Mr. Chairman and members of the committee: Thank you for giving
me the opportunity to testify today, about the President's Fiscal
Year 1998 Budget proposal. We in the Administration look
forward to working closely with you as we move toward our shared
goals of strengthening the Medicare trust fund and balancing the
Someone once described America as "the only country deliberately
founded on a good idea."
That good idea is "We the people," and it has emboldened our
nation to face -- and overcome --great challenges with courage
In the 1940s, we faced a broken Europe, but we summoned the will
to fight and win -- and saved the world from tyranny.
In the 50s, we faced the terrible scourge of polio. But children
contributed their dimes, and America's best scientists dedicated
their lives to finding a vaccine. And we found one.
And, in the 1960s, we faced a Soviet Union that had taken the
lead in the race for space. But, President Kennedy issued a
challenge to land an American on the moon by the end of the
decade. We did, and no country has done it since.
What do all of these triumphs have in common? They came during
times of great social and political change. But with a deep
sense of urgency, Americans put aside partisan differences,
answered the call to unity, and achieved a critical national
goal. Today, we must do the same.
Because today, we face another great challenge: At a time when we
have fewer resources, a population that is rapidly aging, and a
deficit that while much improved, still plagues us, we must
come together again: This time to balance the budget and truly
reform Medicare, Medicaid, and welfare, while still keeping our
promises to the citizens we serve.
For more than thirty years, Medicare has provided a blanket of
health security for older Americans and people with disabilities.
It has helped lift a generation of senior citizens out of poverty
and into the middle class. It has helped change what it means to
be old in America; what it means to be sick in America; what it
means to be disabled in America. And it has often served as a
fault line between a life of comfort and good health and a life
of struggle and illness.
The gift that Medicare has given to those who came before us must
be preserved for those who come after us -- for our children and
our grandchildren, for every generation. That is our moral
But you and I know that Medicare now faces several short-term and
a long-term financing challenges that demand action. For nearly
four years, we have been unable to come to a consensus
on the best way to preserve Medicare and improve it for the
future. The President has made it clear that he wants to work
with the Congress to make this the year of bipartisan agreement
on this vital program.
In this budget, the President has reached out to the
congressional majority by offering a plan to meet them halfway.
His Medicare proposals will extend the life of the Hospital
Insurance Trust Fund into 2007, ten years from today. I have
with me today a letter from the independent chief actuary of the
Medicare program that verifies that fact. I will be happy to
submit it for the record.
The President's plan contributes $100 billion to the five-year
balanced budget, which corresponds to $138 billion over six
And we do that by maintaining a system that guarantees access to
a defined set of services rather than creating a defined
contribution per beneficiary.
These proposals are made in good faith and are based on sound
policy. They make sense for both the Medicare program and its
beneficiaries. Our savings are scoreable. I ask for your
careful consideration of our proposals, and for your partnership
in enacting them.
But Medicare reform is not and cannot be simply an exercise in
number crunching. The actions we take this year to preserve the
Medicare trust fund also must prepare Medicare for the future.
Not many of us would drive cross country in a car that's more
than 30 years old. Likewise, we can't move into the next century
with a health insurance program built in 1965. That's why to
preserve Medicare, we must modernize it. This modernization
requires us to do six things:
- First, we must make Medicare a more prudent purchaser of
health care services.
- Second, we must add new choices to compete with today's
- Third, we must strengthen our rural health care system.
- Fourth, we must protect beneficiaries, by ensuring that
beneficiaries receive higher quality health care.
- Fifth, we must continue to root out waste, fraud, and
abuse so that we spend our hard-earned tax dollars wisely and
- And sixth, we must add new cost effective benefits to
reflect development in today's science.
