of the forces
health insurance coverage. The budget
rough approximation of what Clinton and
1981; (2) military spending was in-
and emotions that worked to defeat the
savings would kick in more slowly than
the Democrats will say in 1995 about
creased sharply in the 1980s; (3) the
Clinton plan will now be turned on the
Republican plans to cut Medicare and
the Republicans want, and universal
Medicaid or (c) both?
savings and loan bailout added a lot of
Republicans. Not just the elderly and the
coverage would be achieved more
extra dollars to federal spending and
poor but also the hospitals and other
slowly than the Democrats want. But
Now take another statement:
(4) health care costs went through the
health care providers will see the Re-
both sides would agree to move down
There is simply no way to balance the
TUESDAY, APRIL 18, 1995
THE WASHINGTON POST
roof. Numbers 2 and 3 are not rele-
publican proposals as dangerous. On top
the same road, knowing that the prob-
federal budget without getting health
vant now. Military spending has been
of that, Democrats can argue that cut-
care casts under control. There is so
lems of the current health care system
much waste in the system that we can
coming back down, and the Republi-
ting government health care spending
ultimately threaten both the finances
cut back casts and still expand your
cans oppose deep cuts. The savings
will simply shift health costs to the
of government and the well-being of
options The other side is just trying to
and loan bailout is now mostly paid for.
insured-i.e., "a hidden tax increase."
many citizens.
scare you. If they don't like what we're
That leaves taxes and health costs.
Overall, many Democrats figure they
What are the chances for this grand
doing, let them come up with their own
The Republicans want to cut taxes, not
can take a page out of Republican strate-
bargain? At the moment, almost zero.
plan If they don't, they're just not seri-
raise them, which leaves slashing the
gist Bill Kristol's health care playbook
The Clinton administration will be torn
ous.
growth in Medicare and Medicaid
and oppose, oppose, oppose.
between those tempted by this path,
Is this: (a) roughly what Democrats
spending.
The Republicans will try to reduce
and those who-like many congres-
said in defense of the Clinton health plan,
Gingrich has been preparing the
their political risks, probably by post-
sional Democrats-want the Republi-
(b) roughly what Republicans will say in
ground for this by saying Clinton-like
poning really deep health care cuts until
cans to suffer through their own health
defense of their coming Medicare and
things about how managed care and
after the 1996 election. The cuts will be
care crisis. It's hard to see Bob Dole
Medicaid cuts or (c) both?
other innovations could give the elderly
numbers for the "out years" on some
risking fire from the right on this of all
As you may have guessed by now, the
and the poor better treatment at less
chart Gingrich will proudly tote around.
issues. And who needs the anguish of
answer to each question is (c). Americans
cost. The Republicans can also be count-
But talking about the "out years" didn't
alienating potential allies and battling
are on the verge of witnessing a rerun of
ed on to say, as they did on the school
do much for Clinton, and may not help
through the specifics of a very hard
the health debate of yesteryear, but this
lunch issue, that they're not really cut-
the Republicans, either.
problem all over again? With health
time, each side will steal the other's lines.
ting these programs, only restricting
What is the alternative to this gloomy
care, it's a lot easier to read polls than
If the new Republican majority in
their "growth."
scenario? After a properly long period of
to solve problems.
LETTERS TO THE EDITOR
No Commerce in Plutonium
Stephen S. Rosenfeld ["Swords
facture of nuclear weapons or other
riched uranium, because civilian reac-
From Plowshares,' op-ed, April 7] has
nuclear explosive devices."
tors can be operated without these
put his finger on one of the most
Mr. Rosenfeld, like most U.S. offi-
weapons-usable fuels.
serious defects of the nuclear Non-Pro-
cials, sees the main proliferation threat
At the current NPT extension con-
liferation Treaty (NPT): its permission,
emanating from covert programs in
ference, countries that are committed
and even promotion, of commerce that
states such as Iraq, North Korea and
to nonproliferation and have no inter-
helps countries acquire the bomb.
now, allegedly, Iran. But the bottom-
est in plutonium and bomb-grade urani-
But the language of the treaty is not
line threat is from the "civilian" plutoni-
um can save the day (and maybe the
quite as inflexible or blind to the prob-
um industries of Britain, France, Japan
world) by insisting on such a ban as a
lem as Mr. Rosenfeld suggests. As the
and Russia. Thanks to them, plutonium
condition of extending the treaty. They
chief U.S. negotiator of the NPT told
will be introduced into world com-
clearly have the votes to do it. The
Congress in 1976, the treaty does not
merce in quantities dwarfing the pre-
principal obstacle is the disproportion-
"require us to do anything foolish."
sent nuclear arsenals.
ate political leverage of the handful of
While Article IV establishes the "in-
Until now, the NPT has been inter-
industrial nations that want to make a
alienable right" to peaceful nuclear
preted to give all parties the right to
business out of plutonium.
technology that Mr. Rosenfeld cites, it
share in this potentially lethal trade. A
PAUL LEVENTHAL
also stipulates that this provision must
more sensible interpretation of the trea-
President and Director
be interpreted "in conformity with"
ty, without any need for amendment, is
DANIEL HORNER
Articles I and Il-the treaty's funda-
to prohibit all parties from engaging in
Deputy Director
mental prohibitions against providing
commerce in plutonium and the other
Nuclear Cootrol lastings
or seeking "any assistance in the manu-
nuclear explosive material, highly en-
Washington
The Government Can Do a Lot for the Working Poor
Ln arguing against raising the mini-
about it. Actually, a great deal can be
preferably by assisting workers in
mum wage as a method of improving
done by government to improve the
urban areas to move to jobs.
incomes of the working poor, James
conditions of the working poor. One
Labor Secretary Reich has already
K. Glassman states that raising the
method, in addition to altering the tax
spelled out a number of additional
minimum wage prices some workers
system, is to increase funds available
measures, and this letter could easily
out of their jobs [op-ed, April 4]. He
for human engineering research, with
go to several thousand words merely
therefore argues that the condition of
the aim of reducing job complexity.
listing feasible measures to improve
the working poor "is not really amena-
the status of the working poor. It is
The bar code system extensively used
ble to a government solution." On the
pejorative and not well informed on
in retailing, for example, made it pos-
basis of the same reasoning, however,
the part of Mr. Glassman to attribute
sible for workers with low arithmetic
the reduction of taxes and forced
low wages entirely to the personal
skills to bè cashiers. It is also possible
deficiencies of workers.
contributions based on wages paid-
for government to bring workers and
MONROE BURK
whether these charges are paid by
jobs closer together geographically,
Columbia
the employer or the worker-would
increase employment of low-paid
workers. The tax and contribution
Stigmatized for Extra Service
revenue thus forgone, even if re-
couped by a sales tax, would be less
I write in response to Bill McAllis-
Supervisors and MDOs do not ask
regressive than the existing system.
ter's article "Overtime Pay Report
postal employees if they can or would
It is to be Lamented that those
Prompts Postal Board to Investigate"
work overtime. They tell their subor-
trained in neo-classical economics
["In Brief," April 5). I am a postal
dinates that they will come in four
have generally not studied the subject
employee and took offense, as such,
hours early or stay four hours late to
of income distribution and know little
to this article, as did my fellow postal
ensure that the mail is processed for
workers. The term "overtime hogs"
the pre- and post-Christmas deliver-
was appalling. No one postal employ-
ies. If postal employees do not report
THE WASHINGTON POST
TUESDAY, APRIL 18, 1995
ee is responsible for how many over-
to work as scheduled, they face disci-
Lost in Orbit
time hours he or she accrues. Postal
plinary action.
employees cannot work overtime
Those mail handlers, clerks and let-
An April 6 news story about
without approval from a supervisor
an Israeli spy satellite de-
via the management distribution op-
ter carriers had to make personal 83C
scribed its orbit as going
erator (MDO). Consequently, man-
rifices to work the overtime assigned.
agement is aware of all overtime sta-
Contrary to common belief, postal em-
along the parallel of 37 de-
tus. Investigation, therefore, should
ployees are loyal workers dedicated
grees north latitude. But this
not focus on the postal employee but
togetting the mail processed and deliv-
is impossible. An orbit is a
path around the earth's cen-
on management.
ered on time. So why point a finger at
ter, which means that it must
Second, staffing is inadequate in
the postal employee for working overs
cross the equator.
some small installations. Employees
time? If you worked beyond your regu-
ARYEH H. SAMUEL
work 12-hour days, six and seven days
larly scheduled day, wouldn't you be
Wheaton
a week, especially during the Christ-
compensated with overtime pay?
mas season-which is probably where
LINDA C. HAMLETT
this question of overtime stems from.
Dale City
Haiti: A Progress Report
Within the past month, The Post
courts. A truth commission has inau-
tack on Mrs. Bertin. At President Aris-
has published three opinion pieces
gurated its work, an important part of
tide's request, the FBI is conducting an
questioning Haiti's prospects for re-
the overall reconciliation process.
investigation in coordination with the
establishment of democracy and eco-
Finally, Haitian schoolchildren are
Justice Ministry. Once all the informa-
nomic revitalization ["A Voice for All
now being immunized and educated in
tion is in, the Aristide government will
Haitians" by Lawrence Pezzullo and
record numbers through government-
consider appropriate action.
Ralph Pezzullo, op-ed, March 22;
sponsored programs aided by the in-
The Anstide government intends to
"Haiti's Next Hurdle," editorial, April
ternational community.
pursue all cases of extrajudicial executions
2; "Violence in Haiti" by Robert D.
Although we face many challenges
vigarously in the courts through the truth
Novak, op-ed, April 3].
not of our own making, we are confi-
ammission and in collaboration with the
We are proud of our record since
dent that we can and will succeed in
UN/OAS Civilian Mission, the Inter-
President Jean-Bertrand Aristide's
addressing them. Among the most
American Human Rights Commission and
return on Oct. 15. We inherited a
significant is the upcoming parliamen-
the U.N. Human Rights Committee
country ravaged by a three-year-long
tary elections. At the government's
coup with a nightmarish human rights
JEAN CASIMIR
request, they are being monitored by
record. The ministries had been loot-
the UN/OAS International Civilian
Embury Haiti
ed and rendered nonfunctioning. The
Mission. The elections are being ad-
Washington
only services Haitian citizens re-
ministered by the Provisional Elector-
ceived were those delivered by hu-
al Council, which was constituted by
manitarian relief organizations.
following the procedures outlined in
Today, Haitian citizens are no lon-
the 1987 constitution. The council is
The Washington Post
ger being terrorized by the military.
receiving both financial and technical
In place of the discredited Haitian
assistance from the United Nations'
EDGENE MEYER 1875-1950
military, a new civilian-led police
Electoral Assistance Branch.
PHILIP L. GRAHAM, 1915-1983
force is being created, which will be
It is surprising that several colum-
DONALD ORAHAM
Publisher
an important part of efforts to restore
nists are citing irregularities when
DOWNIE
MEO GREENFIELD
the rule of law.
the electoral process has barely be-
Executive Editor
Editorial Page Editor
Almost all our refugees have re-
gun. We are at the point at which
ROBERT O. KAISER
STEPHENS ROBENFELD
Managing Editor
Deputy Edit Page Editor
turned, including expatriate profes-
candidates and voters will be regis-
MICHAEL GETLER
sionals. Our ministries have been re-
tered. As issues of concern arise, they
Deputy Managing Editor
furbished and are now beginning the
are addressed by the electoral council
BOUFFUL JONES
work of rebuilding the country.
in a dialogue with the political parties.
Preddent and General Manager
Our economic team won a $1 billion
Individuals associated with the former
VICEPRESIDENTE
BENJAMINC BRADLET
Attarge
pledge from the international commu-
military regime are concerned about
MICHAEL CLURMAN
Production
nity for a comprehensive program of
their ability to run and win in these
FJ HAVLICEK
Industrial Rela/Environment
STEPHENP HILLS
Advertions
economic reform. Inflation is down.
elections. They are free to take their
ELIZABETH ST J.LOKER
Systems and Engineering
THEODOREC LUTZ
Business Manager
Tax collection is up, and our currency
concerns to both the electoral council
CAROL a MELAMED
Government Affairs
is stabilizing. Economic activity is on
and the civilian mission. Complaints
VINCENT & REED
Communications
MARGARET SCHIPF Controlies/Pers/Admin
the rise, and U.S.-Haiti business links
to date appear to be motivated by a
WILLIAMO TOMPKIN8JR
Marketing
are now being renewed. The justice
desire to discredit the process.
MARY ANN WERNER
Counsel
-
minister has completed an inventory of
The recent killing of Mireille Dur-
Published by The Weshington Post Company
the legal system, developed a reform
ocher Bertin, a legal adviser to and
KATHARDNE GRAHAM
program and obtained emergency as-
spokesperson for the former military
Coairman of the Executive Committee
DONALD & ORAHAM
sistance for judicial training and prison
coup, is as tragic as the assassination of
Chairman of the Board and Chief EDICULITY Officer
improvement. We are now moving for-
Guy Malary, Antoine Izmery and Fa-
ALANO BPOON
ward with plans to create a judicial
Preddent and Club! Operating Officer
ther Jean Marie Vincent. The Aristide
training center and reconstruct the
government quickly condemned the at-
1150 156D BL NW am
REPUBLICAN MEDICARE PLAN:
PAY MORE FOR SECOND-CLASS HEALTH CARE
1. ANY WAY YOU SLICE IT, THE REPUBLICAN
MEDICARE CUT IS THREE TIMES LARGER THAN
ANY CUT IN HISTORY AND MEANS YOU WILL
PAY MORE TO GET LESS.
2. MEDICARE RECIPIENTS WILL PAY MORE OUT-
OF-POCKET -- TO FUND A TAX BREAK FOR THE
WEALTHY:
$1,700 less per beneficiary in 2002
Double Deductibles
Raise Premiums
Raise the Medicare eligibility age to 67
3. MEDICARE RECIPIENTS WILL PAY MORE, YET
THE CUTS WILL MEAN AN INFERIOR, SECOND-
CLASS MEDICARE PROGRAM:
Private health premiums increased by cost-shifting
Hospital closings threatened
Doctors driven out of the program and turning
away recipients
REPUBLICAN MEDICARE PLAN:
PAY MORE FOR SECOND-CLASS HEALTH CARE
Pay More and Get Less -- For Tax Cuts for the Wealthy. Any way you slice it, the
Republican Medicare cuts will force you to pay more to get less -- just to fund a tax cut for the
wealthy. The GOP plan will increase out-of-pocket costs for all seniors -- regardless of their
income or health. Medicare benefits per beneficiary will be cut $1,700 in 2002, forcing spending
to grow 33 percent slower than in the private sector. Both the House and Senate plans increase
premiums, and the Senate plan also cuts benefits and doubles deductibles from $100 a year today
to $210 a year in 2002. And not one penny of the increased premiums will go to the Medicare
trust fund. Instead, seniors will pay more out-of-their-pockets to fund a huge tax cut for the
wealthy.
Pay Taxes for Two More Years and Wait Two More Years for Benefits. The Senate plan
would gradually delay the Medicare eligibility age from 65 to 67 beginning in 2003. Tens of
millions of Americans would have to work longer and pay more taxes to get fewer years of
Medicare. For someone working a desk job in Washington, that may not seem too bad, but to
millions of Americans with physically demanding jobs, it is not just bad -- it is unfair.
Everyone's Premiums Will Increase From Cost Shifting. Lewin-VHI, an independent research
firm, found that the Republican $452 billion cut in Medicare and Medicaid will lead doctors and
hospitals to raise their fees on private patients by at least $90 billion -- essentially a new $90
billion tax on everyone with private health insurance. This cost-shifting will increase the cost of
private health insurance, which would effectively reduce wage increases by 2.7%, and by as
much as 10% for lower-wage workers.
Gambling with Medicare to Benefit the Healthiest and Wealthiest. Republicans would
experiment with Medicare by creating Medical Savings Accounts (MSAs) under which the
healthiest and wealthiest could gamble at the expense of everyone else. Under the MSA
proposal, healthy seniors who could afford to risk paying a high deductible would have incentives
to elect catastrophic health insurance with a very high deductible. This would leave the less
healthy seniors with higher average health care costs -- and who cannot afford to gamble with
deductibles starting at $3,000 -- in the traditional Medicare program. A new study by Lewin-
VHI found that MSAs would substantially increase traditional Medicare program costs.
Hospitals Will Close and Doctors May Refuse Medicare Patients. Many rural and urban
hospitals depend on Medicare for a large share of their income. By making the deepest cuts in
health care provider payments in history, the Republican plan would force many rural and urban
hospitals to close. Lower payments to doctors also would create huge incentives for physicians
to refuse to take Medicare patients.
Raises Taxes on Working Americans. The Senate plan imposes new payroll taxes on many
state and local government employees at a time when the Republicans are cutting taxes for the
wealthy. Medicare does not currently cover government workers in many states who began work
before 1986 and they therefore are not subject to the Medicare payroll tax. Republicans would
require all state and local workers to pay Medicare payroll taxes, raising taxes on workers and
imposing an "unfunded mandate" on state government in violation of the unfunded mandates law
that Congress enacted earlier this year.
Medicare Talking Points 9/26/95 - 1:00 p.m.
REPUBLICAN PLAN ENDS MEDICAID:
PUTS MIDDLE-CLASS FAMILIES AT RISK
1. The Republican Medicaid Plan Will Force
States to Eliminate Coverage for Millions of
Americans, including:
4.4 million children,
More than 900,000 elderly, and
1.4 million people with disabilities.
2. The Republican Plan Will Force Families to
Choose Between Nursing Home Care for
Their Parents and Education for Their
Children.
3. The Republican Plan May Force Elderly
Spouses Into Poverty.
4. The Republican Plan Will Wipe Out
Quality Standards for Nursing Homes and
Institutions Caring for the Mentally
Retarded.
Medicaid Talking Points 9/26/95 -- 1:00 p.m.
REPUBLICAN PLAN ENDS MEDICAID:
PUTS MIDDLE-CLASS FAMILIES AT RISK
Republican Plan Will Force States to Eliminate Coverage for Millions of Americans. Medicaid
currently covers 36 million Americans and provides middle-class families with protection from the
high costs of nursing home care for their parents. In order to pay for their huge tax cut for the
wealthy, Republicans propose slashing Medicaid by an unprecedented $182 billion -- cutting
funding to states by 30% in 2002.
States will be forced to raise taxes, reduce Medicaid coverage, and cut services. According to data
from the non-partisan Urban Institute, the GOP cuts will force states to eliminate Medicaid
coverage for as many as 8.8 million Americans in 2002, including:
4.4 million children
more than 900,000 seniors
1.4 million people with disabilities
Republican Plan Will Force Families to Choose Between Nursing Home Care for Their
Parents and Education for Their Children. Medicaid currently is the largest insurer of long-term
care, covering over two-thirds of all nursing home residents. Without the guarantee of Medicaid,
families of elderly and disabled individuals needing long-term care could be stuck with nursing
home bills, currently averaging $38,000 a year. This extra charge to middle-class families may
force them to choose between nursing home care for their parents and education for their children.
That's a false choice for millions of hard working families. And that's the wrong way to balance
the budget.
Republican Plan May Force Elderly Spouses Into Poverty. Republicans are turning their backs
on the common ground protection that President Reagan signed into law to ensure that seniors do
not have to give up everything they own -- their car, their home, and all their savings -- in order to
pay for nursing home care for their sick spouse. The GOP plan repeals this protection, putting
seniors at risk of losing their homes and being driven into poverty by the cost of their spouse's
nursing home care. The GOP plan also means that parents of mentally retarded children may be
forced into poverty to pay for their children's care in an institution or at home.
Republican Plan Will Wipe Out Quality Standards for Nursing Homes and Institutions Caring
for the Mentally Retarded. The Republican plan throws away a decade of progress by repealing
another common ground law signed by President Reagan that established quality standards for
nursing homes and institutions for the mentally retarded. These standards restrict the use of drugs
and restraints and require that nurses' aides are properly trained. Under the guise of reform,
Republicans would repeal this law and throw away these fundamental protections -- just to pay for
their tax cut.
Medicaid Talking Points 9/26/95 -- 1:00 p.m.
HEALTH CARE BACKGROUND MATERIALS
HEALTH CARE BACKGROUND MATERIALS
SECTION 1: Medicare Talking Points and Back up Charts
-
One-page talking points
-
Chart illustrating Medicare cuts compared to tax cuts
-
Chart illustrating out-of-pocket cost increase
-
Chart illustrating out-of-pocket costs for elderly by age and by income
-
Additional talking points
SECTION 2: Why Republican Beneficiary Spending Increase is a Cut
-
Chart illustrating private sector growth rates versus Republican Medicare growth rates
SECTION 3: Medicare Trust Fund Information
-
Response to RNC Medicare Trust Fund scare tactic ad
-
Health Care Financing Administrator's letter to Leader Gephardt, enclosing actuarial
analysis showing that President Clinton's $90 billion in Medicare Part A savings
pushes back the Trust Fund's insolvency date through 2006
SECTION 4: Medicaid Talking Points and Back-up Charts
-
One-page talking points
-
Chart illustrating growth per recipient under Republican proposal
-
Chart breaking out impact of Medicaid cuts on Medicaid recipients, services, and
health care providers
SECTION 5: President Clinton's Position on Health Care
-
President Clinton's veto message regarding cuts in Medicare, Medicaid and Education
-
President's health reform initiative
SECTION 6: State by State Medicare/Medicaid Impact Analysis
SECTION 7: County by County Medicare Impact Analysis
SECTION 1: Medicare Talking Points and Back up Charts
-
One-page talking points
-
Chart illustrating Medicare cuts compared to tax cuts
-
Chart illustrating out-of-pocket cost increase
-
Chart illustrating out-of-pocket costs for elderly by age
and by income
-
Additional talking points
MEDICARE
REPUBLICANS' UNPRECEDENTED CUTS: The Republican Budget Resolution Conference
Agreement would cut $270 billion from the Medicare program over the next seven years -- $71
billion in the year 2002 alone. This approximately triples anything previously enacted.
CUTS ARE REAL: Republicans will call their proposal an increase, not a cut, since
spending will be higher in 2002 than it is today. But by that logic, reducing the Social
Security cost-of-living adjustment (COLA) would not be considered a cut.
BILLIONS ADDED TO OLDER AMERICANS' ALREADY HIGH COSTS: The
Republican Budget would increase beneficiaries' out-of-pocket costs by tens of billions of
dollars. Assuming their cuts were equally divided between beneficiaries and providers:
Over the seven-year period, beneficiaries would be forced to pay an additional
$2,825 ($5,650 per couple) out-of-pocket relative to the President's proposal.
The average Medicare nursing home beneficiary would pay $1,400 more in
premiums and cost sharing in 2002. The average Medicare home health care
beneficiary would pay $1,700 more in 2002.
HALF A MILLION BENEFICIARIES EFFECTIVELY THROWN INTO POVERTY:
The out-of-pocket increases would effectively push at least 500,000 elderly into poverty by
2002.
VOUCHERS AREN'T CHOICE, THEY'RE FINANCIAL COERCION: Republican
proposals that promise choice through Medicare "vouchers" actually threaten to undermine
fundamental Medicare protections.
o
A voucher would replace this benefit guarantee with a fixed dollar amount. The value
of this voucher would decrease over time; as a result, beneficiaries would either pay
more or get less benefits.
o
Republicans claim you can keep the Medicare coverage you've got. How can you keep
what you can't afford? The only way for Republicans to achieve the level of savings they
are proposing is through requirements that beneficiaries have to pay much more to stay in
the current Medicare program. That's not choice, that is financial coercion.
NO NEW BENEFICIARY CUTS IN THE PRESIDENT'S PROPOSAL: While the
Republicans would cut beneficiary protection to finance tax cuts for the well off, the
President would strengthen Medicare financing without new burdens for beneficiaries. The
President's proposal would:
o
Reduce Medicare spending by $124 billion -- less than half the Republican cuts;
o
Ensure Medicare trust fund solvency through at least 2005, without any new
beneficiary cuts;
o
Accompany reductions in Medicare spending with: 1) new prevention and long-term
care benefits; 2) more plan choices for beneficiaries; 3) aggressive pursuit of fraud and
abuse; 4) insurance reform; and, 5) important new insurance affordability protections
for small businesses and working families.
Current as of 8/3/95 2:19pm
Cutting Medicare to Pay for
Tax Cuts, 1996 - 2002
$300
$270 Billion
$245 Billion
$250
Dollars in Billions
$200
$150
$100
$50
$0
Medicare Cuts
Tax Cuts
Conference Agreement estimates from CBO baselines
Increased Medicare Out-of-Pocket
Costs Per Beneficiary, 1996 - 2002
$6,000
$5,650
$5,000
Dollars per Beneficiary
$4,000
$2,825
$3,000
$2,000
$1,000
$0
$0
President's Proposal
Single
Couple
Budget Resolution Conference Agreement
The new Medicare proposals included in the President's June 14, 1995 budget announcement do not include any new beneficiary costs. Republican proposal adjusted to
reflect the Part B premium extender in the President's FY 1996 budget. This chart assumes 50% of Republican cuts affect beneficiaries. US DHHS Estimates
Estimates of Average Out-of-Pocket Costs
For the Elderly
By Age
1994
Out-of-Pocket Costs
55.000
$4,000
$3;782 -
$3,469
$3.000
$2.519
$2,588
$2,264
$2,051
$2.000
$1.000
so
All Elderly
65-69
70-74
75-79
80-84
85+
Age Group
Estimates of Out-of-Pocket Costs
As a Percent of Income
By Age
1994
Percent of Income
40%
35%
34%
30%
27%
26%
25%
21%
20%
-18%
15%
13%
10%
5%
0%
All Elderly
Poor
Near-Poor
Low
Middle
High
Income
Income
Income
Income
Source: The Urban Institute
ADDITIONAL MEDICARE TALKING POINTS
ADDING TO ALREADY HIGH COSTS FOR OLDER AMERICANS
Over $40 Billion in Cost-Shifting: Assuming the other half of the Republicans' cuts go
to providers, hospitals, physicians, and other providers would be targeted with a $135 billion
cut over seven years. In 2002 alone a $35 billion cut in provider payments would be needed.
Even if only one-third of Medicare providers cuts overall are shifted onto other payers (an
assumption consistent with a 1993 CBO analysis), businesses and families would be forced to
pay a hidden tax of $40 billion in increased premiums for health care costs between now and
2002.
Rural and Inner City Hospitals At Risk: Cuts of this magnitude, combine with the growing
uncompensated care burden (which would be further exacerbated by Medicaid cuts and
increases in the number of uninsured), would place rural and inner-city providers in
jeopardy because they have limited or no ability to shift costs to other payers. As a result
quality and access to needed health care would be threatened.
