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FEBRUARY 6, 2002

Good morning, Mr. Chairman and members of the Committee. I am honored to appear before you today to discuss the President's FY 2003 budget for the Department of Health and Human Services (HHS). I am confident that a review of the full details of our budget will demonstrate that we are proposing a balanced and responsible approach to ensuring a safe and healthy America.

The budget I present to you today fulfills the promises the President has made and proposes creative and innovative solutions for meeting the challenges that now face our nation. Our budget supports the development and well-being of America=s families; increases access to health care; strengthens Medicare with a prescription drug benefit and other improvements; and increases support for bioterrorism research and preparedness, and supports the President=s Management Agenda through a number of management reform initiatives within the Department. The President's budget also includes a $4 billion increase for biomedical research at the National Institutes of Health (NIH). This final installment of the President's five-year doubling is largest year-to-year dollar increase that NIH has ever received.

Mr. Chairman, the total HHS request for FY 2003 is $488.8 billion in outlays. This is an increase of $29.2 billion, or 6.3 percent over the comparable FY 2002 budget. The discretionary component of the HHS budget totals $64.0 billion in budget authority, an increase of $2.4 billion, or 3.9 percent. This committee has jurisdiction over much of this budget. Allow me to the highlight several important aspects of the HHS budget.


President Bush has said that American families are the bedrock of American society and the primary source of strength and health for both individuals and communities. Our budget includes a number of new initiatives that support this principle by targeting resources to strengthen our nation's families. We look forward to working with the Committee in considering the next phase of welfare reform and other elements of the President's proposals to help America's low-income families succeed.

Temporary Assistance for Needy Families

As a former governor, I can tell you that the Temporary Assistance for Needy Families program - or TANF - has been a truly remarkable example of a successful Federal-State partnership. States were given tremendous flexibility to reform their welfare programs and as a result, millions of families have been able to end their dependency on welfare and achieve self-sufficiency.

Since 1996, welfare dependency has plummeted. As of September of 2001, the number of families receiving assistance, which represents the welfare caseload, was 2,103,000 and the number of individuals receiving assistance was 5,343,000. This means the welfare caseload and the number of individuals receiving cash assistance declined 52 percent and 56 percent, respectively, since the enactment of TANF. Between January and September of last year national caseloads actually declined about 2 percent, and while the July to September statistics indicate a slight increase, the figures are still well below the previous year's caseload levels. The general trend suggests the national caseloads are not rising but, instead, have stabilized.

In New York City, where we are understandably most concerned about job opportunities, they have achieved more than 53,000 job placements for welfare recipients from September through December 2001. While the number of TANF recipients increased briefly directly because of the tragedy on September 11, by December there were about 15,000 fewer TANF recipients on the rolls than there were in August. Indeed, in December the City had its lowest number of persons on welfare since 1965.

Some other positive outcomes we have seen since the law's passage include:

-- Employment among single mothers has grown to unprecedented levels.
-- Child poverty rates are at their lowest level since 1978. Overall child poverty rates declined from 20.5 percent in 1996 to 16.2 percent in 2000. The poverty rate among African American children declined from 39.9 percent to 30.9 percent - the lowest level on record. The poverty rate among Hispanic children declined from 40.3 percent to 28.0 percent - the largest four-year drop on record.
-- The rate of births to unwed mothers has not increased.

But even with this notable progress, much remains to be done, and States still face many challenges. Last year, I held eight listening sessions throughout the country to discuss the state of their TANF systems and understand the new challenges they are facing. The states overwhelmingly support this program. While keeping the basic structure and purpose of the program, States, administrators, recipients, employers, and advocates have provided valuable insight into where we could make the program even more responsive to the needs of families.

In the near future, we plan to unveil our reauthorization proposal to build on current successes of the program. Our reauthorization proposal embraces the needs of families by maintaining the program's overall funding and basic structure, while focusing increased efforts on building stronger families through work and job advancement and adding child well-being as an overarching goal of TANF.

Our budget proposes $16.5 billion each year for block grants to States and Tribes; $319 million a year to restore supplemental grants; $2 billion over five years for a more accessible Contingency Fund; and a $100 million a year initiative for research, demonstration and technical assistance primarily to promote child well-being through strengthening family formation and healthy marriages. In addition, our proposal will call for modification of the bonus for high performance to reward significant achievement in promoting employment of program participants.