Mr. Chairman, it is imperative that Medicare -- which is the
largest purchaser of health care services in our nation -- be a
more prudent purchaser. Unfortunately, in too many cases,
because of limitations in the law, Medicare is now paying the
highest price in the market for certain drugs, lab services and
durable medical equipment when, given the volume of
beneficiaries, we should be paying one of the lowest. From
managed care premiums to medical devices, the reforms we propose
will make sure that Medicare isn't 'I while everyone else is
These proposals are sound health policy and they require a shared
burden. They will result in a slower rate of growth in Medicare
spending and ensure that Medicare is paying a competitive price
for the services it buys. The savings that these proposals
generate are spread across all providers of health care and are
focused, as they should be, on those areas where growth is the
Managed Care. Experts agree that Medicare's payment methodology
for managed care, which was created in 1982, results in serious
overpayments for services. For example, under contract to HCFA,
Mathematica Policy Research, came to such a conclusion with its
1993 review of the Medicare Risk Program. Both the Physician
Payment Review Commission and HCFA studies indicate that Medicare
should be paying managed care plans at a rate between 88 and 90
percent of fee-for-service costs. At the same time, however,
payments to many smaller, rural plans are too low and are failing
to attract much market interest.
The President's budget includes reforms to move us to a better,
more competitive system of paying for managed care. Through our
Medicare Choices demonstration, we are working on risk adjusters
to HMO payments to counter selection bias. We expect to have a
proposal for a new risk adjusted payment methodology as early as
1999, with phase-in of new payments beginning as early as 2001.
We recommend three interim and important changes in Medicare
payments for managed care plans. First, we propose to carve out
from the payment those funds that are intended to cover the cost
of direct and indirect graduate medical education and payments to
disproportionate share hospitals. We will pay these funds
directly to hospitals on behalf of managed care enrollees.
Second, we will gradually reduce the regional variation in
payments to managed care plans and create a payment floor for
plans in rural counties to encourage enrollment in managed care
And, third , we will reduce the Medicare payment from 95 percent
of the average adjusted per capita cost or AAPCC to 90 percent.
However, to give plans a sufficient amount of time to adjust to
these new payment levels, we would not begin this policy until
Hospital payments. We propose a series of Medicare hospital
payment changes to safeguard the program and to reflect market
changes. Under the President's budget, the hospital payment
update will be reduced by one percentage point every year from
fiscal year 1998 through 2002 to reflect increases in hospital
productivity and efficiency.
The Prospective Payment Assessment Commission (ProPAC), created
by Congress to offer advice on policies affecting Medicare
payments to hospitals and other facilities, recently announced
preliminary data showing that the majority of the nation's
hospitals have record-setting Medicare margins. ProPAC believes
that these margins are evidence that hospitals have become more
efficient. Accordingly, ProPAC recommends that hospitals receive
no update in their Medicare payments in FY 1998; this would be
equivalent to "market basket - 2.8 percent."
In light of its other hospital savings provisions, the
Administration does not propose the deeper update reduction as
recommended by ProPAC. Instead, the Administration spreads the
hospital reductions across a number of different areas of
hospital payment. When viewed as a whole, the Administration's
hospital proposals balance the need to contain Medicare costs
with ensuring access to quality care.
Home health care. Home health care is one of the fastest growing
components of Medicare, with a projected average annual growth
rate of 10.6 percent over the period FY 1997-2002. The average
number of home health visits per user increased over 40 percent
between FY 1992 and FY 1997. The average payment per visit also
has increased, rising from $57 per visit in FY 1992 to an
estimated $68 per visit by FY 1997.
We know that this growth has its roots in changes in medical
practices and technology, in the expansion of the benefit, and in
our current reimbursement system, which can contribute to
overpayment and abusive practices. And we know that we must
reduce the rate of growth in Medicare home health spending and
keep it under control. And, that's what our reforms will help us
We will immediately revise our cost limits to establish a set of
interim limits that will curb excessive spending and institute a
new per-beneficiary payment limit for each home health agency.
We will implement a new prospective payment system for home
health services in 1999. This system, which has been recommended
by experts to control spending, will reduce incentives for
We will eliminate periodic interim payments for home health
agencies, which were originally established as an incentive for
new agencies to serve Medicare patients. With 100 new agencies
joining Medicare each month, this incentive clearly is no longer
In addition, we will pay for home health services based on where
the service is delivered. Frankly, many agencies are taking
advantage of a loophole by locating their billing offices in
expensive urban areas to take advantage of higher prevailing
payments, regardless of where services are actually rendered. We
will close that loophole.