MAJOR BURDEN ON RURAL AMERICA
Reducing Medicare cuts would disproportionately harm rural hospitals.
Nearly 10 million Medicare beneficiaries (25% of the total) live in rural America
where there is often only a single hospital in their county. These rural hospitals tend
to be small and serve large numbers of Medicare patients.
Significant cuts in Medicare revenues have the potential to cause a good number of
these hospitals, which are already in financial distress, to close or to turn to
local taxpayers to increase what are already substantial local subsidies.
Rural residents are more likely than urban residents to be uninsured, so offsetting the
effects of Medicare cuts by shifting costs to private payers is more difficult for small
rural hospitals.
Rural hospitals are often the largest employer in their communities; closing these
hospitals will result in job loss and physicians leaving their communities.
UNDERMINES ACADEMIC HEALTH CENTERS
Large reductions in Medicare payments would have a devastating impact on academic health
centers.
These research and training facilities are providing the bulk of medical advances in
the United States. Deep Medicare cuts, combined with private sector cost cutting
efforts that either undercompensate or don't compensate these institutions, will
undermine our position as the world leader in developing new and more effective
health care treatments and technology.
THE URBAN SAFETY NET
Large reductions in Medicare payments could also have devastating effects on a number
urban safety net hospitals.
Urban safety net hospitals are already bearing a disproportionate share of the nation's
growing burden of uncompensated care.
THE REALITY OF MEDICARE GROWTH
Despite the current rhetoric, Medicare expenditure growth is comparable to the growth in
private health insurance.
Under Administration estimates, Medicare spending per person is projected to grow
over the next five years at about the same rate as private health insurance spending;
under CBO estimates, spending per person is projected to grow only about one
percentage point faster than private health insurance.
So, unless Medicare can control costs substantially better than the private sector,
beneficiaries and providers would be forced to shoulder the burden of the huge cuts
being proposed by Republicans.
Current as of 8/2/95 4:14pm
SECTION 2: Why Republican Beneficiary Spending
Increase is a Cut
-
Chart illustrating private sector growth rates versus
Republican Medicare growth rates
Q&A FOR WHY INCREASE IN PER BENEFICIARY SPENDING IS A CUT
How can you consider a $1900 increase in Medicare spending a cut? The Congressional
Majority say they will pay $6,700 in 2002 per beneficiary, relative to the $4,800 per
beneficiary now being spent. How can you characterize this as a cut?
This is a cut because you cannot buy today's Medicare benefits with this amount
of money in 2002. Beneficiaries will pay substantially more or get less benefits.
Nothing the Congressional Majority can do or say can dispute this fact.
They say $6,700. However, that is about $1,000 less per person than what it
would be EVEN IF Medicare spending were constrained to the private sector
growth rate.*
And remember, the Congressional Majority wishes to constrain the growth rate well
below the private sector even though Medicare beneficiaries are, by any definition, a
much more difficult to manage and expensive population than those with private
insurance.
To deny their proposal is a cut is like saying that reducing the Social Security
cost-of-living adjustment (COLA) is not a cut. To deny their proposal is a cut is
like telling workers who get a 3% raise that their salary will remain sufficient to
maintain their standard of living in an economy that has an inflation rate of 5%.
The real question is whether the $6,700 advocated by the Congressional Majority
would be sufficient to pay for the same benefits in 2002 that Medicare
beneficiaries have today. Clearly, it is not.
*
(NOTE: The 1996-2002 private sector per capita growth rate projection of 7.1% --
calculated from Congressional Budget Office data -- is 40% higher than the 4.9%
growth rate the Republican budget allows for Medicare. Constraining the Medicare
program to the 7.1% growth rate would reduce per beneficiary spending from its
currently projected $8,400 to $7,600, and would produce substantial Federal savings.
However, the Republican budget's 4.9% growth rate would reduce Federal spending
per beneficiary by $1,700 to $6,630. This is $1,000 per person less than even the
private sector growth rate would allow and could only be achieved through
unprecedented cost-sharing increases on beneficiaries.)
Current as of 8/2/95 4:18pm joc
Private Sector Health Plan versus
Republican Medicare Growth per
Beneficiary, 1996-2002
7.1%
7%
6%
5%
4.9%
4%
3%
Private
Republicans
All estimates are calculated by the Administration using CBO data.
SECTION 3: Medicare Trust Fund Information
-
Response to RNC Medicare Trust Fund scare tactic ad
-
Health Care Financing Administrator's letter to Leader
Gephardt, enclosing actuarial analysis showing that
President Clinton's $90 billion in Medicare Part A savings
pushes back the Trust Fund's insolvency date through
2006
RESPONSE TO RNC MEDICARE TRUST FUND SCARE TACTIC AD
As the Republican National Committee (RNC) ad proves, some Republicans will
do anything to cover up the truth about their budget and tax cut priorities. No
$70,000 ad in USA Today will fool Americans into believing that Republicans are not
using their $270 billion in Medicare cuts to help pay for their $245 billion in tax cuts.
The Congressional Majority is now going so far as to distort the President's
record on the Medicare Trust Fund. The RNC ad states: "President Clinton
knows Medicare is dying, but he has done nothing to save it. Apparently his plan is
to just let Medicare go bankrupt." The truth is:
--
In 1993, President Clinton's budget strengthened the Medicare Trust Fund
by three years -- without one single Republican vote.
--
In 1994, President Clinton worked to pass his Health Security Act, which
would have further strengthened the Medicare Trust Fund by reducing
Part A spending and reducing overall health care inflation -- the ultimate
solution to the trust fund problem.
--
In June, 1995, President Clinton proposed his balanced budget proposal,
which guarantees that payments for Medicare recipients benefits would be
secure for at least ten more years. (At least through 2006).
The RNC ad flies in the face of Speaker Gingrich's own words of praise for the
President. After the President released his balanced budget, the Speaker specifically
acknowledged that the President was addressing the Medicare Trust Fund problem.
"He validated getting a balanced budget; he validated that you have to do
something significant to save Medicare..." (Baltimore Sun, 6/23/95)
The Congressional Majority suggests that the Trust Fund insolvency problem is
startling, brand-new news that ought to alarm America's seniors and their families.
--
Virtually every Medicare Trustee report has projected an insolvency date.
In fact, 8 earlier Trustee reports have predicted insolvency within seven years
or less. Each time, Congress and the President has addressed the problem; they
will do it again this Congress. This year's report is actually more optimistic
than the 1993 forecast. The President welcomes Speaker Gingrich's new
found concern, but he abhors the scare tactics he and others are using to
provide cover for large and unnecessary tax cuts.
The truth is that their proposals for unprecedented Medicare Part B beneficiary
cost sharing increases have NOTHING to do with strengthening the Medicare
Trust Fund. The Part B premium and deductible increases that have been suggested
by the Republicans in their own leaked documents would increase out-of-pocket costs
by hundreds of dollars. These savings would not contribute one cent toward helping
the trust fund; the Part B program has nothing to do with the Medicare Hospital
Insurance trust fund. Obviously, the Congressional Majority is using Medicare as
their piggy bank for their tax cuts.
The truth is that the $90 billion in Medicare Part A savings that the President is
calling for over.seven years push the insolvency date out 11 years is completely
consistent with how Republicans and Democrats in the Congress and in the
Executive Branch have addressed past short-term Trust Fund problems.
According to the non-political, carcer Medicare actuaries and the CBO, the most
Medicare savings that would be necessary to guarantee the near-term solvency of the
Medicare HI trust fund is $160 billion. Even if one assumes that $160 billion is
necessary, why are the Republicans taking an additional $110 billion from older
Americans and their health care providers? Two words: tax cuts.
There is a right and wrong way to balance the budget and strengthen the Trust
Fund. The right way is to enact the President's Medicare savings plan that imposes
NO new cuts on beneficiaries. The wrong way is to pass $270 billion in Medicare
cuts, to increase out-of-pocket costs for beneficiaries by $2,800 for singles and
$5,600 for couples, and to use the savings for tax cuts.
The President's balanced budget proposal shows that you can protect the
Medicare program from going bankrupt without bankrupting older Americans
and their children.
Current as of 8/2/95 4:19pm
provices
DEPARTMENT OF HEALTH & HUMAN SERVICES
Health Care Financing Administration
The Administrator
Washington. D.C. 20201
August 3, 1995
The Honorable Thomas Daschle
United States Senate
Washington, D.C. 20510
Dear Senator Daschle:
This is in response to your request for information about the effect of the Medicare savings
in the President's balanced budget initiative on the exhaustion date of the Hospital
Insurance (HI) Trust Fund.
Attached is a memorandum that I have received from the Chief Actuary of the Health Care
Financing Administration (HCFA). The memo indicates that the year-by-year savings in
the President's plan, which would total $89 billion in Part A over the period 1996-2002,
would extend the life of the HI Trust Fund from 2002 to the fourth quarter of calendar year
2006 (the first quarter of fiscal year 2007). This estimate is based on the 1995 Annual
Report of the Board of Trustees of the Federal Hospital Insurance Fund intermediate
assumption baseline.
Please let me know if I can provide any further information.
Sincerely,
Powellllu
Bruce C. Vladeck
Attachment
i
Health Care
DEPARTMENT OF HEALTH & HUMAN SERVICES
Financing Administration
Memorandum
Date
August 2, 1995
From
Chief Actuary, HCFA
Subject
Estimated Year of Exhaustion for HI Trust Fund under Administration's
Balanced Budget Proposal
TO
Administrator, HCFA
The purpose of this memorandum is to respond to the requests from Senator Daschle and
Representative Gephardt for the estimated year of exhaustion for the Hospital Insurance trust
fund under the Medicare provisions in the Administration's balanced budget proposal. Based
on the intermediate set of assumptions in the 1995 Trustees Report. we estimate that the assets
of the HI trust fund would be depleted in the fourth quarter of calendar year 2006 under the
Administration's proposal (or, equivalently. in the first quarter of fiscal year 2007).
In the absence of corrective legislation, trust fund depletion would occur in the fourth quarter
of calendar year 2002 (first quarter of fiscal year 2003) under the intermediate assumptions.
Thus, the Administration's proposal would postpone the year of exhaustion by about 4 years.
The financial operations of the HI trust fund will depend heavily on future economic and
demographic trends. For this reason, the estimated year of depletion is very sensitive to the
underlying assumptions, In particular, under adverse conditions such as those assumed by the
Trustees for their "high cost" projections, asset depletion could occur roughly 2 to 3 years
earlier than the intermediate estimate. Conversely, favorable trends could delay the year of
exhaustion significantly. The intermediate assumptions represent a reasonable basis for
planning.
The estimated year of exhaustion is only one of a number of measures and tests used to
evaluate the financial status of the HI trust fund. If Senator Daschle or Representative
Gephardt would like additional information on the estimated impact of the Administration's
Medicare proposals, we would be happy to provide it.
S.
Richard S. Foster, F.S.A.
SECTION 4: Medicaid Talking Points and
Back-up Charts
-
One-page talking points
-
Chart illustrating growth per recipient under Republican
proposal
-
Chart breaking out impact of Medicaid cuts on Medicaid
recipients, services, and health care providers
MEDICAID
REPUBLICANS' UNPRECEDENTED CUTS: The Republican Budget Resolution
Conference Agreement would cut $182 billion from Medicaid over the next seven years by
making the program a block grant to states.
HEAVY BURDENS TO FAMILIES FACING LONG-TERM CARE: While most people
think that Medicaid helps only low-income mothers and children, about two-thirds of
Medicaid funds are spent on services for elderly and disabled Americans. Without Medicaid,
working families with a parent or spouse who need long-term care would face nursing home
bills that average $38,000 a year.
MANAGED CARE SAVINGS NOT NEARLY SUFFICIENT: Savings from managed
care cannot produce anywhere near the magnitude of cuts proposed by the Republicans.
Two-thirds of Medicaid funds are spent on the elderly and disabled, and there is little
evidence that putting them in managed care can produce savings. And because the baseline
projections already assume that a growing number of mothers and children on Medicaid will
be in managed care plans, there are little additional savings left in the remaining one-third of
the program.
LIKELY IMPACTS: The Republicans argue that they are not cutting Medicaid since states
will get an increase in the block grant every year. But, given that CBO projects that the
number of people covered will grow by 3 percent and that the Republicans block grant will
grow by only 4 percent by 1998, the funding does not even keep up with inflation. It's a cut
in real terms.
o
Assuming states would be forced to respond to these cuts by reducing services,
provider payments and coverage:
8.8 million children, elderly, and disabled individuals would lose coverage
in 2002, according to the Urban Institute. This would further worsen our
nation's uncompensated care problem and create more incentives for cost-
shifting to American businesses and families who still have insurance.
THE PRESIDENT'S PROPOSAL PROTECTS COVERAGE: The President's proposal
contains a mix of policies that save $54 billion between now and 2002 -- less than a third of
the Republican proposal. It promotes efficiency and gives states more flexibility while
protecting coverage. Every single Democratic Governor has endorsed the President's
Medicaid target as a reasonable and achievable savings number.
o
Maintaining coverage under Medicaid is critical since it serves as a safety net for
many Americans. Between 1989 and 1994, employer health coverage declined from
66 percent of the nonelderly population to 59 percent. Medicaid coverage increased
from 9 to 14 percent during this same period.
Current as of 8/3/95 12:06pm
Medicaid Growth Per Recipient
Effect of the Republican Proposal
1996-2002
8%
7.0%
7.1%
6%
4%
2%
1.4%
0%
Current
Private
Republican
All estimates are calculated by the Administration using CBO data.
Medicaid Cuts
That States Would Be Forced to Make
2002
Eliminate coverage for dental,
screening services for kids,
Reduce provider payments
by almost $13 billion
and hospice and home care
Eliminate coverage for
Eliminate coverage for
7 million kids
nearly one million elderly
and persons with disabilities
NOTE: Assuming 25% cut in each of these categories.
SECTION 5: President Clinton's Position on Health Care
-
President Clinton's veto message regarding cuts in
Medicare, Medicaid and Education
- President's health reform initiative
THE WHITE HOUSE
WASHINGTON
June 28, 1995
Dear Mr. Leader:
We share the goal of balancing the federal budget, and I
look forward to working with you on this important matter.
But as we work together to reach our shared goal, we must
ensure that we do so the right way -- the way that will raise the
standards of living for average Americans.
My plan to balance the budget over 10 years will help raise
average living standards by cutting unnecessary spending while
investing in education and training, targeting tax relief to
middle-income Americans, and taking incremental but serious steps
toward health care reform. By contrast, the conference agreement
cuts too deeply into Medicare and Medicaid and cuts education and
training both to pay for a tax cut that is too large for too many
who don't need it, and to meet the 7 year time frame.
Though I am determined to work with you to balance the
budget, I cannot accept legislation that will threaten the living
standards of American families.
I hope we can work together and avoid a situation in which I
would have no choice but to use my veto authority broadly. The
American people want us to work together to balance the budget
and to do it the right way. I am ready to do that.
Sincerely,
Bin crinton
The Honorable Bob Dole
Majority Leader
United States Senate
Washington, D.C. 20510
The President's Health Reform Initiative
1. Reforming the Insurance Market
Insurance reforms, based on proposals that both Republicans and Democrats supported in
the last Congress, will improve the fairness and efficiency of the insurance marketplace.
Portability and Renewability of Coverage -- Insurers will be barred from
denying coverage to Americans with pre-existing medical conditions, and plans will
have to renew coverage regardless of health status.
Small Group Market Reforms -- Insurers will be required to offer coverage to
small employers and their workers, regardless of health status, and companies will be
limited in their ability to vary or increase premiums on the basis of claims' history.
Consumer Protections -- Insurers will be required to give consumers
information on benefits and limitations of their health plans, including the identity,
location, and availability of participating providers; a summary of procedures used to
control utilization of services; and how well the plan meets quality standards. In
addition, plans would have to provide prompt notice of claims denials and establish
internal grievance and appeals procedures.
2. Helping Working Families Retain Insurance After a Job Loss
Families that lose their health insurance when they lose a job will be eligible for premium
subsidies for up to 6 months. The premium subsidies will be adequate to help families purchase
health insurance with benefits like the Blue Cross/Blue Shield standard option plan available to
Federal employees.
3. Helping Small Business Afford Insurance
Giving Small Employers Access to Group Purchasing Options -- Small
employers that lack access to a group purchasing option through voluntary state pools
would get that option through access to the Federal Employees Health Benefits
Program (FEHBP) plans. This would increase the purchasing power of smaller
businesses and make the small group insurance market more efficient. Small firms
would get coverage from plans that also provide coverage to Federal employees
through FEHBP, but the coverage would be separately rated in each state, leaving
premiums for Federal and state employees unaffected.
Expanding the Self-Employed Tax Deduction -- The President's plan provides a
fairer system for self-employed Americans who have health insurance. Self-employed
people would deduct 50 percent of the cost of their health insurance premiums, rather than
25 percent as under current law.
4. Reforming and Strengthening Medicare
Strengthening the Trust Fund -- The President's plan would reduce Medicare's
Part A by $79 billion over 7 years to ensure the solvency of the Medicare HI Trust
Fund to 2005. The plan finds such savings by reducing provider cost growth, not
raising beneficiary costs.
Eliminating the Co-Payment for Mammograms -- Although coverage by
Medicare began in 1991, only 14 percent of eligible beneficiaries without supplemental
income tap this potentially lifesaving benefit. One factor is the required 20 percent co-
payment. To remove financial barriers to women seeking preventive mammograms, the
President's plan waives the Medicare co-payment.
Expanding Managed Care Choices -- The President's plan expands the managed
care options available to beneficiaries to include preferred provider organizations
("PPOs") and point-of-service ("POS") plans. The plan also implements initiatives to
improve Medicare reimbursement of managed care plans, including a competitive
bidding demonstration proposal. Also included in his plan are important initiatives to
streamline regulation.
Combatting Fraud and Abuse -- "Operation Restore Trust" is a five-state
demonstration project that targets fraud and abuse in home health care, nursing home, and
durable medical equipment industries. The President's budget increases funding for these
critical fraud and abuse activities.
5. Long-Term Care
Expanding Home and Community-Based Care -- The President's plan provides
grants to states for home- and community-based services for disabled elderly
Americans. Each state, will receive funds for home- and community-based care
based on the number of severely disabled people in the state, the size of its low-
income population, and the cost of services in the state.
Providing for a New Alzheimer's Respite Benefit within Medicare -- The
President's plan helps Medicare beneficiaries who suffer from Alzheimer's disease be
providing respite services for their families for one week each year.
6. Reforming Medicaid
The President maintains Medicaid, expanding state flexibility, cutting costs, and assuring
Medicaid's ability to provide coverage to the vulnerable populations it now serves.
Eliminating Unnecessary Federal Strings on States -- To let states manage their
Medicaid Programs more efficiently, the President's plan substantially reduces Federal
requirements.
-- States will be allowed to pursue managed care strategies and other service
delivery innovations without seeking Federal waivers; and
-- The "Boren Amendment" and other Federal requirements that set minimum
payments to health care providers will be repealed and restructured.
Reducing Medicaid Costs -- The President proposes a combination of policies to
reduce the growth of Medicaid spending, including expanding managed care, reducing and
better targeting Federal payments to states for hospitals that serve a high proportion of
low-income people, and limiting the growth in federal Medicaid payments to states for
each beneficiary. Per-person limits, as opposed to a block grant on total spending,
promote efficiency while protecting coverage.
Currrent as of 8/2/95 4:20pm
THE WASHINGTON POST
House Panel Votes to End Medicaid
SATURDAY, SEPTEMBER 23, 1995
Block-Grant Plan Is First Step in GOP Strategy to Expedite Passage of Changes
ments was a "cruel joke."
we are."
freedom to set their own require-
that allowing states near-complete
solved with a small amendment and
ed that this problem could be easily
help five people. Democrats respond-
fornia had to spend $28.5 million to
rent rules were so onerous that Cali-
merous other areas of care.
that set standards for nursing and nu-
patients without their consent, and
vent nursing homes from discharging
sarily tied down or drugged, that pre-
hibit residents from being unneces-
home standards that specifically pro-
sult, the committee's proposal would:
recipients and their families. As a re-
were necessary to protect Medicaid
ber of federal rules Democrats said
ments that would have retained a num-
darity, the committee rejected amend-
source of federal funds to the states.
home care and is the largest single
pays for more than half of all nursing
more than one in 10 Americans. It
vides health care to 32 million people,
year, the federal-state program pro-
there is no guarantee of anything."
it a "sad day for this committee
author of much of the program, called
are arejust as concerned about the poor as
that governors and state legislatures
within budget caps. I have to believe
got rid of mandates they could live
Va.) The governors told us that if we
tee Chairman Thomas J. Bliley Jr. (R-
aid cannot be sustained," said Commit-
in supporting the bill.
growing.
Republicans argued that the cur-
Abolish detailed federal nursing
In a firm display of Republican soli-
With spending of $155 billion last
Rep. Henry A. Waxman (D-Calif.)
The double-digit growth in Medic-
as-joining committee Republicans
Democrat-Rep. Ralph M. Hall of Tex-
Grant" plan was 27 to 18, with only one
The vote to establish a new "Medi-
rate the Medicaid program has been
crease each year, but at less than half the
home residents. The grants would in-
disabled and elderly poor, and nursing
of their grant on low-income families, the
They would be required to spend part
ought to be paid.
and how much doctors and hospitals
who is covered, what benefits are offered
payments, with the flexibility to decide
would receive block grants, or lump-sum
the poor, elderly and disabled. States
guarantee of Medicaid health benefits for
mittee voted to wipe out the federal
yesterday, the House Commerce Com-
breakneck three-day markup that ended
shut down the government. After a
a monumental confrontation that could
a bill making cuts of that size, setting up
the White House has threatened to veto
balance the budget over seven years, but
save $182 billion from Medicaid to help
The House and Senate propose to
money among the states.
tentious issue in the plan-how to divide
agreements remained over the most con-
reduction plan before Congress, but dis-
week as part of the huge omnibus deficit-
to push through a similar measure next
Senate Republicans announced plans
interference and federal funding.
the states that would reduce both federal
abled with slimmed down grants to the
health care program for the poor and dis-
Medicaid, voting to replace the federal
took the first step toward dismantling
A key House committee yesterday
Washington Post Staff Writer
By Judith Havemann
Al
programs.
ments.
east.
states are running expanded Medicaid
ers" under which Oregon and other
pay the amounts promised in the "waiv-
fort to force the federal government to
from current practice. Wyden lost an ef-
and urban providers, a dramatic change
quire states to pay equal rates to rural
proval for an amendment that would re-
Rep. Greg Ganske (R-Iowa) won ap-
certain levels of payment over time.
detailed federal waivers that promise
launched elaborate reform plans under
urban areas, and states that have
sets up new conflicts between rural and
rates in the existing Medicaid law also
federal standards, benefits and payment
Elimination of the elaborate array of
under the House plan.
also represent states that fare poorly
Delaware, and several other members
tee, the committee chairman is from
York's senators serve on the commit-
legislation next- week. Both of New
mittee, which will take up Medicaid
agreèment in the Senate Finance Com-
ly to be an even more contentious dis-
The fight foreshadowed what is like-
revisit the funding formula.
ed with the Republican leadership to
tion, although several members plead-
with nearly solid Republican opposi-
The amendment failed 12 to 32,
poorer states like Texas.
York in 1996 and distributing it to
posed stripping $7 billion from New
vote, Rep. John Bryant (D-Tex.) pro-
merce Committee's most suspenseful
would get higher figures. In the Com-
would get 3 percent, while Virginia
cent after the first year. Maryland
to the lowest possible increase-2 per-
generous Medicaid program, was held
The
District,
with
a
historically
ceived higher matching Medicaid pay-
generous than others, they have re-
Because some states have been more
government matching state payments.
and state program with the federal
Medicaid is now a combined federal
states, particularly those in the North-
higher annual increases than richer
lows poor and growing states to get
cording to a complex formula that al-
divide $89 billion among the states ac-
The Commerce Committee voted to
the 30 Republican governors.
over the last nine months with 25 of
ger a fragile compromise worked out
larger "MediGrant" rather than endan-
proposal to give their own states a
several Republicans voted against a
In the most striking display of unity,
dle class as federal legislators.
would be as eager to protect the mid-
bills. Republicans argued that states
tion to pay their parents' nursing home
are saving for their children's educa-
protected against losing the funds they
middle-class Americans needed to be
home bills.
Rep. Ron Klink (D-Pa.) said that
to pay for their parents' nursing
Allow states to force adult children
for Medicaid" nursing home care.
up to hide assets and qualify people
"an industry of attorneys had grown
provisions had been so abused that
WJ. "Billy" Tauzin (R-La.) said the
doors of senior citizens," but Rep.
liquidator will be knocking on the
that without this amendment, "the
Rep. Ron Wyden (D-Ore.) charged
or wife's care.
home or car to pay for their husband
nursing home residents to sell their
Allow states to require spouses of
THE NEW YORK TIMES, SATURDAY, SEPTEMBER 23, 1995
Medicaid Closer to Dismantling
WASHINGTON, Sept. 22 - Legis-
The House Commerce Committee
2/2
lation to dismantle the current Med-
rejected Democratic proposals that
icaid program and turn the money
would have guaranteed Medicaid
over to the states advanced today on
coverage for poor children under 19;
both sides of the Capitol, as Republi-
for poor people with Alzheimer's dis:
cans declared that states must be
ease and for poor women with breast
free to design their own health care
cancer. The committee also rejected
programs for the poor.
a Democratic proposal that would
have maintained Federal standards
By a vote of 27 to 18, the House
for the "quality of care in nursing
Commerce Committee approved
homes. Congress established those
legislation to give each state a lump
standards, with bipartisan support,
sum of Federal money, known as a
in 1987 after finding unsafe, unsani-
block grant, for medical assistance
tary conditions in many nursing
to low-income people. The House bill
homes.
was made public just three days ago.
Senate Republicans offered a simi-
Republicans said state officials
lar proposal today and said it would
could be trusted to regulate nursing
be approved next week by the Senate
homes and to decide who gets what
Finance Committee.
benefits.
The bills would reverse three dec-
Under the Republican proposals in
the House and the Senate alike, cer-
ades of Medicaid policy, which over
tain amounts of each. state's block
the years has expanded the number
of beneficiaries and the scope of
grant would be set aside for specific
groups: poor women and children,
benefits while setting Federal stand-
ards with increasing detail. In writ-
the disabled and the elderly, includ-
ing the bills, Republican lawmakers
ing residents of nursing homes. But
states would have almost complete
worked closely with Republican gov-
ernors. But the National Governors'
freedom to set eligibility criteria and
define the scope of benefits for each
Association, which represents gover-
group. The Federal Government
nors of both parties, has taken no
formal position on the proposals.
would no longer specify a minimum
package of benefits.
