    [Budget of the U.S. Government]
    [V. Creating Opportunity, Demanding Responsibility, and Strengthening Community]
    [1. Strengthening Health Care]
    [From the U.S. Government Publishing Office, www.gpo.gov]

             V. CREATING OPPORTUNITY, DEMANDING RESPONSIBILITY, AND
                            STRENGTHENING COMMUNITY

    [[Page 49]]

                          1.  STRENGTHENING HEALTH CARE

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      We can, and we must, work together to reform Medicare and Medicaid so they continue to meet the promise to our
    parents and our children and continue to expand health care step by step to children in working families who
    don't have it. We can do that and balance the budget, and take advantage of the fact that new models are clearly
    making it possible to lower the rate of medical inflation in a way that advances the quality of health care as
    well as the quality of our long-term objectives in balancing the budget and investing in the future of America.
    I know it can be done, and I am determined to get it done.
                                          President Clinton
                                          December 11, 1996

      ----------------------------------------------------------------------
      Americans have good reason to be optimistic about the Nation's health
    care as we approach the new millennium.
      Medicare ensures that older Americans receive high quality health care
    and can look forward to a longer life expectancy. Medicaid provides
    vital health services to low-income pregnant women and children, people
    with disabilities, and elderly Americans. Together, Medicare and
    Medicaid serve over 71 million Americans. Meanwhile, the Federal
    Government is investing more in biomedical research and technology,
    furthering our knowledge about the prevention and treatment of diseases
    and providing new insights into the genetic basis of diseases such as
    breast cancer as well as threats from food-borne illnesses newly
    emerging infectious diseases.
      And just in the past year, we have witnessed the rapid development of
    new prescription drugs to help people with AIDS and other debilitating
    diseases. These new developments hold the potential for a vastly
    increased life expectancy for these Americans.
      Our private health system, already the world's most dynamic, is
    undergoing a dramatic transformation--much of it positive. The best
    private sector innovations have helped make our delivery system more
    efficient, and have improved quality by increasing consumer choice,
    stressing accountability, and focusing on medical outcomes.
      In his first term, the President and Congress took important steps to
    improve our Nation's health care system. One of the most significant was
    last year's passage of the Health Insurance Portability and
    Accountability Act of 1996 (HIPAA), also known as the Kassebaum-Kennedy
    bill. Now, as many as 25 million Americans have health benefit
    portability they did not have before; no longer will people who have
    been sick have to fear that they will lose their access to health
    insurance if they lose their job or change jobs. Nor can they be denied
    coverage because they have a preexisting medical condition. Moreover,
    the law requires insurance companies to sell coverage to small employer
    groups and to individuals who lose group coverage without regard to
    their health status. It also made it easier and cheaper for self-
    employed people to get health insurance, simplified health care
    paperwork, strengthened Medicare's fraud and abuse efforts, and helped
    make long-term care insurance more affordable.
      Other significant health care initiatives enacted in the last four
    years include laws requiring health plans to allow new mothers and their
    babies to remain in the hospital at least 48 hours following most
    deliveries, and prohibiting health plans from establishing separate
    lifetime and annual limits for mental health coverage.
      With this budget, the President takes the next critical steps toward a
    better health care future:

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       Preserving Medicare and Medicaid, while reforming and
              strengthening both programs in important ways.
       Helping the growing numbers of American children and families
              who lack health insurance coverage.
       Strengthening the health care infrastructure by investing
              more in biomedical research, in programs to combat infectious
              diseases, in the Ryan White AIDS program that provides life-
              extending drug therapies to many people with AIDS, and in
              programs such as community health centers and Indian Health
              Service facilities that serve critically underserved
              populations.

    Preserving Medicare

      The budget preserves and improves Medicare, extending the life of the
    Part A Hospital Insurance Trust Fund into 2007. Like the President's
    previous two budgets, it gives beneficiaries more choices among private
    health plans, makes Medicare more efficient and responsive to
    beneficiary needs, slows the growth rate of provider payments, and
    maintains the Part B Supplementary Medical Insurance premium at 25
    percent of program costs. The plan saves $100 billion over five years
    (and $138 billion over six years), according to the Health Care
    Financing Administration's Office of the Actuary.
      The President also wants to work with Congress on a bipartisan basis
    to address the longer-term problem of financing Medicare to support the
    health care needs of the ``baby boom'' generation.

