    [Budget Supplement]
    [Creating Opportunity and Encouraging Responsibility]
    [6. Strengthening Health Care]
    [From the U.S. Government Printing Office, www.gpo.gov]

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      We still have a lot of work to do. But the answer to the problems of the great American middle class, the
    answer to the problem of curing the American deficit, the answer to the problem of dealing with the challenge of
    educating a new generation of Americans for a new, highly competitive economy--surely the answer to those
    problems is not to break down the one thing we have done right completely, which is to keep faith with our
    elderly people.

                                          President Clinton
                                          July 1995

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      In a recent report in the New England Journal of Medicine, two
    demographers wrote that Americans who reach the age of 80 have a longer
    life expectancy than their counterparts in Japan, England, France, and
    Sweden. One reason, they wrote, is that older Americans receive better
    health care than the elderly in other countries.\1\
      \1\Manton, Kenneth G., and Vaupel, James W., ``Survival After the Age
    of 80 in the United States, Sweden, France, England, and Japan,'' New
    England Journal of Medicine, November 2, 1995, pp. 1232-1235.
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      With this in mind, our challenge is to build on the existing health
    care system--to protect its strengths and address its weaknesses--as the
    President has tried to do for the last three years. It is not to do as
    others would--that is, to tear it down.
      The President has consistently worked to balance two competing demands
    in health care: (1) improving access to coverage, and (2) making the
    system more efficient. Thus, he has sought to create an environment in
    the public and private health systems where plans compete based on
    quality and cost-effectiveness, not on which can choose the healthiest
    and cheapest populations to insure. The budget includes health care
    provisions that reflect this commitment.
      Many innovations in health care have helped to contain costs in the
    private sector. The best of them make our delivery system more
    efficient, and improve quality by increasing consumer choice, stressing
    accountability, and focusing on medical outcomes. The President proposes
    to introduce these kinds of improvements into Medicare. For its 37
    million beneficiaries, they would create more plans to choose from,
    higher quality care, and a more cost-effective program.
      For Medicaid, the President's plan proposes to give States
    unprecedented flexibility to better manage their programs. They no
    longer would have to receive Federal permission to use managed care for
    their Medicaid populations, to expand into more desirable home- and
    community-based service programs for the chronically ill, or to expand
    coverage.
      The plan would let States better negotiate contracts with health
    providers. And the President's per-person limit on Medicaid spending
    would ensure that federal dollars follow the recipients--an approach
    that would limit the growth in Medicaid spending while protecting States
    that face high population growth or economic downturns. These and other
    provisions would maintain and strengthen Medicaid's guarantee of
    meaningful coverage for 36 million vulnerable Americans.
      In addition, the budget proposes $26.9 billion, a $1.2 billion
    increase over 1996, for a wide range of public health services as well
    as research and regulatory activities that promote public health.
      The services range from community health centers in inner
              cities, to clinics on remote Indian reservations, to research
              activities at prestigious universities and medical schools.
              Public health clinics provide immunizations for uninsured
              children, dental care for the underinsured, and prenatal
    [[Page 64]]
     care
              for millions of low- and moderate-income women. Other public
              health services that help those in need include the Ryan White
              program, which gives States and cities the resources to
              deliver vital services to people with AIDS.
      The research and regulatory activities include biomedical and
              behavioral research at the National Institutes of Health
              (NIH), worker safety and health research at the National
              Institute for Occupational Safety and Health, and food and
              pharmaceutical safety regulation and enforcement at the Food
              and Drug Administration.

                             STRENGTHENING MEDICARE

      The budget strengthens and improves Medicare, extending the solvency
    of the Part A Hospital Insurance trust fund through the next decade. It
    gives seniors and people with disabilities more choices among private
    health plans, makes Medicare more efficient and responsive to
    beneficiary needs, attacks fraud and abuse through programs praised by
    law enforcement officials, slows the growth rate of provider payments,
    and holds the Part B Supplementary Medical Insurance premium at 25
    percent of program costs.
      The plan saves $124 billion over seven years, as estimated by the
    Health Care Financing Administration's Office of the Actuary. The
    Administration is proposing policies that save $124 billion in Medicare
    using either the Administration's or CBO's ``baseline'' (i.e.,
    projection of Medicare spending). The Administration will work with
    Congress to ensure that any plan that the President proposes will save
    $124 billion as estimated by CBO.\2\
      \2\The Administration expects that, for technical reasons--e.g.,
    different assumptions about how fast Medicare spending will grow, and
    how providers and beneficiaries will behave--the Congressional Budget
    Office (CBO) will estimate that the Administration's plan saves slightly
    less. In that event, the Administration has identified a way to close
    the gap--specifically, by changing the legal formula for paying hospital
    outpatient departments to better reflect actual costs.
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    Provider Payment Reforms and Program Savings