The purpose of the bills is to con-
trol the growth of Federal Medicaid
Representative Thomas J. Bliley
costs, which have quadrupled in the
Jr., a Virginia Republican who is
chairman of the Commerce Commit-
last 10 years, reaching $82 billion in
tee, hailed the changes, saying they
1994. The legislation seeks to cut
would control the cost of one of the
projected Medicaid spending by $182
fastest-growing Federal benefit pro-
billion, or 19 percent, over seven
grams. But Representative Henry A.
years.
Waxman, a California Democrat
Equally important, Republicans in
who designed much of the current
both houses say, they are deter-
Medicaid program, said this was "a
mined to abolish dozens of Federal
sad day," because there will be "no
mandates that prescribe, in great
guarantees of anything" for Medic-
detail, who gets what benefits under
aid recipients.
Medicaid.
The House bill says explicitly that
Today's vote in the Commerce
there will be "no Federal entitle-
Committee followed party lines, with
ment" to medical assistance and
one exception. Representative Ralph
that no person will have a legally
M. Hall, a conservative Democrat
enforceable claim against a state
from Texas, joined Republicans in
that fails to comply with Federal
voting for the bill. Aides to Mr. Hall
Medicaid law.
said he trusted state officials to
make wise use of Federal Medicaid
The Senate Medicaid bill includes
money.
a major source of savings not found
Senators are still wrangling over
in the House bill. It would reduce the
the formula that would be used to
number of hospitals that qualify for
distribute the grants among the
extra Medicaid payments because
states. New York, New Jersey and
they serve large numbers of low-
other Northeastern states have com-
income patients. Such payments,
plained bitterly about the formula in
which total $8.5 billion this year,
the House bill, noting that it would
would be reduced to $5 billion a year
allow their grants to increase only 2
from 1996 through 2002.
percent a year after 1996. A Senate
Senate Republican aides said that
Republican aide observed today that
over the next seven years, this
the House formula "does not do very
change would save $35 billion from
well for most of the states" repre-
the amounts that would be spent
sented by members of the Senate
under current law. But they said that,
Finance Committee, which has juris-
many large urban hospitals would
diction over the Medicaid program.
still qualify for the payments.
Children Talking Points Melanne
Here you
Medicaid Background
Medicaid plays an enormous role in health care
coverage.
Chan go. 1st cat
It provided health care to between one-third and one-
half of all babies under 1 year old and 33.9 percent of
children ages 1 to 5.
The HCFA Actuary estimates that Medicaid paid for about
cat both
one-third of all births in the United States during
ways,
1993.
The Medicaid program appears to be a significant and
growing source of health insurance for increasing
numbers of low-income eligibles.
According to a recently released Kaiser Commission
report, Medicaid coverage increased from 9 percent of
the population in 1989 to over 14 percent in 1994.
During this period, the rate of coverage through
private, employer-sponsored plans dropped significantly
(from 66 percent to 59 percent) but, with the rate of
coverage through the Medicaid program increasing
considerably, the percentage of uninsured remained
constant at 16 percent. Composition of who is
uninsured has changed.
Another important characteristic of Medicaid to
remember is that though fewer Medicaid recipients are
elderly and disabled, services provided to these two
groups cost substantially more, on average, than those
provided to children and other adults.
The elderly and disabled comprised only 27 percent of
enrollment but accounted for 67 percent of Medicaid in
fiscal year 1993.
Children, adults who care for them, and pregnant women
comprised 73 percent of Medicaid enrollees but
accounted for only 33 percent of spending during that
year.
While many believe that Medicaid program spending is
out of control (based on annual increases of almost 30
percent each year between 1990 and 1992), [caused
substantially by uncontrolled DSH expenditures and
donations and taxes State revenue sources,] current
spending trends indicate that the inflated rate of
growth of this period has come to a close.
Medicaid benefit outlays grew less than 9 percent in
1994 and are projected to grow at roughly 8 percent for
1995.
The Republican proposal eliminates protections for
families and spouses of nursing home residents.
Families could be forced to divert savings for their
children's needs such as education and health care to pay
the nursing home costs of their elderly parents - which
average $38,000 per year.
The proposed Medicaid block grant coupled with the $182
billion budget cut for Medicaid will force states to
reduce coverage.
Low income children, who comprise over 48% of Medicaid
beneficiaries, will suffer the most if states reduce
Medicaid coverage.
The Urban Institute estimates that over 4.4 million
children will lose Medicaid coverage under the Republican
proposal by year 2000.
This figure may actually be even higher if the powerful
lobbyists for the elderly and the nursing home industry
do their jobs correctly and protect the interests of
their clients.
Children - particularly low-income children, don't have
powerful, high-paid lobbyists. There is no one to
represent their interests in this Republican legislative
process - that is why they are vulnerable under the
Republican proposal.
The Republican proposal requires states to spend minimal
amounts of their funds on low income families. This
amount is only 40 percent of what states are currently
spending on mandatory services - essential services such
as hospital services, physician services, and x-rays.
This means children will also lose access to essential
primary and preventive care services - such as eye exams
and hearing tests.
Of all Medicaid children, the most vulnerable under the
Republican proposal are children with disabilities -
children with cerebral palsy, spina bifida, AIDS and
other life-long debilitating diseases.
Medicaid is the primary source of payment for medical
services for children with disabilities.
Medicaid covers 90 percent of all children with HIV and
AIDS.
These children and their families stand the most to lose
under the Republican proposal. Their conditions demand
intensive health care services - usually the most
expensive to provide.
As states are forced to provide medical care under a
fixed block grant, coverage for the most expensive
beneficiaries and services will be reduced.
from Familus USA
David
David is eight years old and was a healthy child until he
contracted viral encephalitis in 1991. He is now blind;
has a severe seizure disorder; and is medically fragile.
David lost his insurance when his father's company was
sold - the insurance plan offered through his father's
new employer will not cover David.
Due to his high medical expenses and severe disability,
David qualifies for Medicaid.
Under the Republican proposal, David is not guaranteed
Medicaid coverage.
He may be denied access to Medicaid - just like he was
denied access to private health insurance.
David's mom may be forced to quit her job - adding to the
family's economic burden - in order to provide David the
care he needs.
Edna
Edna is 76 years old. Her husband, Wilson, served in the
Navy and then worked for 23 years as a science teacher,
while supplementing his income by working every evening
at a supermarket.
Edna and Wilson lived on his pensions and their Social
Security benefits after Wilson retired in the late 70's.
In 1990, Wilson was diagnosed with Alzheimer's disease.
Edna took care of Wilson at home for three years,
feeding, dressing, and bathing him. Wilson's condition
progressively worsened and Edna had to place him in a
nursing home.
Wilson's nursing home costs average $48,000 a year, money
Edna did not have. Edna applied for Medicaid.
With the help of Medicaid, Edna is able to ensure that
Wilson gets the care he needs, and retain a modest
monthly income of $1,230 for her living expenses.
Under the Republican proposal, Edna's monthly income for
living expenses will not be protected. Edna may be
forced into poverty - lose her house, her car and entire
savings in order to pay for her husband's nursing home
costs.
CENTER ON BUDGET
AND POLICY PRIORITIES
June 29, 1995
THE CONFERENCE BUDGET RESOLUTION WOULD PROMPT
CUTS IN MEDICAID ELIGIBILITY AND BENEFITS
by Cindy Mann and Richard Kogan
The Conference Budget Resolution proposes to reduce federal Medicaid
spending by $182 billion by capping the allowable growth in federal Medicaid
payments to states. Federal payments would increase by 7.2 percent in 1996, 6.8
percent in 1997 and 4.0 percent in each of the next five years. The cuts would grow
sharply over time; by the year 2002, federal payments to states would be cut 30 percent
as compared with current law. Some states would suffer much deeper cuts.
The reductions proposed by the Budget Resolution would allow federal
Medicaid spending to grow over the next seven years. But the proposed rate of growth
is so low that it is not likely that states will be able keep their costs within these tight
federal caps without cutting back on eligibility and services for the vulnerable
populations served by the program. The cost-containment measures most often cited as
being able to help meet budget targets - managed care and lowered institutional
provider reimbursement rates - might result in significant savings, but even broad
implementation of managed care and deep cuts in provider payments are not likely to
achieve more than $27 to $46 billion in savings over seven years. This is just 15 percent to 25
percent of the savings that would be required by the proposed caps. This would leave a hole
ranging from $136 billion to $155 billion in program funding over seven years, even
assuming that states do not reduce their level of Medicaid spending.
A funding hole of this magnitude will have consequences far beyond what is
implied by those who characterize the Medicaid reductions as simply "slowing the rate
of growth." The cuts proposed by the Conference agreement are so deep that even if
states aggressively implement a wide range of cost-containment measures, states will
be unable to avoid major cutbacks in eligibility unless they substantially increase state
spending for Medicaid. A substantial rise in the number of Americans lacking health
insurance thus seems very likely under the Conference agreement.
The proportion of people with employer-sponsored health insurance has
declined steadily over the past six years. In 1988, for example, 65 percent of all children
under age 11 had employer-sponsored health insurance; by 1994, only 58 percent of
children in this age group were covered through the workplace. In these
circumstances, Medicaid played a critical role in preventing the number of uninsured
children from rising. Between 1988 and 1994, the proportion of children under age 11
777 North Capitol Street, NE, Suite 705, Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056
Robert Greenstein, Executive Director
covered through Medicaid grew from 18 percent to 30 percent of the children in this
age bracket. Had the proportion of children receiving Medicaid not grown, an
additional 5.1 million children might have been uninsured in 1994, and the proportion
of young children lacking insurance would have been 19 percent rather than 7 percent.¹
Under the Medicaid spending levels called for in the budget resolution, it would
become extremely difficult for Medicaid to continue to play such a role. With the
proportion of people covered under employer-sponsored health insurance continuing
to decline, millions of children and other vulnerable individuals who otherwise would
receive Medicaid coverage would likely be unable to receive it - and could join the
ranks of the uninsured. This unfortunate conclusion concerning the likely impact of the
Medicaid levels in the budget resolution is borne out by an analysis of the relevant
data.
Savings from managed care and provider rate changes
As part of the changes in Medicaid likely to be enacted this year, states are
expected to be granted flexibility to redesign program rules and achieve program
savings. States probably will be allowed to implement managed care without the
necessity of applying for a waiver of federal rules, and the Boren amendment - which
governs reimbursement rates paid to hospitals and nursing homes - likely will no
longer apply. Thus, states could attempt to achieve savings through managed care, and
they could determine provider reimbursement rates without constraint of federal law.
To the extent that states are able to achieve savings through these methods, they avoid
cutting benefits and services to low-income children, adults, elders, and disabled
people.²
Experience to date shows, however, that Medicaid managed care is likely to
produce lower savings than private managed care systems. Medicaid recipients are
generally sicker than the general population, and Medicaid provider rates are already
quite low, leaving much less room for capitated payments to produce large savings.
Indeed, the Congressional Budget Office has stated it expects payment rates to increase
1
Center on Budget and Policy Priorities calculations based on data developed by John Holahan, Colin
Winterbottom and Shruti Rajan, the Urban Institute, The Changing Composition of Health Insurance Coverage
In the United States, January 1995.
2
Extreme cuts in provider reimbursement rates and very low capitate rates for managed care plans
could, however, jeopardize access and quality of care. See, Access to Care: Is Health Insurance Enough?,
Policy Brief, Kaiser Commission on the Future of Medicaid, March 1995; and Langa et al., The Effect of Cost
Containment Policies on Rates of Coronary Revascularization in California, New England Journal of Medicine,
Vol. 329 No. 94, December 9, 1993.
2
under Medicaid managed care.³ Partly in an attempt to control utilization and deliver
services in the least costly setting, however, Medicaid managed care is spreading
quickly. As of 1994, about 23 percent of all Medicaid beneficiaries were enrolled in
some form of managed care.
Almost all of the experience to date with Medicaid managed care involves acute
care services provided to children and nonelderly, nondisabled adults.⁴ These services
represent a little less than one-quarter of all Medicaid spending. Some states have not
achieved any savings from Medicaid managed care. Among those states that have
shown savings, the savings range from 5 percent to 15 percent of the costs of these acute
care expenses. Applying this range of 5 percent to 15 percent to the projected acute care
costs for this group of beneficiaries indicates that if states enrolled all children and
nonelderly, nondisabled adults into managed care beginning in fiscal year 1996, the
expected seven-year savings would be $9 billion to $28 billion.⁵ While these are large
3
CBO Memorandum, The Effects of Managed Care and Managed Competition, February 1995, p. 9.
4
Few states have attempted to enroll disabled and elderly people into managed care, and there is little
data on whether significant savings can be achieved by enrolling these two groups of beneficiaries in
managed care. Potential savings are limited because of the high medical needs of these beneficiaries. In
addition, most elderly Medicaid beneficiaries also receive Medicare. Because Medicaid for these elders is
the secondary payer, much of the savings that states might expect from enrolling elderly Medicaid
recipients in managed care would be realized through reduced Medicare (i.e., federal) costs. Arizona is the
state with the longest experience with Medicaid managed care, and it has implemented managed care
broadly to include elderly and disabled beneficiaries and to cover long-term care services. Its experience
shows that managed care has not allowed Arizona to bring down its rate of growth close to the levels called
for by the Conference Budget Resolution. Data provided by Arizona to the Health Care Financing
Administration show that the rate of growth in long-term care spending in Arizona is projected to be 17.9
percent per year between 1993 and 1996.
5
Projections of acute care costs for nondisabled, nonelderly beneficiaries are derived from data
developed by the Urban Institute for the Kaiser Commission for the Future of Medicaid, adjusted to the
CBO baseline. The literature summarizing the experience with Medicaid managed care is reviewed in
Medicaid and Managed Care: Lessons from the Literature, Kaiser Commission on the Future of Medicaid, May
1995. Currently about 23 percent of total Medicaid costs are attributable to acute care services provided to
children and nondisabled adults under age 65. These costs are expected to grow relative to total costs over
the next seven years, and this projected growth - which will increase the potential savings from enrolling
children and nondisabled, nonelderly adults in Medicaid managed care - has been factored into these
estimates.
Since there is no basis to assume significant further savings if elderly and disabled people were
enrolled in managed care (see footnote 3), no managed care savings was calculated for this group.
However, the Boren amendment savings projected in this paper would only be available if elderly and
disabled people were not enrolled in managed care, because Boren amendment constraints on provider
reimbursement rates do not apply to rates paid under capitated plans. Thus, by projecting managed care
savings for the nonelderly, nondisabled population and projecting Boren amendment savings for the
(continued...)
3
savings, this estimate shows that even very broad, very rapid conversion to managed
care would achieve savings that represent only a modest fraction of the $182 billion in
reductions called for by the Conference agreement.
Additional savings might be achieved if the Boren amendment, governing
reimbursement rates paid to institutional providers, were repealed. The Boren
amendment, however, does not apply to rates paid under managed care capitated
arrangements. Thus, a repeal of the Boren amendment offers the potential of additional
savings only with respect to services provided to Medicaid beneficiaries not enrolled in
managed care.
States do not generally expect to reap large savings from a repeal of the Boren
amendment because they do not anticipate cutting back on current hospital rates. Some
savings, however, are expected by slowing the rate by which future hospital payment
rates would grow. The Congressional Budget Office has projected only very modest
savings in a preliminary staff estimate of the impact of repealing the Boren
amendment.6
For purposes of this paper, however, relatively large Boren savings are posited.
If states reduced the reimbursement rates they paid to hospitals for inpatient care
provided to elderly and disabled Medicaid recipients who are not in managed care so
that the rates returned roughly to their levels of the late 1980s - before most of the
Boren-related rate increases took effect - savings of about $18 billion could be
achieved over seven years. This would, however, require a dramatic 14 percent cut in
hospital rates; once again, even when assumptions are made that are likely to overstate
the potential savings, the savings figures remain quite small relative to the level of
Medicaid cuts included in the Conference agreement.⁷
5 (...continued)
elderly and disabled population, as is done here, the total amount of potential savings is maximized.
6
The total savings from repealing Boren were estimated to be $1.9 billion over seven years with respect
to hospitals and $2.3 billion over seven years with respect to nursing homes. CBO preliminary staff
estimates, April 1995. These estimates do not assume broad implementation of managed care. These
estimates would be lower if it were also assumed that fewer beneficiaries would remain in a fee-for-service
system.
7
This estimate assumes a 14 percent reduction in rates for projected inpatient hospital care expenditures
for all elderly and disabled beneficiaries effective in 1996 with no compensating acceleration of rate
increases in later years. That would bring the national average for rates (relative to costs) down to levels
paid in the late 1980s before most of the rate increases that have been attributed to the Boren amendment.
The most current data on hospital payments rates, which are for 1992 and include disproportionate share
(continued...)
4
Thus, the combined projected savings from aggressive implementation of
managed care and deep reductions in rates paid to hospitals for inpatient services
range from $27 billion to $46 billion over seven years. These savings, while substantial,
constitute only 15 percent to 25 percent of the total $182 billion in reductions in federal
payments called for by the Conference agreement. Moreover, as noted, these
projections probably overestimate the savings that can be achieved through these
measures, in part because they assume dramatic and perhaps unachievable or unwise
cuts in inpatient hospital rates, as well as very rapid implementation of managed care,
which has been shown to produce a myriad of problems.⁸ While states may be able to
achieve some additional administrative and rate-related savings through measures
other than managed care and hospital rate reductions, it is not likely these additional
measures will produce significant savings relative to the reductions in federal Medicaid
spending called for in the Budget Resolution.⁹
Federal cuts that cannot be offset through other means
will force reductions in eligibility and services
*
Unless states are willing and able to shoulder a much larger share of Medicaid
costs than they do now, changes in the program affecting eligibility and scope of
services are virtually inevitable. Projections developed by the Urban Institute
underscore this point. The Urban Institute projected that a $174 billion reduction in
federal funding over seven years, achieved by applying the caps on federal spending
7 (...continued)
payments, show that Medicaid hospital rates are already quite low; on average, they were below Medicare
rates and nine percent below costs in 1992. Prospective Payment Assessment Commission, Medicare and the
American Health Care System, Report to the Congress, June 1994. Furthermore, some states paid rates in 1992
that were far below the national average. For example, Vermont, Connecticut, Florida, Illinois, and
Nebraska are reported to have 1992 Medicaid hospital payment rates that were less than 75 percent of
costs. It is unlikely that states with very low provider rates will be able to reduce their rates further.
8
Another indication that these savings estimates likely err on the high side is that preliminary staff
estimates from the Congressional Budget Office suggest the savings figures cited here are significantly
higher than the savings that would be attributed to these measures by CBO.
9
For example, a repeal of the Boren amendment also would eliminate federal constraints with respect to
reimbursement rates paid to nursing homes. There are no national data examining the ratio of nursing
home payment rates to costs, but there is reason to doubt that large savings can be achieved here. Because
so many nursing home patients rely on Medicaid - more than half of all nursing home payments are
Medicaid payments - the homes are particularly dependent on Medicaid payments. Many homes have
little or no other payment base that could finance the shortfall created by a substantial Medicaid rate
reduction. This makes it difficult politically as well as practically - - for states to consider deep
reductions in Medicaid nursing home payments. CBO preliminary staff estimates project $2.3 billion in
homes. total (federal and state) seven-year savings from a repeal of the Boren amendment with respect to nursing
5
proposed by the House Budget Resolution and matched by a comparable lowered rate
of growth in state funding, would result in the elimination of coverage for millions of
beneficiaries.
10
The Urban Institute projections assume that states would implement managed
care, reduce covered services and provider payment rates and ratchet down the rates of
growth in spending per beneficiary to record low levels. In fact, the levels of growth
that the Urban Institute assumed would, according to the study's authors, require "cost
control to be more successful than that achieved (in percentage terms) in the private
sector or under any public program over a recent seven year period.
Using these conservative assumptions, the Institute projected that with a $174
billion reduction in federal Medicaid funding over seven years, 4 million to 9 million
people who would be covered by the program under current law in the year 2002
would be denied coverage. If the cuts in eligibility were applied evenly among all
beneficiary groups, 0.4 million -.0.9 million elderly, 0.6 million -1.4 million disabled
people, and 2.9 million - 6.4 million children and parents would be kept off the
program.
Over the past 10 years, Medicaid eligibility has been expanded with bipartisan
support that recognized the value of assuring health care coverage, particularly to
pregnant women, infants, and young children. These expansions have been especially
significant in recent years because employer-sponsored health care coverage has
declined steadily. Medicaid covers one out of four children in this country and half of
all people living in poverty. In addition, more than half of all nursing home care is
financed by the program.
Medicaid costs have been growing for many reasons, and reforms in the
Medicaid program can result in significant savings and a slower rate of growth. But
unless states are willing to increase state taxes to fund a much greater share of program
costs, federal Medicaid spending cannot be slowed to a 4 percent rate of growth in the
next few years without large numbers of people losing Medicaid coverage.
10 John Holahan and David Liska, The Urban Institute, The Impact of the House and Senate Budget
Committees' Proposals on Medicaid Expenditures, prepared for the Kaiser Commission on the Future of
Medicaid, May 1995. The $174 billion reduction the Urban institute assumed is slightly less than the
savings reflected in the House Budget Resolution because the Urban Institute's baseline for Medicaid
spending is somewhat lower than CBO's baseline.
11 News release, Kaiser Commission on the Future of Medicaid, House and Senate Medicaid Budget
Proposals Have Higher Variable Effects on States, May 19, 1995.
6
According to the Congressional Budget Office, more than 40 percent of the
projected growth in Medicaid spending is expected to result from enrollment-related
pressures. Between 1988 and 1994, the proportion of people covered by employer-
based insurance declined 9 percent. During this same period, the proportion of
children under age 11 covered through the workplace dropped by an even greater rate,
from 65 percent to 58 percent. Largely because of Medicaid, however, the proportion of
children under age 11 who are uninsured declined rather than increased.
This illustrates the important role Medicaid plays in our health care system. The
findings discussed here suggest that drastic cuts in federal Medicaid spending which
go far beyond the savings that can be achieved through managed care and curbing
provider reimbursement rates are likely to lead to substantial increases in the number
of people without health insurance and to poorer quality health care for low income
children and elderly and disabled people.
7
CENTER ON BUDGET
AND POLICY PRIORITIES
Revised August S, 1995
THE BUDGET RESOLUTION CONFERENCE AGREEMENT
by Pauline Abernathy
The budget resolution conference agreement is likely to lead to three major
policy shifts. First, it shifts a substantial amount of government benefits from low- and
moderate-income families to high-income families, and possibly to corporations.
Second, it shifts federal spending from domestic to defense programs. Finally, it shifts
responsibilities for various areas of government from the federal level to the state and
local levels; this is likely to result in tax increases at state and local levels that partly
offset the tax reductions at the federal level, while also leading to further program
reductions in the states.
Under the new budget plan, low- and moderate-income families stand to receive
little or no assistance from the tax cuts while bearing a highly disproportionate share of
the reductions in benefits and services. Middle-income families will receive a tax cut,
but also bear substantial reductions in such areas as Medicare and student loans. They
also are likely to face state and local tax increases as those levels of government cope
with added responsibilities but fewer federal funds.
High-income families will be the major winners. They will receive generous tax
cuts, while bearing few of the spending cuts. Corporations also will benefit if the
business tax cuts included in the tax bill exceed the reductions in business subsidy
programs. This shift from low- and moderate-income families to the affluent would
occur at a time when the gap between the rich and the poor, and also between the
wealthy and the middle class, is greater than at any time since the end of World War II.
The budget resolution represents a shift as well in federal spending from
domestic to defense programs. It increases defense spending from planned levels for
the third time in less than two years and reinstates a "wall" between defense and non-
defense spending in fiscal years 1996-1998, when defense spending is increased under
the resolution. While defense spending would rise, non-defense discretionary
spending would be hit hard, falling about $450 billion over seven years below the
amount currently available for these programs.
By 2002, 30 percent of the non-defense discretionary budget would disappear.
Non-defense discretionary spending includes virtually all of the public investments,
which many economists believe are needed to strengthen long-term growth, and also
includes most federal grants to state and local governments. It would fall to 2.4 percent
of the economy (GDP) by 2002, the lowest such level since 1954.
777 North Capitol Street, NE, Suite 705, Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056
By increasing defense and protecting Social Security from spending cuts, the
budget plan requires large cuts in most other domestic program areas. By 2002, the
average cut in the rest of the budget reaches 24 percent. The Medicare cuts reach 23
percent in 2002, compared with what would be expended for Medicare under current
law, while the Medicaid cuts reach 30 percent. As noted, non-defense discretionary
programs would be cut about 30 percent in 2002 compared with current service levels.
Tax Cuts
The agreement assumes approximately $1 trillion in program reductions and
$245 billion in tax cuts over seven years. It does not specify which taxes would be cut,
but given recent statements by a number of Congressional leaders, the tax cuts may be
similar to those passed by the House of Representatives in April. More than half of the
tax cut benefits in the House tax bill would go to families with incomes over $100,000,
according to analysis by the Treasury Department. Even the distribution of the child
tax credit is uneven - it provides no assistance to the poorest third of American
children and only 3.5 percent of the tax benefits it provides would go to the bottom 40
percent of children.
The $245 billion in tax cuts reflected in the conference agreement is roughly
halfway between the $170 billion assumed by the Senate and the $354 billion assumed
by the House. As in the Senate resolution, enactment of these tax cuts is conditioned on
their not creating a deficit in fiscal years 2002 through 2005.
The agreement does not require, however, that the tax cuts be paid for with
spending cuts. The agreement assumes the $245 billion tax cut will be partly paid for
with $170 billion in savings from an economic dividend or "bonus." This economic
bonus would come primarily from much lower long-term interest rates due to investor
confidence that the budget will be balanced in 2002. The remaining $75 billion in tax
cuts would not be paid for and would increase deficits over the first six years above the
levels they would otherwise reach under the agreement. Overall, deficits under the
conference agreement will be $167 billion higher over the next seven years than the
deficits would have been under the Senate resolution.²
Because the tax cuts are not fully offset in the first six years of the seven-year
period and because the Medicare and other spending cuts are heavily backloaded, the
deficit reduction overall is backloaded. More than half the deficit reduction is slated for the
I
For further information, see the Center's reports Tax Proposals Grow in Cost and Inequity Over Time and
The Child Tax Credit: Who Would Be Helped?
