[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
DEPARTMENT OF HEALTH AND HUMAN SERVICES FISCAL YEAR 2008 BUDGET REQUEST 

=======================================================================

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

           HEARING HELD IN WASHINGTON, DC, FEBRUARY 13, 2007

                               __________

                            Serial No. 110-6

                               __________

           Printed for the use of the Committee on the Budget


                       Available on the Internet:
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                        COMMITTEE ON THE BUDGET

             JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut,        PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas                    Ranking Minority Member
LOIS CAPPS, California               J. GRESHAM BARRETT, South Carolina
JIM COOPER, Tennessee                JO BONNER, Alabama
THOMAS H. ALLEN, Maine               SCOTT GARRETT, New Jersey
ALLYSON Y. SCHWARTZ, Pennsylvania    THADDEUS G. McCOTTER, Michigan
MARCY KAPTUR, Ohio                   MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California           JEB HENSARLING, Texas
LLOYD DOGGETT, Texas                 DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon              MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas               PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida                  CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts     K. MICHAEL CONAWAY, Texas
BETTY SUTTON, Ohio                   JOHN CAMPBELL, California
ROBERT E. ANDREWS, New Jersey        PATRICK J. TIBERI, Ohio
ROBERT C. ``BOBBY'' SCOTT, Virginia  JON C. PORTER, Nevada
BOB ETHERIDGE, North Carolina        RODNEY ALEXANDER, Louisiana
DARLENE HOOLEY, Oregon               ADRIAN SMITH, Nebraska
BRIAN BAIRD, Washington
DENNIS MOORE, Kansas
TIMOTHY H. BISHOP, New York

                           Professional Staff

            Thomas S. Kahn, Staff Director and Chief Counsel
                James T. Bates, Minority Chief of Staff



















                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, February 13, 2007................     1
Statement of:
    Hon. John M. Spratt, Jr., Chairman, House Committee on the 
      Budget.....................................................     1
    Hon. Paul Ryan, a Representative in Congress from the State 
      of Wisconsin...............................................     3
    Hon. Michael O. Leavitt, Secretary, U.S. Department of Health 
      and Human Services.........................................     4

Prepared statements, additional submission:
    Mr. Spratt, prepared statement of............................     2
    Mr. Leavitt, prepared statement of...........................     6
    Hon. James P. McGovern, a Representative in Congress from the 
      State of Massachusetts, questions for the record...........    49


                     DEPARTMENT OF HEALTH AND HUMAN
                SERVICES FISCAL YEAR 2008 BUDGET REQUEST

                              ----------                              


                       TUESDAY, FEBRUARY 13, 2007

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 2:05 p.m., in room 
210, Cannon House Office Building, Hon. John M. Spratt, Jr. 
(Chairman of the Committee) presiding.
    Present: Representatives Spratt, DeLauro, Cooper, Allen, 
Schwartz, Doggett, Berry, McGovern, Sutton, Andrews, Scott, 
Etheridge, Hooley, Bishop, Ryan, Bonner, Garrett, Hensarling, 
Conaway, Tiberi, Porter, Alexander, Smith.
    Chairman Spratt. Secretary Leavitt, welcome to our hearing 
today, and thank you for coming.
    The purpose of the hearing today is to discuss the 
President's budget request for the Department over which you 
are the Chief Executive, Department of Health and Human 
Services, and to give our Committee members the opportunity to 
delve into the President's proposal in more depth and detail.
    I extend a warm welcome to you. We appreciate your coming, 
and we look forward to your testimony.
    There are some significant cuts or cost reductions in the 
budget that has been sent to us. Medicare would experience a 
cut over ten years, cost reduction, call it what you will, of 
$252 billion. Medicaid, at least $29 billion over the same ten-
year period of time.
    CHIPs, Children's Health Insurance Program, a program in 
effect since 1997, would be increased but not enough by our 
calculation to cover the existing beneficiary population of 
around four and a half million children. We are concerned that 
fewer children would actually be covered under the funding 
proposal that the Administration has put forth.
    So we have some significant questions to discuss with you 
today.
    The President's budget has to be viewed in a larger 
context. We note with some dismay that these cuts have been 
made, 252 billion in Medicare, 28 to $29 billion in Medicaid. 
And, yet, this money has not been, the savings to the extent 
there are savings, have not been redeployed or reinvested in 
other healthcare programs.
    There are gaping needs in the realm of healthcare, and we 
are dismayed to see that these cuts, if they are taken, will 
not be used to shore up other problems with other programs.
    The Administration tells us that big program cuts are 
necessary because entitlement spending is growing at a fast 
clip. We know that. We understand that our population is aging. 
It is going to put unprecedented pressure on our healthcare 
entitlements. And we need to be looking for solutions, no 
question about it, not when the pressure comes to bear, but 
now.
    But as we accumulate debt, and the budget before us will 
accumulate $900 billion in additional statutory debt over the 
next two years, as we stack this debt on top of debt, we are 
adding to something called debt service obligations and leaving 
a legacy for years to come of debt service, interest on the 
national debt that has to be paid which by the end of the 
budget period, the time frame we are talking about, 2012, the 
target year for balancing the budget, interest on the national 
debt by our calculation, by CBO's calculation will be $285 
billion, a substantial sum of money.
    As a consequence, these are dollars that are squeezed out 
of the budget that could otherwise be used for Medicare, 
Medicaid, or Children's Health Insurance or Social Security.
    Federal healthcare spending does not exist in a vacuum. We 
all know that. And one of the problems with reining in the 
growing cost of Medicare and Medicaid and our healthcare 
entitlements generally is that they are all a subset of the 
cost of healthcare delivery in our economy as a whole.
    This Administration understands that. We understand it. And 
what we need to be about and looking for, among other things, 
are holistic solutions and not nickel and dime, case-by-case, 
piece-by-piece solutions. In that connection, we are concerned.
    We want to hear more about the Administration's proposal to 
remove the manner in which employer-provided health insurance 
is now extended to their employees such that it is deductible 
out of the employer and excluded from income by the employee. 
In its place will be a standard deduction of $15,000 for a 
family.
    It raises lots of questions that we would like to raise 
with you today, so we can get a clarification of that and a 
better understanding of whether this is the route to a 
solution, not just opening Pandora's box with lots more 
problems to come from it.
    So we have much to talk about, and we are glad to hear your 
testimony first and then put some questions to you about these 
vital issues, vital to us as we put a budget together, and 
vital even more to the American people.
    Before receiving your statement, though, Mr. Ryan has a 
statement he would like to make.
    [The prepared statement of Mr. Spratt follows:]