    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 methodology for outpatient
              departments while protecting beneficiaries from increasing
              charges for those services.
      Managed Care: Along with the Administration's previous
              proposals to reduce the current geographic variation in
              payments, the budget proposes a new managed care payment
              methodology in light of substantial evidence that Medicare
              pays too much for managed care plans and, in fact, loses money
              for every beneficiary who opts for managed care. The budget
              would reduce Medicare reimbursement to managed care plans from
              its current rate of 95 percent of fee-for-service rates to 90
              percent. To enable the industry to prepare for this change,
              the Administration would not implement it until the year 2000.
              The Administration views this reform as a first step and will
              continue to work with the industry to create a better
              reimbursement mechanism for Medicare managed care plans.
      Physicians: The budget reforms physician payments by paying a
              single update for all physician services--based on a single
              ``conversion factor,'' or base payment amount, and replacing
              the current three conversion factors, effective January 1,
              1998. The budget replaces current ``volume performance
              standards'' with a sustainable growth rate.
      Home Health Agencies/Skilled Nursing Facilities: The budget
              implements payment reforms, leading to separate prospective
              payment systems for home health care and skilled nursing
              facilities. Prospective payments would begin to bring the
              current double-digit rise in spending on these services under
              control. The budget also proposes to reform the home health
              benefit by paying for services following a hospital stay from
              the Part A Trust Fund and paying for other services from
              Medicare's Part B Trust Fund. Beneficiaries would not be
              affected by the change. In addition, the change will not count
              towards the budget's proposed $100 billion in Medicare savings
              through 2002, but will help to extend the solvency of the Part
              A Trust Fund.
      Other Providers: The budget makes payments for durable medical
              equipment and laboratory services more consistent with private
              market rates and reduces payment updates to ambulatory
              surgical centers. The budget also proposes to address
              Medicare's overpayment for prescription drugs that are
              provided in a physician's office

    [[Page 51]]

    by making payments more competitive with what private purchasers pay.
      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. The budget imposes
              no new cost increases on beneficiaries. The budget also would
              maintain current law to prevent ``balance billing,'' ensuring
              that doctors in the new managed care plan options may not
              charge above Medicare's approved amount and leave the elderly
              vulnerable to higher costs.
      Private Plan Choices: The budget increases the numbers of
              plans--including Preferred Provider Organizations and Provider
              Sponsored Networks--available to seniors and people with
              disabilities. These new options will meet strong quality
              standards and include consumer protections. The plans would be
              required to compete on cost and quality, not on the health
              status of enrollees.

    Beneficiary Improvements

      The budget proposes reforms to improve and increase services to
    beneficiaries, to protect them from the burden of additional costs, and
    to offer them a wider choice of private plans.
      Preventive Health Care: The budget covers new preventive
              health benefits including: colorectal screening; diabetes
              management; preventive injections like pneumonia, influenza,
              and hepatitis B; and annual mammograms without coppayments.
      Alzheimer's Respite Benefit: The budget establishes a new
              respite benefit for the families of Medicare beneficiaries
              with Alzheimer's disease. Medicare beneficiaries would be
              eligible to receive non-medical care, giving family members a
              much-needed break from the constant demands of caring for
              them.
      Outpatient Department Payments: Payments to hospitals for
              outpatient services are one of Medicare's fastest growing
              components. Due to flaws in the current reimbursement
              methodology, hospital outpatient departments get a
              reimbursement higher than their actual costs. In effect,
              beneficiaries pay about a 50-percent copayment for hospital
              outpatient services, as opposed to the 20-percent copayment
              made for other Part B services. Medicare's payments are not
              always reduced to account fully for these high copayments. The
              budget corrects these flaws by establishing a prospective
              payment system for outpatient services and ensuring that, by
              2007, beneficiaries pay the same 20-percent copayment as they
              do for other Part B services.
      Medigap Protections: The budget adds protections, such as new
              open enrollment requirements and prohibitions against the use
              of pre-existing condition exclusions, to help Medicare
              beneficiaries who wish to opt for managed care but fear they
              will be ``locked in'' and unable to access their old Medigap
              protections if they switch back to a fee-for-service plan.
      The Working Disabled: The budget proposes a Medicare
              demonstration project to encourage Social Security Disability
              Insurance (SSDI) beneficiaries to return to work. Under the
              four-year, Nation-wide demonstration project, SSDI
              beneficiaries who return to work beginning in 1998 would
              receive Part A coverage through 2001 without paying the
              premiums.