2
For more information, see the Center's report Compared with Senate Budget, Final Budget Causes Higher
Deficits and Makes Full "Economic Bonus" Less Likely.
2
last truo years. This makes it somewhat less likely that the out-year spending cuts will
actually occur in full. After five years of cuts of gradually increasing severity, public
support for further deep reductions in popular programs like Medicare may dwindle
- and strong opposition to further such cuts may mount - just when the largest cuts
in areas like Medicare are scheduled to take effect. If the financial markets suspect that
all of the spending cuts may not occur, the $170 billion economic bonus may not fully
materialize.
Furthermore, the economic bonus the conferees assumed to help them reach
budget balance may be overstated. In April, the Congressional Budget Office provided
an estimate of an illustrative economic bonus, based on a steady path to budget balance
in 2002. The conference agreement assumes the same level of growth bonus, despite
having deficits about $158 billion higher along this seven-year path than the CBO
assumed. As a result, the economic bonus from the budget conference agreement — if
one materializes - may be somewhat smaller than the conferees have assumed.
Defense Spending
The agreement assumes an increase in defense spending from the levels now
planned. This will be the third increase in the defense plan in the last year and a half,
coming on top of the increase contained in President Clinton's fiscal year 1995 budget
and the further increase in his 1996 budget. The agreement assumes $33 billion higher
defense spending over seven years than the Senate resolution, roughly halfway
between the levels proposed by the House and Senate.
The agreement also resurrects a "wall" between defense and non-defense
discretionary spending in the first three years. Shifting spending between defense and
non-defense discretionary programs will, until fiscal year 1999, require 60 votes in the
Senate. This point of order will effectively bind the House as well, because it applies to
conference reports on appropriations bills.
This wall enables advocates of higher defense spending to get the best of both
worlds. It will make it difficult for the appropriations committees to shift funding from
defense to non-defense discretionary programs in fiscal years 1997 and 1998, when
defense is increased the most under the budget resolution; defense appropriations are
increased $23 billion over these two years, compared with President Clinton's fiscal
year 1996 budget plan. The agreement takes down the wall in the years after 1998,
when it assumes a lower defense appropriations level than President Clinton's defense
plan.³ This raises the possibility that Congressional defense hawks will seek to shift
funds from non-defense to defense discretionary programs in those years, causing non-
defense programs to be cut still more steeply.
3
President Clinton's fiscal year 1996 defense plan, assuming zero real growth after fiscal year 2000.
3
Non-Defense Discretionary Programs
As in both the House and Senate resolutions, the largest dollar spending cuts
assumed in the conference agreement are in non-defense discretionary programs.
Senate documents accompanying the agreement understate the depth of these cuts
because they measure the cuts from levels that assume a seven-year appropriations
freeze with no adjustment for inflation.
As CBO has stated, freezing funding for programs over a multi-year period
while prices continue to rise generally requires reductions in program services. For
example, defense spending was $282 billion in both 1987 and 1994, but during this
seven-year period the number of Army divisions declined from 28 to 20, the number of
Air Force fighter wings dropped from 36 to 22, the number of Navy fighting ships
declined from 568 to 387, and the number of troops fell from 2.2 million to 1.6 million.
Defense programs were indeed cut during these years, and this occurred in no small
part because the defense budget did not keep pace with inflation.
The same phenomenon will now affect domestic discretionary programs. Using
a newly developed baseline that assumes a seven-year freeze, the conference agreement
assumes a reduction in non-defense discretionary programs of $190 billion over seven
years. This means there would be $190 billion in cuts on top of the reductions needed to
achieve a seven-year freeze. Using the traditional CBO baseline reveals that the reductions
total $445 billion over seven years.4 Some $255 billion in reductions are needed to get
to a seven-year freeze level.
Using this traditional CBO baseline, non-defense discretionary programs would
be cut about 30 percent by 2002. Spending on these programs would fall to 2.4 percent
of the economy by 2002, the lowest share since 1954. Using this same baseline, non-
defense discretionary programs account for 19 percent of projected federal program
spending over the next seven years, but would bear 42 percent of the program
reductions outlined in the conference agreement for the next seven years. 5
Non-defense discretionary programs fund everything from federal prisons,
border guards, and law enforcement to road-building, education, job training, scientific
research, veterans hospitals, space exploration, and environmental programs. In
addition, most public investment funded by the federal government is contained in the
non-defense discretionary budget.
4
This compares the amount of non-defense discretionary spending under the conference agreement
with the amount under CBO's capped baseline minus President Clinton's fiscal year 1996 defense plan. For
more information on the non-defense discretionary reductions, see the Center's report Congressional Budget
Plan: Deep Cuts in Non-Defense Discretionary Programs.
5
The term "program spending" refers to federal government spending excluding net interest payments.
4
Thus, public investment is likely to sustain deep cuts under the agreement. Most
federal grants to state and local governments, other than Medicaid and AFDC, also are
contained in this portion of the budget and are likely to be reduced sharply as well.
Medicare
The second largest dollar spending cuts assumed in the agreement are in the
Medicare program. The agreement assumes that Medicare spending will be reduced
by $270 billion over seven years, as compared with current law. The cuts grow each
year, reaching 23 percent in 2002. The agreement does not specify how the savings will
be produced. Savings of this magnitude, however, cannot be achieved in seven years
solely or primarily through increased efficiency, managed care, reduced program
waste, and vouchers or medical savings account plans. To achieve this level of savings,
beneficiaries, doctors, and hospitals must incur higher costs or receive lower fees.
Like the House resolution, the agreement backloads the Medicare cuts, delaying
the deepest cuts until the last two years. Some $131 billion of the $270 billion in
Medicare reductions would occur in 2001 and 2002. In 1989, Congress was forced to
repeal Medicare catastrophic care legislation because of a firestorm of protest from
Medicare beneficiaries. This budget agreement will likely increase out-of-pocket costs
for a much larger number of Medicare beneficiaries than the Medicare catastrophic care
law did. If the effects of these cuts are not spelled out from the beginning, Congress
could find itself again in the position of repealing Medicare legislation. The deficit
would balloon if the final stages of the Medicare reductions are repealed or scaled back
while the tax cuts are maintained.
The backloading of these large, unspecified Medicare cuts thus increases the
potential that the budget may not be balanced in 2002. If the financial markets worry
about this risk, the full economic bonus may not be realized.
Medicaid
The conference agreement assumes extremely deep cuts in Medicaid compared
with current law. It assumes an aggregate cap on federal Medicaid spending that
would save $182 billion over seven years. The cuts would grow over time, reaching 30
percent in 2002, which is a substantially larger percentage reduction than for Medicare.
These cuts will also cause greater hardship because Medicaid patients have low
incomes and Medicaid already pays doctors and hospitals much lower rates than
Medicare does.
Medicaid savings of this magnitude cannot be achieved without painful cuts.
Although the agreement does not specify how the savings will be achieved, supporters
have touted the aggressive use of managed care and removal of federal restrictions on
5
provider reimbursement rates. However, based on an analysis by the Center, those
changes would generate only 15 percent to 25 percent of the $182 billion in Medicaid
savings the budget resolution requires over the next seven years.6
If states enrolled all children and non-elderly, non-disabled adults in managed
care starting in fiscal year 1996 - and states also slashed hospital reimbursement rates in
Medicaid to the levels paid in the 1980s before the onset of rate increases influenced by
federal requirements (the Boren amendment) - the resulting savings would be $27
billion to $46 billion over seven years. These are ambitious numbers; savings this high
are unlikely to be achieved. Yet if this much could be saved, it would still leave more
than $130 billion in Medicaid cuts required under the budget resolution to come from
other state actions. These estimates strongly suggest that states will have to eliminate
Medicaid eligibility for large numbers of poor families and individuals and also end
coverage for various health services if states are to keep their spending within the
extremely austere Medicaid caps the budget resolution assumes.
Programs Serving Low-Income People
The agreement assumes a disproportionate share of the spending cuts would
come from programs serving low-income people. It assumes deep cuts in means-tested
entitlement programs. Furthermore, while the specific cuts in discretionary programs
will be determined annually by the appropriations committees, the reductions in low-
income discretionary programs also are likely to be deep. In the rescission bill now
pending in the Senate, 62 percent of the cuts are in low-income programs even though
these programs account for only 12 percent of discretionary spending.
The budget conference agreement assumes more than $100 billion in savings
from means-tested entitlement programs, including the Earned Income Tax Credit
(EITC), AFDC, SSI, Food Stamps, and child nutrition programs. The agreement does
not specify exactly how much each of these means-tested entitlements should be
reduced to achieve these savings.⁷ The welfare bill affecting these programs that
passed the House and the bills under consideration in the Senate will account for some
- but not all - of these savings. When the cuts in Medicaid are taken into account, the
agreement assumes reductions in means-tested entitlement programs of more than $282
billion over seven years. (See Table 1 on page 9.)
6
See the Center's report The Conference Budget Resolution Would Prompt Cuts in Medicaid Eligibility and
Benefits.
7
While the House and Senate budget committees assume the same overall level of savings in means-
tested entitlements, they assume different levels of cuts in specific means-tested entitlements. The Senate
Budget Committee assumes significantly larger cuts in the earned income tax credit and smaller cuts in
child nutrition than the House Budget Committee does.
6
Under current law, means-tested entitlement programs account for 25 percent of
projected entitlement spending over the next seven years, but account for 45 percent of
the entitlement cuts assumed in the agreement. In 2002 alone, the cuts in means-tested
entitlement programs are more than two and a half times larger in percentage terms than
the cuts in non-means-tested entitlement programs.
Business Subsidies
The federal government subsidizes businesses through both spending programs
and subsidies embedded in the tax code. A recent CBO study concludes that the
federal government spends about $30 billion a year on spending programs that have a
stated goal of subsidizing businesses. The government provides another $68 billion a
year in business subsidies through the tax code.⁸
The conference agreement may lead to an increase in business subsidies,
depending on the content of the tax cuts. The House tax bill would expand existing
business tax subsidies by about 30 percent in fiscal year 2000. Even if the costly
depreciation proposal is dropped, the remainder of the House tax bill still expands
business tax subsidies about 10 percent in the year 2000.
The House and Senate budget resolutions and the conference agreement assume
reductions in spending programs that subsidize businesses, but these reductions will be
left up to the authorizing committees and the appropriations committees. Recent
actions by the House Appropriations Committee call into question the extent to which
these programs actually will be cut.⁹ The House resolution had initially assumed a
modest $25 billion reduction in business tax subsidies over seven years. Even this
relatively timid reduction was eliminated in conference.
Conclusion: Who Will Benefit?
Not surprisingly, low- and moderate-income families would lose while high-
income individuals would gain. But state and local governments also would be among
the likely losers, and much of the middle class could be as well.
State and local governments would likely face sharp cuts. Grants to state and
local governments constitute a substantial share of non-defense discretionary spending,
which is reduced 30 percent by 2002 under the agreement, after adjusting for inflation.
Non-defense discretionary spending includes an array of federal programs unlikely to
8
This is the sum of the tax expenditures, or tax subsidies, that the CBO study identified as benefiting
businesses. This total may somewhat overstate the total revenue loss because tax expenditures interact.
9
"Industry Finds A Way Around Budget Cutters," by Dan Morgan, The Washington Post, June 26, 1995.
7
be cut deeply, if at all - the FBI, federal prisons, protecting the borders, running Social
Security offices, and various veterans services, etc. As a consequence, many other parts
of non-defense discretionary spending would have to be reduced more than 30 percent.
Grants to state and local governments are among the areas almost certain to
sustain reductions that exceed 30 percent by 2002. Federal grants to state and local
governments in areas such as education, transportation, housing, community
development and medical assistance are all likely to feel the ax.
Also of interest is the budget agreement's impact on the middle class. Many
middle-income families will receive a tax cut. But the middle class as a whole is likely
to lose more in government benefits and services than it gains from tax cuts. Many
middle-class elderly and disabled people are likely to pay considerably more out-of-
pocket for health care coverage. Many middle-class students will pay more for their
student loans. Middle-class families will also pay higher charges and fees for such
items as child care services, school lunches, mass transit, and use of national parks.
In addition, middle-class families in many areas are likely to face higher state
and local taxes as state and local governments seek to maintain a basic level of services
in areas such as education and transportation with less federal funding. Higher
property taxes and state sales taxes - both of which tend to be regressive - loom as
possibilities. When federal grants to states were cut in the early 1980s, state and local
taxes increased.
The extent to which the middle class comes out ahead or behind will depend in
part on the specific tax and spending changes that ultimately are enacted. If tax cuts
continue to tilt toward high-income investors and large corporations - and if corporate
subsidies are increased overall rather than reined in - the chances will be high that the
middle class ultimately will lose more in benefits, services, and state and local tax
increases than it gains from federal tax reductions.
It may be argued that balancing the budget is supposed to entail initial sacrifice
from the middle class to produce long-term benefits for the middle class through
stronger long-term economic growth. There is much merit to that argument. However,
if there is a large tax cut that primarily benefits the wealthy and large corporations, the
degree of middle-class sacrifice will be larger than would otherwise be needed to
balance the budget in the seven-year timeframe.
8
Table 1. Breakdown of Budget Resolution Conference Agreement
Outlays in Billions
1996
1997
1998
1999
2000
2001
2002
7-Yr Total
CBO Capped Baseline Deficits*
211
231
233
268
301
318
352
1,915
CPI Correction
0
Q
0
-1
-3
-6
k'o
-18
Capped Baseline Adjusted for CPI
211
231
233
267
298
312
343
1,897
Assumed Policy Changes
Discretionary Programs**
Defense
1
8
9
8
3
-7
-16
6
Non-Defense
-19
-37
-48
-67
-78
-92
-105
-445
Total Discretionary
-18
-29
-39
-59
-75
-99
-121
-440
Mandatory Savings (policy changes only)
Medicare
-8
-18
-27
-37
-49
-60
-71
-270
Medicaid
-4
-8
-16
-24
-33
-43
-54
-182
Low-income***
-5
-13
-15
-16
-19
-20
-23
-111
Other Mandatory
-5
-6
-9
-9
-11
-10
-14
-64
Total Mandatory Savings
-22
-44
-67
-87
-112
-133
-161
-627
Revenues
0
0
0
0
0
0
0
-1
Total Policy Changes
-39
-74
-106
-147
-186
-232
-283
-1,068
Debt Service Savings
-1
-5
-11
-20
-32
-47
-67
-184
Total Deficit Reduction
-41
-79
-118
-168
-221
-285
-358
-1,270
Resulting Deficits/Surpluses
170
152
116
100
81
33
-6
646
Possible Tax Cuts****
Possible Tax Cuts
-8
29
36
41
46
50
50
245
CBO Growth/Interest Bonus
-3
-7
-14
-23
-32
-41
-50
-170
Subtotal
-11
22
22
18
14
9
0
75
Resulting Debt Service Costs
0
0
1
3
4
5
5
18
Possible Final Deficits/Surpluses
160
175
139
121
99
47
-1
739
NOTES:
. The capped baseline follows the discretionary spending caps through 1998, when they expire, and keeps pace with inflation thereafter. This baseline is
adjusted for the enactment of H.R. 831 and minor technical corrections.
** Defense is compared with President Clinton's fiscal year 1996 defense plan. Proposed no-defense discretionary is measured from the CBO capped
baseline minus President Clinton's plan.
... Excludes student loans; incudes child nutrition.
Source: House Budget Committee Democratic Staff.
Revenue losses are shown as positive numbers because they increase the deficit. Totals might not add due to rounding.
9
CENTER ON BUDGET
AND POLICY PRIORITIES
Revised April 7, 1995
ASSESSING THE FIRST 100 DAYS:
The Combined Distributional Effects Of the House Spending and Tax Proposals
by Isaac Shapiro, Richard Kogan, and Pauline Abernathy
Overview
The details of the spending and tax provisions of the House Republican Contract
with America have now been filled in by three bills that passed the House. Specific
spending cuts of $146 billion over five years have moved forward, as have tax cuts that
the Treasury Department estimates would total $178 billion over five years and $630
billion over ten years.¹ These cuts can be found in the welfare bill, the rescission bill,
and the general budget and tax bill (which includes reductions in civil service
retirement and Medicare, as well as other miscellaneous proposals).
The effects of the specific spending and tax cuts on different income groups are
striking.
In the year 2000, about seven of every ten dollars of these spending cuts
- 67 percent - would come from low-income programs. These
programs comprise little more than one-fifth - 21 percent - of
programmatic federal spending. (Over five years, 69 percent of the
spending cuts would come from low-income programs; the year 2000 is
used because it reflects the effects of the spending cuts when phased in
fully.)
Over five years, the cuts in low-income programs would total $101 billion.
The large majority of cuts in low-income programs hit the poorest fifth of
households; nearly all the cuts affect benefits to the two-fifths of
households with the lowest incomes.
1
Unless otherwise stated, all revenue loss numbers for the tax cuts are from the Department of Treasury,
March 14, 1995. The Joint Committee on Taxation (JCT) estimates for fiscal years 1995-2000 are similar to
the Treasury estimates. The JCT estimates the revised Contract tax package would cost $181 billion over
this period compared to the Treasury's estimate of $178 billion. In part because the JCT has not issued ten-
year estimates, and because the full effects of many of the tax cuts are not fully in place until after the year
2000, this report uses Treasury estimates.
777 North Capitol Street NE, Suite 705, Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056
Robert Oreenstein, Executive Director
1
Table 1: Low-Income Share of Specific House Spending Cuts
(outlays in billions of dollars)
Fiscal Years
Fiscal Year
1996-2000
2000
Total Spending Cuts
$146
$43
Low-Income Program
$101
$29
Cuts
Percent Low-Income
69%
67%
Many of the specific cuts would be very deep. For example, by the year 2000 the
Food Stamp program would be reduced by one-fifth and 750,000 fewer disabled
children would be receiving Supplemental Security Income cash assistance than the
Congressional Budget Office projects under current law (some of these children could
receive certain services under the new SSI block grant). Effective immediately, the
rescission bill would eliminate altogether the Summer Youth Employment program,
which provides more than 600,000 jobs each summer to low-income youth.
The spending cuts would largely be used to pay for the tax cuts. Yet while low-
income households would bear the brunt of the spending reductions, they would
receive almost none of the benefits from the tax cuts.
When fully phased in, the Treasury Department estimates that less than
five percent of the benefits from the tax cuts would be received by the
bottom two-fifths of households. Their share of the spending cuts would be 14
times their share of the tax cuts.
Less than one percent of the tax cuts would be received by the poorest
fifth of households.
Wealthy households, by contrast, would gain significantly. Wealthy people and
large corporations would get the lion's share of the tax cuts.
When fully phased in, nearly half of the tax cuts - 47 percent - would
be received by the wealthiest 10 percent of households.
The richest one percent of households, 1.1 million households, would
receive 20 percent of the benefits of the tax cuts. This proportion exceeds
the share of tax cuts that the bottom 60 percent of households - 65 million
households - would receive.
2
Among the specific individual tax cuts is the capital gains tax cut. The
Treasury Department estimates that this cut would cost $92 billion over 10
years, with more than half of the benefits going to the wealthiest three
percent of households.
Similarly, the Treasury Department estimates that the increased
depreciation deductions would cost $121 billion over 10 years; more than
three quarters of depreciation deductions are taken by the largest one
percent of corporations.
Even the child tax credit is designed in a manner that excludes most low-
income families. Only about 3.5 percent of the benefits from the credit
would go to the 40 percent of children living in families with the least
income, while 64.4 percent of the benefits would go to the 40 percent of
children living in families with the most income.
The specific spending reductions, however, would hit wealthy households and
corporate subsidies only lightly. The share of the tax cuts that would be received by
the wealthiest 10 percent of households would be many times their share of the
spending reductions.
Middle-income households would benefit much less than the wealthy from the
tax cuts. The wealthiest 10 percent of households would ultimately receive an average
tax cut nearly nine times the size of the average tax cut for the middle fifth of
households.
Among the groups for which income would be transferred from the bottom to
the top are the elderly. Aid to the low-income elderly would be reduced both because
of cuts in the welfare bill in programs such as food stamps, and because they make up
more than one-third of the recipients of low-income housing programs (which are cut
sharply by the rescission bill) and the energy assistance program (which would be
eliminated by the rescission bill).
At the same time, however, the one tax provision aimed at the elderly is targeted
on upper-income households. The provision reducing taxes on Social Security benefits
would aid only the wealthiest 13 percent of Social Security beneficiaries. The
provisions in the three bills that would reduce capital gains taxes and modify the Social
Security earnings test would disproportionately benefit upper-income elderly
households as well.
The combined spending and tax policies that have been passed by the House of
Representatives would yield a large redistribution of income from low- and moderate-
income households to the wealthiest households. This redistribution would occur at a
3
time when the disparities in income between both wealthy families and poor families,
as well as between wealthy families and middle-class families, are already at their
widest recorded points since World War II. The share of the nation's income going to
the wealthiest fifth of households (48.2 percent) is already at an all-time recorded high,
while the shares going to the poorest fifth (3.6 percent) and middle fifth (15.3 percent)
are at all-time recorded lows.
The specific spending cuts in these House bills are only the beginning; much
larger spending cuts are expected soon to tackle the nation's budget deficit. If the
budget is to be balanced by the year 2002, another $1.2 trillion in specific additional
cuts are needed. Since the $146 billion over five years in specific spending cuts would
be less than the $178 billion in tax cuts, virtually all the hard work to balance the
budget still lies ahead. Since the cuts to low-income programs approved so far are
being used to finance the tax cuts and not to reduce the deficit, they represent only the
first stage of these cuts, with still-larger reductions in low-income programs likely to
follow. Given the budget arithmetic, further reductions in low-income programs are
likely to be accompanied by sizable reductions in programs serving the middle class in
the months ahead.
The Spending Cuts
Three major House bills make an array of specific spending cuts. The savings
from these bills would largely be used to pay for the tax cuts that have also passed the
House. Specific program cuts are included in the Personal Responsibility Act (the
"welfare bill"), the rescission bill,² and the comprehensive budget and tax bill. All
three of these bills have been passed in the House. The Senate has passed a companion
rescission bill and a conference on the House and Senate versions of this bill is expected
to occur at the end of April. Senate action on welfare, budget, and tax issues is also
moving forward quickly; but relevant legislation has not been passed.
Distribution of the Individual Cuts
The largest specific spending cuts made so far are found in the Personal
Responsibility Act and the rescission bill. In both bills, the large majority of cuts are in
low-income programs. The PRA includes numerous provisions that would result in
deep cuts. (See the text box "Specific Spending Cuts Would Bite Deeply" for a
description of some of the specific cuts to low-income programs.)
2 This analysis does not include the rescissions contained in the House-passed defense supplemental bill
(H.R. 889) because the savings from those rescissions are needed to pay for the supplemental defense
appropriations contained in the same bill. In fact, the rescissions in the House-passed version of H.R. 889
do not fully cover the five-year costs of the supplemental appropriations.
4
Specific Spending Cuts Would Bite Deeply
There has been substantial debate over whether the specific House spending cuts in
low-income programs constitute mere trims or substantial shearing. In a wide range of
programs, the cuts clearly fall in the latter category. For example:
The PRA would cut the Food Stamp program by more than $20 billion over
the next five years compared to current law. In the fifth year, the reductions
would translate into a 21 percent reduction in the program. The cuts are
designed so they swell with each passing year. In the tenth year of
implementation, the food stamp program would be reduced approximately 30
percent.
The proposal would reduce the food purchasing power for nearly all
recipients, including the working poor and the elderly and disabled.
Currently, more than 27 million low-income people, including nearly 14
million children, receive food stamps. In addition, the U.S. Department of
Agriculture estimates that more than two million food stamp participants
would become wholly ineligible for benefits under the bill.
The PRA would deny Supplemental Security Income (SSI) cash assistance for
the large majority of low-income disabled children who would otherwise have
become eligible for such aid in future years, including children with Down
Syndrome and cerebral palsy. Under current law, 1.25 million children are
projected to receive SSI cash benefits in the year 2000. CBO projects that under
the PRA only about 500,000 children would receive SSI cash aid.
The PRA would establish a new block grant to provide services to some
disabled children who would be denied cash assistance. But in the year 2000
CBO projects that funding for this block grant would be just 32 percent of what
would be provided under current law for the children that would be denied
cash benefits under the PRA.
The House rescission bill would cut deeply into programs designed to help
low-income youth gain work experience and skills. The summer jobs program
would be eliminated altogether. This program provides jobs and, in many
cases, classroom instruction to more than 600,000 low-income youth during
summer months. Research suggests that in the absence of this program, most
of its participants - who frequently live in areas with high unemployment -
would not be working. Overall, federal funding of employment and training
programs would be slashed by 42 percent for fiscal year 1995.
The rescission bill also would abolish the low-income energy assistance
program, which helps poor people pay high winter heating bills and avoid
emergencies that can lead to utility shut-offs.
5
In total, the Personal Responsibility Act would result in program cuts of
$65 billion over five years and $19 billion in the year 2000 alone compared
to current projections. Measuring from the alternate CBO baseline that
does not assume that discretionary programs grow with inflation - and,
therefore, has built into it a reduction in real services - the bill would
yield program cuts of $62 billion over five years and $18 billion in the
year 2000.
An estimated 92 percent of the cuts in the PRA affect poor or near-poor
households. The cuts affecting households that do not have low incomes
are concentrated in the child nutrition area. (See the Appendix for a
description of how the spending cuts in the PRA and the rescission bill
were distributed between low-income and non-low income programs.)
The House has also passed a rescission bill, which would cancel funding that
Congress previously appropriated. This bill also hits low-income programs hard,
eliminating programs such as the summer jobs program, which employs more than
600,000 low-income youth each summer.
The rescission bill affects only discretionary programs - programs that
are not entitlements. Low-income programs comprise 12 percent of
discretionary spending. But they would ultimately bear 68 percent of the
cuts in the bill.
The cuts in the rescission bill would primarily cancel funds appropriated
for fiscal year 1995. Funding for some programs would be reduced, while
other programs would be terminated. In so doing, these cuts would
lower the 1995 funding levels that serve as the basis for funding decisions
for subsequent years. In estimating the long-term effects of cuts of this
nature, it is traditionally assumed that funding levels for future years will
reflect these reductions. This assumption is particularly likely to prove
accurate in the current budget context, with sizable reductions looming in
the discretionary spending caps. Were the rescissions of 1995 funds to be
recovered in subsequent years, the difficult task of meeting the austere
caps would be still harder. 3
3 The Center has analyzed the proposed new caps; see "Reducing the Caps on Discretionary Spending:
Initial Cuts are Deep," April 1995.