We maintain State flexibility, but include important changes to improve the effectiveness of the program. We will also expect States to engage all families they serve and help them make progress toward their highest degree of self-sufficiency - even those cases that may appear hard to employ. We will eliminate the separate two-parent work participation rates and give States more flexibility in designing productive self-sufficiency activities while ensuring that the participation rate requirements are meaningful. We will also ask States to set performance goals for their TANF programs and report on their progress toward meeting these goals.

I look forward to working with the Committee on reauthorization of this hallmark program. I am confident that together we will witness even greater achievements under the TANF program.

Other Programs Supporting TANF Goals

The President's budget also includes funding for several other programs at the State and community level that work to support the goals of TANF. The Job Opportunities for Low-Income Individuals program (JOLI), provides grants to non-profit organizations to create new employment and business opportunities for TANF recipients and other low-income individuals. Our budget provides $5.5 million to continue this valuable program. The Individual Development Account (IDA) demonstration program similarly seeks to increase the economic self-sufficiency of low-income families by testing policies that promote savings for post-secondary education, home ownership, and micro-enterprise development. The President's budget calls for almost $25 million to support IDAs. More broadly, the Social Services Block Grant (SSBG) provides a flexible source of funding for States to help families achieve or maintain self-sufficiency and provide an array of social services to vulnerable families. The President's budget request for SSBG is $1.7 billion.Child Care

Child Care has played an important role in the success of welfare reform by providing parents the support they need to work. The President's budget recognizes this critical link and maintains a high level of commitment to childcare. Continuing the substantial increase in funding the Congress has provided over the last several years, the President's budget includes a total of $4.8 billion in childcare funding in conjunction with our request to reauthorize the mandatory and discretionary funding provided under the Child Care Development Block Grant and the Child Care Entitlement. States will also continue to have significant flexibility under the TANF program and under the Social Services Block Grant program to address the needs of their low-income working families. These additional funding opportunities have substantially increased the amount of resources dedicated to child care needs. For example, in FY 2000 States transferred $2 billion in TANF funds to the Child Care and Development Block Grant.

Child Support Enforcement

The Child Support Enforcement program offers another vital connection to families' ability to achieve self-sufficiency and financial stability. The President's budget proposes to increase child support collections and direct more of the support collected to families transitioning from welfare - goals this Committee has supported vigorously. Under our proposal, the Federal government would share in the cost of expanded State efforts to pass through child support collections to families receiving TANF. Pass through payments enhance a family's potential for achieving self-sufficiency while also creating incentives for non-custodial parents to pay support and custodial parents to cooperate in securing support. Similarly, States would be given the option to adopt simplified distribution rules that ease State administration but, more importantly, benefit families that have transitioned from welfare by directing support otherwise retained by the State and Federal governments to these families.

Overall collections would be increased by expanding our successful program for denying passports to parents owing $2,500 in past-due support, requiring States to update support awards in TANF cases every three years, and authorizing States to offset certain Social Security Administration payments when they determine such action would be appropriate to collect unpaid support. Our child support legislative package would also impose a minimal annual processing fee in any case where the State has been successful in collecting support on behalf of a family that has never received assistance.

Promoting Responsible Fatherhood

Helping custodial parents, generally mothers, collect support is an important part of our efforts to assist America's families, but we cannot ignore the critical role fathers play in the lives of their children and families. Our budget includes a request for $20 million to begin an initiative to promote responsible fatherhood by providing competitive grants to organizations that work to strengthen the role that fathers play in their children and families' lives. Faith and community-based organizations and Indian tribes will be encouraged to compete for these grants. These funds will be used to support programs that effectively encourage responsible fatherhood and parenting skills and to fund programs that promote successful parenting and healthy marriages. We appreciate the support shown by Representative Herger in introducing the President's proposal last September and look forward to working with the Committee on its enactment.

Compassion Capital Fund

The President has been a leader in recognizing the important role that charitable organizations play in delivering services to the public, and we are proposing steps to increase Federal support for these groups. Specifically, our budget seeks $70 million in additional funds for the Compassion Capital Fund, for a total of $100 million. These new funds will be used to expand the number of public and private partnerships engaged in this critical effort and strengthen our ability to identify those successful models for providing social services by charitable organizations. Our budget also includes $1.6 million to continue the Department's Center for Faith-Based and Community Initiatives established under the President's Executive Order.

Promoting Safe and Stable Families

I appreciate this Committee's tremendous support for our efforts to help American families, most recently your work shepherding through to enactment the President's initiative to reauthorize and expand the Promoting Safe and Stable Families Program. The President's budget would increase the funding level for this program to $505 million, fully supporting the increased authorization included in the new law. These additional funds will be used to help promote and support adoption so that children can become part of a safe and stable family, as well as for increased preventive efforts to help families in crisis.