    Additional High-Priority Initiatives

      The budget contains other reforms to improve the Medicare program as
    well as adjustments to Medicare payments to ensure that rural
    beneficiaries have access to health care services.
      Rural Health Care: The budget would expand access to, and
              improve the quality of, health care in rural areas. It would
              extend the Rural Referral Center program; allow direct
              Medicare reimbursement for nurse practitioners, clinical nurse
              specialists, and physician assistants; improve the Sole
              Community Hospital program; expand the Rural Primary Care
              Hospital program; and provide grants to promote telemedicine
              and rural health outreach. The proposed changes in managed
              care payment methodology also would promote access to managed
              care plans in rural areas.

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      Fraud and Abuse: The budget proposes strong fraud and abuse
              provisions, including measures to eliminate fraud in home
              health care--such as by ensuring that home health agencies are
              reimbursed based on the location of the service, not the
              billing office, and by enabling the Secretary of Health and
              Human Services to deny payments for excessive home health use.
              The budget also would repeal several provisions in last year's
              HIPAA law that weakened anti-fraud enforcement. Together,
              these initiatives would save about $9 billion.

    Strengthening Medicaid

      The budget would reform Medicaid to give States much more flexibility
    to manage their programs, while preserving the guarantee of high-quality
    health care and long-term services for the most vulnerable Americans--
    millions of children, pregnant women, people with disabilities, and
    older Americans. The budget would ensure that as we control the costs of
    Medicaid, we do not compromise what is right with the program.
       The growth in Medicaid spending has slowed significantly over the
    past two years. The budget, however, ensures that our success in
    bringing Medicaid spending under control will not be lost in future
    years, when the actuaries project that Medicaid spending will again
    begin to rise. The budget would save $22 billion from a combination of
    policies to impose a per capita limit on spending and reduce
    Disproportionate Share Hospital (DSH) payments and retarget them to
    hospitals that serve large numbers of Medicaid and low-income patients.
    The budget also makes a number of improvements to the Medicaid program,
    including changes to last year's welfare reform law, costing $13 billion
    over the same period.

    Program Savings

      Per Capita Cap: Even though the growth in Medicaid spending
              has fallen in recent years, aggregate Medicaid spending still
              will grow at an average annual rate of 7.2 percent from 1997
              to 2002. To ensure that Medicaid's explosive growth of the
              1980s and early 1990s does not resume, the budget would set a
              per capita cap on Medicaid spending, based on spending per
              beneficiary in a base year, increased by an annual growth
              limit. The cap protects States facing population growth or
              economic downturns because it ensures that dollars follow
              people, allowing Medicaid spending to respond to changes in
              caseload and the economy.
      Disproportionate Share Hospital Payments: Medicaid DSH
              spending doubled each year from 1988 to 1993. Although this
              rapid growth has slowed, due to 1993 legislation that modified
              the program, the DSH program is still large, and the payments
              could be targeted better. The budget proposes reforms to reach
              this goal without undermining the important role these funds
              play for providers who serve a disproportionate number of low-
              income and Medicaid beneficiaries.

