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Statement by
Michael Leavitt
U.S. Department of Health and Human Services

FY 2009 Budget 

Committee on Appropriations
Subcommittee on Labor, Health and Human Services, Education and Related Agencies
U.S. House of Representatives

Wednesday February 27, 2008

Chairman Obey, Congressman Walsh, and Members of the Committee, thank you for the invitation to discuss the President’s FY 2009 budget request for the Department of Health and Human Services (HHS).

Throughout the entirety of this Administration’s two terms, the President has sought to increase access to affordable health care, protect our nation against public health threats, advance medical research, and serve the needs of our most vulnerable citizens.  The President has tried to meet these challenges while balancing his obligation for fiscal responsibility. 

To support these ongoing goals, the President proposes total outlays of $737 billion for Health and Human Services.  That is an increase of $29 billion from 2008.  Our proposed FY 2009 discretionary budget totals $68.5 billion.  Within this total, our request for discretionary budget authority for programs under the jurisdiction of this Subcommittee is $63.2 billion.     

The most important story in the Department’s budget is the need for entitlement reform and our proposed changes to Medicare and other mandatory programs.  However, I recognize this hearing is focused on discretionary aspects of the HHS budget so I will start by discussing programs under the direct purview of this Subcommittee before returning to mandatory programs later in my statement.

Setting Priorities

Overall, our discretionary budget proposes $2.2 billion in net savings from last year.  Much of that difference comes from a repeat of programs that we have previously recommended for reduction or elimination.  We have identified underperforming, inefficient or duplicative programs and redirected our resources to programs that provide a greater benefit for our tax dollars.  I understand we will disagree over funding levels for some programs but it is important to recognize that budgets are about choices and priorities.

In that context, I would like to spend a few minutes discussing our priorities in this year’s discretionary budget.

Emergency Preparedness

Our nation remains at risk of terrorist attack and war.  HHS is responsible to prevent and detect attacks, and respond to mass casualty events.  Our budget proposes $4.3 billion to:

  • Increase bioterrorism readiness
  • Double advanced development of medical countermeasures
  • Establish new international quarantine stations
  • Expand and train medical emergency teams

We are seeking $507 million to continue funding the President’s pandemic influenza preparedness plan.

One part of our preparedness budget that I would like to highlight for you deals with ventilators.  In many emergencies, especially terrorist attacks or pandemics, ventilators are needed to help victims breathe.  Currently, ventilators cost $8,000 to $10,000 each.  They also require specially trained teams to operate them.  The combination of those two factors makes having an adequate supply nearly impossible.

We are requesting $25 million to develop the next generation of ventilators that are portable, up to 90 percent less expensive and do not require special training to operate.

Global Health

You will see a series of health diplomacy initiatives. Because threats to human health have become just as mobile as we are, our leadership in health around the world benefits Americans directly. 

In addition to our work on HIV/AIDS, Malaria and Tuberculosis, I am asking for $3.5 million to provide public health services and training in developing countries.

Biomedical Research

We have proposed increases for each Institute and Center at NIH.  The overall budget will support 38,000 research project grants, including more than 9,700 new and competing awards.  Overall, the NIH budget will be the same as FY 2008.

Head Start

This budget proposes $7 billion for Head Start, an increase of $149 million over last year.  The increase in funding will be used to provide programs a cost-of-living increase of 1.9 percent, enabling them to continue serving approximately 895,000 children, the same level as in FY 2008, with comprehensive child-development services to help them arrive at school ready to learn.  

Health Care Fraud and Abuse (HCFAC)

We are also seeking $198 million in new HCFAC discretionary funds to help fight fraud and abuse.  These funds will be used by CMS, the Inspector General, and Department of Justice to fight fraud and abuse in the new Medicare prescription drug benefit and Medicare Advantage programs, and strengthen financial management oversight of the Medicaid program. 

Disaster Human Services Case Management

Our budget includes $10 million to develop a new Disaster Human Services Case Management program.  The impact of a disaster on an individual’s or a family’s well-being is often far more profound than any physical damage a disaster might bring.   This program will build the capacity to tie together existing organizations with expertise in case management and recruit, train and credential volunteers across our nation to come to the aid of those who have been affected by disasters and help them connect with public and private support to begin rebuilding their lives. 

Health IT

Our budget includes $66 million for the Office of the National Coordinator for Health IT.  This funding supports policies to encourage physicians and others to adopt electronic health records (EHRs) and supports technologies for safe, secure health information exchange. 

