    [Budget of the U.S. Government]
    [VI. Investing in the Common Good: The Major Functions of the Federal Government]
    [22. Health]
    [From the U.S. Government Publishing Office, www.gpo.gov]

    [[Page 181]]

                                   22.  HEALTH

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                                   Table 22-1.  FEDERAL RESOURCES IN SUPPORT OF HEALTH
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                Estimate
                Function 550                1996   -----------------------------------------------------------------
                                           Actual      1997       1998       1999       2000       2001       2002
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary Budget Authority...     23,303     25,045     25,070     25,123     25,139     25,154     25,170
      Mandatory Outlays:
        Existing law...................     96,806    103,541    109,601    116,321    124,764    134,621    145,107
        Proposed legislation...........  .........         39      3,940      3,669      2,059       -175     -4,998
    Credit Activity:
      Direct loan disbursements........         25         20  .........  .........  .........  .........  .........
      Guaranteed loans.................        210        274        105          6  .........  .........  .........
    Tax Expenditures:
      Existing law.....................     72,745     79,245     85,095     91,185     97,255    103,675    110,445
      Proposed legislation.............  .........          8         19         12          3          3          1
    ----------------------------------------------------------------------------------------------------------------

      ----------------------------------------------------------------------
       The Federal Government helps meet America's health care needs by
    directly providing health care services, by promoting disease prevention
    and consumer and occupational safety, by conducting and supporting
    research, and by training and helping to train the Nation's health care
    work force. All together, the Federal Government will spend about $138
    billion in 1998, and allocate $85 billion in tax incentives.
       President Johnson and Congress created Medicaid in 1965 to provide
    health insurance for the low-income elderly and the poor. Since then,
    the Nation's leaders have expanded the program from time to time to meet
    emerging needs. In 1986, for instance, they answered public concerns
    about high infant mortality rates and the decline in private insurance
    coverage by expanding Medicaid coverage for prenatal and child health
    services.
       In addition, the Federal Government helps to expand health care
    coverage to those with which it has a special obligation (including
    veterans, uniformed military personnel, and American Indians and Alaska
    Natives), and conducts and sponsors vital biomedical research that would
    not otherwise take place. Together, all of these Federal activities have
    helped to extend life expectancy, cut the infant mortality rate to
    historic lows, level the death rate among those with HIV/AIDS, and make
    other progress.

    Health Care Services

       Of the estimated $138 billion in Federal health care outlays in 1998
    \1\, 89 percent finances or supports direct heath care services to
    individuals.
    ---------------------------------------------------------------------------
      \1\ Excluding Medicare and the military and veterans medical programs.
    ---------------------------------------------------------------------------

       Medicaid: This Federal-State health care program served about 37
    million low-income Americans in 1996--with the Federal Government
    spending $92 billion (57 percent of the total), while States spent $70
    billion (43 percent). States that participate in Medicaid must cover
    several categories of eligible people, including certain low-income
    elderly, people with disabilities, low-income women and children, and
    several mandated services, including hospital care, nursing home care,
    and physician services. States also may cover optional populations and
    services. Under current law, Federal experts expect total Medicaid
    spending to

    [[Page 182]]

    grow an average of 7.2 percent a year from 1997 to 2002.
       Medicaid covers a fourth of the Nation's children and is the largest
    single purchaser of maternity care as well as of nursing home services
    and other long-term care services; the program covers almost two-thirds
    of nursing home residents. The elderly and disabled made up only 30
    percent of Medicaid beneficiaries in 1995, but accounted for 61 percent
    of spending on benefits. Adults and children made up 70 percent of
    recipients, but accounted for only 25 percent of spending on benefits.
    Medicaid serves at least half of all adults living with AIDS (and up to
    90 percent of children with AIDS), and is the largest single payor of
    direct medical services to adults living with AIDS.
       States increasingly rely on managed care arrangements to provide
    health care through Medicaid, with enrollment in such arrangements
    rising from 7.8 million in 1994 to 11.6 million (about a third of all
    recipients) in 1995.