    Provisions to Increase State Flexibility

      The budget continues the President's strong commitment to giving
    States the flexibility to design their own Medicaid program. The budget
    would ensure accountability for high-quality health care while enabling
    States to develop programs that meet the special needs of their
    populations.
       Coverage for Children: The budget would let States provide
              continuous coverage for one year after eligibility is
              determined, guaranteeing more stable coverage for children and
              more continuity of health care services. In addition, it will
              reduce the administrative burden on Medicaid officials, health
              care providers, and families required to refile paperwork to
              determine their children's eligibility.
      Coverage Without Waivers: The budget would let States, without
              a waiver, expand coverage to any person whose income is under
              150 percent of the poverty line, within their per-capita
              spending limits.
      Managed Care: The budget would allow States to enroll people
              in managed care without Federal waivers.
      Home- and Community-based Care: The budget would allow States
              to serve people needing long-term care in home- and com-

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              munity-based settings without Federal waivers.
      Boren Amendment: The budget would repeal the ``Boren
              amendment'' for hospitals and nursing homes, giving States
              more flexibility to negotiate provider payment rates.
      The Working Disabled: The budget would let States establish an
              income-related premium buy-in program under Medicaid for
              people with disabilities who work. It would let eligible
              Supplemental Security Income beneficiaries who earn more than
              certain amounts purchase Medicaid coverage by paying a premium
              that States would set on an income-related sliding scale.

    Maintaining and Expanding Coverage for Working Families

      The President's budget plan would help an estimated 3.2 million
    families, including 700,000 children, keep their health care coverage
    for to six months up until their breadwinners find new jobs. The budget
    also would help provide health coverage for millions of children who do
    not now have it. Finally, the budget proposes to help States to create
    voluntary health insurance purchasing cooperatives.

    Health Insurance for the Families of Workers Who are In-Between Jobs

      While unemployment remains low and job creation remains high, the
    fast-moving economy creates rapid job turnover and job elimination. An
    estimated one in four workers will make an unemployment claim at least
    once in four years.
      With health care coverage in this country usually linked to
    employment, many workers lose their health care coverage during these
    brief periods of unemployment. Nearly half of workers with one or more
    job interruptions experienced at least a month without health insurance
    between 1992 and 1995. Nearly half of children who lose their health
    insurance do so because of a change in their parent's employment status.
    A family experiencing a catastrophic illness during this transition
    loses the benefit of years' worth of premiums. Worse, for families with
    an ill child or a worker with a chronic condition, the loss of health
    insurance while their breadwinner is between jobs can make it
    financially impossible for them to regain coverage.
      The budget proposes a national demonstration program to help States
    finance up to six months of coverage for the unemployed and their
    families. The program would be available to recipients, based on need,
    who had employer-based coverage in their prior jobs. Eligible
    individuals and their families would have access to a policy generally
    equivalent to the Blue Cross/Blue Shield Standard Option plan available
    through the Federal Employees Health Benefits program. The plan gives
    States flexibility to administer their own programs (e.g., through
    Medicaid, COBRA, or an independent program). It would cost $1.7 billion
    in 1998, $9.8 billion from 1998 to 2002.

    Health Coverage for Children

      The budget proposes several measures to expand health care coverage to
    more children. Combined with the proposal to help the families of
    unemployed workers (discussed above), and the ongoing phase-in of
    Medicaid coverage for a million older children, these additional
    proposals could add coverage for as many as five million children. The
    President is pleased with the widespread congressional interest in
    expanding health care coverage for children, and he looks forward to
    working with both Democrats and Republicans to develop and implement
    proposals to reach that goal.
      State Grants to Develop Innovative Programs: The budget
              provides $750 million a year in grants to States ($3.8 billion
              from 1998 to 2002) to build on recent State successes in
              working with insurers, providers, employers, schools, and
              others to develop innovative ways to provide coverage to
              children. This proposal would cover an estimated one million
              children.
      Continuous Medicaid Coverage to Children: The budget provides
              funds to let States extend one year of continuous Medicaid
              coverage to children, potentially helping one million children
              who would otherwise have lost coverage to keep it. The
              proposal would reduce administrative bur-

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              dens on States, families, and health care plans
              who now must determine eligibility
              at least every six months.
      Medicaid Outreach: About three million children are now
              eligible for Medicaid, but not enrolled. The Administration
              will ask the Nation's Governors to work with us to find ways
              to reach and sign up such children.
      School Health Centers and Consolidated Health Centers (CHCs):
              The budget provides more funds for CHCs to expand and enhance
              services to working families and their children through
              school-based health clinics.

