[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]


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                               22.  HEALTH

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                               Table 22-1.  FEDERAL RESOURCES IN SUPPORT OF HEALTH                              
                                            (In millions of dollars)                                            
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                                                                            Estimate                            
            Function 550                1996   -----------------------------------------------------------------
                                       Actual      1997       1998       1999       2000       2001       2002  
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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
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   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.
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  \1\ Excluding Medicare and the military and veterans medical programs.
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   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 

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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.
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  \2\ Domiciliaries serve homeless veterans and veterans who require 
short-term rehabilitation.
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   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 

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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.