6
Assuming the cuts in the rescission bill are maintained in future years, the
cuts would reduce spending by $67 billion over five years and $17 billion
in the year 2000.⁴
The budget and tax package passed by the House on April 5 also includes
changes in selected spending programs. These programs are not low-income programs.
The bill contains savings in civil service retirement and Medicare of about $10 billion
apiece over five years. It also facilitates the sale of the Uranium Enrichment
Corporation, which processes uranium so it can be sold to nuclear-powered electric
utility companies, raising $2 billion over five years. The package raises another $2
billion over five years through further auctioning of the rights to use certain bands on
the electromagnetic spectrum.
The budget and tax package increases spending in one area. It would raise the
amount of earnings not counted in determining Social Security benefits, thereby raising
benefit levels for certain recipients. Most of the increase in Social Security benefits
would go to elderly people who do not have low incomes. According to the
Department of Health and Human Services, the bottom 20 percent of Social Security
households with earnings would receive two percent of the benefit increase, while the
top half of such households with earnings would receive 75 percent of the increase.
(Moreover, Social Security beneficiaries with earnings tend to have more income than
Social Security beneficiaries without earnings.) This reform would raise spending by
$7.6 billion over five years.
In contrast to this new spending proposal that mainly benefits elderly people in
middle- and upper-income ranges, a number of the specific spending cuts that are part
of the House agenda would hit low-income elderly people particularly hard. While the
elderly poor account for one-tenth of the poverty population, they make up more than
one-third of those receiving low-income housing assistance and energy assistance.
Over three-fourths of the House rescissions in low-income programs are in low-income
housing and energy assistance programs.
The final portion of the budget and tax package is the general reduction in the
"caps" on discretionary spending. These caps establish overall limits on how much
discretionary spending can occur each year. The amount by which the caps would be
lowered is substantial: the new caps would reduce the overall amount that can be spent
on discretionary programs by $177 billion over five years and by $68 billion in the year
4
These figures reflect cuts relative to CBO's "capped baseline." That baseline assumes that total budget
authority and outlays for discretionary programs will meet the caps established under current law through
the year 1998, after which the caps expire. For years following 1998, CBO's capped baseline assumes that
discretionary spending will continue to equal the 1998 level of the caps, adjusted for inflation. The capped
baseline is the principal baseline employed by CBO.
7
Table II: Distribution of the Specific House Spending Cuts
(in billions of dollars)
Over Five Years
Fiscal Year 2000
From
Low-
From
Low-
Program or Legislation
Total
Low-Income
Income
Total
Low-Income
Income
Cuts
Programs
Share
Cuts
Programs
Share
Welfare bill¹
$62.1
$56.6
91%
$18.2
$16.8
92%
Rescission bill²
67.2
44.4
66%
17.2
11.8
68%
Social Security earnings test³
-7.6
0
-2.4
0
Civil service retirement⁴
10.2
0
2.7
0
Medicare
10.5
0
5.9
0
Uranium Enrichment
1.7
0
0.2
0
Spectrum Auction
2.0
0
0.8
0
Total
$146.1
$100.9
69%
$42.6
$28.6
67%
This table counts only cuts in low-income programs as low-income cuts. This is a conservative estimate of the
share of the spending cuts that affect low-income people because some of the cuts in non-low income programs
such as Medicare and civil service retirement will also affect low-income people.
1
Discretionary changes measured relative to CBO's baseline that freezes 1995 funding levels because that is
what determines the amount by which the discretionary caps are adjusted. All amounts are assumed to be low-
income except for the child nutrition, child welfare changes, and child support enforcement changes.
2 Changes are measured relative to CBO's capped baseline.
3 This provision is in the tax bill but is not included in the Treasury Department's distributional tables. The
spending estimate is from CBO.
4 Changes in intragovernmental payments from agencies to the civil service trust fund are assumed to net to
zero.
2000. 5 The cuts in the rescission bill would provide $67 billion of the $177 billion in
cuts needed to meet the new "caps." This would leave another $110 billion in cuts to be
made to meet the lower caps. These specific cuts are not included in the provision
5
These cuts are measured relative to CBO's "capped baseline." This is the principal baseline employed
by CBO in measuring the amount of deficit reduction or increase associated with any plan to raise or lower
the caps. See the previous footnote for a more detailed explanation of the capped baseline.
8
lowering the caps but would be made each year in the Congressional appropriations
process. Until the specific cuts are known, a precise estimate of their effect on
households at different income levels cannot be made.⁶
Combined Effects of the Spending Reforms
The specific spending cuts that have been passed by the House, coupled with the
increased spending from liberalizing the Social Security earnings test, would result in a
net reduction in spending of $146 billion over the five-year period from fiscal year 1996
through fiscal year 2000. In the year 2000 alone, the net reduction would be $43 billion.
These figures assume the specific cuts in the rescission bill are made permanent but do
not include the additional unspecified cuts required to meet the lower caps.
The large majority of this net reduction in spending would consist of cuts in low-
income programs.
Of the $146 billion reduction in spending over five years, $101 billion -
or 69 percent - would come from low-income programs.
The size of the cuts grow with each passing year, but their distribution
changes very little. Of the $43 billion in spending reductions in the year
2000, some 67 percent would come from low-income programs.
Low-income programs are projected under current law to total 21 percent
of government programmatic spending in the year 2000.⁷ (See Figure 1.)
As noted, additional, unspecified cuts would need to be made to meet the new,
lower caps on discretionary spending that would be established by the budget and tax
6
The Republican members of the House Budget Committee issued an illustrative list of discretionary
spending cuts to show that it is possible to meet the lower caps. The list is only illustrative, however. It is
not included in any legislation and is not binding on other House committees. As the Committee document
notes, the Appropriations Committee and the various authorizing committees are responsible for making
the final decisions on what to cut to meet the new caps.
7
Under current law, means-tested entitlements and discretionary programs serving low-income people
will account for 21 percent of gross federal programmatic outlays in fiscal year 2000. Gross federal
"programmatic" outlays exclude interest payments, deposit insurance and offsetting receipts.
In projecting spending on means-tested entitlements, the Center used CBO's March 1995
projections for fiscal year 2000. CBO does not make projections for every discretionary program.
Therefore, the Center assumed the low-income program share of discretionary spending in fiscal year 2000
would equal its share of discretionary appropriations in fiscal year 1995. Total discretionary spending in
fiscal year 2000 was assumed to equal CBO's capped baseline.
9
Figure 1
Low-Income Program Share of Federal Budget
and House Spending Cuts in the Year 2000
100%
80%
33%
60%
79%
40%
67%
20%
21%
0%
Federal Budget
Spending Cuts
Low-Income Programs
Other Programs
Source: Center on Budget and Policy Priorities
bill. If none of the additional cuts needed to meet the caps came from low-income
programs - a highly implausible assumption - low-income programs still would be
hit much harder than other programs when the total budget package is examined. (See
the text box on "How the full spending cuts might be distributed.")
The Tax Cuts
It appears that the large majority of the spending reductions described above
would not go to deficit reduction but to offsetting the costs of the proposed tax cuts.
The tax package includes a nonrefundable $500 child tax credit for certain families, new
Individual Retirement Accounts (IRAs), business depreciation tax cuts, repeal of the
corporate alternative minimum tax (AMT), and reductions in the taxation of capital
gains and Social Security benefits.
The capital gains, business depreciation, IRA, and Social Security proposals were
designed to have modest costs or even to raise revenues over the first five years and
then lose much larger amounts of revenue after the five-year budget period ends. In
combination with the corporate AMT changes, these provisions, which heavily benefit
upper-income households and large corporations, cost seven times more in the second
five years than in the first five years after enactment. They are largely responsible for
the escalation in the cost of the tax package after the five-year period ends, from about
$180 billion in the first five years to $450 billion in the second five years.
10
How the Full Spending Cuts Might Be Distributed
The estimates in this report of the distribution of the spending cuts apply to the specific
spending cuts included in the three major House bills. The budget and tax legislation also
would lower the caps determining how much can be spent on discretionary programs. The
majority of the spending cuts needed to meet these new caps have not been identified. These
specific cuts would be made during the Congressional appropriations process in the years
ahead
When these additional spending cuts are made, the reduction in spending over five years
would total $256 billion, or $110 billion more than the $146 billion in specific cuts in the three
major House bills. Depending on the nature of this additional $110 billion in cuts, the overall
share of the package coming from low-income programs over the five-year period could be
greater than, less than, or essentially equal to the 69 percent figure cited in this report.
The Center has calculated the distribution of the $256 billion based on four different
assumptions about how the additional $110 billion in cuts would be achieved. Depending
upon which scenario is used, the overall share of the $256 billion in cuts over five years that
would come from low-income programs would range from 40 percent to 82 percent.
Assuming that none of the $110 billion in additional cuts that would be made in the
appropriations process come from low-income program - a highly unlikely
assumption - the overall percentage share of the $256 billion in cuts coming from
low-income programs would be 40 percent.
Assuming that the $110 billion in additional cuts are across-the-board cuts in
discretionary programs, reducing low-income and non-low income programs by the
saine percentage and hitting low-income programs no harder than other programs
with more powerful constituencies, the overall percentage share of the $256 billion in
cuts coming from low-income programs would be 48 percent.
Assuming that the $110 billion in additional cuts reflect the same type of choices made
in the rescission bill - and take the same majority of cuts from low-income programs
as that bill did - the overall percentage share of the $256 billion in cuts coming from
low-income programs would be 68 percent.
Assuming that all of the $110 billion in additional cuts comes from low-income
programs - another unlikely assumption - the overall percentage share of the $256
billion in cuts coming from low-income programs would be 82 percent.
No matter which assumption is used, low-income programs would bear a
disproportionate share of the spending cuts. The share of the overall cuts that would come
from low-income programs - 40 percent to 82 percent - would be much larger than the 21
percent share of federal spending that consists of low-income programs.
11
Distribution of the Individual Tax Cuts
All of the tax cuts in the bill - including the tax credit for children - provide
the largest share of benefits to households in the upper ranges of the income scale or to
large corporations.
The Treasury Department estimates that more than half the benefits from
the capital gains provisions would go to the wealthiest three percent of
households, which have incomes exceeding $200,000. (Total cost over 10-
years: $92 billion.)
Another provision in the tax package would lower taxes on the Social
Security benefits of the top 13 percent of beneficiaries. (10-year cost: $49
billion.)
Past analyses of similar proposals indicate about 95 percent of the benefits
from the IRA proposal would accrue to the wealthiest fifth of the
population. (10-year cost: $22 billion.)
The benefits of the increased depreciation deductions are likely to go to
very large corporations.⁸ Approximately three-quarters of depreciation
deductions are taken by the less than one percent of corporations that
have net assets exceeding $100 million. (10-year cost: $121 billion.)
The proposal to scale back and ultimately repeal the Corporate
Alternative Minimum Tax, too, would mostly benefit the largest
corporations. An IRS study found that the large majority of companies
affected by the AMT are corporations that have total assets over $250
million.⁹ The AMT was originally proposed by President Reagan and
enacted in response to the public outcry over large corporations that
reported sizable profits paying little or no corporate income tax. (10-year
cost: $36 billion.)
8
Large corporations are the initial beneficiaries of much of the enhanced depreciation deductions. The
ultimate beneficiaries, however, are individual taxpayers who receive capital income; the Treasury
Department analysis of the distribution of the benefits of the tax cuts attributes the benefits of corporate tax
reductions to these taxpayers.
9
The IRS study found that the 1,324 corporations that each had total assets over $250 million accounted
for 87 percent of the tax liability due to the AMT that was reported in 1990.
12
The package also includes a nonrefundable $500 tax credit for each child
under 18. Although this proposal has been labeled a "middle class" tax
credit, it is designed in a manner that provides substantial benefits to
upper-middle class and wealthy families but not to lower-middle class
and poor families. Some 64.4 percent of the benefits from the credit
would go to the wealthiest 40 percent of children, while only about 3.5
percent of the benefits from the credit would go to the bottom 40 percent
of children. 10 One- third of all the children in the country would not
qualify for a credit because their family income is too low to owe income
taxes. Many families would not qualify for the full credit until their
income exceeded $30,000. (10-year cost: $236 billion).
The Combined Effect of the Tax Cuts on Different Income Groups
The tax cuts total $178 billion in costs over five years and $630 billion over 10
years. Because many of the tax cuts do not show their full effects until a number of
years after enactment, this analysis relies on Treasury Department data that show the
effects of the tax package "assuming fully phased in law and long-run behavior.
Combining the effects of the provisions when they are having their full effect,
the Treasury Department found:
10 These figures were calculated by the Center on Budget and Policy Priorities based on unpublished
Congressional Budget Office data tabulated by the minority staff of the House Budget Committee. See The
Child Tax Credit: Who Would be Helped?, Center on Budget and Policy Priorities, March 1995.
11 U.S. Department of Treasury tables, March 14, 1995. As noted in footnote 1, this analysis uses the
Treasury Department distribution estimates instead of the Joint Committee on Taxation distribution
estimates largely because the Treasury estimates examine the long-run impact - and many of the tax
provisions do not show their true effects until after the period examined by the Joint Committee. The
Treasury estimates are also preferable because they include the distributional effects of the corporate tax
provisions - the Joint Committee broke with its previous practice and did not include these distributional
effects - and because the Treasury estimates more accurately account for the benefits of the capital gains
provisions.
Jane Gravelle - a well-respected tax analyst and Senior Specialist on Economic Policy at the
Congressional Research Service - compared the distributional analyses of the tax bill by the Treasury
Department and the Joint Committee. She found: "There are several methodological differences between
the JCT's [Joint Committee on Taxation's] and the OT A's [Office of Tax Analysis of the Treasury
Department's] tables. These differences have the effect of making the relative benefits of the tax changes
for high income individuals smaller in the Joint Tax Committee's tables than in the Treasury's tables. In
general, the Treasury Department's treatment is more consistent with how economists would analyze the
distributional burden of a tax change." See Jane G. Gravelle, Distributional Effects of Tax Provisions in the
Contract with America as Reported by the Ways and Means Committee, Congressional Research Service, April 3,
1995.
13
Nearly half the tax benefits - 47 percent - would go to the wealthiest 10
percent of households. 12 These households all have incomes at least
somewhat above $100,000 according to the Treasury measure. 13
By contrast, the poorest 20 percent of households would receive fewer
than one percent of the tax benefits, while the next poorest 20 percent
would receive four percent of the benefits. In combination, these 40
percent of households - essentially all of whom have incomes of less
than $30,000 - would receive less than five percent of the benefits of the
total tax package.
The middle fifth of households also would also get less than a
proportionate share of the tax benefits. These 20 percent of households
would receive 11 percent of the benefits from the tax cuts.
The richest one percent of households - 1.1 million households - would
receive 20 percent of the benefits from the tax package, significantly more
than the share received by the bottom 60 percent of households combined.
The bottom three-fifths of households - 65 million households - would
receive 15.6 percent of the total tax benefits, according to the Treasury
data.
The average tax reduction for the wealthiest 10 percent of all households
($4,821) would be nearly nine times greater than the average tax reduction
for the middle fifth of households ($555).
12 "Capping" the child tax credit at $95,000, as some have suggested, would have little effect on this
figure. If it were capped, 46.6 percent of the overall tax benefits would still go to the top 10 percent of
households instead of 47.3 percent prior to the cap.
13 The Treasury Department used a broad measure of "economic income" in its analysis. According to
this measure, the richest one percent of households are those with incomes over $349,400 and the richest
ten percent of households are those with incomes over $108,700. The top 20 percent of households are
those with incomes over $79,100.
The next-to-the-top fifth of households are those with incomes between $48,700 and $79,100. The
middle fifth of households are those with incomes between $29,700 and $48,700. The next-to-the-poorest
fifth of households are those with incomes between $15,600 and $29,700. The poorest fifth of households
had incomes below $15,600.
14
Table 3: Distribution of House Tax Cuts
Top 10 Percent Get Almost Half the Benefits
Income Group
Share of Tax Cuts
Average Tax Cut
Poorest Fifth
1%
$36
Second Fifth
4%
$205
Middle Fifth
11%
$555
Fourth Fifth
20%
$1,021
Richest Fifth
64%
$3,255
Top 10 percent
47%
$4,821
Top 1 percent
20%
$20,362
Source: Treasury Department, March 14, 1995. Estimates based on 1996
income levels and fully phased-in law.
Combined Distributional Effects of Spending and Tax Cuts
To assess the effects on different income groups of the spending and tax changes
emerging in the House, it is useful to focus on the effects of these provisions when they
are fully effective. Therefore, this analysis relies on the Treasury's distributional tables
on the effects of the tax cuts when they are fully phased in and adjusting for long-term
behavior, and the Center's analysis of the distribution of the spending cuts in the year
2000. 14
In combination, the House spending and tax provisions would result in a
substantial reduction in the income of poor and near-poor households.
While low-income programs would bear 67 percent of the specific
spending cuts that have been made, the poorest two-fifths of households
would ultimately receive less than five percent of the tax benefits. (See
14 The year 2000 is the latest year for which a CBO cost estimate of the spending bills exists. The
distribution of the spending cuts changes relatively little on a year-by-year basis. As noted earlier, the
distribution of the tax cuts changes substantially because the full effects of many of the provisions are not
felt until later years.
15
Figure 2.) (The large majority of the benefits of low-income programs go
to the bottom 20 percent of the population. A modest share of these
benefits go to the next 20 percent of the population.)
Cuts to low-income programs would constitute $29 billion of the $43
billion in specific cuts that would be made in fiscal year 2000. In that year
the tax cuts for the bottom 40 percent of the population would amount to
a few billion dollars at most.
In sharp contrast, the nation's wealthiest households would gain substantially
from the tax package and would be affected very little by the spending cuts.
As noted, the top 10 percent of households (those with incomes of more
than $108,000 according to the Treasury Department) would receive
nearly half - 47 percent - of the benefits from the tax cuts. The richest
one percent of households would get 20 percent of the benefits from the
tax cuts.
While precise estimates of how much these households would be affected
by the spending cuts are unavailable, it is clear that it is far less than the
amount of their tax benefits. With 67 percent of the spending cuts coming
from low-income programs, the remaining 33 percent of the cuts would
be distributed across well over half of the population. Even if one third of
the remaining spending cuts came from the top 10 percent of households
- an assumption likely to overstate how much the remaining cuts hit
these households - these households would bear just 11 percent of the
overall spending cuts. Their 47 percent share of the tax benefits would be
more than four times their share of the spending cuts.
When fully effective, the Treasury Department estimates that $53 billion
of the $112 billion in tax cuts each year will benefit the top 10 percent of
households. (Figures in 1996 dollars.)
Without more precise estimates of the distributional effects of the specific
spending cuts made so far in the House, it is difficult to determine whether households
in the middle fifth of the income distribution would gain or lose from the combination
of spending and tax changes now moving forward. However:
The data clearly show that it is wealthy households, not the middle class,
that benefit most from the tax package. The wealthiest 10 percent of
households would ultimately receive an average tax cut nearly nine times
the size of the average tax cut for the middle fifth of households.
16
Figure 2
Low-Income Share of Spending and Tax Cuts in 2000
Low-Income Programs
Low-Income Households"
67%
5%
Other Programs
Other Households
33%
95%
Spending Cuts
Tax Cuts
"Low-income households refers to the bottom two-fifths of households, those with
incomes below $30,000.
Also of relevance to the middle class are the implications of using the
current round of cuts in low-income programs primarily to finance tax
breaks that disproportionately benefit the wealthy instead of using these
savings to reduce the deficit. With low-income programs taking a hard
hit without reducing the deficit, this suggests that forthcoming efforts to
reduce the deficit will have to rely more on reductions in programs
serving the broad middle class - such as Medicare - than if the
reductions in low-income programs had been applied to deficit reduction.
Income Inequality Already at Record Levels
Policies that would result in such a striking shift in income from low- and
moderate-income families to well-off families would further exacerbate income
disparities already at exceptionally wide levels.
Since the early 1970s, income disparities have been growing wider. After
adjusting for inflation, high-income people have experienced large increases in
incomes, middle-class incomes have remained stagnant, and low-income families have
experienced a decline in their incomes. The income gap between wealthy and poor
Americans, as well as the gap between the wealthy and the middle-class, now are at
record levels. Census data show that the income gaps in 1993 were the widest ever
recorded (these Census Bureau data are available back to 1967).
17
In 1993, the share of national income going to the top fifth of households
- 48.2 percent - was the highest proportion ever recorded. The top fifth
of households had nearly as much income in 1993 as the other four-fifths
combined.
The share of income received by the top five percent of households - 20.0
percent - also reached its highest level on record.
The share of national income going to the middle three-fifths of
households - the broad middle class - fell to 48.2 percent, the lowest
ever recorded.
The share of income going to the bottom fifth of households also dropped
to its lowest level on record, 3.6 percent.
The income data cited above are for all households, including households
composed of single individuals or unrelated individuals. If only the incomes of families
are examined the picture is the same. In 1993, family income disparities were at their
widest levels ever recorded. These data are available back to 1947.
Conclusion
With the first "100 days" of the new House Republican majority now at a close,
the first round of spending and tax decisions is nearly complete. These decisions are of
clear benefit to wealthy households. They also take big bites out of programs for low-
income families and individuals.
The House has made large cuts in low-income programs without making much
of a dent in the budget deficit. To balance the budget by fiscal year 2002 will require
specific spending cuts totaling another $1.2 trillion over the next seven years. If the
specific spending decisions made so far are any guide, low-income programs will be
even more severely affected before the cutting is complete.
There are now rumblings in Congress - particularly in the Senate - of taking a
different course. This course would begin with forestalling expensive tax cuts and
concentrating on deficit reduction instead. Given the size of the deficit, such a course is
the prudent one.
A further improvement would be to invoke the principle of shared sacrifice as
Congress attacks deficit reduction. Deficit reduction should not focus so heavily on
low-income programs, which compose one-fifth of federal programmatic outlays.
Reductions also should be made in programs whose benefits are spread broadly across
18
the population and in subsidies targeted on particular industries (sometimes called
"corporate welfare"). Calls to rein in corporate welfare spending have been supported
by groups as diverse as the Center, the Progressive Policy Institute, and the CATO
Institute. 15 Defense spending and tax expenditures - many of which are essentially
entitlements provided through the tax code - also should not escape scrutiny.
15
A recent newspaper story said that Republican members of the House Budget Committee are in the
process of compiling a list of cuts that target corporate subsidies. Christopher Georges, "House
Republicans Draft Plans to Cut Billions in Subsidies for Large Firms," The Wall Street Journal, March 30,
1995.
19
Appendix:
Which Spending Cuts Are Low-Income?
For many years, the Center on Budget and Policy Priorities has classified
discretionary (non-entitlement) programs as primarily benefitting people with low
incomes or as not primarily benefitting those people. In many cases, the programs
classified as "low-income" require that only people whose incomes are below specified
thresholds are eligible for the benefits. Examples of such programs are assisted
housing, LIHEAP (the Low-Income Home Energy Assistance Program), and WIC (the
supplemental feeding program for women, infants, and children). Other low-income
programs on the list are clearly designed to assist low-income individuals or
communities even though the recipient of goods or services need not prove that income
standards are met.
The discretionary programs that meet this standard and were affected by the
large House rescission bill (HR 1158), are listed and discussed in a recent analysis by
the Center.¹⁶
The Personal Responsibility Act (H.R. 4) - or "welfare bill" - is focussed
almost exclusively on programs whose benefits are, by statute, limited to those with
little or no other sources of income. Usually there also are limits on the value of assets
that a beneficiary can hold. Examples of such programs are Aid to Families with
Dependent Children (AFDC), Food Stamps, and Supplemental Security Income (SSI).
An examination of the PRA by Center staff finds that all of the benefit increases and
decreases in the PRA as passed by the House are in means-tested programs, with the
following three exceptions:
Most nutrition programs are folded into two block grants. Under one of
the two block grants, no benefits are available to anyone whose income
exceeds 185 percent of the poverty line. This block grant replaces two
programs that are not now entirely means tested - the child and adult
care food program and the special milk program. The second child
nutrition block grant - for school meal programs - also replaces
programs that include both means-tested and non-means-tested portions.
This block grant would allow states to continue to serve non-low-income
children. The Center assumed that the cuts required by this block grant
would be distributed in proportion to the amount of funds the existing
programs provide to children from low and non-low income families.
16 "66 Percent of Recent House Rescission Bill Cuts Programs for the Poor, "by Pauline Abernathy,
March 21, 1995.
21
The existing child protective services programs are replaced by a new
block grant. These programs generally provide assistance to abused and
neglected children. The new block grant is funded in two ways. The
majority of the block grant is funded through a capped entitlement while
a smaller portion is funded by discretionary funds. Under current law,
entitlement funds are available largely to provide support to low-income
abused and neglected children. Discretionary programs generally
provide assistance on a non-means tested basis. The discretionary funds
provided for the block grant largely replace these non-means-tested
programs. Therefore, we assume that only a portion of the cut in
resources for child protection programs would fall on low-income
children.
Because the bill strengthens child support enforcement, almost $480
million in savings in federal programs accrue due to increased child
support collections. For example, increased child support collections are
projected to reduce food stamp and Medicaid costs. This reduction in
federal spending, however, is not precisely a benefit cut to low-income
families since it is only occurring because of increased child support
collections.
22
CENTER ON BUDGET
AND POLICY PRIORITIES
14-16
THE STATE LOW-INCOME INITIATIVES
PROJECT
A Concept Paper
September 11, 1995
777 North Capitol Street, NE, Suite 705, Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056
Robert Greenstein, Executive Director
Table of Contents
I.
Introduction
1
The Fiscal Pressures States Will Face
2
The Role of State Organizations
3
The State Low-Income Initiatives Project
4
II.
The Changes Ahead and the Environment at the State Level
6
Changes in Public Assistance
6
Medicaid Changes
8
Food Stamp Program Changes
8
The State-level Environment
10
III.
State Program Design Issues
11
Will the state provide any cash assistance benefits?
11
If the state decides to use its federal block grant to provide
cash assistance, who will be eligible to receive aid, for
how long, and at what levels?
12
What work rules will be established as a condition of cash aid?
12
Will children who cannot be provided cash assistance with
federal block grant dollars receive aid financed with
state dollars?
13
Will states provide support to families leaving welfare for
employment?
14
To what extent will poor children qualify for medical assistance?
14
Will administrative barriers bar children from receiving health
benefits and services?
15
Will states effectively maintain health screening and treatment
services for poor children?
16
How will states redesign the food stamp benefit structure for
families receiving cash assistance?