    Voluntary Purchasing Cooperatives

      Employees in small businesses and their families are far likelier to
    be uninsured than other Americans. Small businesses have more difficulty
    providing health care coverage for their workers because they have
    higher per capita costs due to increased risk and extraordinarily high
    administrative costs.
      The budget would make it easier for small businesses to provide health
    care coverage for their employees, by helping them to band together to
    reduce their risks, lower their administrative costs, and improve their
    purchasing power with insurance companies. The budget proposes to
    empower small businesses to access and purchase more affordable health
    insurance through voluntary health purchasing cooperatives--providing
    $25 million a year in grants that States can use for technical
    assistance, and setting up voluntary purchasing cooperatives and
    allowing them to access Federal Employees Health Benefit Plans.

    Promoting Public Health

      The budget invests in preventive steps that show the greatest promise
    of ameliorating pain and suffering while controlling future costs. In
    particular, the budget focuses on preventing teen smoking; substance
    abuse; teen pregnancy; the spread of AIDS and HIV infections; food-borne
    diseases; the spread of infectious diseases; and infant mortality. The
    budget also invests in health care services for low-income and other
    vulnerable populations, such as American Indians and Alaska Natives.

    Expanding Biomedical and Behavioral Research

      The budget continues the Administration's longstanding commitment to
    biomedical and behavioral research, which advances the health and well-
    being of all Americans. For the National Institutes of Health (NIH), it
    proposes $13.1 billion for biomedical research that would lay the
    foundation for future innovations that improve health and prevent
    disease. The budget includes funding for high-priority research areas
    such as HIV/AIDS (including efforts to develop an AIDS vaccine), breast
    cancer, spinal cord injury, high performance computing, prevention and
    genetic medicine.
      The Office of AIDS Research will continue to coordinate all of NIH's
    AIDS research. The budget also includes the second year of 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 top priority continues
    to be financing investigator-initiated research project grants.

    Providing Direct Services and Preventive Care to Special Populations

      While basic biomedical research lays the foundation for medical
    advances, direct health services and prevention activities reduce the
    cost of medical care, and directly benefit Americans by preventing
    disease outbreaks and promoting the population's health. The budget
    proposes funding increases for the following health service and
    prevention activities:
      Preventing and Treating AIDS through Ryan White HIV/AIDS
              Treatment Grants/HIV Prevention: The budget proposes just over
              $1 billion for activities authorized by the Ryan White CARE
              Act, $40 million more than in 1997, to help our most hard-hit
              cities, States, and local clinics provide medical and support
              services to individuals with HIV/AIDS. Under this
              Administration, funding for Ryan White grants has risen by 158
              percent. The proposed level