Along with our strategy to control home health spending, we
propose to reassign payment for home health services that are not
associated with post-hospital recovery from Part A to Part B.
This reallocation is not counted in the overall $100 billion
Medicare savings number that we submitted to the Congress. We
would limit Part A home health coverage to the first I 00 visits
following a 3-day hospital stay, just as this part of the program
covers 100 days of skilled nursing care following
hospitalization. But, visits beyond 100, and those not following
a 3-day hospital stay, would be paid under Part B, along with
other outpatient services.
This return of non-post-hospital visits to Part B -- Medicare
policy prior to 1980 -- makes the home health benefit consistent
with the original intent of the Medicare statute and its division
of services between Part A and Part B. It relieves the Part A
trust fund of the responsibility for financing care that doesn't
belong there, thereby significantly extending the life of the
trust fund. And it achieves these goals without subjecting
beneficiaries to increases in premiums and cost-sharing.
Beneficiary Centered Purchasing. To become a more prudent
purchaser of other health services, our plan gives the Secretary
payment authorities to secure better deals for Medicare and the
citizens it serves. From setting payments based on competitive
bidding to selectively paying centers of excellence a single rate
for all services associated with a specific diagnosis, these --
and our other purchasing reforms -will help us economize,
modernize, and create a Medicare program that will not only
survive, but thrive, to serve every generation.
When it comes to health care for older Americans -- or any
Americans for that matter -- there should be no conflicts between
choice and quality. We need both. We are proud of our record of
increasing choice for Medicare beneficiaries while continuing to
protect the quality of care. Since 1993 the number of
beneficiaries in managed care has increased by 108 percent and is
rising at a rate of 80,000 per month. Today, approximately 13
percent of our Medicare beneficiaries -- about 5 million -- are
enrolled in managed care plans.
The President's budget continues this process by adding new
choices to Medicare plans. We will include preferred provider
organizations or PPOS, which offer patients a greater ability to
choose their doctors and other providers. And we will offer
beneficiaries the chance to enroll in provider sponsored
organizations or PSOS, offered by hospitals and physicians under
integrated arrangements that we hope will improve care and reduce
At the same time, to promote real and informed choice among
health plans, Medicare will establish coordinated annual open
enrollment periods as well as additional enrollment opportunities
to subscribe to managed care and Medigap plans.
To make sure that choice is real and that beneficiaries who
choose managed care have an open door to go back to
fee-for-service, if they so choose, we will prohibit Medigap
insurers from imposing pre-existing condition waiting periods
when beneficiaries initially enroll or any time they switch
plans. In addition, Medicare will establish continuous Part B
enrollment opportunities for beneficiaries.
The Administration continues to promote Medicare reforms that
strengthen health care in rural America.
For example, our plan would expand the Rural Primary Care
Hospital Program to all 50 states. It would update the payment
for sole community hospitals, improve the rural referral center
program, and reinstate the Medicare Dependent Hospital program to
provide resources to those rural hospitals that need it most.
The reforms will create a national floor to better assure that
managed care products can be offered in low payment areas, which
are predominantly rural communities. In addition, the proposal
includes a blended payment methodology, which combined with the
national minimum floor, will dramatically reduce geographical
variations in current payment rates.
We believe we can balance the budget, preserve the Medicare Trust
Fund and modernize Medicare for the 21st century, while still
protecting our beneficiaries.
The fact is, more than three-fourths of seniors have incomes of
$25.000 or less. We believe that balance billing limits must
protect all beneficiaries, regardless of which Medicare coverage
option they choose.
Our plan proposes Medigap reforms to assure portability, protect
against preexisting condition limits, and provide equitable and
affordable premium rates.