16
Will the state opt for the food stamp block grant, and if so, how
will it design the blocked program?
17
Will there be a statewide system of providing assistance?
18
Will states maintain state funding for low-income programs?
18
IV.
The Work of the Center on Budget and Policy Priorities
19
Building on the State Fiscal Project Experience
19
The Work Ahead
21
A. Providing Technical Assistance in States
22
B. Publishing Strategy Papers
27
C. Monitoring, Training and Networking Activities
33
V.
Staffing and Collaborations with Other Organizations
34
Collaboration with Other Organizations
35
VI. Budget
35
VII.
Staff Biographies
36
Cynthia Mann, the Project's Director
36
Other Staff Involved in the Project
37
iv
I.
Introduction
Sweeping changes in federal programs that provide basic income support,
health care, and other basic benefits and services to the nation's poorest families are
moving through Congress. Some of these changes are likely to end key safety net
programs, such as AFDC, Emergency Assistance, and possibly Medicaid In their
place, states would receive block grants - capped amounts of federal funding - at
reduced levels. States would use the block grant funds to design and administer new
programs subject to few federal standards and only nominal federal oversight. In
other program areas, federal programs would be retained rather than converted to
block grants, but federal funding would be reduced, national program requirements
would be weakened, and states would be permitted to set many key program rules
formerly established at the federal level.
As of this writing, the House of Representatives has passed the Personal
Responsibility Act (PRA), a welfare bill that would substitute block grants for the
AFDC, JOBS, and Emergency Assistance programs as well as for current child care
programs, child protection and foster care assistance, and child nutrition programs.
The bill also would substantially reduce federal funding for food stamps and give
states the option to convert the food stamp program to a block grant, eliminate
eligibility for Supplemental Security Income (SSI) benefits for several hundred
thousand low-income children with disabilities, and deny legal immigrants access to
most benefits and services.
In the Senate, majority leader Robert Dole has developed a welfare bill that
also would block-grant the AFDC, JOBS and child care programs, restrict SSI
coverage for children, reduce food stamp benefits, and allow states the option to
convert the food stamp program to a block grant.
In coming weeks, both the House and the Senate will tackle Medicaid as well
and are expected to add particularly deep cuts there. The Congressional budget
resolution calls for reducing federal funding for Medicaid by $182 billion over seven
years, with the cuts reaching 30 percent by 2002. Both the House and Senate
leaderships favor turning Medicaid into a block grant.
Work on the federal legislation making these momentous changes is likely to
be completed sometime this fall. Once the legislation becomes law, many states will
need to move quickly. As the legislation is now written, a number of the block
grants would take effect for fiscal year 1996, which runs from October 1, 1995
through September 30, 1996. States would be allowed to continue operating the
existing programs for a number of months of fiscal year 1996. But the total amount
of federal funding a state could receive for fiscal year 1996 would be limited to the
state's FY 1996 block grant allocation, which generally would be less than the cost of
operating the current program in FY 1996. Thus, if a state were to operate the
1
current programs for six months, until April 1, 1996, even sharper program cuts
could be required in the second half of the year. This would occur because the
amount of money the state would receive for the fiscal year as a whole would equal
its block grant allocation for the year minus the federal government's share of the
cost of operating the existing programs for the first six months of the year. This is
likely to induce many states to move to the block grant structure expeditiously.
As a result, some states are now considering options for redesigning these
programs and beginning to plan for the onset of block grants. It is likely that by late
fall, most or all states will be making initial decisions about the design and nature of
the state-run programs that will replace the current programs.
Some states may choose to continue current programs temporarily - perhaps
at a lower funding levels - while they assess their options; other states may make
sweeping changes in a relatively short period of time. Given the anti-welfare rhetoric
that has surrounded the federal welfare debate, the political climate at the state level,
and the fiscal constraints that will be operating virtually everywhere, nearly all states
are likely to be under significant pressure to jettison significant parts of the current
program structure and "reinvent" their anti-poverty programs.
The risk of harm to low-income families and individuals from this process is
great. States will be undertaking the complicated and critically important task of
redesigning their low-income programs in a compressed timeframe, in a politically
charged atmosphere, with reduced federal funds, and with strong pressures to reduce
the level of state funding devoted to these programs.
The Fiscal Pressures States Will Face
Consider some of the fiscal pressures states will be under as they face the
challenge of redesigning their cash, job training, child care, health, and food
assistance programs for the poor.
States will have less federal aid with which to manage their new
program responsibilities. The House welfare bill would cut federal
funding for welfare, child care, child welfare, food assistance, and other
programs covered by the bill more than $65 billion over five years. As
noted, the Medicaid reductions now being planned would be still larger.
In addition, for at least some of the low-income programs that will be
transferred to the states, there likely will be no requirement that states
maintain their funding as a condition of receiving block grant funds.
Under the House welfare bill, states would not be required to expend
any state funds to receive funding under the federal block grant that
would replace AFDC and a number of other programs. The Senate
2
leadership bill that Majority Leader Bob Dole will bring to the Senate
floor in September is similar in this respect; under it, as well, states
would be free to terminate state funding for AFDC, JOBS, and child care
programs.
Moreover, low-income programs are not the only programs targeted for
large federal cuts. As the federal government moves toward a balanced
budget, states will experience substantial reductions in federal funding
in an array of other areas. The Congressional Budget Resolution
effectively assumes a cut of nearly 30 percent in federal grants to states
by 2002. This will have a large effect on state finances; more than a
quarter of state general revenues come from federal grant programs.
As a consequence, fierce competition is likely to develop in statehouses
to find state money to replace some or all of the federal funding cut
from popular programs such as education, highways, and public health
initiatives. Because state funds taken from poverty programs can be
used to offset federal funding reductions in programs serving broader,
more middle-class constituencies, such competition will further intensify
the pressure on states to scale back or even eliminate state funding for
low-income programs.
Despite the pressures states will feel to pass on and deepen federal cuts in
low-income programs, and the degree of change involved, states will be subject to
little federal oversight as they "reinvent" their safety net programs. The new federal
legislation is not likely to hold states accountable to the federal government except in
the most nominal of ways.
The Role of State Organizations
How much accountability there will be at the state level is an open question.
In some states, action may be taken by the governor and other executive branch
officials without significant involvement by the state legislature. In other states, the
legislature will be heavily involved.
In either event, there is an important role for state and local organizations that
work on behalf of low-income families to play. Participation by such organizations in
the decisions that states will make as they exercise their vast new powers in these
areas is likely to prove essential to avoid substantial harm and help move policy
choices in a positive direction.
Yet there are serious questions about how effective such organizations will be.
Many of the non-profit organizations that should be important players in this process
in their states do not possess the analytic capacity, breadth of expertise, or resources
3
necessary to be fully effective participants. Most state-based policy organizations,
child advocates, and others who would like to become involved in the process of
low-income program redesign will have to expand their policy analysis capacity and
their efforts in this area if they are to affect the decisions that will be made.
These organizations will need to draw upon sophisticated technical support to
help design new program options, restructure current programs, and consider the
consequences and interactive effects of policy proposals affecting a number of
different programs at the same time. They also will need to secure information on a
timely basis concerning the details of the federal changes, the relevant research
findings, and the experiences of other states with various reform approaches. In
addition, they will need to be able to assess how certain program design options will
affect federal and state funding streams and hence the overall level of resources
available to assist low-income families in the state.
State policymakers and administrators who wish to improve their anti-poverty
programs, or at least to avoid significant harm, also will need assistance in many
areas of program design and policy analysis. If these policymakers are to find
creative solutions under tight fiscal constraints and against the political odds, they
will need access to information about promising options - including options being
pursued by other states - analysis of how these options relate to conditions in their
state, and advice in sorting through the various ways that programs can fit together
to deliver services more effectively and efficiently.
The State Low-Income Initiatives Project
To help respond to these needs at the state level, the Center plans to expand
greatly the work of its State and Local Programs Division, directed by Center
Associate Director Iris Lav. Three years ago, the Center launched its State Fiscal
Project to work on state budget and low-income program issues with advocacy
groups, emerging policy organizations, and state officials. The State Fiscal Project
now assists state organizations and policymakers in states across the country.
The Project also is building a network of state organizations. We are helping
foster the capacity of these organizations to conduct fiscal policy work that can aid
low-income families and to function somewhat like the Center on Budget and Policy
Priorities does at the national level.
We now plan to take the next step and establish a new project - the State
Low-Income Initiatives Project - to operate in tandem with the State Fiscal Project.
With this new project, the Center will endeavor to meet the challenges posed by the
transfer of major responsibilities for safety net programs to states by helping state
organizations and policymakers develop policy options, analyze emerging proposals,
4
and consider promising new approaches, and also by helping build the capacity of
state organizations to undertake such work in their states on an ongoing basis.
Our approach to this work will differ in a number of respects from that of
most other national organizations that seek to offer technical assistance in states. We
will consider both the programmatic and the fiscal aspects of issues that arise as state
efforts to redesign the poverty programs move forward. In so doing, we will take
advantage of the Center's expertise in state fiscal matters and build on the work of
State Fiscal Project. Because the Center is one of the few organizations that works on
tax and budget policy at both the federal and state levels, it is uniquely suited to help
shape new program designs while taking into account the state budgetary
implications of various proposals.
The Center also is unique in the extent to which it possesses expertise in most
of the relevant policy areas, including welfare, health care, food assistance,
employment, housing, and income and poverty trends. As a result, the Center is
well-equipped to assess the interactions among programs that proposals to overhaul
safety net programs will have. Furthermore, the Center is one of the few national
organizations working on low-income programs that has substantial expertise in the
details of program design. The Center has conducted extensive work on designing
low-income program initiatives at both the federal and state levels. Of late, the
Center has devoted particular effort to designing reforms that can serve as
alternatives to draconian options that are likely to carry the day in the absence of an
alternative approach.
A defining feature of this project will be that it will undertake its work in a
manner designed to build the capacity of state-based organizations to analyze the
issues, develop policy options, assess other policy options under consideration, and
become players in the debates that lie ahead. This also is an area where the Center
has experience and a demonstrated track record through the work of its State Fiscal
Project.
In addition, the Center has forged ties with key state officials in a number of
states. Since January, the Center has twice been asked to conduct briefings for
groups of governors. We now have established relationships with a number of
governors and their senior staffs. We also have been asked to conduct briefings in
recent months for state budget directors, groups of state legislators, and state welfare
and food stamp directors. (In each of these cases, we have conducted at least two
briefings in recent months at the request of the national organizations that represent
these groups.) Individual governors, state cabinet officials, other state program
managers and state legislative leaders also have requested briefings or meeting, of
which there have been a considerable number. For example, the Center has briefed
Colorado Governor Roy Romer more than a half dozen times so far this year.
5
The new project thus begins with a solid foundation of state-level
relationships, contacts, and expertise. To carry out this work, we are creating a high-
powered unit at the Center that will draw upon the expertise of current Center staff
who are experts in welfare, health care, food assistance, employment policies, and
income and poverty trends and also will include new staff. The project will be
directed by Cynthia Mann, working under the supervision of Iris Lav. Mann brings
to this effort more than 20 years of experience working on anti-poverty programs at
the state level in a variety of policy forums and with low-income beneficiaries of the
programs. (Background sketches of key project staff are included at the end of this
paper.)
II.
The Changes Ahead and the Environment at the State Level
The legislation moving through Congress would grant states broad authority
to design and administer low-income programs while substantially reducing the
federal funds that states receive to carry out these responsibilities. The changes
under consideration affect virtually every major program assisting low-income
people. The following is a brief overview of the pending proposals in some key
program areas.
Changes in Public Assistance
Both the House welfare bill and welfare legislation developed by Senate
majority leader Bob Dole would substitute a single block grant for the current AFDC,
JOBS, and Emergency Assistance programs (and in the Senate bill, for several child
care programs as well). The block grant would provide a predetermined level of
funding to states and allow them to design their own programs. The universe of
families with children who would be eligible for assistance under the block grant
would be left largely to state discretion; states could choose to restrict aid to a much
narrower group of families than are served by the current programs.
There would, however, be some restrictive federal rules. States would be
prohibited from using federal block grant funds to provide cash assistance to certain
groups of children and families, such as those who have received assistance for five
years after the date of the legislation's enactment. As many as half of the low-income
children who would be assisted under the current AFDC program could eventually
be denied assistance under these provisions.
6
Furthermore, federal block grant funding would not rise if a recession occurred
or other factors increased the number of poor children and families in a state. In
addition, there would be no requirement that states expend any state funds for these
programs.²
The legislation also contains contradictory provisions regarding work. On the
one hand, states would be required to increase substantially the number of families
participating in work activities. On the other hand, they would receive no additional
federal funds for the provision of education, training, or work opportunities to the
people required to participate. Federal funding for child care assistance also would
be reduced. Under the House bill, child care programs would be merged into a child
care block grant at reduced funding levels. In the Senate bill, most child care
funding would be wrapped into the same block grant as AFDC and JOBS. The story
is similar under both approaches - federal child care funding would be squeezed at
the very time that more parents of young children would be expected to engage in
work activities or find employment.
Another key feature of both the House and Senate bills is that assistance
provided through the welfare block grant would be time-limited. Families that had
reached the time-limit would receive neither cash assistance nor a workfare or training
slot. In general, family members could not receive aid for more than five years over
1 The House bill includes two small "rainy day" funds. One such fund would loan additional
dollars to states whose unemployment rate had climbed by at least 10 percent over its level in prior
years. This small fund would fall well short of increased need. In addition, many states that
experience increases in unemployment or poverty either would not qualify for a loan or would qualify
too late in a recession to be of much help. Moreover, any funds borrowed from the fund would have
to be repaid, with interest, within three years, a condition that would likely deter many states from
seeking the loans.
The second fund would allow states to bank any unspent federal block grant funds and draw
them down in a subsequent year, as needed. Given the limited amount of block grant funds a state
would receive, however, it is unlikely that many states would have surplus funds to bank.
The Senate leadership bill also includes a loan fund from which states could borrow; it, too,
would likely prove insufficient during a national recession. As under the House version, loans would
have to be repaid, with interest, within three years.
2
The Senate leadership bill requires that in 1996 and 1997, each state must expend on programs for
low-income people an amount equaling at least 75 percent of what the state spent on AFDC benefits in
1994. This "maintenance-of-effort" provision, however, is essentially meaningless. All state spending
for low-income programs would count in determining whether a state had satisfied this requirement,
including state spending for medical assistance for the poor. In every state, the state funds spent just
on Medicaid for the elderly and disabled would satisfy the "maintenance" requirement. Thus, a state
could withdraw all state funds from AFDC, JOBS, and child care programs with impunity if it wished
to do so.
7
their lifetime (the time limit applies once a family member turns 18), regardless of
their need, their ability to find employment, or their employment history. States
could impose shorter time limits than these, but except in limited circumstances,
could not extend cash aid beyond the five-year limit unless they funded such
assistance entirely with state dollars.
Medicaid Changes
Medicaid - the health program that covers poor children and their parents as
well as low-income elderly and disabled people - is likely to undergo equally
dramatic changes. It is anticipated that federal Medicaid payments to states will be
subject to very large reductions. As noted, the Congressional budget resolution calls
for $182 billion in federal Medicaid cuts over seven years.
The most likely way that Congress will seek to achieve these large Medicaid
savings is by converting Medicaid into a block grant and eliminating most or all
federal standards governing eligibility and benefit coverage. Given the magnitude of
the anticipated Medicaid budget reductions, states are likely to have little choice but
to use their new flexibility to restrict eligibility and to narrow benefit coverage as part
of their efforts to bring Medicaid costs below the austere federal funding caps that
will be set.
Data and research findings indicate that cost containment measures such as
increased use of managed care and reduced payment rates to health care providers
are unlikely to offset more than 15 percent to 25 percent of the reduction envisioned
under the budget resolution in federal Medicaid funding for states. Most states
consequently will be unable to avoid large cuts in eligibility levels and benefit
coverage unless they are willing and able to pay a much greater share of Medicaid
costs from state treasuries. Adding to this problem, the strength of the nursing home
lobby in many state capitols may shield nursing homes from absorbing more than a
relatively modest share of the cuts. Where that occurs, coverage for low-income
children and their families may be affected more severely.
Food Stamp Program Changes
The federal food stamp program also is set to undergo major changes. It is
virtually certain that the welfare legislation enacted this year will contain a state
option to convert the food stamp program to a block grant. Both the Dole bill and
the House welfare bill contain a food stamp block grant option, and the option enjoys
bipartisan support among governors.
In the next few years, each state thus is likely to face a choice of whether to
replace its food stamp program with a block grant. This will represent the single
most important decision states have ever faced in the food assistance area.
8
States electing the food stamp block grant will be permitted to end the
universal nature of the program - that is, they no longer will have to cover all
groups of the poor. Instead, they could make certain categories of poor households
ineligible for food assistance, such as individuals who do not have children and are
neither elderly nor sufficiently disabled to qualify for disability benefits.
States also could chose to reduce or terminate state SSI supplemental benefits
for elderly and disabled recipients of the Supplemental Security Income program,
replace the withdrawn cash benefits with increased food stamp benefits, and reduce
the food benefits of families with children in order to free up the additional food
stamp block grant funds for the elderly and disabled. This would enable states to
save state dollars.
States electing the food stamp block grant eventually would have to confront
another issue as well - under the block grant, there would be no increase in federal
food stamp funding when the number of poor people burgeoned during a recession.
In the recession of the early 1990s, the number of people receiving food stamps
climbed by five million.
Despite the dangers that a food stamp block grant would appear to hold for
states, a number of states are expressing strong interest in it. Moreover, the
legislation moving through Congress would make profound changes in the food
stamp program - and transfer to states some key decisions regarding the food stamp
benefit structure - even in states that do not elect the block grant.
Both the House and Senate bills would give states remaining in the regular
food stamp program broad flexibility to alter federal food stamp rules and redesign
the food stamp benefit structure for families that receive cash assistance (i.e., for
families that receive aid under the block grant that would replace AFDC). This is
intended to lead to administrative simplification by enabling states to conform
various food stamp rules to those used in their cash assistance programs. But, as
explained later, new flexibility could pose dangers for poor families if states do not
design the food stamp benefit structure well.
In addition, both the House and Senate bill would deny food stamps after
three to six months to adults between the ages of 18 and 50 who do not live with
children unless the adults are working at least half-time or are in a work or training
program. But the bills would provide states little federal money to pay for work or
training programs for such recipients. States would have to choose between denying
food assistance benefits to large numbers of poor, jobless individuals simply because
there are no work or training slots available for them and redirecting other state
funds to create the additional work slots.
9
The State-level Environment
The fiscal pressures that states will encounter as they redesign these programs
will be intense. Not only will they face sharp reductions in federal funding for low-
income programs, but a broad array of other federal grant programs to states also
will meet the budget ax. To bring the federal budget into balance in seven years
without reducing Social Security or defense spending - and while cutting taxes -
the Congressional budget resolution assumes reductions in federal grants to state and
local governments of nearly 30 percent by 2002.
Cuts of this magnitude affecting programs as diverse as education, highway
construction, public transportation, and hazardous waste disposal will leave a gaping
hole in state finances. States will have to scramble to stretch their resources to
maintain services in a number of popular programs.
Such fiscal pressures will make many policymakers less likely to provide state
funds for strong anti-poverty measures, including investments in human resources
that promise long-term economic benefits. Furthermore, because welfare is a "hot-
button" issue in many states, the political dynamics surrounding the welfare debate
will make it difficult to establish well-considered policies rooted in research and
analysis, especially if such policies entail the expenditure of a significant level of state
resources. With the pending changes in federal law giving states both broad
flexibility and blocks of federal funds with few strings attached - and with few or
no requirements for states to maintain state funding for these programs as a
condition of receiving federal funds - difficult and often divisive debates can be
expected in states over the role of welfare and the level of state resources committed
to it.
Conservative state policy institutes are likely to mount a major effort to affect
the outcome of these debates. These organizations are expected to launch well-
financed, well-orchestrated efforts to influence state policy choices. Many of these
state policy institutes are ideologically bent on driving down the size of government
generally and poverty programs in particular. Others are primarily concerned with
promoting harsh policies they believe will reduce out-of-wedlock births - such as
denial of benefits to teen mothers and their children and to children born while a
mother is receiving assistance - despite a dearth of evidence on the efficacy of such
approaches.
The Heritage Foundation is expected to disseminate a menu of welfare
proposals for consideration at the state level, such as denying benefits to teen parents,
instituting "family caps," requiring all recipients to participate in workfare slots
rather than providing them with education or training, exercising the option to take
federal food stamp funds as a block grant, and transforming Medicaid to a voucher
system. Heritage is likely to distribute such prescriptions through the network of 55
10
state conservative policy institutes it has helped to build over the last two decades,
such as the Heartland Institute in the Midwest, the Texas Public Policy Foundation,
the Yankee Institute in Connecticut, the Commonwealth Foundation in Pennsylvania,
the Washington Institute for Policy Studies, and the Pioneer Institute in
Massachusetts. Complementing that effort, the state dissemination arm of the
conservative movement, the American Legislative Exchange Council, is expected to
work aggressively in supplying conservative state legislators with model language
and politically appealing arguments for moving policies such as these through the
state legislative process. In the absence of competing information and options and
trenchant analysis of the weaknesses of proposals pushed by these organizations, the
conservative institutes are likely to play a large role in shaping the choices many
states make.
The ability of state-based organizations concerned with vulnerable populations
and the alleviation of poverty to advance a different set of proposals will vary
widely. Many strong and viable organizations work at the state level on behalf of
low-income constituencies, including some state-based policy organizations that also
look more broadly at issues of state budget priorities. But most of these groups lack
experience in addressing the breadth and complexity of the program design and
resource issues they will face in the next few years. Moreover, state and local legal
services organizations that have often undertaken the key analytic work in the past
on issues related to safety net programs may no longer be permitted to work on
these matters. Congress is drastically curtailing legal services funding and appears
determined to impose severe restrictions that would prohibit policy work of this
nature.
III.
State Program Design Issues
As states face the challenge of restructuring their low-income programs, a
myriad of policy and design choices will emerge. The following are examples of the
types of questions that will confront state policymakers and organizations.
Will the state provide any cash assistance benefits?
Under both the House and the Senate welfare bills, states would not be
required to have a cash assistance program. Federal block grant money could be
used in a number of ways, such as to finance support services, provide vouchers for
the purchase of goods or services by eligible families, and pay for-profit, nonprofit, or
religious organizations to provide shelter, counseling, job training, or other services.
Some states may consider relying on such approaches and eliminating cash assistance
altogether.
11
While most states probably will not go so far as to terminate all cash
assistance, a substantial number of states can be expected to curtail their cash
assistance programs substantially, such as by imposing even stricter time limits than
the federal legislation requires and redirecting block grant dollars toward forms of
noncash aid. With limited federal dollars and the ability to withdraw some or all
state funding, some states may consider sharply reducing cash aid and devoting
more funds to child care and other work-related costs. Such approaches may be
particularly appealing to those who view the very existence of cash assistance as a
barrier to self-sufficiency.
Yet many poor families with children will continue to need income support to
meet basic needs either because they have lost a job and cannot readily find another
or because family responsibilities, personal or family health problems, or other
barriers keep them out of the labor market. Achieving a reasonable balance between
cash assistance and employment-related services at a time when dollars are scarce
will present difficult challenges for many state policymakers.
If the state decides to use its federal block grant to provide cash
assistance, who will be eligible to receive aid, for how long, and at
what levels?
The pending federal legislation to merge AFDC and other programs into a
block grant does not specify which groups of children and families should be aided.
That is left to each state to determine.
Some states may maintain current AFDC definitions of eligibility. Others may
narrow or expand those definitions. Proposals to change eligibility rules will be
prompted not only by policy concerns but also by fiscal pressures.
For example, AFDC is often criticized because it excludes many poor children
who live in two-parent families. Under a block grant, states would be free to expand
coverage for two-parent families. States that do so, however, would not receive
additional federal dollars to defray any of the added costs. Thus, unless a state is
willing and able to spend more state dollars than it does currently, it may not be able
to broaden coverage unless it is prepared to reduce benefit levels, impose a very
stringent time limit on the length of time a family can receive assistance, or exclude
other categories of children and families from receiving aid.
What work rules will be established as a condition of cash aid?
Under current law, states attempting to move families from welfare to work
can receive federal funding through the JOBS program to provide education, training,
and work experience. But because states facing tight budgets have not committed the
state funds necessary to draw down all of the federal JOBS funds available to them,
12
JOBS implementation has been hampered. Although states can claim an average of
about six dollars in federal funds for every four dollars of state expenditures, only 16
states claimed their full allocation of federal JOBS money in 1993.
Funds for work-related activities for families receiving cash assistance will be
even scarcer under the proposed block grant. Both the House and Senate proposals
would subject states to requirements to increase substantially the proportion of cash
assistance recipients who participate in a work activity. But neither the House nor
Senate bill provides additional funding to states for this purpose. Funding for child
care also would be reduced while the number of families needing child care would
rise.
Many states that are unwilling or unable to commit new state resources for
work-related activities may be inclined to offer only the least intensive, least
expensive work-related services. To the extent that they follow such a course, states
will largely have to forego the type of work-related programs and services that hold
greater promise of enhancing skills and helping families with more severe
employment barriers to enter the labor market or find jobs paying above-poverty
wages.
State decisions on work and training programs also will be influenced by the
fiscal decisions that Congress makes on "participation rates" for work-related
activities. In determining whether a state has met the participation rate requirements,
the House welfare bill would give states as much credit for people removed from
cash assistance programs for any reason as for recipients who enroll in the work
programs. States thus may find one of the most expedient and least costly ways to
meet the work participation requirements is to lower the number of people receiving
cash aid, such as by imposing extremely strict time limits or tighter eligibility
requirements than federal law mandates
Will children who cannot be provided cash assistance with federal
block grant dollars receive aid financed with state dollars?
Under the House welfare bill, states would be prohibited from using federal
block grant funds to provide cash assistance to several categories of children and
their parents. For example, block grant funds could not be used to provide cash
assistance to unmarried teen parents and their infants. States still could provide cash
assistance to these families, but only if the assistance were funded entirely with state
dollars.
This raises the question of whether states will use state funds to provide cash
aid to some federally-excluded categories of children and families. In many states, a
decision to do so would be highly contentious politically. If a state does elect to
provide cash aid to these children and families, it will have to decide whether to
13
extend the same level of cash assistance to them as to other children and families or
whether to establish a separate, second-tier cash aid program. Questions relating to
coverage under Medicaid also may arise.
Will states provide support to families leaving welfare for
employment?