       Other Health Care Services: The Department of Health and Human
    Services (HHS) supplements Medicare (discussed in Chapter 23) and
    Medicaid with a number of ``gap-filling'' grant activities to support
    health services for low-income or specific populations, including
    Consolidated Health Center grants; Ryan White AIDS treatment grants; the
    Maternal and Child Health block grant; Family Planning; and the
    Substance Abuse block grant. In addition, the Indian Health Service
    (IHS) provides direct care to 1.4 million American Indians and Alaskan
    Natives as part of the Federal Government's trust obligations. The IHS
    system, located primarily on or near reservations, includes 49
    hospitals, 190 health centers, and almost 300 other clinics.
       Prevention Services: Prevention can go a long way to improve
    American's health. Measures to protect public health can be as basic as
    providing good sanitation and as sophisticated as preventing bacteria
    from developing resistance to antibiotics. State and local health
    departments traditionally lead such efforts, but the Federal
    Government--through HHS' Centers for Disease Control and Prevention--
    also provides financial and technical support. For a half-century, CDC
    has worked with State and local governments to prevent syphilis and
    eliminate smallpox and other communicable diseases. More recently, CDC
    has focused its efforts on preventing a host of diseases, including
    breast cancer, prostate cancer, lead poisoning among children, and HIV/
    AIDS.
       National Institutes of Health (NIH): NIH is among the world's
    foremost biomedical research centers and the Federal focal point for
    biomedical research in the United States. NIH research is designed to
    gain knowledge to help prevent, detect, diagnose, and treat disease and
    disability. NIH conducts research in its own laboratories and clinical
    facilities; supports research by non-Federal scientists in universities,
    medical schools, hospitals, and research institutions across the Nation
    and around the world; helps train research investigators; and fosters
    communication of biomedical information.
       At any one time, NIH supports 35,000 grants to universities, medical
    schools, and other research and research training institutions. It also
    conducts over 2,000 projects in its own laboratories and clinical
    facilities. NIH research has helped to achieve many of the Nation's most
    important public health advances, such as reducing mortality from heart
    disease, the Nation's number one killer, by four percent from 1971 to
    1991; reducing death rates from stroke by 59 percent over the same
    period; and increasing the five-year survival rate for people with
    cancer to 52 percent. Recent NIH-sponsored research has generated
    significant advances in treatments for individuals infected with HIV,
    medications for Alzheimer's disease, and revolutionary innovations in
    molecular genetics and genomics research.

       Food and Drug Administration: The Food and Drug Administration (FDA)
    spends about $1 billion a year to promote public health by helping to
    ensure--through pre-market review and post-market surveillance--that
    foods are safe, wholesome, and sanitary; human and veterinary drugs,
    biological products, and medical devices are safe and effective; and
    cosmetics and electronic products that emit radiation are safe. FDA also
    helps the public gain access to important new life-saving drugs,
    biological products, and medical devices. It leads Federal efforts to
    ensure the timely review of products

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    and ensure that regulations enhance public health, not serve as an unnecessary regulatory burden. In addition, the FDA supports research, consumer education, and the development of both voluntary and regulatory measures to ensure the
    safety and efficacy of drugs, medical devices, and foods.
       Food Safety and Inspection Service (FSIS): FSIS inspects the Nation's
    meat, poultry, and egg products, ensuring that they are safe, wholesome,
    and not adulterated. With annual funding of almost $600 million, agency
    staff inspect all domestic livestock and poultry in slaughter plants,
    and conduct at least daily inspections of meat, poultry, and egg product
    processing plants. In 1996, FSIS issued a major regulation that will
    begin to shift responsibility for ensuring meat and poultry safety from
    FSIS to the industry. The regulation should allow FSIS to better target
    its inspection resources to the higher-risk elements of the meat and
    poultry production, slaughter, and marketing processes.
       Federal Employees Health Benefits Program (FEHBP): Established in
    1960, the FEHBP is America's largest employer-sponsored multiple-choice
    health program, providing $17 billion in comprehensive hospital and
    major medical benefits a year to about 9.6 million Federal workers,
    annuitants, and their dependents. About 86 percent of all eligible
    Federal employees participate in the FEHBP, and they select from nearly
    400 health insurance carriers that offer a broad choice of delivery
    systems. The FEHBP offers full coverage upon enrollment--without medical
    examinations or restrictions based on age, current health, or pre-
    existing condition.