It keeps Part B premiums at 25 percent of program costs. This
division of costs, first enacted in the Tax Equity and Fiscal
Responsibility Act of 1982, has protected beneficiaries while
ensuring that the cost of Part B is shared by those who use it.
As noted, the plan creates an opportunity for continuous
Medicare Part B enrollment.
For hospital outpatient services, it brings the patient
co-insurance rate down from about 50 percent to the 20 percent
charged for most other Part B services by 2007.
And, it ensures that managed care plans pay for emergency
services when a "prudent layperson" would have reasonably
believed they were necessary.
We must also ensure that beneficiaries receive higher quality
health care. We will institute a series of reforms to further
improve the quality of care provided to all citizens who rely
upon Medicare. We will adopt a new, integrated quality
management system for Medicare and Medicaid. This will replace
quality related requirements focusing on each provider entity
individually. We will also collect and disclose more of our
survey data on safety, quality of care, and program integrity so
that citizens can have better comparative information on plans
and providers. And we will replace the so-called 50-50 rule for
managed care plans with more modem quality measures. Protecting
and improving health,
and increasing satisfaction with the care received are the goals
of then program.
Fighting Fraud and Abuse
Modernizing Medicare for the 21st century also requires
eliminating the fraud and abuse that robs our health care system
and our taxpayers. Since I took office a little more than four
years ago. I have made this a top priority by setting a policy
of "zero tolerance" for health care fraud and abuse.
Just two years ago, the President and I unveiled a pilot project
called "Operation Restore Trust" to target our antifraud efforts
to fight fraud and abuse in 5 key states. We have significantly
increased the resources of our Inspector General and have
strengthened our payment reviews using technology to prevent
fraud, and to detect it when it occurs.
And, it's paid off. We estimate that every dollars we invest in
our anti-fraud effort yields $10 dollars in savings for the
American people. In fact, just last month, Inspector General
June Brown reported that "Labscam," her investigation of payment
fraud by independent clinical labs, could net the Medicare
program millions in recoveries and penalties.
We intend to maintain and intensify these efforts. I will be
submitting to Congress a fraud and abuse bill that will enable us
to strengthen the identification and enrollment procedure to
ensure that only legitimate providers bill Medicare. The
President's Budget includes provisions to prevent home health
agencies from using a loophole in the current reimbursement
system to bill a higher urban rate for service provided in rural
areas. We will require insurers to reject insurance coverage so
that Medicare does not pay inappropriately for beneficiaries
covered by private insurance. We would repeal the anti-kickback
exemption for managed care plans, and the requirement that we
provide advisory opinions on the anti-kickback statutes enacted
last year and scored by the Congressional Budget Office as a
considerable cost to the Medicare program. And we propose to
reinstate the requirement that providers use reasonable diligence
when submitting accurate claims to Medicare. Finally, we will
strengthen our ombudsman function in the States. building a cadre
of elderly volunteers.
The Medicare benefit package has remained relatively unchanged
since 1965. But our science has not. From decades of research,
we know that preventive services not only can save money, but
also can save lives. Now we're putting our money where our
science is. I am very pleased by the bipartisan support for
expansion of the Medicare benefit package. The President's plan
will cover the following:
We expand the availability of annual mammograms for Medicare
beneficiaries to eliminate economic barriers to mammography. We
also will waive the Part B deductible and coinsurance for both
screening and diagnostic mammograms.
To save lives, we want to provide annual screening to detect
signs of colon cancer.
Because better management of diabetes leads to better health, we
include monitoring of blood glucose levels and outpatient
self-management training for diabetes.
To improve access to adult vaccinations and help seniors avoid
serious and sometimes deadly illnesses, we would increase
provider payments for vaccines against pneumonia, influenza, and
hepatitis B and waive patient cost-sharing for the hepatitis B
And, finally, to offer some relief for the families who are
primary caregivers of a relative with Alzheimer's disease and
other dementias, we would provide a new respite care benefit of
32 hours per beneficiary per year.