If families leave welfare because they become employed, they currently qualify
for transitional Medicaid coverage and child care assistance. Some states also
provide modest welfare benefits to supplement the wages that families receive from
low-paid work. These benefits often are necessary to allow people to secure a
foothold in the labor market.
Under the proposed block grants, federal funding for cash, medical, and child
care benefits will be reduced, triggering difficult choices for states. Should they
maintain these transitional benefits or eliminate them? If states maintain these
benefits, will they fund them by reducing the level of cash aid provided to very poor
families not yet in a position to make a transition to employment?
It will be important to develop options for funding transitional benefits
without jeopardizing support for families in which the adult cannot work due to
family, health, or other employment barriers. If support for such families declines,
they will become still poorer, and their future transition to work could become even
more difficult.
To what extent will poor children qualify for medical assistance?
Under a federal requirement being phased in through 2002, states must
provide Medicaid coverage to virtually all poor children through age 18; at present,
nearly all poor children below age 12 must be covered. Some 34 states also cover
certain categories of children at income levels higher than the federal minimums.
These Medicaid rules have proved extremely important in recent years,
particularly for younger children in low-income working families. Between 1988 and
1994, the proportion of children under age 11 covered by employer-sponsored health
insurance dropped from 65 percent of such children to 58 percent. During this same
period, Medicaid enrollment among children in this age range increased from 18
percent of such children to 30 percent. Because of the expansion in Medicaid
coverage, the proportion of children under age 11 who were uninsured declined
significantly during this period even though employer-sponsored coverage
contracted.
If Medicaid is turned into a block grant, the cost of extending coverage to poor
children aged 12 through 18 who currently are left outside Medicaid will have to be
14
borne entirely by the states. Faced with deep reductions in federal Medicaid
payments, many states are likely to consider canceling the remaining steps of the
phase-in of coverage for poor children. Moreover, as states try to keep their
Medicaid costs below the tight federal spending caps, a substantial number of states
are likely to consider cutting back on the coverage currently provided to younger
children.
State action to scale back health care for low-income children would set back
the advances made in recent years to assure that children receive regular primary
and preventive care. Such steps also could weaken efforts to move families from
welfare to work; the guarantee that their children can receive medical care makes it
possible for some parents to accept entry-level jobs that lack health care coverage. In
a study of the relationship between welfare receipt and the recent Medicaid
expansions, Aaron Yelowitz of the Massachusetts Institute of Technology found the
Medicaid expansions have significantly reduced the likelihood that parents will
receive welfare rather than seek employment.
Will administrative barriers bar children from receiving health
benefits and services?
Children on AFDC are automatically entitled to, and enrolled in, Medicaid.
The federal requirement that AFDC recipients be automatically eligible for Medicaid,
however, is likely to be repealed. This development, coupled with the expected
removal of substantial numbers of poor children from cash assistance rolls, will leave
millions of low-income children without an automatic link to health care coverage.
Even if a state maintains Medicaid eligibility both for children in families
receiving cash assistance and for poor children not on cash aid, significant numbers
of such children could fail to receive Medicaid coverage if they are no longer signed
up automatically for the program. The systems that states establish for poor children
and families to apply for Medicaid - including the outreach and referral systems the
states develop - thus will be of considerable importance.
Effective state systems also will need to be developed to ensure Medicaid
enrollment is maintained and continuity of care is preserved when families are
removed from cash assistance rolls. For example, if a state opts to maintain Medicaid
coverage for families or children that have reached their time limit for cash assistance
- an important policy decision in itself - significant numbers of those reaching the
time limit may still lose Medicaid unless effective systems are established to continue
their Medicaid enrollment in an uninterrupted fashion.
15
Will states effectively maintain health screening and treatment
services for poor children?
States will face fiscal pressures to reduce the scope of medical services covered
under Medicaid. One of the decisions they will face is whether to retain the full
scope of Early and Periodic Screening, Diagnosis and Treatment (EPSDT) services for
low-income children. Under current federal EPSDT requirements, children on
Medicaid are supposed to be screened periodically, and any health service found to
be needed as a result of such a screening must be covered under Medicaid. This
requirement is likely to be repealed, leaving the decision to state as to whether to
maintain the EPSDT features of Medicaid.
How will states redesign the food stamp benefit structure for families
receiving cash assistance?
States will be given vast and unprecedented authority to redesign their food
stamp programs. The House and Senate welfare bills both allow states that do not
elect a food stamp block grant to redesign the food stamp eligibility and benefit
structure for families receiving cash assistance. States would have to use the Thrifty
Food Plan as a benefit standard and could not alter the food stamp program in a way
that increased federal cost. Beyond that, they would largely be free to do as they
wished. The Administration has endorsed this idea, and it is certain to become law.
The decisions states make in this area will have important consequences.
Many states want to conform the rules used to determine income in their food stamp
programs to those used in AFDC or its successor. This could enable a caseworker
who has determined a family's cash benefit level simply to look on a table to
determine the family's food stamp benefit. But achieving this goal may entail
standardizing food stamp benefits for families receiving cash assistance and
eliminating such features of the current food stamp benefit structure as the provision
that provides additional benefits to families that spend more than half of their income
for housing. Dropping that feature of the food stamp benefit structure would result
in large benefit reductions for families with very high housing costs and could force
some families to choose between paying rent and utility bills and feeding their
families adequately.
Conforming food stamp rules on matters such as what counts as "income" to
the rules used in a state's cash assistance program could pose other difficulties, as
well. With the funds devoted to cash benefits likely to be limited in many states, a
number of states are likely to adopt penurious rules for their cash aid programs. If
the same rules are applied to food stamps, food stamp benefits for very poor families
could be reduced sharply.
16
The challenge in this area is to help states simplify their food stamp programs
for cash assistance recipients - and promote conformity where possible between
food stamp and cash assistance program rules - without causing the total amount of
food stamp benefits provided to these families to decline or the neediest families to
face benefit reductions and hardship.
Will the state opt for the food stamp block grant, and if so, how will
it design the blocked program?
Both the House welfare bill and the Senate leadership bill contain a state
option to convert the food stamp program to a block grant. It remains uncertain
under what conditions a state will be able to elect the block grant.
Under the House version, states must have a statewide electronic benefit
transfer system before they can opt for the block grant. This is a condition that only
a few states currently meet; as a result, most - but not all - state decisions
regarding whether to adopt the food stamp block grant would be postponed a few
years. By contrast, under the Senate version, any state could opt for the block grant
immediately. If the Senate version prevails, a significant number of states are likely
to consider exercising their option for a block grant right away.
A number of governors have indicated they intend to push for the Senate
version. At this juncture, it seems more likely to become law than the House
approach.
In deciding whether to elect the block grant, there are a number of factors
states will need to consider thoroughly. These include the impact that a food stamp
block grant would have on state budgets during a recession - when the number of
poor people rises - as well as the impact a block grant would have on states
experiencing significant population growth. There matters are of particular
significance because the amount of funding a state would receive under the food
stamp block grant would be fixed permanently at the level of food stamp expenditures
in the state in 1994. No adjustment would be made for increases in unemployment
or population or for any other factor.
If a state chooses a food stamp block grant, a number of critical design issues
will arise. Will the state abandon the feature of the food stamp program that allows
all poor people to qualify and instead limit assistance to certain categories of low-
income households? In particular, will single individuals without children be made
ineligible for food aid? In addition, what action will the state take if food assistance
block grant funding falls short of need because of increased unemployment or rapid
population growth? Will benefits be reduced across-the-board? Will waiting lists be
established? Will some categories of households be made ineligible and removed
17
from the rolls? Or will states provide additional state funding in these
circumstances?
Will there be a statewide system of providing assistance?
Under both the House and Senate bills, states would not be required to make
cash assistance available in all jurisdictions in a state. Nor would they be required to
administer the same cash assistance program or offer the same level of benefits in all
parts of the state. The same type of flexibility may be provided to states under the
food stamp and Medicaid block grants.
Major issues can be expected to arise regarding how block grant funds will be
distributed within states and whether cities and rural areas will receive a fair
allocation of block grant funding. These issues can be particularly important in states
where suburban legislators are powerful in the state legislature and cities are in a
weaker position.
In addition, under the House and Senate legislation, states will be able to pass
along the authority to design and administer these programs to county or regional
agencies. Consideration will need to be given as to whether local governments are
prepared to implement and manage such responsibilities and whether a further
devolution of program responsibility will leave local governments with greater
control but inadequate resources to carry out their tasks.
Will states maintain state funding for low-income programs?
Virtually all of the state choices described here - and hundreds of other,
related decisions - will become more excruciating if federal legislation fails to
require states to maintain their own funding levels in programs such as AFDC and
Medicaid. If states can limit the cost of low-income programs to their federal block
grant dollars, state policymakers will be under considerable pressure to reduce or
eliminate state support for these programs and redirect state dollars to more
politically popular purposes such as corrections, education, or highway construction
and repair.
States may be able to find seemingly justifiable policy reasons for cutting back
on funding for low-income benefits and services. For example, in the absence of
federal standards, a state may believe it must offer lower benefits and limit services
to fewer categories of people to avoid becoming perceived as a welfare or health care
"magnet." Under current law, the federal government pays between 50 percent and
80 percent of state AFDC costs; as a result, the cost of providing assistance to poor
people who migrate to a state is shared with the federal government. In his new
book, The Price of Federalism, Harvard professor Paul Peterson notes that if the
pending welfare block grant proposals are enacted and federal allocations to states
18
are capped, states will essentially bear 100 percent of the costs of providing benefits
to new entrants to the state. In such circumstances, Peterson predicts, states will act
to make sure their benefits are not significantly above those of their neighbors. He
forecasts this will trigger a "race to the bottom" as states endeavor to avoid becoming
welfare or Medicaid magnets.
The effects on poor families of a dramatic withdrawal of state funding would
be far-reaching. If state funding is not maintained, families with children will be left
with cash benefits substantially lower than those on which they currently rely. The
number of destitute - and even homeless - children could rise.
In addition, without state funding, families are likely to have less access to
education, training and work experience activities that could prepare them to leave
welfare. They also may receive substantially less assistance with health insurance,
child care costs, or other expenses related to employment. In short, if state funding
for these programs is substantially reduced, some of the most severe choices outlined
on the preceding pages are likely to be made, with the result that poverty may
deepen and opportunities to embark on innovative anti-poverty strategies may be
irretrievably lost.
IV.
The Work of the Center on Budget and Policy Priorities
Over the years, the Center on Budget and Policy Priorities has established a
solid reputation for timely and accurate analysis of policy developments and for its
ability to analyze and design policy alternatives. The Center is one of the few
national organizations working in the poverty area that develops sophisticated
program and policy designs. The Center's recent papers on alternatives for
restructuring Medicaid and its efforts to direct food stamp cuts away from
particularly damaging options are examples of the type of program design work the
Center can conduct.
In the late 1980s, the Center began to undertake work at the state level on
poverty issues and the design and operation of tax policies affecting low-income
families. In 1991, the Center established its State and Local Programs Division. Since
then, the Center's work in the states has intensified substantially, most notably
through the State Fiscal Project.
Building on the State Fiscal Project Experience
The Center's State Fiscal Project has attempted to fill a critical gap in state-
level policy analysis and advocacy. Even before the changes now being considered
by Congress, it was becoming clear that increasing constraints on federal resources
would place more of the burden for addressing the needs of poor children and
19
families in future years on state and local governments. But fiscal pressures on state
and local governments have grown as well. States face rapidly escalating costs for
health care and corrections and for education costs attributable to rising school
enrollments.
The antiquated nature of many state revenue systems compounds these
problems. State revenue collections in many areas of the country no longer keep
pace with growth in state economies. As a result, many states confront fiscal
squeezes every few years or even annually, forcing a competition for funding in
which programs for the poor often fare badly. In the years ahead, with federal
budget cuts reducing support for a wide range of state and local activities, funding
for low-income programs will be in further jeopardy.
This makes it imperative that state-level analysis and advocacy for low-income
programs be coupled with analysis and advocacy related to issues of state budget
priorities and revenue adequacy. In a number of states, a substantial amount of
advocacy on poverty issues is carried out at the state level, but such advocacy is
often conducted in a fragmented manner by health, welfare, children's, anti-hunger,
housing, community development, and other issue-based advocates. These
organizations frequently compete with one another for the same limited state
resources. They generally undertake little work to expand the total resources
available through coordinated efforts to promote alternative budget and tax policies.
The effectiveness of state advocacy work on poverty issues often is limited further by
lack of a sufficient understanding of broader state budget issues. This is the gap the
Center sought to fill with the creation of its State Fiscal Project in 1992.
Since its inception, the State Fiscal Project has helped to build the capacity of
organizations in a number of states to work effectively on a mix of budget and low-
income program issues. The Project has provided state organizations - and state
policymakers as well - with a variety of materials to assist their work, including
analyses of tax systems and budgets in various states and information about effective
strategies to improve budget priorities, tax structures, and the operations of key low-
income programs.
The Project prepares and disseminates issue papers that address policy
questions facing large numbers of states and also undertakes more intensive work in
selected states. In addition, it conducts training sessions for state organizations on
fiscal policy issues and holds an annual conference where state organizations from
across the country working to secure adequate state funding for low-income concerns
convene to share their knowledge, receive training and briefings, and advise the State
Fiscal Project on areas where its work could best be used during the coming year.
Over the past several months, much of the State Fiscal Project's work has been
directed toward helping state policymakers and state organizations grasp the impact
20
that pending federal changes are likely to have on state finances and states' ability to
fund various programs and services. We have also prepared state-specific analyses
for organizations and policymakers in several states showing how the federal changes
under consideration could affect benefits and services in their state, taking into
account current program funding and utilization patterns, projections of future costs,
and the capacity of the state's revenue system to finance such benefits and services.
This work has brought us in close contact with state legislative leaders,
governors and their staffs, and state policy and advocacy organizations. It also has
helped us consider how policymakers and state organizations might be able to use
further analysis, information, and technical assistance as states begin to "reinvent"
their low-income programs. Given the momentum to shift responsibility to the states
for key low-income assistance programs and the accompanying risk of significant
harm to low-income families and individuals, the Center plans to expand
substantially its work in the states and to build on and complement the work of the
State Fiscal Project.
The Work Ahead
The Center plans to establish the State Low-Income Initiatives Project alongside
the State Fiscal Project. The new project's task is to assist state-based organizations
and state policymakers charged with redesigning critical parts of the low-income
assistance system. The project's challenge is to help these organizations and
policymakers establish systems that avoid increases in poverty and destitution and
invest limited resources in ways that move policy and programs in positive
directions. Project activities will concentrate in the following areas:
Intensive Technical Assistance: We will assist organizations and
policymakers in a number of states to consider and work through
carefully the issues, options, and implementation questions. This work,
which will be tailored to the circumstances in each state involved, will
include assistance in analyzing pending options, developing alternative
proposals, and preparing materials that allow broadened participation in
the debate.
Development of Strategy Papers: We will publish an array of strategy
papers on topics of importance across state lines. A number of potential
strategy papers are discussed below. In addition to analyzing critical
issues that states will face - and possible ways of addressing them -
the strategy papers also will include analysis of options promoted by
organizations such as the Heritage Foundation and conservative state
policy institutes. Center analyses of such options will feature
explanations in non-technical terms of what the research in the field
indicates about the policy prescriptions those organizations are
21
advancing. We also will prepare reports for use in particular states on
issues and options specific to those states.
Monitoring, Training, and Networking Activities: We will track
developments at the state level, informing state organizations and
policymakers about both promising and troubling developments in
other states and emerging strategies that might serve as models for
positive change in their states. We also will provide extensive training.
Each of these three areas of work is described below. In undertaking this
work, the Center will have a dual emphasis. We will seek both to assist
policymakers in considering and designing options to restructure safety net and anti-
poverty programs and also to help develop the capacity of state-based organizations
to undertake the kind of work that will be needed over the long term to analyze and
formulate policies, monitor implementation, and engage in public education efforts.
A. Providing Technical Assistance in States
The Center will devote a significant portion of project activities to providing
technical assistance to state-based organizations and state and local policymakers as
states take on greater financial and design responsibility for low-income programs.
The issues that states will confront as they launch their redesign efforts are complex,
and conditions in each state will vary in ways that affect the viability and wisdom of
certain strategies and options. As a result, while short-term assistance and
generalized advice and information should be helpful, such assistance will often be
insufficient. More intensive technical assistance in individual states will be required.
For example, while most state organizations are familiar with many of the
current programs and with local needs and conditions, their expertise on state budget
matters, cross-program issues, and program design may be limited. Intensive Center
work in a state often will be needed to assure that the complexities of program
redesign, the interactive effect of changes affecting a range of different low-income
programs, and the fiscal implications of various options are adequately considered.
By working closely with state-based organizations and helping them broaden and
deepen their technical abilities to conduct such work, the Center can help bridge the
gap between the tasks that lie ahead and the current level of expertise of state
organizations in these areas.
The technical assistance work in each state will be tailored to the needs and
circumstances of that state. Nevertheless, we expect that Project activity in the states
generally will involve the following types of work.
22
Analyzing Proposals for Reform
Policymakers and state organizations are likely to be deluged with proposals
to make changes in their state's low-income programs. While state organizations
may be able to consider these proposals and analyze their impact on some levels,
they are likely to need assistance in a number of areas. They may need help in
quantifying inequities in the proposed distribution of program funds within a state,
such as between suburbs and cities. Or they may need assistance in analyzing the
effects that changes in one program may have on other programs, or in estimating
the longer-term cost of carrying out a proposed change.
For example, a state considering whether to provide state-funded cash benefits
to certain families disqualified from receiving cash assistance under the federal block
grant might consider aiding these families through the state's general assistance
program, which typically offers lower benefits. The Center might analyze - or help
a state organization to analyze - a number of issues related to such a proposal,
including whether and to what extent the lower cash payments could be offset by
higher food stamp benefits, particularly if Congress places a cap on overall federal
food stamp expenditures. In addition, since some states fund their general assistance
programs with local government support, the Center might project general assistance
costs for the newly eligible families, comparing these costs to local property and sales
tax projections over the business cycle to determine if local revenues are likely to be
able to sustain over time the new obligations that local communities would face.
Proposed benefit levels also could be considered relative to local housing costs, with
the consequent potential for increased homelessness among affected families
examined on a community-by-community basis. Other issues that would warrant
consideration might include the eligibility links that could be made for such families
to obtain child care and medical coverage through Medicaid.
As another example, suppose a proposal has emerged in a state to terminate
cash benefits for families after two years. Proponents might contend they were
following a model promoted by Wisconsin and cite the substantial caseload
reductions that Wisconsin has experienced as "proof" the model works. The Center
could help state officials and organizations assess the extent to which such claims are
valid or applicable to the proposal at hand. In this example, many people confuse
the results Wisconsin has achieved from its welfare-to-work program, which has been
in place for several years, with the two-year time limit Wisconsin began testing in
January 1995 in two small counties. The Wisconsin program that has led to
substantial caseload reductions is not the recently-implemented time-limit initiative,
but rather an aggressive pursuit of the current JOBS program. According to the state,
it has invested approximately $1,400 per year for each eligible family, in addition to
the cash assistance benefits provided, to help parents prepare for work. This
assistance includes job training and job search activities as well as the provision of
23
child care subsidies. Caseload reductions and program savings came only after the
investment began to bear fruit and have nothing to do with time-limits.³
If a state wished to emulate Wisconsin's aggressive job placement and training
program, it also would need to consider that Wisconsin was able to pursue its
welfare-to-work policy in part by taking advantage of provisions of current federal
law under which states can draw down additional federal funds for work activities
and child care when state expenditures for these services increase. States seeking to
pursue such policies in the future may encounter greater difficulty in doing so since
the federal funds for such activities will be frozen or reduced under the new block
grants. No increase in federal support will occur when a state's investment in these
activities grows in the future. States desiring to institute such policies thus could face
an unattractive choice between providing substantial amounts of additional state
funds for work-related activities and reducing already-meager cash benefit levels for
families with children in order to shift federal block grant funds to work, training,
and child care programs and avoid a need for more state funds.
Wisconsin also has an extremely generous state Earned Income Credit, the
largest such credit in the nation. That, too, could have had some bearing on the
results in that state. So could the condition of the state's economy. A welfare-to-
work program is more likely to produce results when a state's economy is robust and
labor markets are tight than when labor markets are slack.
These are examples of the types of issues a state should explore before
importing a model from another state. The Center can provide technical assistance
that helps all parties to the debate understand the realities behind appealing "cookie
cutter" proposals for redesigning low-income assistance programs and proposals
based on what are said to be glowing results in other states.
Another type of potential technical assistance involves analyzing proposals
expected to emerge in various states to convert the food stamp program to a block
grant or to redesign the portion of the food stamp program aimed at AFDC
recipients. Proposals to conform food stamp benefit rules to the rules used in a
state's cash assistance program are likely to be heralded as policies that simplify and
streamline administration. As noted above, conformity also can bring about a
number of unintended consequences, such as large benefit cuts for very poor families
whose housing costs are extremely high in relation to their incomes. Analysis of the
types of beneficiaries that would be aided or injured by specific policy changes in a
state could assist state officials and organizations in assessing different proposals and
3
There also is some evidence that the substantial reductions in caseloads in Wisconsin have been
associated with increases in child poverty.
24
designing ways to simplify program administration - and align food stamp and cash
assistance rules more closely - without harming the most vulnerable families.
The Center has the capacity to conduct analysis on these types of issues. We
have acquired state databases that provide information on AFDC and food stamp
beneficiaries and benefit levels by state, as well as on housing costs, Medicaid
beneficiaries and expenditures, and a variety of issues relating to tax and revenue
patterns. We have the ability to provide detailed and sophisticated state-specific
analyses in these areas for state organizations and policymakers.
Developing Options for Reform
In many cases, it will be important to couple analysis of proposals under
consideration with the development of alternative options. For example, suppose a
proposal to use a state's general assistance program to aid families barred from
receiving federal block grant funds is infeasible or ill-advised because the local
revenue system is constrained by a property tax limitation and can not adequately
support an expanded, locally-financed general assistance program over time. An
analysis demonstrating the problems such a proposal would pose would need to be
accompanied by options that either address these fiscal concerns or present other
ways of assisting these families. Similarly, if a proposed food stamp benefit formula
raises concern because of adverse effects on certain groups of households, an option
for an alternative design that fits within similar fiscal constraints should be
developed. The Center has extensive program design and implementation experience
that it can draw upon and apply to these challenges. The Center's project will
include staff who have worked on these types of issues at federal and state levels.
In some states, there may be opportunities to consider options that go beyond
redesigning current programs and to work with policymakers willing to consider
innovative strategies such as establishing a state earned income credit, providing
broader access to child care assistance, and raising a state's minimum wage. The
Center has extensive experience in a number of these areas as well. It has functioned
as the leading organization working on all aspects of the federal earned income
credit, from designing the benefit structure to coordinating national outreach
campaigns. In addition, the Center has helped a number of states consider, design,
and implement state earned income credits. The Center also has worked extensively
on minimum wage policy - including state minimum wage policy - and has broad
expertise in issues related to the design of means-tested income subsidies. Where it is
possible to work with state officials and organizations on alternatives of this nature,
we will consider how such options might best be structured to meet the needs of
people in the state in light of local labor market conditions, fiscal realities, and other
factors that may affect the viability of these options.
25
Developing Systems for Access to Benefits
Changes in federal law are likely to end automatic Medicaid eligibility for
children receiving cash assistance. In addition, changes in cash assistance rules -
such as time limits, family caps, and the like - are likely to make substantial
numbers of children ineligible for cash aid. In light of the these changes, there will
be a need for states to develop new Medicaid outreach and eligibility determination
procedures to assure that most low-income children who are eligible for health care
coverage actually receive it. Procedures will need to be fashioned that establish
effective links to health care coverage for children who receive cash assistance,
children who no longer are eligible for cash assistance due to restrictions placed on
the receipt of cash aid, and children whose parents work at low-wage jobs that do
not provide health insurance coverage.
Center staff have extensive experience on benefit access issues at the state
level, particularly as they relate to Medicaid. The Center's "Start Healthy, Stay
Healthy" campaign now works in a growing number of states with state and local
child care referral agencies and providers, as well as state child care and Medicaid
officials, to increase enrollment in Medicaid of eligible children from low-income
working families. The campaign has had success in showing these agencies and
providers how to use information that child care institutions routinely collect on
parents' income to conduct screening for and referral to Medicaid. The campaign has
assisted states and child care agencies in developing and implementing a variety of
procedures to make enrollment in child care a gateway to enrollment in Medicaid.
Several years earlier, the Center helped to develop similar links between the
WIC program and Medicaid, developing a manual and conducting training for state
officials on procedures they could use to insure that women and children
participating in WIC who are eligible for, but not enrolled in, Medicaid are identified
and linked to Medicaid. The Center also has operated an acclaimed Earned Income
Tax Credit outreach campaign since 1989, which involves thousands of public and
private agencies and organizations covering virtually every state. In addition, the
Center produced the principal analysis last year on the type of procedures that would
be needed to provide adequate access to benefits if health care reform legislation
established a system of low-income subsidies as a way to expand coverage among
the poor.
Establishing In-state Monitoring Systems
Federal legislation establishing block grants is likely to impose only minimal
data collection requirements on states. Unless individual states collect and publish
data, little may be known about how states are using their block grant funds and
how the intended beneficiaries of the block grants are faring. The pending federal
legislation permits states to divert as much as 30 percent of their block grant funds to
26
other uses. It is possible that even information on the extent to which states are
diverting these funds, and for what purposes, may not be widely available.
While states will not be required to establish tracking mechanisms, public
concern over government accountability could be harnessed to encourage the
development of state systems to collect and make available data needed to monitor
how funds are being used and to assess whether the new state-designed programs
are having the desired effects. The Center will work with state organizations and
officials to stress the value of data collection, help develop a constituency for it, and
assist states in considering what data are most important to collect and analyze.
Broadening the Debate Over Program Changes
There is serious danger that many states will move quickly to implement
major changes in their low-income assistance programs without adequate preparation
or debate. State organizations may need help in developing materials on a rapid
basis that explain the program changes under consideration and analyze their
potential impact on low-income people and communities in ways that can readily be
understood by affected constituencies, other concerned organizations, the media, and
the general public. Providing materials of this nature on a rapid turnaround basis is
one of the Center's specialities.