Our budget also supports the new authority for funding the mentoring children of prisoners initiative included in the legislation and advanced by the President in last year's budget. The budget requests $25 million for grants to provide a range of activities to mentor children of prisoners.

This landmark legislation also authorized a new program to provide vouchers to youth who are aging out of foster care so that they can obtain the education and training they need to lead productive lives. The President's budget includes $60 million for these vouchers, bringing the total request for the Foster Care Independence Program to $200 million.

Child Welfare/Foster Care/Adoption

Our budget framework includes resources for a number of additional programs targeted to protecting our most vulnerable and at-risk children. Foster Care, Adoption Assistance, Adoption Incentives and Child Welfare Services are designed to enhance the capacity of families to raise children in a nurturing, safe environment. The President's budget provides resources to help States provide safe and appropriate care for children who need placement outside their homes, and to provide funds to States to assist in providing financial and medical assistance for adopted children with special needs who cannot be reunited with their families, and to reward States for increasing their number of adoptions. At the same time, the budget also supports Child Welfare Services programs with the goal of keeping families together when possible and in the best interest of the child.

The budget provides nearly $4.9 billion for Foster Care, $1.6 billion for Adoption Assistance, and $43 million in Adoption Incentive funds. In addition, the President's budget seeks almost $300 million in funding for child welfare services and training. Together, these funds will support improvements in the healthy development, safety, and well being of the children and youth in our nation.

Abstinence Education

The President's Budget proposes to reauthorize $50 million in mandatory funding for Abstinence Education grants to States. These resources complement Abstinence Education grants to community-based organizations ($73 million). Both grants will continue to support the message, through mentoring, counseling and adult supervision, that abstinence from sexual activity is the only sure way for teens to avoid out of wedlock pregnancies and sexually transmitted diseases.


Finally, our commitment to supporting America's families does not stop at our borders. The President's budget seeks $1 million in funding for the Repatriation program to assist U.S. citizens and their dependents returning from foreign countries under extreme circumstances.


The FY 2003 budget dedicates $190 billion over ten years for immediate targeted improvements and comprehensive Medicare modernization, including a subsidized prescription drug benefit, better insurance protection, and better private options for all beneficiaries. Last year, President Bush proposed a framework for modernizing and improving the Medicare program that built on many of the ideas that had been developed in this Committee and by other Members of Congress. That framework includes the principles that:

--All seniors should have the option of a subsidized prescription drug benefit as part of modernized Medicare.
--Modernized Medicare should provide better coverage for preventive care and serious illness.
--Today's beneficiaries and those approaching retirement should have the option of keeping the traditional plan with no changes.
--Medicare should make available better health insurance options, like those available to all Federal employees.
--Medicare legislation should strengthen the program's long-term financial security.
--The management of the government Medicare plan should be strengthened to improve care for seniors.
--Medicare's regulations and administrative procedures should be updated and streamlined, while instances of fraud and abuse should be reduced
--Medicare should encourage high-quality health care for all seniors.

The improvements the President and I have proposed include not only a subsidized drug benefit as part of modernized Medicare, but also providing better coverage for preventive care and serious illness. The program's lack of drug coverage is just one example of its outdated benefits and it will have even more difficulty giving beneficiaries modern and appropriate treatment for their health problems in the future. We propose that preventive benefits have zero co-insurance and be excluded from the deductible. We must make these improvements to more effectively address the health needs of seniors today and for the future.

Let me assure you, the President remains committed to framework he introduced last summer, and to bringing the Medicare program up to date by providing prescription drug coverage and other improvements. We cannot wait: it is time to act. Recognizing that there is no time to waste, the President's Budget also includes a series of targeted immediate improvements to Medicare.

As you know, last year the President proposed the creation of a new Medicare-endorsed prescription drug card program to reduce the cost of prescription drugs for seniors. This year, HHS will continue working to implement the drug card, which will give beneficiaries immediate access to manufacturer discounts on their medicines and other valuable pharmacy services. The President is absolutely committed to providing immediate assistance to seniors who currently have to pay for prescription drugs.

Assistance, however, will not come only through the prescription drug card program. The budget proposes several new initiatives to improve Medicare's benefits and address cost. This budget proposes additional federal assistance for comprehensive drug coverage to low-income Medicare beneficiaries up to 150% of poverty - about $17,000 for a family of two. This policy would eventually expand drug coverage for up to 3 million beneficiaries who currently do not have prescription drug assistance, and it will be integrated with the Medicare drug benefit that is offered to all seniors once that is in place. This policy helps to establish the framework necessary for a Medicare prescription drug benefit and is essentially a provision that is in all of the major drug benefit proposals to be debated before Congress. That is, the policy provides new Federal support for comprehensive coverage of low-income seniors up to 150 percent of poverty. And in all the proposals, the Federal government would work with the states to provide this coverage, just as we are proposing with this policy.