Now let me turn to welfare reform. When the President signed the
Personal Responsibility and Work Opportunity Reconciliation Act
of 1996, he made it clear that this was the beginning -- not the
end -- of welfare reform. He made it clear that we all have a
responsibility to come together and make this law work --
especially for our children. And, he made it clear that this was
an opportunity for us to create a welfare system that requires
work, promotes parental responsibility, and protects children.
I'm proud of the progress we've made together. Before welfare
reform became law, we gave 43 states the flexibility they need to
test innovative welfare strategies. Paternity establishments
have gone up 50 percent since 1992. In 1996, we collected a
record of over $12 billion in child support payments. And the
tough new provisions in the welfare law are projected to increase
child support collections by an additional $24 billion over 10
The result? Because of the intensity of our efforts and because
of the strength of our economy, welfare rolls have gone down by
2.5 million since the beginning of President Clinton's first term
-- the largest drop in history. Moving people from welfare to
work, enabling them to support their families and maintain their
independence -- that's the goal upon which all of us have always
We are committed to combining all of the leadership, talent and
resources possible to implement the new welfare law. The effort
to make welfare reform a success is one in which many departments
and agencies -- SSA, the Departments of Treasury, Labor,
Transportation, HUD, and others -- have joined together.
Let me briefly give you a progress report on our implementation
of the new Temporary Assistance for Needy Families (TANF)
program. Although states have until July 1997 to implement the
TANF program, we have already given the green light to 35 states
(as of 2/10/97) to begin their reforms. HHS has provided guidance
indicating that States have flexibility in designing their TANF
programs, but at the same time emphasizing the importance of
moving families from welfare to work and ensuring that Federal
costs do not increase due to the potential loss of child support
At the Federal level, we are challenging States to transform the
very culture of the system from a welfare program to a work
program. We must launch a national effort in every State and
every community to make sure there are jobs for people making the
transition from welfare to work. So they can leave the welfare
rolls, they must have opportunities not only to find jobs, but to
As I indicated earlier, the hallmark of this welfare law is the
broad flexibility it gives states to design innovative reforms
that address their unique challenges. We are confident that
States will use this considerable new flexibility and the
President's new initiatives to strengthen their focus on work as
We will be monitoring state performance and, pursuant to the
statute, ranking them accordingly. We will be identifying and
studying the high performers and the low performers. tracking
child poverty, and providing an overall assessment of the
legislation's impact on children and families.
We will look closely at how states comply with some key statutory
requirements, including child support enforcement, work
participation rates, maintenance of effort, and data reporting.
We also will assume major new responsibilities for compiling and
disseminating information. As the number of options continues to
grow, states will need better information about these options,
and the Congress will need better information to assess how
effectively federal funds are used.
I know that several members of Congress have suggested a
wait-and-see approach to the new welfare system. They advise
that state implementation should be carefully reviewed before
undertaking major policy changes to the TANF program. Our
Department has proposed a number of technical and conforming
changes to the TANF program that I believe maintain the spirit
and intent of its policies.
Our Administration believes that welfare reform has always been
-- and must always remain -- a bipartisan issue. But, just as we
came together to make work and responsibility the law of the
land, we believe it is time to come together again to ensure that
the centerpiece of welfare reform remains a real effort designed
to find work for everyone who is able to work.
Creating these opportunities will take a commitment from business
and labor, from religious organizations and communities, from
officials at the federal, state, and local levels. And, it will
take the bipartisan Congressional spirit that brought us this far
-- and must continue to carry us down the road to success.
That is why the President's FY 98 budget contains funds to help
States and cities create new jobs prepare individuals for them,
and provide employers with incentives to create new job
opportunities for long-term welfare recipients.
To help welfare recipients move from welfare to work, and to
supplement TANF funds, the President proposes two new
initiatives: A Welfare-to-Work Jobs Initiative to help States and
cities create 'ob opportunities for the hardest-to-employ welfare
recipients and a greatly enhanced Work Opportunities Tax Credit
to provide powerful new private sector financial incentives to
create jobs for long-term welfare recipients.