      Hospitals.--The budget reduces the annual inflation increase,
              or ``update,'' for hospitals; reduces payments for hospital
              capital; reforms payments for graduate medical education; and
              begins to reform the payment method for outpatient departments
              while protecting beneficiaries from increasing charges for
              those services.
      Managed Care.--The budget reforms payments by using reasonable
              rate-of-growth limits on updates for managed care payments and
              reducing the current geographic variation in payments.
      Physicians.--The budget reforms physician payments by paying a
              single update for all physicians\3\ and replaces current
              ``volume performance standards'' with a sustainable growth
              rate.
      \3\The hospital update will be based on a single ``conversion
    factor,'' or base payment amount, replacing the current three conversion
    factors, effective January 1, 1997.
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      Home Health Care/Skilled Nursing Facilities.--The budget
              implements interim payment reforms, leading to separate
              prospective payment systems for home health care and skilled
              nursing facilities.
      Fraud and Abuse.--The budget introduces aggressive and
              comprehensive policies to stamp out Medicare waste, fraud, and
              abuse, and extends and enhances Medicare's secondary payor
              policy to ensure that Medicare pays only when it should.
      Other Providers.--The budget freezes or reduces payments for
              durable medical equipment and ambulatory surgical centers.
      Beneficiaries.--The budget continues, but does not increase,
              the requirement that beneficiaries pay 25 percent of Part B
              costs through the monthly Part B premium; it imposes no new
              cost increases on beneficiaries.

    Provisions to Improve Rural Health Care

      The budget enhances access to, and the quality of, health care in
    rural areas. It extends the Rural Referral Center program; allows direct
    Medicare reimbursement for nurse practitioners, clinical nurse
    specialists, and physician assistants; improves the Sole Community
    Hospital program; expands the Rural Primary Care Hospital program; and
    [[Page 65]]
    provides grants to promote telemedicine and rural health outreach.

    Provisions to Expand Choices and Add Preventive Benefits

      The budget expands and improves Medicare managed care by:
      ensuring beneficiary protections while increasing the types of
              plans--including Preferred Provider Organizations and Provider
              Sponsored Networks--available to seniors and people with
              disabilities; and
      instituting a coordinated annual open enrollment process--
              similar to that used by the Federal Employees Health Benefits
              Plan--during which beneficiaries use comparative information
              to choose among managed care and supplemental insurance
              options.
      In addition, the budget expands coverage of preventive benefits to
    include annual mammograms and the elimination of mammography
    coinsurance, colorectal cancer screening, flu shots, and diabetes
    screening and education. Finally, the budget introduces a respite care
    benefit, providing relief to families caring for relatives with
    Alzheimer's disease.

                             STRENGTHENING MEDICAID

      The budget reforms Medicaid to give States much more flexibility to
    manage their programs, while preserving the guarantee of meaningful
    health coverage for the most vulnerable Americans. Millions of children,
    people with disabilities, and the elderly would retain the guarantee of
    basic health and long-term care services.
      The budget saves $59 billion over seven years by imposing a per-person
    limit on spending, and cutting Disproportionate Share Hospital payments
    and retargeting them to hospitals that serve large numbers of Medicaid
    and uninsured patients. As with Medicare, the Administration expects CBO
    to make somewhat different estimates about how much the budget would
    save in Medicaid. In this case, too, the Administration will work with
    Congress to ensure that any plan that the President proposes saves $59
    billion under CBO estimates.
      The plan provides special payments to States for their transition into
    the new system and for meeting their most pressing needs. It gives
    States unprecedented flexibility to administer their programs more
    efficiently. Finally, it retains current nursing home quality standards
    and continues to protect the spouses of nursing home residents from
    impoverishment.

    Program Savings

      Per-person cap.--A per-person cap on Medicaid growth would
              limit spending to a reasonable level, while retaining current
              eligibility and benefit guidelines. This approach guarantees
              that the elderly, people with disabilities, pregnant women,
              and children who depend on Medicaid would remain eligible for
              health benefits, while it slows increases in spending to
              levels that States and the Federal Government can support. In
              contrast to a block grant, the Administration's plan protects
              States facing population growth or economic downturns.
      Disproportionate Share Hospital Payments (DSH).--The budget
              gradually reduces DSH payments and retargets them to hospitals
              that serve a large proportion of Medicaid and uninsured
              patients, including children's and public hospitals. It
              provides special payments for Federally Qualified Health
              Centers, Rural Health Clinics, States with large numbers of
              undocumented immigrants, and States moving into the new
              system.