In addition, last week, I announced a model drug waiver program-Pharmacy Plus-to allow States to reduce drug expenditures for seniors and certain individuals with disabilities with family incomes up to 200 percent of the federal poverty level. This program is being done administratively. The Illinois initiative illustrates how we can expand coverage to Medicare beneficiaries in partnership with the federal government. The program we approved last week will give an estimated 368,000 low-income seniors new drug coverage. The model application I have announced is easy to understand and use, and the Centers for Medicare and Medicaid Services is working with numerous States-at least 12-that have already expressed interest in this program. Making it easier for states to take similar steps to help their citizens who need help the most is the goal I believe we all share.

The President's budget also includes an increase in funding to stabilize and increase choice in Medicare+Choice program by aligning payment rates more closely with overall Medicare spending and paying incentives for new types of plans to participate. Over 500,000 seniors lost coverage last year because Medicare+Choice plans left the program. Today close to 5 million seniors choose to receive quality health care through the Medicare+Choice program. Because it provides access to drug coverage and other innovative benefits, it is an option many seniors like, and an option we must preserve. The President's budget also proposes the addition of two new Medigap plans to the existing 10 plans. These new plans will include prescription drug assistance and protect seniors from high out-of-pocket costs.

Some of these initiatives give immediate and tangible help to seniors. But, let me make clear: these are not substitutes for comprehensive reform and a universal drug benefit in Medicare. They are immediate steps we want to take to improve the program in conjunction with comprehensive reform, so that beneficiaries will not have to wait to begin to see benefit improvements. I want to pledge today to work with each and every member of this Committee to fulfill our promise of health care security for America's seniors- now and in the future.


President Bush and I also are proposing to improve the health of the American people by taking important steps to fund health care for the uninsured and create new tax supports to help purchase health insurance. The President is proposing to combine new tax provisions to help more Americans purchase health insurance with affordable expansions of federal and state programs. Beginning in 2003, advance credits will be available to individuals and families to directly reduce their monthly premium payments for health insurance. We propose to allow States, if they choose, to use pooling arrangements to give these citizens even better options for their premium dollars. These initiatives will go a long way in improving the well being of our citizens and the quality health care they receive.

The President's budget also will increase and expand the number of Community Health Centers, which provide family oriented preventive and primary health care to over 11 million patients through a network of over 3,400 health sites. About 40 percent of the patients treated at health centers have no insurance coverage, and many others have difficulty affording the care their insurance does cover. The FY 2003 budget will increase and expand the number of health center sites by 1,200 and serve an additional 6.1 million patients by 2006. We propose to increase funding for these Community Health Centers by $114 million.


Mr. Chairman, as you may know, the Department of Health and Human Services is the lead federal agency in countering bioterrorism. And while this Committee's primary jurisdiction does not include bioterrorism, I know all Members share my concern that we must better protect our homeland from bioterrorism attacks. So, if the Committee would permit, I would like to briefly touch on what this budget proposes with respect to bioterrorism.

The President's FY 2003 budget request for bioterrorism is $4.3 billion, an increase of $1.3 billion, or 45 percent, $3.9 billion excluding emergency funding provided through a supplemental appropriation, and it underscores his commitment to providing the Department with the necessary resources to protect the American people from any biological or chemical attack. Our budget funds a wide variety of bioterrorism prevention, identification, and response activities that are administered through the Centers for Disease Control and Prevention (CDC), the National Institutes of Health (NIH,), the Office of the Secretary, the Substance Abuse and Mental Health Services Administration (SAMHSA), the Health Resources and Services Administration (HRSA) and the Food and Drug Administration (FDA).

The President believes, as do I, that state and local preparedness must be a primary focus of our nation's bioterrorism protection efforts. We have requested $1.5 billion, an increase of $406 million, for planning and physical improvements to regional and local hospitals. Additionally, our budget provides critical resources to state and local organizations to improve laboratory capacity, enhance epidemiological expertise in the identification, surveillance and containment of bioterrorism-related diseases, improve electronic communication and distance learning. The FY2003 budget also continues to provide $65 million in grants to states for the implementation of distribution systems for pharmaceuticals deployed by the National Pharmaceutical Stockpile

Our nation's hospitals, for example, must be capable of handling the large number of patients that could result from a mass-casualty incident, such as a bioterrorist attack. The President's FY 2003 budget provides $591 million for hospital preparedness and infrastructure to enhance biological and chemical preparedness plans focused on hospital surge capacity and support a newly expanded focus on cooperative training between public health agencies and state and local hospitals. Our request will upgrade the capacity of hospitals, outpatient facilities, emergency medical services systems and poison control centers to care for victims of bioterrorism.