B. Publishing strategy papers
A second major area of work will involve preparing and distributing a number
of strategy papers on issues that cut across state lines. The Center regularly
publishes reports and analyses on both federal and state issues and has well-
developed methods of distributing these papers to policymakers and interested
organizations. For example, recent Center analyses of the effects on states of options
pending before Congress to alter Medicaid have been distributed to Governors and
their chiefs of staffs, state Medicaid directors, and national and state groups working
on state Medicaid and budget priorities issues. Center papers also are distributed to
state legislators and state fiscal officers through the national organizations that serve
them, such as the National Association of State Budget Officers. In addition, our
reports and analyses are available to a wide audience by electronic posting through
the HandsNet system or the World Wide Web. We intend to organize similarly
broad distributions of the analyses prepared for this project to assure circulation
among state policymakers and state organizations working on low-income program
issues, as well as among organizations working on broader state budget and tax
issues.
The topics for these analyses will be developed through ongoing consultation
with state organizations and policymakers, as well as with other national
organizations working in these areas, to assure they are timely and useful. At the
27
present time, we anticipate that the initial strategy papers will cover areas such as the
following:
Issues relating to whether states should exercise an option to accept a food
stamp block grant - It is uncertain when Congress will complete work on welfare
reform. If welfare reform is folded into a budget reconciliation bill that also includes
Medicare and tax changes, the legislation probably will not be enacted until late
November or December.
Most states, however, are well down the line on budget preparation by
December; in the majority of states, budgets must be submitted to state legislatures
by the end of January. If federal legislation gives states an option to elect a food
stamp block grant, a number of states may try to adopt the option immediately in
order to incorporate the changes into their forthcoming budgets. Several governors
already have indicated interest in electing the block grant if this option becomes
available.
In these circumstances, it will be important for state policymakers to have
thorough information and analysis about the implications of adopting a food stamp
block grant before they make a decision on this issue. A Center strategy paper
examining issues such as the potential shortfall that will result from a block grant
during times of economic downturn, the differential impact of a block grant on
rapidly-growing versus slower-growing states, the potential interaction of a food
stamp block grant with other pending low-income assistance changes, and some of
the quality control issues that states will encounter in the administration of a block
grant will be needed on a rapid basis. The Center intends to prepare and
disseminate an initial version of this paper this fall without waiting for enactment of
the federal legislation. The strategy paper will then be updated and circulated when
the federal legislation is enacted.
Design options for the food stamp program - Whatever the final changes in
the food stamp program may be, states will be afforded authority under the regular
food stamp program to set most of the food stamp benefit rules for families receiving
assistance under the block grant that replaces AFDC. Many states will seek to
conform program rules for cash benefits and food stamps to simplify program
administration and to maximize the impact of cash assistance work rules, time limits
and sanctions. Significant policy issues and complex technical questions will arise as
states try to sort through their options. Because many of these issues and questions
will be similar across states, a strategy paper that outlines the issues and suggests a
range of options should be of substantial use in many states.
A review of prevailing fads and realities in welfare reform - As discussed
above, conservative state policy institutes are poised to offer a menu of "cookie
cutter" welfare reform proposals that will be presented as solutions to such problems
28
as high out-of-wedlock birth rates. The efficacy of many of these proposals is not
supported by the research in the field.
For example, the research to date suggests that the "family cap" instituted in
New Jersey - which denies benefits to children conceived after the family has begun
to receive assistance - has not significantly reduced rates of out-of-wedlock births.
The research also indicates that the Wisconsin "learnfare" program, which reduced
benefits for families whose children failed to maintain adequate school attendance,
produced disappointing results. Another area where a fad or slogan runs afoul of
the research is reflected in the popular claim that "only work works" and that
training and other types of employment-related programs for welfare recipients have
all been dismal failures. In fact, some of the most successful programs to date, such
as the program in Riverside, California, have combined an emphasis on job
placement with the provision of education and training services. The research in the
field also suggests that some approaches which are not the subject of current fads
warrant consideration; for example, the New York Child Assistance Program (a form
of child support assurance) led to higher family earnings and income and raised the
numbers of children with child support orders in place. A Center strategy paper
would review the available research on reforms such as these and disseminate the
information in a manner useful to state policymakers and organizations considering
various options.
An analysis of methods that states might use to supplement the incomes of
low-wage earners and help families maintain employment - Many parents who
leave welfare for employment subsequently return to welfare rolls. As more states
adopt strict time limits on the receipt of public assistance, however, such families
may no longer be able to obtain assistance to help support them between jobs. This
makes it important for states to consider how to craft policies that might enable more
families to maintain their jobs and avoid breaks in employment.
Under the current system, many parents who leave welfare for employment
are paid very low wages. When financial difficulty strikes - due to such factors as
the need to repair or replace a car used to commute to work, high child care costs, or
the threat of large medical bills - some parents are unable to maintain employment
and return to the welfare rolls instead. This suggests there will be a need for states
to examine how a combination of wages and carefully designed government support
could enable more families to maintain their jobs and avoid interruptions in
employment.
States can consider a number of approaches in this area, such as establishment
of a state earned income tax credit or a refundable state child care tax credit (or the
conversion of existing state tax deductions for child care costs to refundable child
care credits). Other options worthy of consideration include liberalizing earned
income disregards in the state cash assistance programs that replace AFDC. A
29
strategy paper on this topic would review and analyze a range of options and
describe policies that various states have instituted in this area. A Center report that
will be issued this fall explaining the advantages of state earned income credits and
how states can design them should also help in this regard.
The importance of health care coverage - States will face important decisions
regarding the extent to which they provide health care coverage through Medicaid
(or its successor) to low-income children and families, including children in working
families. With employer-sponsored coverage for low-income workers continuing to
erode, Medicaid coverage has become increasingly important for the working poor.
Only 30 percent of poor wage-earners had employer-sponsored coverage in 1993.
Until recently, there has been bipartisan support for efforts to extend health
care coverage to families that leave welfare for employment. Under current law,
former AFDC families receive Medicaid coverage for up to one year after working
their way off welfare. In addition, poor children under the age of 12 qualify for
Medicaid regardless of whether their parent has been on AFDC. Federal law also
requires that by 2002, Medicaid coverage must be extended to all children aged 12
through 18 with incomes below the poverty line, regardless of whether their families
have received welfare.
Congress, however, is likely to repeal both the federal requirement that states
provide Medicaid coverage for one year for those who have left welfare for
employment and the requirement to extend Medicaid coverage by 2002 to all poor
children through age 18. Requirements concerning the coverage of younger children
may be weakened or dropped as well. Each state will decide to what extent to
provide most of these services.
The value of offering Medicaid and other benefits that can help low-income
parents maintain employment is apparent to most state policymakers. Nevertheless,
the cost of providing these services can be high, and the strain on state budgets may
prompt states to consider doing less in this area.
It therefore will be important to provide state policymakers and organizations
with a strategy paper discussing the research in the area and laying out the rationale
for offering these health care services. For example, recent research indicates that the
availability of broader Medicaid coverage for dependents decreases welfare use
among low-income parents. This is important information for state policymakers
seeking to reform their welfare systems to have. Such a strategy paper also could
analyze state-by-state trends in the decline of employer-sponsored health coverage of
children and the role that the recent expansions of Medicaid eligibility have played in
preventing the ranks of uninsured children from swelling.
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Innovative methods to assure that children eligible for Medicaid actually
receive health care coverage - Some state and local governments have developed
innovative strategies for enrolling eligible children in Medicaid. The state of
Washington, for example, uses a one-page Medicaid application for young children
and allows the application to be mailed to Medicaid offices. The state also funds
child care centers to determine whether children in their care have health insurance,
to inform parents whose children are uninsured about potential Medicaid eligibility,
and to help parents complete and mail the one-page application.
Such efforts have been aided by federal requirements that states simplify
Medicaid applications for children and pregnant women and make applications
available outside Medicaid offices. These federal requirements are among the array
of requirements likely to be repealed.
Yet the need for states to develop effective systems for reaching low-income
children who lack health insurance will increase in the years ahead, since the number
of children automatically enrolled in Medicaid because they receive cash assistance
will decline. A strategy paper that identifies and compares some of the most
promising state and local models and suggests other options for outreach and
enrollment could help states and localities be more effective in this area.
Consideration of the impact of increasing health care copayments and other
cost-sharing requirements on families with little or no disposable income - One
step states could take to reduce costs in Medicaid and related health care programs is
to increase cost-sharing requirements imposed on program participants. Federal
protections that bar or limit cost-sharing for pregnant women and children may be
dropped. State policymakers who believe that higher cost-sharing discourages over-
utilization of services may seek to lower state health care costs in this manner.
The method of cost-sharing that a state adopts and the level of costs imposed
on program beneficiaries can have a large impact on access to care and also lead to
unintended consequences, including cost-shifting to other health care payers. A
report on this issue could review various cost-sharing options and analyze the
literature on how cost-sharing affects utilization and health outcomes among groups
of people with varying incomes and health status.
Assistance for legal immigrants - One likely result of this year's federal
welfare legislation is that states will have broad new options concerning how they
treat poor legal immigrants in various benefit programs. The Senate welfare bill
would give states broad discretion to deny assistance to many, most, or all legal
immigrants under the block grant that would replace AFDC, the JOBS program, and
several child care programs. The House welfare bill would go further. It would give
state and local governments the option to deny benefits to legal immigrants under
programs operated entirely with state and local funds.
31
These new rules stand in sharp contrast to the current system. The Supreme
Court has ruled that unless Congress specifically authorizes such actions, state and
local governments may not deny to immigrants the benefits that are available to
citizens.
Thus, all rules governing the eligibility of immigrants for benefits are currently
established at the federal level. State and local policymakers have little experience in
crafting policies in this area. Whatever the precise terms of the federal welfare
legislation ultimately enacted this year, it appears that states will be charged with
developing policy in this area for the first time.
Center analyses on these issues could prove of substantial use. For example,
some states may wish to provide assistance only to those immigrants who have fled
oppression overseas. Some state officials may mistakenly assume that refugees are
the only such group of immigrants and may move to deny aid to all other immigrant
categories. In fact, there are several lesser-known categories of immigrants whose
admission to the United States was based on the fact that they faced a risk of
persecution in their native countries as serious as the risks facing those classified as
refugees. Categories of legal immigrants facing comparable risks of persecution
include asylees, public interest parolees, and immigrants granted withholding of
deportation. Analysis of matters such as these could help prevent states from
making unfortunate choices with unintended consequences.
In addition, many states will likely seek to develop procedures to deny
assistance to immigrants whose sponsors seem capable of supporting them. Complex
issues are involved in designing these procedures, commonly referred to as
"deeming" rules (because they count or "deem" the income or assets of sponsors as if
they were available to the immigrant).
The Center is in a strong position to develop materials to assist states and state
organizations with such issues. Most people with expertise on immigration issues
have little familiarity with the design or administration of public benefit programs;
most experts in low-income programs have little familiarity with immigration issues.
The Center possesses expertise in both areas. During the welfare reform debates of
the past few years, the Center has worked to bridge this gap, preparing a series of
analyses explaining the relationship between immigration issues, various immigration
status categories, and public benefits programs and highlighting the consequences
that can result from proposals developed without a full appreciation of these
relationships. The Center's analyses have been relied upon by the Administration,
some Congressional committees and offices, and immigration and welfare specialists.
(It is primarily because of a recent Center analysis that the Dole welfare bill
scheduled to reach the Senate floor in September exempts the school food programs,
the other child nutrition programs, and the WIC program from all restrictions the
legislation otherwise would impose on the receipt of benefits by immigrants.)
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C. Monitoring, Training and Networking Activities
Because so much may happen so quickly in the states, the ability of state
policymakers and state organizations to respond thoughtfully to the challenges ahead
will be enhanced if they receive timely information about activities and changes
occurring in other states. Thus, the Project will monitor state activity and
disseminate relevant information concerning options that states have under
consideration, actions being taken in states, and research that is relevant to state-level
developments. The methods of dissemination will include posting information
electronically, collaborating with other organizations that issue regular newsletters,
and issuing occasional Center reports on such developments.
The Center has extensive experience in monitoring such developments. Its
series of 51 reports in 1988 on the gaps in the safety net in each state were one of a
kind. So were its detailed reports issued in the early 1990s on the degree to which
state budget cuts in 1991 and 1992 affected programs for the poor.
The Center's method of gathering information on such developments differs
from that employed by many other organizations. The Center collects information
both from state budget offices and state agencies that administer these programs and
also from the most reliable state advocacy or legal services organizations. The Center
then compares the information obtained from government and advocacy sources in
the same state. Where the information provided by government sources differs from
that provided by the advocacy sources, the Center investigates further and resolves
the discrepancies. We have found that neither government nor advocacy sources can
be relied upon exclusively and that this cross-check method substantially enhances
the thoroughness and accuracy of the findings.
Training Services
The Center also will conduct extensive training. Training and the
accompanying exchange of ideas across state lines on design options, financing
strategies and new approaches to delivering services and benefits under tight fiscal
constraints can help state organizations operate more effectively.
Over the past year, the Center has delivered training on the state-level
implications of the new federalism in 23 states and at numerous regional or national
gatherings. We intend to undertake similar work in the next several years to deepen
the expertise of state organizations on issues related to the redesign of the low-
income programs in the states.
In addition, the Center conducts an annual "Funding State Services
Conference." More than 100 people from 34 states attended the most recent
conference in January 1995. The third annual conference will be held in December
33
1995. We plan to take advantage of the broad attendance at the conference to include
sessions on redesigning the safety net at the state level. These sessions will
complement sessions focusing on state fiscal issues.
V.
Staffing and Collaborations with Other Organizations
The new project will be part of the Center's State and Local Programs Division,
directed by Iris Lav. Lav is Associate Director of the Center. She has many years of
experience conducting and supervising state-level work. She initiated the Center's
State Fiscal Project, and her direct involvement with the new project will assure that
the Center's two state-level projects - the State Fiscal Project and the new State Low-
Income Initiatives Project - operate as two parts of a whole.
The new project will be directed by Cynthia (Cindy) Mann. Before moving to
Washington and joining the Center's staff a year ago, Mann was widely regarded as
one of the most effective state anti-poverty advocates in the nation. An attorney with
extensive experience in welfare and health care related matters, Mann was
instrumental in negotiating managed care protections for children when
Massachusetts converted to a managed care system. She also has worked on the
development and implementation of various state programs related to child and
adolescent health and served on an advisory council to the Massachusetts
Department of Public Health. In addition, she has worked extensively on welfare
policy and on a number of other programs targeted at low-income households.
Mann also has expertise in state fiscal issues. She served as executive director
of the Massachusetts Special Commission on Tax Reform, was appointed by
Governor Weld to a commission examining business taxes, and has been closely
involved in helping human service advocates understand the connections between
program funding and budget and tax policy.
Other project staff will include both new staff and existing Center staff with
expertise in welfare, food stamps, Medicaid, the earned income credit, immigrant
benefits issues, state-by-state data analysis, income trends, and unemployment
insurance. Several of the Center's most respected staff members who heretofore have
worked primarily or solely on national policy issues will begin to devote significant
portions of their time to the redesign of the low-income assistance system at the state
level. The Center will make use of the talents of Center executive director Bob
Greenstein and staff member David Super, probably the two leading experts on food
stamps in the non-profit community nationally. Super, who formerly specialized in
Medicaid at the National Health Law Project, also has expertise in Medicaid, as do
Cindy Mann and Richard Kogan. The former director of special studies at the House
Budget Committee, Kogan became the Center's first senior fellow earlier this year.
34
Susan Steinmetz, whose work on welfare, food stamps, and related issues is
highly regarded by both state officials and advocates - and who possesses an
especially good ability to work closely with both advocates and public officials from
both parties - also will devote a portion of her time to the project. So will Sharon
Parrott, who has emerged in the past two years as one of the leading poverty
researchers and welfare analysts in Washington. Parrott has been developing state
food stamp and poverty databases that will allow the Center to undertake state-by-
state analyses of a sort that non-profit organizations working on food stamp and
other assistance programs have not previously been able to undertake. Biographical
materials for these and other staff who will devote time to the project are attached.
Collaboration with Other Organizations
A number of national organizations are likely to devote a portion of their
resources to state-level developments. To avoid duplication of effort and make the
best use of limited resources, it will be important to assure ongoing communication
among national organizations that are working on state-level program
implementation and monitoring projects.
The Center on Budget and Policy Priorities works closely with a number of
these organizations in its national welfare, health care, and food assistance work,
including the Center for Law and Social Policy (CLASP), the Children's Defense
Fund, the National Association of Child Advocates, the Food Research and Action
Center, the Coalition on Human Needs, and national legal services back-up centers,
among others. We expect to continue these relationships in our work on state low-
income programs.
In undertaking this new project, we expect to work in particularly close
collaboration with CLASP, as we now do on welfare matters at the national level.
CLASP's expertise in welfare design, work and training programs, child care, and
child support enforcement complements the Center on Budget and Policy Priorities'
expertise in both federal and state budget and tax issues, food stamps and other
forms of food assistance, welfare, Medicaid, the earned income tax credit, the
minimum wage, and income and poverty data and trends. The two organizations
have a long history of working closely together and believe that state-based efforts
will be best served through continued close collaboration.
VI.
Budget
During 1996, we expect the work of the State Low-Income Initiatives project to
absorb approximately six person-years of professional staff time. This includes the
time of the project director Cindy Mann, two full-time project staff members, one
staff member shared with the State Fiscal Project, and, as described above, significant
35
portions of the time of a number of Center staff who currently work on national
policy. The 1996 budget for the project, now in the final stages of development, is
$700,000 to $750,000. A budget for 1997 also is in preparation.
To date, we have received a $150,000 grant from the Carnegie Foundation for
federal and state work on Medicaid and WIC for a one-year period starting in June
1995. Up to $75,000 of this grant will be available for use on Medicaid work under
the new project in 1996. In addition, we will shortly be requesting a grant of
$250,000 per year from the Charles Stewart Mott Foundation to cover the work in
1996 and 1997 of both the State Fiscal Project and the State Low-Income Initiatives
Project. Of that amount, we anticipate that approximately $150,000 will be available
for the State Low-Income Initiatives Project in 1996. A request for $15,000 toward the
food stamp portion of this work is pending with MAZON: A Jewish Response to
Hunger.
VII.
Staff Biographies
Cynthia Mann, the Project's Director
The work of the new project will be directed by Cynthia (Cindy) Mann, a
policy analyst and advocate who is an expert on both low-income programs such as
AFDC and Medicaid and state budget issues. Mann has 20 years experience in
conducting analysis and advocacy on these issues at the state level.
Mann joined the Center in August 1994 after working with the Massachusetts
Law Reform Institute. An attorney with extensive experience in welfare and health
care related matters, Mann was a Medicaid specialist for the Massachusetts Law
Reform Institute and has particular expertise in children's health care services. She
was instrumental in negotiating managed care protections for children when
Massachusetts converted to a managed care system and was directly involved in
developing and implementing a wide range of health care initiatives in
Massachusetts, including a new children's health program that provides coverage to
all children under age 13. She served as a member of a special committee established
by the Massachusetts legislature to explore adolescent health policy issues and was
appointed to a task force organized by Senator Kennedy to advise him throughout
the health care reform debates. She also served on the maternal and child health
advisory council to the Massachusetts Department of Public Health and worked
closely with a consortium of pediatricians, advocates, early intervention providers
and others concerned about child health issues.
In addition, Mann has worked extensively on welfare policy. Her work in this
area has covered general assistance and AFDC programs, food stamp program issues
and other program areas affecting low-income households. In the mid-1980's, she
36
initiated a process for reexamining how the State of Rhode Island provided low-
income energy assistance payments and negotiated a new system for utility payments
with state regulators, state agencies, and the gas and electric companies doing
business in the state.
Mann has expertise in state fiscal matters as well. In the mid-to-late 1980's, she
served as Executive Director of the Massachusetts Special Commission on Tax
Reform. She continued to work on state fiscal issues while at the Massachusetts Law
Reform Institute. In 1993, she was appointed by Governor Weld to serve on a 12-
person commission chaired by Richard Syron, then chair of the Massachusetts Federal
Reserve Bank, to examine Massachusetts business taxes.
In September 1994, Mann moved to Washington D.C. and joined the staff of
the Center's State Fiscal Project. Both at the Massachusetts Law Reform Institute and
at the Center, she has designed and conducted numerous briefings and trainings on
state budget and tax matters and worked with state organizations and state
policymakers on a range of state fiscal issues. In her first year at the Center, Mann
also authored or co-authored nearly a dozen reports and analyses on issues relating
to changes under consideration in federal Medicaid and tax policies, with emphasis
on the impacts that various federal proposals to restructure Medicaid and reduce
Medicaid funding would have on states. Her work in this area also has focused on
the development of alternative proposals to generate Medicaid savings without
severe effects on beneficiaries and states. In recent months, she has given
presentations on these issues to a range of federal and state policymakers and
national and state religious, advocacy, legal services, community-based, and other
organizations. Mann is a graduate of Cornell University and New York University
School of Law.
Other Staff Involved in the Project
Robert Greenstein - The Center's founder and executive director, Greenstein
has expertise on the federal budget, the food stamp program, and the earned income
tax credit, among other areas. He has written numerous reports, analyses, op-ed
pieces, and magazine articles on poverty-related issues, appears on national television
news and public affairs programs, and is frequently asked to testify on Capitol Hill.
In 1994, he was appointed by President Clinton to serve on the Bipartisan
Commission on Entitlement and Tax Reform. Prior to founding the Center,
Greenstein was Administrator of the Food and Nutrition Service at the U.S.
Department of Agriculture, where he directed the agency that operates the federal
food assistance programs, with a staff of 2,500 and a budget of $15 billion.
Iris Lav - The Center's associate director, Lav has directed the Center's State
Fiscal Project since 1992. She is an expert on state budget and tax issues and is the
principal author of the Center's acclaimed report, A Tale of Two Futures: Restructuring
37
California's Finances to Boost Economic Growth. Lav has written numerous reports and
other publications on budget, tax, and health care policies, has spoken frequently at
intergovernmental forums, testified before various congressional committees and state
legislatures, and provided technical assistance and otherwise participated in the
founding and development of tax and budget coalitions in a number of states.
Before joining the Center's staff, Lav was associate director of public policy for
AFSCME for eight years. Prior to working at AFSCME, she was a senior associate in
a consulting firm, where she worked on tax, employment and energy issues.
David Super - The Center's general counsel, Super works primarily on issues
related to health care, food assistance, and other income security programs, including
benefits issues affecting immigrants. He is the lead author of the Center's 1994
report, Warning: Inadequate Low-Income Subsidy Design Can Cause Problems for Health
Care Reform. Super is a former staff attorney for the National Health Law Program
and former legal director of the Food Research and Action Center. Super came to the
Center from the National Health Law Program where he specialized in Medicaid.
Prior to working at the National Health Law Program, Super directed the food stamp
unit at the Food Research and Action Center, where he wrote the Guide to the Food
Stamp Program and numerous articles and analyses of federal nutrition programs.
From 1983 to 1987, Super worked for legal services programs in Pennsylvania and
Michigan, specializing in public benefits and housing. Super holds a law degree
from Harvard University.
Susan Steinmetz - As director of the Center's welfare division, Steinmetz's
work focuses on national and state welfare reform. She coordinated the Grantmakers
for Income Security Task Force's project to conduct public opinion research and
provide media training regarding perceptions of welfare and welfare recipients.
Steinmetz is a former staff member of the House Intergovernmental Relations
Subcommittee, where she prepared major analyses and reports, organized
congressional hearings, and staffed the Subcommittee's oversight work on a range of
public welfare and health issues. Prior to her work on Capitol Hill, she directed state
outreach on school food programs for the Children's Foundation.
Sharon Parrott - A 1993 addition to the Center's research staff, Parrott has
developed the Center's ability to access and use new data sources to enhance our
research capacity. She also conducts policy research in the areas of welfare,
employment, the earned income tax credit, housing, and urban poverty. Her most
recent publications include Welfare, Out-of-Wedlock Childbearing, and Poverty: What is
the Connection?; How Much Do We Spend On Welfare?; and an analysis of the Personal
Responsibility Act (the welfare reform component of the Contract with America).
Parrott is developing state databases that will enable the Center to conduct state-by-
state analyses of a sort that non-profit organizations working on low-income
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programs (other than major research institutions like the Urban Institute) have rarely
been able to undertake in the past.
Parrott came to the Center from the University of Michigan where she received
a Masters' degree and worked closely with Professor Sheldon Danziger. Through
work as Danziger's research associate and her previous job as a research assistant
with the Federal Reserve Bank of Cleveland, Parrott gained experience using large
data sets for research purposes.
Kathryn Porter - The Center's research director, Porter coordinates research
work for various Center reports and analyses. She also is principal author of a
number of major Center reports, including Poverty in Rural America: A National
Overview and Making JOBS Work: What the Research Says About Effective Employment
Programs for AFDC Recipients. Prior to joining the Center staff, Porter was a senior
research analyst with the Office of Research, Planning, and Evaluation of the
Massachusetts Department of Public Welfare. She also served as assistant to the
director of policy planning and evaluation at the Food and Nutrition Service of the
U.S. Department of Agriculture and chief research analyst for the Senate Select
Committee on Nutrition and Human Needs.
Donna Cohen Ross - The director of the Center's outreach division, Ross
oversees the Center's highly acclaimed Earned Income Tax Credit outreach campaign.
She also has developed and directs the Center's Start Healthy, Stay Healthy campaign,
a national effort to enlist early childhood programs in identifying children who are
eligible for Medicaid but not enrolled in it and linking these children to Medicaid.
Ross joined the Center's staff after 12 years as a child advocate in New Jersey.
During her tenure in the state, she coordinated the nutrition department for the
Newark Preschool Council Head Start Program, served as nutrition director for the
Community FoodBank of New Jersey, and eventually served as the director of Invest
in Children, a coalition of New Jersey's business leaders and child advocates working
to improve health and education programs for young children. In these capacities,
she led a successful statewide campaign to expand the School Breakfast Program,
mounted one of the nation's most effective earned income credit outreach campaigns,
spearheaded a statewide WIC Quality Enhancement project, and co-founded the
Early Childhood Facilities Fund of New Jersey, a nonprofit organization that works to
expand the supply of affordable, high-quality early childhood facilities.
Richard Kogan - Recognized as one of the nation's leading experts on the
federal budget, Kogan recently joined the Center's staff as its first senior fellow. His
work at the Center covers both federal budget issues and Medicaid. He is the author
or co-author of a number of Center reports and analyses in these areas, including
several recent reports on the implications for states of various federal policy options
to restructure Medicaid. For nearly 17 years before joining the Center, Kogan served
on the staff of the House Budget Committee, most recently as its director of special
studies. He also worked in the Congressional Research Service for five years.
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