    Provisions to Increase State Flexibility

      The budget includes a number of policies to give States more
    flexibility in managing their Medicaid programs, such as:
      Boren amendment.--The plan repeals the ``Boren amendment'' for
              hospitals and nursing homes, allowing States more flexibility
              to negotiate provider payment rates.
      Managed care.--The plan allows States to adopt managed care
              without Federal waivers.
      Home- and community-based care.--The plan allows States to
              move populations who need long-term care from nursing
    [[Page 66]]
     homes to
              home- and community-based settings without Federal waivers.
      Coverage expansions without waivers.--The plan enables States,
              without waivers, to expand coverage to any person whose income
              is under 150 percent of the poverty line. States would pursue
              these expansions within their per-person limits, thereby
              limiting Federal costs.

    Protections for the Most Vulnerable

      The budget retains the policy of helping low-income seniors and people
    with disabilities by preserving the shared Federal-State responsibility
    for their Medicare premiums, copayments, and deductibles. It also
    retains payment protections for Medicaid-eligible Native Americans
    treated in Indian Health Service and other facilities. These protections
    are not subject to the per-person cap.

            MAINTAINING AND EXPANDING COVERAGE FOR WORKING AMERICANS

    Reforms to Make Health Coverage More Accessible and Affordable

      In his State of the Union address, the President challenged Congress
    to enact insurance reforms to enable more Americans to maintain health
    insurance coverage when they change jobs, and stop insurance companies
    from denying coverage for pre-existing conditions. The budget proposes
    that plans make coverage available to all groups of businesses,
    regardless of the health status of any group members. Insurers would
    have to provide an open enrollment period of at least 30 days for all
    new employees (whether or not they were previously insured), and
    insurers could not individually underwrite new enrollees--i.e., their
    premiums would have to match other enrollees' with similar demographic
    characteristics.
      To increase affordability, the President's insurance reforms phase out
    the use of claims experience, duration of coverage, and health status in
    determining rates for small businesses. To put the self-employed on a
    more equal footing with other businesses, the reforms gradually raise
    the self-employed tax deduction for health insurance premiums from 30 to
    50 percent. And to help give small businesses the purchasing clout that
    larger businesses have, the budget proposes $25 million a year in grants
    that States can use for technical assistance and for setting up
    voluntary purchasing cooperatives.

    Health Insurance for the Temporarily Unemployed

      The budget gives premium subsidies to individuals who lose their
    health insurance when they lose their jobs, to pay for private insurance
    coverage for up to six months. States would receive funding to design
    and administer the program, which would provide coverage for about 3.8
    million Americans a year. During the four-year period for which this
    program is authorized, a Commission would study and provide
    recommendations to the Administration and Congress as to making it
    permanent.

                             PROMOTING PUBLIC HEALTH

      The budget continues our Nation's critical investment in basic
    biomedical research, an investment that plants the seeds for lifesaving
    advances in medicine. The budget proposes $12.4 billion for NIH, a $467
    million increase over 1996 and a 20 percent increase since 1993.
    Further, the budget advances our efforts to eradicate, once and for all,
    the dreaded disease of polio. And it supports childhood immunizations,
    which have proven their cost-effectiveness time and again.
      The budget continues the President's strong commitment to HIV/AIDS
    prevention and treatment. It increases funds to prevent HIV transmission
    by $34 million over 1996 levels. It increases Ryan White funding by $32
    million over 1996 to ensure that our most hard-hit cities, States, and
    local clinics can assist those with AIDS. It increases funding for
    potentially life-prolonging therapies, including some of the newly-
    discovered drugs that show so much promise in treating AIDS. It
    increases support for drug treatment--one of the most effective forms of
    HIV prevention. And it increases AIDS research funding at NIH in the
    continuing search for effective treatments, vaccines, and a cure.
      The budget also gives substance abuse treatment and prevention a 17
    percent increase, helping expand efforts against drugs.
    [[Page 67]]
     And it increases
    support for the Indian Health Service (IHS) by eight percent--keeping
    our Nation's commitment to Native Americans and continuing efforts to
    promote Tribal administration of IHS programs.