    Veterans' Health Care

       With a proposed 1998 health budget of $17.5 billion (including
    receipts), the Department of Veterans Affairs (VA) provides health care
    services to 2.9 million veterans through its national system of 22
    integrated health networks, consisting of 173 hospitals, 491 outpatient
    clinics, 135 nursing homes, and 40 domiciliaries \2\. VA is an important
    part of the Nation's social safety net because almost half of its
    patients are low-income veterans who might not otherwise receive care.
    It also is a leading health care provider for veterans with substance
    abuse problems, mental illness, HIV/AIDS, and spinal cord injuries
    because private insurance usually does not fully cover these illnesses.
    ---------------------------------------------------------------------------
      \2\ Domiciliaries serve homeless veterans and veterans who require
    short-term rehabilitation.
    ---------------------------------------------------------------------------
       VA's core mission is to meet the health care needs of veterans who
    have compensable service-connected injuries or very low incomes. The law
    makes these ``core'' veterans the highest priority for available Federal
    dollars for health care. But, VA may provide care to lower-priority
    veterans if resources allow and if the needs of higher-priority veterans
    have been met.
       In recent years, VA has reorganized its field facilities from 173
    largely independent medical centers into 22 Veterans Integrated Service
    Networks charged with giving veterans the full continuum of care. VA
    also has won legislation easing restrictions on its ability to contract
    for care and share resources with Defense Department hospitals, state
    facilities, and local health care providers.

      Health Research: VA's research program, for which the budget proposes
    $234 million in 1998, conducts basic, clinical, epidemiological, and
    behavioral studies across the entire spectrum of scientific disciplines.
    The program seeks to improve the medical care and health of veterans,
    and enhance the Nation's knowledge of disease and disability.
       Health Care Education and Training: The Veterans Health
    Administration is the Nation's largest trainer of health care
    professionals. About 108,000 students a year get some or all of their
    training in VA facilities through affiliations with over 1,000
    educational institutions. The program provides training to medical,
    dental, nursing, and associated health professions students to support
    VA and national work force needs.

    Defense Department Health Care

       The Defense Department (DOD) has two basic, related medical missions:
    (a) provide, and be ready to provide, medical services and support to
    the armed forces during military operations, and (b) provide peacetime
    medical services to members of the armed

    [[Page 184]]

    forces, their dependents, and other beneficiaries entitled to DOD health care.
       The Defense Health Program (DHP) utilizes over 100,000 military
    members and 43,000 civilians in 115 hospitals and 471 clinics world-wide
    to provide medical and dental services. DOD beneficiaries also receive
    medical care from private health professionals under the Civilian Health
    and Medical Program of the Uniformed Services (CHAMPUS) medical
    insurance program, and its managed care component, TRICARE.
       About 8.2 million people across the world are eligible for benefits
    from DOD's health system. DHP's annual direct costs, including
    operations and procurement, are about $10.2 billion; personnel costs add
    another $5.2 billion.
       DOD's medical research and development (R&D) program funds activities
    ranging from basic and applied research through development on health
    issues unique to deployed military forces. The program works to develop
    vaccines against diseases endemic to countries outside of the U.S.;
    field-deployable blood products, blood substitutes, and resuscitation
    fluids; technologies for assessing and treating massive hemorrhage and
    severe trauma; and methods to prevent injury during military operations.
    The budget also proposes $25 million in 1998 for HIV R&D.

    Regulatory and Administrative Issues

       The sheer size and market share of Medicare and Medicaid
    significantly affects the private health care market. Medicare and
    Medicaid's coverage, reimbursement, quality of care, and information
    policies frequently become the accepted standards for the private sector
    over time. In addition, the Federal Government monitors Medicare and
    Medicaid's regulation of quality of care and reporting and record-
    keeping requirements for health facilities in order to evaluate possible
    additional costs on privately-insured individuals, private health care
    providers, and State and local governments.

    Tax Incentives

       Federal tax laws help finance health insurance. First, employer
    contributions for workers' health insurance premiums are excluded from
    workers' taxable income. Second, self-employed people may deduct a
    certain percent (30 percent in 1996, rising to 80 percent in 2006 and
    beyond) of what they pay for health insurance for themselves, their
    spouses, and their dependents. Third, individuals who itemize may deduct
    certain expenses for health care--such as insurance premiums that
    employers do not pay; expenses to diagnosis, treat, or prevent disease;
    and expenses for certain long-term care services and insurance
    policies--to the extent that these expenses exceed 7.5 percent of the
    individuals' adjusted gross income. Total health-related tax incentives
    (including other minor provisions) will reach an estimated $85 billion
    in 1998, and $487.7 billion from 1998 to 2002.