Statement by
Tommy G. Thompson
Secretary, Department of Health and Human Services
President's FY 2004 budget for the Department of Health and Human Services (HHS)
before the
House Committee On Ways And Means

February 6, 2003

Good morning Mr. Chairman, Mr. Rangel, and members of the committee. I am honored to be here today to present to you the President's FY 2004 budget for the Department of Health and Human Services (HHS). I am certain you will find that, viewed in its entirety, our budget will help improve the health and safety of our Nation.

The President's FY 2004 budget request continues to support the needs of the American people by strengthening and improving Medicare, enhancing Temporary Assistance for Needy Families (TANF) and Foster Care; strengthening the Child Support Enforcement Program; and furthering the reach of the President's New Freedom Initiative.

The $539 billion proposed by the President for HHS will enable the Department to continue its important work with our partners at the State and local levels and the newly created Department of Homeland Security. Working together, we will hold fast to our commitment to protecting our Nation and ensuring the health of all Americans. Many of our programs at HHS provide necessary services that contribute to the war on terrorism and provide us with a more secure future. In this area, I am particularly focused on preparedness at the local level, ensuring the safety of food products, and research on and development of vaccines and other therapies to counter potential bioterrorist attacks.

Our proposal includes a $37 billion increase over the FY 2003 budget, or about 7.3 percent. The discretionary portion of the HHS budget totals $65 billion in budget authority, which is an increase of $1.6 billion, or about 2.6 percent. HHS' mandatory outlays total $475.9 billion in this budget proposal, an increase of $32.3 billion, or roughly 6.8 percent.

Your committee will obviously be vital to achieving many of the Administration's most important priorities. I am grateful for the close partnership we have enjoyed in the past, and I look forward to working with you on an aggressive legislative agenda to advance the health and well being of millions of Americans. Today, I would like to highlight for you the key issues in the President's budget that fall under the Ways and Means Committee's jurisdiction.

Supporting the President's Disease Prevention Initiative

One of the most important issues on which we can work together is disease prevention. We all have heard the disturbing news about the prevalence of diabetes, obesity and asthma that could be prevented through very simple lifestyle changes. The statistics, I am sure, are as alarming to you as they are to me. For example:

  • Diabetes was the sixth leading cause of death listed on U.S. death certificates in 1999, representing approximately 19% (450,000) of all deaths in the U.S. in people aged 25 years and older.
  • In 2000, 38.8 million Americans met the definition for obesity;
  • Data indicate that 26 percent of all adult women, and 20.6 of all adult men are obese;

For this reason the HHS budget, consistent with the President's HealthierUS effort, proposes a coordinated, Department-wide effort to promote a healthier lifestyle emphasizing prevention of obesity, diabetes, and asthma. The FY2004 budget includes a new investment of $100 million for targeted disease prevention, and enhanced preventive benefits are an integral part of our Medicare reform recommendations.

Strengthening and Improving Medicare

Through the leadership of Chairman Thomas, the Ways and Means Committee has been at the forefront of efforts to strengthen and improve the Medicare program. As we are all aware, our Nation's Medicare program needs to be strengthened and improved to fill the gaps in current coverage. This committee has dedicated countless hours to increasing public understanding of the challenges confronting the program, and your efforts have significantly advanced the debate over program modernization. While we remain steadfastly committed to ensuring that America's seniors and individuals with disabilities can keep their current, traditional Medicare, the President has proposed numerous principles for Medicare enhancements to ensure that we are providing our seniors with the best possible care. The budget builds on those principles by dedicating $400 billion over ten years to strengthen and improve Medicare, including providing access to subsidized prescription drug coverage, better private options and better insurance protection through a modernized fee-for-service program.

Prescription Drug Coverage

Ensuring that Medicare beneficiaries have access to needed prescription drugs is a top priority for the President and me. This budget proposes a prescription drug benefit that would be available to all beneficiaries, protect them against high drug expenditures, and would provide additional assistance to low-income beneficiaries through generous subsidies for low-income beneficiaries to ensure ready access to needed drugs. The Administration's prescription drug plan would offer beneficiaries a choice of plans and would support the continuation of the coverage that many beneficiaries currently receive through employer-sponsored and other private health insurance.