I am committed to being proactive in preparing the nation for potential threats of bioterrorism and supporting research that will enable Americans to live healthier and safer lives. And, I am excited about beginning the next phase of Welfare reform and strengthening our Medicare and Medicaid programs. Ensuring that HHS resources are managed properly and effectively is also a challenge I take very seriously.

For any organization to succeed, it must never stop asking how it can do things better, and I am committed to supporting the President=s vision for a government that is citizen-centered, results oriented, and actively promotes innovation through competition. HHS is committed to improving management within the Department and has established its own vision of a unified HHS -- One Department free of unnecessary layers, collectively strong to serve the American people. The FY 2003 budget supports the President's Management Agenda.

The Department will improve program performance and service delivery to our citizens by more strategically managing its human capital and ensuring that resources are directed to national priorities. HHS will reduce duplication of effort by consolidating administrative management functions and eliminating management layers to speed decision-making. The Department plans to reduce the number of personnel offices from 40 to 4; centralize the public affairs and legislative affairs functions; and consolidate construction funding, leasing, and other facilities management activities. These management efficiencies will result in an estimated savings of 700 full time equivalent positions, allowing the Department to redeploy staff and other resources to line programs.

HHS continues to be at the forefront of the Government-wide effort to integrate budget and performance. We were one of the first Departments to add tables to its GPRA Annual Performance Reports that provide summary tables that associate resource dollars and performance measures HHS-wide. Although we work in a challenging environment where health outcomes may not be apparent for several years, and the Federal dollar may be just one input to complex programs, HHS is committed to demonstrating to citizens the value they receive for the tax dollars they pay.

By expanding our information technology and by establishing a single corporate Information Technology Enterprise system, HHS can build a strong foundation to re-engineer the way we do business and can provide better government services at reduced costs. By consolidating and modernizing existing financial management systems our Unified Financial Management System (UFMS) will provide a consistent, standardized system for departmental accounting and financial management. This "One Department" approach to financial management and information technology emphasizes the use of resources on an enterprise basis with a common infrastructure, thereby reducing errors and enhancing accountability. The use of cost accounting will aid in the evaluation of HHS program effectiveness, and the impacts of funding level changes on our programs.

HHS is also committed to providing the highest possible standard of services and will use competitive sourcing as a management tool to study the efficiency and performance of our programs, while minimizing costs overall. The program will be linked to performance reviews to identify those programs and program components where outsourcing can have the greatest impact. Further, the incorporation of performance-based contracting will improve efficiency and performance at a savings to the taxpayer.


HHS is committed to continual improvement in the performance and management of its programs and the Administration's efforts to provide results-oriented, citizen-centered government. The budget request for FY 2003 is accompanied by annual performance plans and reports required by the Government Performance and Results Act (GPRA). The performance measures cover the wide range of program activities essential to carrying out the HHS mission. Some notable FY 2001 achievements include:

-- Reducing Erroneous Medicare Payments: CMS has continued to reduce the payment error rate, cutting improper payments from 7.97 percent in FY 1999 to 6.8 percent in FY 2000 and exceeding its targets in both years. CMS, with the assistance of the Office of the Inspector General, is committed to further reducing the error rate to 5 percent by FY 2002.
-- Moving Families Toward Self-sufficiency: ACF reported that 42.9 percent of adult recipients of TANF were employed by FY 1999. This is a primary indicator of success in moving families toward self-sufficiency. It improves on the FY 1998 baseline of 38.7 percent and exceeds the target of 42 percent.
-- Families Benefiting from Child Support Enforcement: The Child Support Enforcement program broke new records nationwide in FY 2001 by collecting $18.9 billion, one billion over FY 2000 levels. In one such initiative in FY 2000, the government collected a record $1.4 billion in overdue child support from Federal income tax refunds, and more than 1.42 million families benefited from these collections.

These are just a few of the dozens of impressive success stories found in the 13 performance plans and reports. GPRA has been and will continue to be an important part of our effort to improve the management and performance of our programs.


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 and 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, 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.

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Last revised: February 11, 2002