       Biomedical and Behavioral Research: The budget continues the
    Administration's long-standing commitment to biomedical and behavioral
    research, which advances the health and well-being of all Americans. The
    $12.4 billion proposal for the NIH invests in research directed to areas
    of high need and promise, as well as in basic biomedical research that
    would lay the foundation for future innovations that improve health and
    prevent disease. The budget includes increases for HIV/AIDS-related
    research, breast cancer research, high performance computing, prevention
    research, gene therapy, and developmental and reproductive biology. The
    Office of AIDS Research will continue to coordinate all of NIH's AIDS
    research. The budget also includes funding for a new NIH Clinical
    Research Center, which would give NIH a state-of-the-art research
    facility in which researchers would bring the latest discoveries
    directly to patients' bedsides. NIH's highest priority continues to be
    financing investigator-initiated research project grants.
       Ryan White HIV/AIDS Treatment Grants: The budget proposes $807
    million for activities authorized under the Ryan White CARE Act, an
    increase of $32 million over 1996. This level would fund grants to
    cities disproportionately affected by the HIV epidemic; to States to
    provide medical and support services; to community-based organizations
    to provide HIV early intervention services; and to support pediatric
    AIDS demonstration activities. In addition, the Administration has
    sought more funds for State AIDS drug assistance programs funded under
    Title II of the Ryan White program--to finance newly-discovered life-
    prolonging AIDS therapies, some of which are beginning to receive Food
    and Drug Administration approval. Under this Administration, funding for
    Ryan White grants has risen by 89 percent. The budget for 1997 would
    increase Ryan White funding by 132 percent since 1993.
       HIV Prevention: The budget proposes $618 million for Centers for
    Disease Control and Prevention (CDC) HIV prevention activities, a $34
    million increase over 1996. At the historic White House Conference on
    HIV and AIDS, the President made his commitment to HIV prevention clear:
    ``We have to reduce the number of new infections each and every year
    until there are no more new infections.'' A portion of these funds would
    address the linkages between substance abuse and HIV infection.
      Indian Health Service: The budget proposes $2.4 billion for the IHS, a
    $186 million increase. IHS clinical services--often the only source of
    medical care on isolated reservation lands--grow by $138 million,
    maintaining our commitment to Native Americans. The budget allows the
    Tribes to continue taking greater responsibility for managing their own
    hospitals and clinics; it increases the ``contract support costs'' that
    help underwrite Tribal activities by 31 percent, to $201 million. In
    addition, the budget proposes a major new initiative to bring water and
    sewer lines to those Native Americans still without adequate access to
    these basic necessities. This initiative would ensure that about 4,000
    more Native American homes receive water and sewer lines--a step which
    has been critical to improving public health.
       Substance Abuse Treatment and Prevention: The budget increases
    support for State substance abuse treatment and prevention activities by
    $67 million, to $1.3 billion. The budget reiterates support for
    Performance Partnerships, which would give States more flexibility to
    better design and coordinate their substance abuse prevention and
    treatment programs, and better target resources to local priority areas.
    In addition, it increases funds for substance abuse demonstration and
    training activities by $140 million, to $352 million. The budget
    establishes a $20 million Substance Abuse Managed Care Initiative that,
    with the rapid growth of managed care, would help to establish service
    guidelines and design quality assurance, monitoring, and evaluation
    systems. This strong support for substance abuse activities would enable
    hundreds of thousands of pregnant women, high risk youth, and other
    under-served Americans to receive drug treatment and prevention
    services.
    [[Page 68]]
       Special Supplemental Nutrition Program for Women, Infants, and
    Children (WIC): WIC reaches over seven million women, infants, and
    children a year, providing nutrition assistance, nutrition education and
    counseling, and health and immunization referrals. As a result of
    funding increases under President Clinton, WIC participation has grown
    by nearly 25 percent in the past three years. The budget proposes $3.9
    billion, to serve 7.5 million individuals by the end of 1997, fulfilling
    the President's goal of fully funding WIC in four years.
       Immunizations: The budget proposes $957 million in spending on
    immunizations, including the Vaccines for Children program. For many
    diseases, the Administration is ahead of schedule to meet the goal of
    immunizing 90 percent of two-year-old children by 1996. The most recent
    figures show that, from April 1994 to December 1995, 90 percent or more
    of all two-year-old children were immunized against diphtheria, tetanus,
    pertussis, and hemophilus influenza type B. Further, rates for
    immunization against measles, mumps, rubella and polio are approaching
    the 1996 goals. Nevertheless, the Nation must maintain its efforts in
    order to lock in these gains and meet the goals for the remaining
    immunizations.
      The budget also includes a major $47 million initiative in the
    Department of Health and Human Services (HHS) to eradicate polio--
    preventable through immunizations--throughout the world. (This HHS
    funding comes in addition to polio-eradication efforts that the Agency
    for International Development supports.) Polio is already gone from the
    Western Hemisphere. This shows that, like smallpox, polio can be wiped
    from the face of the earth, sparing all children from this crippling
    disease and saving the United States the hundreds of millions of dollars
    we now spend to immunize against it.

       Infectious Disease: The budget proposes $88 million for CDC's
    cooperative efforts with States to address infectious disease, an
    increase of $25 million. It would support training and applied research,
    and States' disease surveillance capability. All Americans face threats
    from the onset of infectious disease problems, such as drug resistant
    bacteria, and emerging viruses, such as the hantavirus. CDC works with
    State health departments to monitor and prevent such problems and to
    contain outbreaks.