Medicare Choices

Medicare+Choice was introduced to provide beneficiaries with options in their health coverage. Over the past year, the Department has made significant strides in expanding beneficiaries' Medicare+Choice options by approving 33 new preferred provider organization through a demonstration. However, due to a variety of factors, in many parts of the country, few new plans have entered the program. More needs to be done to encourage plan participation in this important program. This Administration believes that Medicare+Choice payments need to be linked to the actual cost of providing care. America's seniors should have access to the same kind of reliable health care options as other citizens. We believe that we should move away from administered pricing to set Medicare+Choice rates and that those choices should be provided through a market-based system in which private plans compete to provide coverage for beneficiaries. Those beneficiaries who select less costly options should be able to keep most of the savings. It is time we give our seniors the choice they have been promised in Medicare.

Modernized Fee-for-Service

One of the basic tenets of our reform proposal is that seniors deserve the same range of health care delivery choices as federal employees enjoy. These choices should reflect the benefit innovations incorporated into private sector plans. The Administration is very interested in updating Medicare to reflect the insurance protections offered in the private sector. This system would modify and rationalize cost-sharing for beneficiaries who need acute care. It would also eliminate cost sharing for preventive benefits and provide catastrophic coverage to protect beneficiaries against the high costs caused by serious illnesses.

Medicare Appeals Reform

Our budget also includes $129 million for the implementation of Medicare appeals reform. The adjudicative function currently performed by the Administrative Law Judges at the Social Security Administration would be transferred to the Centers for Medicare and Medicaid Services (CMS). In addition, the Administration proposes several legislative changes to the Medicare appeals process that would give CMS flexibility to reform the appeals system. These changes will enable CMS to respond to beneficiaries and provider appeals in an efficient and effective manner.

New Freedom Initiative

Although Medicaid falls under the jurisdiction of the Energy and Commerce Committee, let me quickly mention several Medicaid initiatives that will also impact some vulnerable Medicare beneficiaries. Home care as an alternative to nursing homes for the elderly and disabled is a priority of this Administration. The New Freedom initiative represents part of the Administration's effort to make it easier for Americans with disabilities to be more fully integrated into their communities. Under this initiative, we are committed to promoting the use of at-home care as an alternative to nursing homes.

It has been shown time and again that home care combines cost effective benefits with increased independence and quality of life for recipients. Because of this, we have proposed that the FY 2004 budget support a five-year demonstration called "Money Follows the Individual" Rebalancing Demonstration, in which the Federal Government will reimburse States for one year of Medicaid services for individuals who move from institutions into at-home care. After this initial year, States will be responsible for matching the Federal government at their usual share. The Administration will invest $350 million in FY 2004, and $1.75 billion over 5 years on this important initiative to help seniors and disabled Americans live in the setting that best supports their needs.

In the same spirit as the "Money Follows the Individual" Rebalancing Demonstration, the Administration proposes four demonstration projects to support for the President's New Freedom Initiative. Each promotes at-home care as an alternative to institutionalization. The demonstrations are to provide respite services to caregivers of disabled adults and severely disabled children; to offer home and community-based services for children currently residing in psychiatric facilities; and to address shortages of community direct care workers.

There are additional key proposals in our budget that will improve the lives of millions of Americans. For example, we are interested in working with Congress on a Medicaid Spousal Exemption and Medicare Part B Premiums for qualified individuals (QI's). The Medicaid Spousal Exemptions would give States the option to continue Medicaid eligibility for spouses of disabled individuals who return to work. Under current law, individuals with disabilities might be discouraged from returning to work because the income they earn could jeopardize their spouse's Medicaid eligibility. This proposal would extend to the spouse the same Medicaid coverage protection now offered to the disabled worker. Medicare Part B Premiums for QI's will continue 100% Federal Medicaid coverage of Medicare Part B Premiums for qualifying individuals, who are defined as Medicare beneficiaries with incomes of 120% to 135% of poverty and minimal assets. Premium assistance will continue for five years.