Physician adoption of EHRs can improve the delivery of health care by reducing medical errors and increasing efficiency.  To further the adoption of health IT, $3.8 million is included in the FY 2009 CMS budget for a demonstration project involving up to 1,200 physician practices to improve quality by increasing the functionality of their EHR systems. 

Health Centers

We are seeking an additional $27 million to build on the success of the President’s Health Center Initiative.  In FY 2008, the Health Center Program surpassed the President’s goal of creating 1,200 new or expanded Health Center sites across the nation.  In FY 2009, the budget will fund 40 new access point grants in high poverty areas without access to a Health Center, along with 25 planning grants – expanding service to more than 17 million total clients. 

Commissioned Corps

The Budget includes $30 million to increase training, equipment, and emergency response and operational capacities for the Commissioned Corps.  This request will support a wide variety of activities, including the staffing and equipping of two Health and Medical Response teams of 105 members each. 

SAMHSA Treatment Courts

Our budget includes $40 million for behavioral health and recovery support services associated with treatment courts, an increase of $30 million over FY 2008.  Treatment courts use incentives, sanctions, and close supervision to ensure that offenders experiencing mental health or substance use disorders continue with their treatment plans and break the cycle of abuse and incarceration.

Mandatory Spending

Now I would like to turn to Medicare, Medicaid and SCHIP.

To put it bluntly, the Medicare portion of this budget should be viewed as a stark warning.  Medicare, on its current course, is not sustainable.  In 2007, the Medicare Trustees reported the Hospital Insurance Trust Fund will be exhausted in 2019 – 11 years from now – and Medicare represents a $34.2 trillion unfunded obligation for the federal budget over 75 years. This is a serious matter.  

Let’s acknowledge that American sensitivity to entitlement warnings has become numbed by a repeated cycle of alarms and inaction.  Such warnings have become a seasonal occurrence, like the cherry blossoms blooming in April, part of life’s natural rhythm.  We hear the warning, but do nothing.

This budget warns in a different way.  It illuminates with specificity the hard decisions policy makers – no matter what their party – will face every year until we change the underlying philosophy.  The President believes we can keep our national commitment to insuring the health of Medicare beneficiaries, but we need a change in how we manage the system. 

Currently, the Medicare fee-for-service program is a centrally-planned, government regulated system of price setting. Price setting systems allow government regulators to decide the priorities. Government decides which treatment to cover. Government decides how much treatment is provided based on how much government is willing to pay for. Government tries to determine how much value different procedures have. It is a bad system and needs to be changed.

If consumers were allowed to make these decisions through an efficient and transparent market, their decisions would be far more precise and wise.

One need look no further than our experience with Medicare’s prescription drug benefit, where government organized a market and let consumers decide what drug plan worked best for them. Entering the third year of the program, we see enrollment continuing to rise, beneficiary satisfaction extremely high, and costs to beneficiaries and taxpayers considerably lower than originally projected.  

A month ago we announced that, compared to original Medicare Modernization Act (MMA) projections, the projected net Medicare cost of the drug benefit is $243.7 billion lower over the 10-year period (2004-2013) used to score the MMA.  Beneficiaries are saving as well.  The most recent CMS estimate of the actual average premium beneficiaries will pay for standard Part D coverage in 2008 is roughly $25.  This is nearly 40 percent lower than originally projected when the benefit was established in 2003.

While there are several important factors that contribute to lower costs, a key factor is that competition has been strong from the beginning of the program and the plans have achieved greater than expected savings from retail price negotiations, manufacturer rebates, and utilization management.

That said, however, using the blunt instruments we have available to us in other parts of Medicare, we have prepared a budget with three goals in mind: long term sustainability, affordable premiums for beneficiaries and a balanced national budget by 2012.

Some will be unhappy with this budget. While Medicare spending will increase by an average of 5 percent annually under our budget, they will see any attempt to slow the rate of Medicare’s growth as a cut.

Our proposed budget includes a group of legislative and administrative improvements aimed at extending Medicare’s viability for today’s seniors and future generations. The slower growth rate they produce saves $183 billion over five years.

The proposals include:

  • Encouraging provider competition and efficiency
  • Promoting high quality care
  • Rationalizing payment policies
  • Improving program integrity
  • Increasing high-income beneficiary responsibility for health care costs

The slower growth rate also reduces the premiums beneficiaries face by $6.2 billion over the next five years.  Let me emphasize that generally, changes we make that reduce future government spending also give a financial break to beneficiaries.

I mentioned Medicare warnings earlier. In the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Congress included a provision requiring the Medicare Trustees to issue a formal warning if two consecutive annual reports show that regular tax dollars exceed 45 percent of total Medicare spending within the current or next six years.  I am a Trustee of the Medicare Trust Fund. Last year we triggered the alarm. As usual, there has been no action.