The Welfare-to-Work Jobs Initiative, which would be administered
by the Department of Labor, would provide $3 billion in mandatory
funding over three years for job placement and 'ob creation to
move a million recipients off the welfare rolls by the year 2000.
We will encourage States and cities to use voucher-like
arrangements as they deploy these funds to empower individuals
with the tools and choices to help them get jobs and keep them.
Under the enriched Work Opportunities Tax Credit for hiring
long-term welfare recipients, employers could claim a tax credit
of 50 percent of the first $10,000 in wages paid to these hires.
Another major focus for the Administration is to change parts of
the welfare reform law that have nothing to do with welfare
reform. When the President signed the welfare reform bill he
made clear his disappointment with the harsh provisions in the
bill relating to benefits to immigrants. The President stated:
"My Administration supports holding sponsors who bring
immigrants into this country more responsible for their
well-being. Legal immigrants and their children however, should
not be penalized if they become disabled and require medical
assistance through no fault of their own."
The President's FY 1998 budget makes good on his promise to
correct provisions that were included to save money, and which
burden States and punish children and the disabled who cannot
immigrants should have the same opportunities, and bear the same
responsibilities, as other members of society. The welfare law
denies most legal immigrants access to fundamental safety net
program unless they become citizens -- even though they are in
the U.S. legally, are working and paying taxes and are
responsible members of our communities.
The Administration has always supported making individuals who
encourage their relatives to emigrate to the United States more
responsible for the immigrant's well being. However, as a
nation, we should not turn our backs on anyone who has lost their
ability to earn a living to earn a living due to injury, disease
or illness. The Nation should protect legal immigrants and their
families -- people admitted as permanent members of the American
community -- when they suffer accidents or illnesses that prevent
them from earning a living.
Consequently, the budget proposes to make legal immigrants who
become disabled after entering the United States eligible for SSI
and Medicaid. This proposal would allow 320,000 legal immigrants
who experienced an accident or illness which resulted in
disability after entering the U.S. to receive SSI and Medicaid
benefits. We are pleased that the governors, in an NGA
resolution last week, agreed- we must not balance the budget on
the backs of States or legal immigrants.
The budget would lengthen the five year exemption from the ban
for refugees to seven years in order to give them a more
appropriate amount of time to naturalize. The United States
admits refugees and asylees into this country on a humanitarian
basis. Assistance for this population while they adjust to
their new circumstances is a matter of simple decency. The
budget also would delay the Food Stamp ban on legal immigrants
until the end of FY 1997 in order to give immigrants more time to
The budget would also provide poor children of legal immigrants
the same Medicaid health care coverage low income citizen
children receive. In addition, under our budget, disabled
children who are currently eligible for Medicaid because they are
receiving SSI benefits will be able to retain their Medicaid
coverage -- even if they lose their SSI benefits as a result of
the tightened definition of childhood disability. Under this
proposal, the families of these needy disabled children will be
assured that medical assistance will continue to be provided.
Finally, the Administration is proposing to restore some of the
overly deep benefit cuts to the Food Stamp program. The proposal
includes replacing the 3 month time limit for childless workers
with a real work requirement which would not punish those looking
for but unable to find work. Also changes would be made to help
families with high housing costs and to ensure that families'
ability to purchase an adequate diet keeps up with inflation.
Overall, our proposals strengthen our commitment to a new welfare
system focused on work and responsibility while addressing the
concerns of State and local officials and restoring, benefits to
those who can't, work - particularly children and the disabled.
We must give all Americans a hand-up and get on with the real
business before us; reforming our welfare system together.
Mr. Chairman, the budget I have discussed today discards tired
old solutions and meets our challenges creatively and
cooperatively. It balances the budget, without abandoning values
It makes tough choices and shows tough management.
Now we must act upon it.
Because, just like the past when we faced down diseases and
tyranny, future generations will look back on today.
The question is, whether they will see a nation that put aside
politics and came together to protect the health of its citizens
in the 21st century.
The answer is up to us. Thank you.