Empowering America's Families

Reauthorization of Temporary Assistance for Needy Families (TANF) and the Child Care Development Fund

Building on the considerable success of welfare reform in this great nation of ours, the President's FY2004 budget follows the framework proposed in the FY2003 request which includes the reauthorization of TANF. The proposal includes five years of funding for the TANF Block Grants to States, Tribes, and Territories; Matching Grants to Territories; and Tribal Work Programs at current levels. In addition, the FY2004 budget reinstates authority for supplemental population grants at $319 million; Social Service Block Grant transfers to 10 percent; as well as funding of the $2 billion Contingency Fund with modified maintenance of effort and reconciliation requirements to make it more accessible for States.

The central focus of the proposal strengthens work requirements while allowing States greater flexibility to define activities that will lead toward self-sufficiency. The Bonus to Reward High Performance States would be redesigned to provide $100 million a year for bonuses on employment achievement. We are proposing to eliminate the bonus to reduce out-of-wedlock birth. Our proposal offers a two-pronged family formative initiative: $100 million to fund research, demonstrations, and technical assistance efforts, and $100 million for matching grants, focused on building strong families and promoting healthy marriages. In addition, the Budget proposes to reauthorize state-based abstinence education grants for five years at $50 million annually to further assist with reducing the number of out-of-wedlock births, reducing the spread of STDs among teens, and helping teens make health life choices. These proposals demonstrate that this Administration is committed to strengthening foundations for our children and supporting programs that will empower persons who have not been able to work, for any number of reasons, to achieve self-sufficiency.

Hand in hand with these efforts, the President's FY2004 budget also follows the framework established in the FY2003 budget and requests reauthorization of the Child Care and Developmental Block Grant Act and the Child Care Entitlement to assist States in meeting the critical child care needs of families.

Increasing Support for Children in Foster Care

In a continuing effort to improve the lives of children who are at risk of abuse and neglect, this Administration is proposing a child welfare financing option that States can use to improve their child welfare service systems. This plan would allow States to choose a fixed allocation of funds over a five-year period rather than the current entitlement funding for the title IV-E Foster Care program. Participating States would receive their funds in the form of flexible grants which could be used for a wide array of child welfare-related purposes, such as child abuse and neglect prevention, maintenance and administrative payments for foster care, child welfare training, and family support. The flexible funding will allow States to develop innovative ways to ensure the safety, permanency and well-being of children, tailored to meet the needs of their child welfare populations. States which elect this option and experience emergencies affecting their foster care systems may access additional funding from the TANF contingency fund.

The Administration is proposing a nearly $5 billion budget for Foster Care in FY 2004, an $89 million increase over last year's request. Not only will these funds support the child welfare program option, but they also will be used to provide payments for maintenance and administrative costs for more than 240,000 children in foster care each month, as well as payments for training and child welfare data systems.

The Adoption Incentives Program has been successful in contributing to the substantial increase in the number of children who are adopted from the public foster care system in recent years. The President's FY4004 budget request includes reauthorization of this important funding. Additionally, we propose changes to the incentive system to target older children, who despite the overall gains in adoptions constitute an increasing proportion of the children waiting adoptive families. The President's budget request for the Adoption Incentives Program is $43 million.

Another important issue we face with foster care is the transition for children out of these programs. Last year, nearly 20,000 children aged out of the foster care system. In order to assist these children, the President is committed to maintaining the Foster Care Independence Program, which provides a variety of services for youth who will likely remain in foster care until they turn 18 and former foster children between the ages of 18 and 21. The President's budget request for the Foster Care Independence Program is $140 million. Our budget also includes $60 million for an education and training voucher program for the approximately 20,000 youth who age out of foster care each year. Additionally, the Administration continues our commitment to the Promoting Safe and Stable Families Program, and this Budget increases substantially funding for the program to $505 million to assist States' ability to strengthen families and to promote child safety, permanency, and well-being. This important program also helps promote adoption and provides post-adoption support to families.

Child Support Enforcement

Related to my commitment to strengthening America's families, I am proud to tell you that our Child Support Enforcement program has made some impressive gains. Child support collections hit a record $20 billion in FY2002, and in FY2001, over 1.6 million paternities were established or acknowledged.