The same law calls for the President to propose legislation that will change the trajectory enough to bring general revenues back below 45 percent.  The President believes it is important to respond to the 2007 warning about the future fiscal health of Medicare.            

I was designated by the President as the official responsible for this response and on Friday, February 15, I submitted legislation to Congress.

This legislative package addresses the immediate problem identified by the 2007 warning and helps lay the foundation for transforming Medicare so it becomes a program based on the highest quality and the greatest value.  This proposal should be enacted in conjunction with the Medicare savings in the 2009 budget, which addresses nearly one-third of the program’s $34 trillion unfunded obligation.

The legislation we propose offers a three-step approach to the problem of unsustainable Medicare spending growth.       

Title I provides the HHS Secretary with the authority and responsibility to introduce value-driven competition into the Medicare program.  These principles are intended to reduce Medicare spending by increasing provider efficiency and helping beneficiaries to be wiser consumers.  Specific elements in the legislation include:

  • Adoption of health information technology, such as electronic medical records and e-prescribing;
  • Transparent pricing information;
  • Transparent quality information; and
  • Incentives for providers to deliver and beneficiaries to choose high-quality, low-cost health care.

Title II of this legislation implements the President’s medical liability reform agenda.

  • The medical liability crisis has littered our courts with junk lawsuits.  It has hindered patient care, resulting in 1500 counties lacking an Ob-Gyn.  And it costs our health care system up to $100 billion per year.
  • We need reform in order to have a rational medical liability system.

Finally, Title III reduces the Medicare premium subsidy for higher-income individuals in Part D.

  • Income-relating the Part D premium was contained in the President’s last two budget proposals.
  • It will save over $900 million in 2013 and nearly $3.2 billion over five years.

Although this package responds to the funding warning identified in the 2007 report, more must be done to strengthen Medicare for the long-term.

I am eager to work with Congress to quickly pass this legislation – and the savings proposed in the President’s Budget – so we can get started on making Medicare a healthy program for current and future generations.  But real solutions in Medicare will require genuine change in the way in which health care is conducted in America. And, if I can comment on that broader topic for a moment, let me say this:

There are two competing philosophies about the role government should play in health care.  One is a Washington-run, government-owned plan, where government makes the choices, sets the prices, and then taxes people to pay the bill.  

The other, supported by the Administration, is a private market where consumers choose, where insurance plans compete, and where innovation drives the quality of health care up and may drive the cost down.  

The Administration believes every American needs access to health care at an affordable cost.  In addition to its proposed tax reforms and health insurance market-based initiatives, the Administration believes the current health care system could operate more efficiently, without increasing federal spending on health care, if some portion of indirect public subsidies were redirected to make health insurance affordable for individuals with poor health or limited incomes. The federal government would maintain its commitment to the neediest and most vulnerable populations, while giving the States, which are best situated to craft innovative solutions, the opportunity to move people into affordable insurance.

We are approaching an emergency.  Real change in Medicare as a system is required, and soon.  If you are 54 years old, and if Medicare is left on autopilot, when you turn 65 years old, Medicare will not be able to provide all the hospital insurance benefits promised under current law.  We need a change in philosophy – not just a change in the budget.

State Children’s Health Insurance Program (SCHIP)

The President proposes to increase funding to states by $19.7 billion through 2013, with $450 million in outreach grants.  Our proposal is consistent with the Administration’s philosophy that SCHIP should focus on its intended target – uninsured, low-income children – instead of expanding to other segments of the population.  It is also consistent with the position the President and the Administration articulated last fall.  Our legislative proposal calls on Congress to address the issue of “crowd-out.”  It outlines State responsibilities when they expand SCHIP, proposes enforcement mechanisms, and clarifies SCHIP eligibility by clearly defining income.


We are continuing our successful transformation of the Medicaid program.  This budget request includes a series of proposed legislative and administrative changes.  We propose legislative savings of more than $17 billion and assume administrative savings of approximately $800 million over the next five years while keeping Medicaid up-to-date and sustainable.  


These are just some of the highlights of our budget proposal.  Both the President and I believe that we have crafted a strong, fiscally responsible budget at a challenging time for the Federal government, with the need to further strengthen the economy and continue to protect the homeland.  

We look forward to working with Congress, States, and all our other partners to carry out the initiatives President Bush is proposing to build a healthier, safer and more compassionate America.

Now, I will be happy to answer your questions. 

Last revised: June 18, 2013