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              would fund grants to cities and
              States to help finance medical and support services for
              individuals infected with the HIV virus; to community-based
              clinics to provide HIV early intervention services; to
              pediatric AIDS and HIV dental activities; and to HIV education
              and training programs for health care providers. The budget
              also includes $167 million dedicated to State AIDS drug
              assistance programs funded under Title II of the Ryan White
              Care act, to improve access to protease inhibitors and other
              life-extending AIDS medications. The budget also proposes $637
              million for the Centers for Disease Control's (CDC) HIV
              prevention activities, $20 million more than in 1997. The
              increased funding will help prevent HIV among drug users, who
              face the greatest risk of HIV infection.
       Reducing Tobacco Use Among Young People: Tobacco is linked to
              over 400,000 deaths a year from cancer, respiratory illness,
              heart disease, and other health problems. Each year, another
              million young people become regular smokers, and over 300,000
              of them will die earlier as a result. Consequently, in August
              1996, the Administration approved an FDA regulation that aims
              to cut tobacco use among young people by half over seven
              years; the budget includes $34 million to implement the
              regulation. The budget also provides $36 million for the CDC
              and $50 million for NIH for State grants and technical support
              for tobacco control and cancer prevention activities.
       Enhancing Food Safety: Too many Americans get sick from
              preventable food-borne diseases. The Nation faces new
              challenges in this area as we enter the 21st Century. New
              pathogens are emerging and familiar pathogens have grown
              resistant to treatment. We consume record levels of imported
              foods, some of which moves across the globe overnight. The
              budget proposes $42 million for a new interagency food safety
              initiative to establish a national early warning system for
              food-borne illnesses Nation-wide, and to improve Federal-State
              coordination when food-borne disease outbreaks occur. The
              budget also proposes to continue implementing a new food
              safety system in the meat, poultry, and seafood industries.
       Promoting Full Participation in 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. WIC provides prenatal care to those who would not
              otherwise get it, while reducing the incidence of premature
              birth and infant death. As a result, Medicaid saves
              significant sums that it would otherwise spend in the first 60
              days after childbirth. Because of funding increases in the
              last four years, WIC participation has grown by over 25
              percent. The budget proposes $4.1 billion to serve 7.5 million
              people by the end of 1998, fulfilling the President's goal of
              full participation in WIC.
       Promoting Childhood Immunizations: The budget proposes $794
              million for the Childhood Immunization Initiative, including
              the Vaccines for Children program and CDC's discretionary
              immunization program. The Nation is ahead of schedule to meet
              the Administration's goal of raising immunization rates to 90
              percent for two-year old children for each basic childhood
              vaccine. The incidence of vaccine-preventable diseases among
              children, such as diphtheria, tetanus, measles, and polio, are
              at all-time lows. The budget also includes $47 million to
              eradicate polio--preventable through immunizations--throughout
              the world.
       Improving Substance Abuse Treatment and Prevention: The
              budget proposes to increase support for the Substance Abuse
              and Mental Health Services Administration's substance abuse
              treatment and prevention activities by $33 million, to $1.7
              billion, enabling hundreds of thousands of pregnant women,
              high-risk youth, and other under-served Americans to get drug
              treatment and prevention services. The budget proposes a
              coordinated approach to combating substance abuse among youth
              with a comprehensive prevention initiative, focusing on State-
              level data documenting trends in drug use. The Administration
              again calls on Congress to enact

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              Performance Partnerships,
              which would give States more flexibility to better target
              Federal resources to priorities.
       Enhancing Abstinence Education and Family Planning: For each
              of the next five years, the budget includes $50 million in
              mandatory funding for States to conduct abstinence education
              projects to help reduce out-of-wedlock pregnancies. The budget
              also includes a $5 million increase, to $203 million, to
              support voluntary family planning services.
       Preventing and Containing Infectious Diseases: The budget
              includes $103 million, $15 million more than in 1997, for
              CDC's cooperative efforts with States to address infectious
              disease. It would support training and applied research, and
              the States' disease surveillance capability. All Americans
              face threats from infectious disease problems, such as drug
              resistant bacteria, and from emerging viruses, such as the
              hantavirus. CDC works with State health departments to monitor
              and prevent such problems and to contain outbreaks.
       Promoting Better Health Care for Native Americans through
              Indian Health Service (IHS): The budget proposes $2.4 billion
              for the IHS, $70 million over 1997. IHS clinical services are
              often the only source of medical care on remote reservation
              lands, and this increase maintains our commitment to American
              Indians and Alaska Natives.
       Caring for Veteran's Health Needs through Veterans Medical
              Care: Continuing its longstanding commitment to veterans
              programs, the Administration proposes $17.5 billion for the
              Department of Veterans Affairs' (VA) health system, $0.5
              billion more than in 1997. The budget would enable the VA
              health system to retain, and spend for itself, all first- and
              third-party medical collections. In the past, these
              collections have gone to the Treasury; in 1998, they would
              support health services for veterans. The budget would enable
              the VA to implement eligibility reform legislation that the
              President signed in October 1996, and pursue ambitious plans
              to restructure the health system to better deliver care.