The President's FY2004 budget will build on this success. Legislation will be proposed to enhance and expand the existing automated enforcement infrastructure at the Federal and State level and increase support collected on behalf of children and families. For example, proceeds from insurance settlements and gaming winnings will be subject to intercept for past due support and the process for freezing and seizing assets in multi-state financial institutions will be simplified. When combined with the opportunities to increase child support outlined in the President's FY2003 budget (expanded passport denial, offset of certain Social Security benefits and mandatory review and adjustment of support orders), these proposals offer an impressive $2.6 billion in increased child support payments to families over five years. The Budget also recognizes that healthy families need more than financial support alone and increases resources for the Access and Visitation Program to support and facilitate non-custodial parents' access to and visitation of their children.

Responsible Fatherhood and Healthy Marriages The President's budget also proposes $20 million for promotion and support of responsible fatherhood and healthy marriage. This funding will promote and support involved, committed, and responsible fatherhood and encourage the formation and stability of healthy marriages.

Fighting Bioterrorism

As Americans confront the realities of terrorism and hatred around us, it is imperative that the Federal Government be prepared to keep our citizens safe and healthy. HHS' $3.6 billion bioterrorism budget substantially expands ongoing medical research, maintains State and local preparedness funding, and includes targeted investments to protect our food supply. The President's proposal significantly expands research funding needed to develop vaccines and medicines that will make biologic agents much less effective as weapons. HHS is committed to working closely with the new Department of Homeland Security to ensure that its pharmaceutical stockpiles include proper amounts of effective drugs and vaccines, and other biologics.

Faith-Based and Community Initiatives

In support of the President's Faith-Based and Community Initiative, the HHS FY2004 budget supports programs that promote positive relationships that link faith- and community-based organizations, State and local governments, and Federal partners to develop a shared picture for substance abuse treatment and positive youth development.

We are proposing to establish a new $200 million drug treatment program. For some individuals, recovery is best assured when it is achieved in a program that recognizes the power of spiritual resources in transforming lives. Under this new program, individuals with a drug or alcohol problem who lack the private resources for treatment will be given a voucher that they can redeem for drug treatment services. The program will give them the ability to choose among a range of effective treatment options, including faith-based and community-based treatment facilities. Another important program that helps some of our most vulnerable children is the Mentoring Children of Prisoners program. We are asking for funds to be increased to $50 million, which would in turn be made available to faith-based community-based, and public organizations for programs that provide supportive one-on-one relationships with caring adults to these children who are more likely to succumb to substance abuse, gang activity, early childbearing and delinquency. In addition, the budget request for the Compassionate Capital Fund is $100 million, the same amount requested in FY2003, and an increase of $70 million over the FY2002 appropriation. These funds would continue to be used to support the efforts of charitable organizations in expanding model social service programs. The Fund would also continue to provide technical assistance to faith- and community-based organizations to expand and enhance their services. These are just a few examples of the services that can be provided to those in need under this initiative.

President's Management Agenda

I am committed to improving the management of the Department of Health and Human Services, and I realize that as we work to improve the health and well-being of every American citizen, we also need to improve ourselves. The FY2004 budget supports the President's Management Agenda and includes cost savings from consolidating administrative functions; organizational delayering to speed decision making processes; competitive sourcing; implementation of effective workforce planning and human capital management strategies; and adoption of other economies and efficiencies in administrative operations. We have also included savings in information technology (IT) which will be realized from ongoing IT consolidation efforts and spending reductions made possible through the streamlining or elimination of lower priority projects. I am also very excited about the IT infrastructure consolidation which should be fully implemented by October, 2003, that will further reduce infrastructure expenditures for several HHS agencies.

Improving the Health, Well-being and Safety of our Nation

Mr. Chairman, the budget I bring before you today contains many different elements of a single proposal; what binds these fundamental elements together is the desire to improve the lives of the American people. All of our proposals, from building upon the successes of welfare reform to protecting the nation against bioterrorism; from increasing access to healthcare, to strengthening Medicare; all these proposals are put forward with the simple goal of ensuring a safe and healthy America. I know this is a goal we all share, and with your support, we are committed to achieving it.

Last Revised: February 6, 2003