       Prepared Statement of Hon. John M. Spratt, Jr., Chairman,
                     House Committee on the Budget

    Good afternoon, and welcome to the House Budget Committee's hearing 
on the 2008 budget request for the Department of Health and Human 
Services. The purpose of this hearing is to discuss the President's 
budget request for HHS and give members an opportunity to delve into 
the President's proposals in more detail. I would like to extend a warm 
welcome to Secretary Leavitt, who is making his debut appearance before 
the House Budget Committee as HHS Secretary. We are delighted to have 
you here.
    The President's budget for HHS must be viewed in the larger context 
of the fiscal policies this Administration has pursued. The President's 
2008 budget continues the same policies that helped create the fiscal 
plight now facing the federal government. To help pay for nearly $2 
trillion in tax cuts over the next ten years, the budget cuts Medicare 
by $252 billion and Medicaid by $28 billion over that same time period. 
Rather than reinvest those savings in improvements to the health 
programs on which tens of millions of Americans rely, the budget 
instead creates a new set of tax incentives for the purchase of health 
coverage that gives the largest subsidies to the most well-off 
Americans and provides substantially less help to working families who 
have the most trouble affording health insurance. The HHS budget also 
cuts or freezes several safety-net programs and vital supports for 
struggling working families such as child care. These cuts won't make a 
dent in our long-term deficit picture, but they will cause real harm to 
millions of families that depend on these services to stay employed and 
make ends meet.
    The Administration argues that big program cuts are necessary 
because entitlement spending is growing. We all know that the aging of 
our population is going to put unprecedented pressure on our health and 
our retirement systems. And we need to be looking for solutions now, 
not when the pressure comes to bear. But the solution does not lie in 
digging the fiscal hole deeper today. As long as we are accumulating 
debt and stacking debt on top of debt, we are making it more and more 
difficult to accommodate the demands that we know are coming as a 
larger share of the population becomes eligible for Medicare, Medicaid, 
and Social Security. For example, under the President's budget, we are 
going to spend an estimated $239 billion on net interest on the debt 
this year, rising to $285 billion in 2012. If this Administration would 
pursue a more fiscally responsible course, we could substantially 
reduce the amount of federal debt and spend significantly less on debt 
service, thereby freeing up hundreds of billions of dollars that could 
be dedicated to shoring up the solvency of Social Security.
    Another thing to keep in mind is that federal health spending does 
not exist in a vacuum. The Federal Government is heavily invested in 
the health care sector. We have got two major health care entitlements 
and other, smaller entitlement programs that are significant as well: 
Veterans Administration, military health care, and Federal employees 
health care. All of these make the Federal Government far and away the 
largest purchaser of health care in our entire economy. But this 
reminds us that the problem of growing health spending that we are 
talking about today is not unique to Medicare or Medicaid or any of the 
other federal health care programs. It is part and parcel of the 
problem of health care in our entire society.
    So the challenges we face are considerable ones, indeed, and I am 
glad that Secretary Leavitt is here today to help us understand the 
Administration's thinking on these issues. Before turning to the 
Secretary for his testimony, I recognize the Ranking Member, Mr. Ryan, 
for any comments he may wish to make.

    Mr. Ryan. Thank you, Mr. Chairman.
    Welcome, Secretary Leavitt.
    I want to begin by commending Chairman Spratt on his choice 
of hearing topics and witnesses in the past few weeks. I think 
these have been very good hearings. We have had excellent 
witnesses, all speaking to the topics that we really have to 
get our hands around. So I want to thank the Chairman for this 
good panel of hearings.
    And nearly all of us have largely focused on the need for 
immediate substantive reforms to our nation's largest 
entitlements. Considering that two of the most financially 
troubled entitlement programs, Medicare and Medicaid, are in 
HHS, I would imagine Secretary Leavitt, you know, that is why 
he is here today.
    And I am glad you are here today because the big money 
accounts are in your agency, Secretary Leavitt.
    We all know how we got here. Back in the 1960s when 
President Johnson created these programs as part of the great 
society, he created them on a pay-as-you-go basis. And 
certainly most Americans and most in Congress, for that matter, 
agree with the mission of these programs. That is not the 
question.
    The question is, is there a better way to accomplish the 
mission of these programs without bankrupting our children, 
because according to GAO, by the year 2040, when my kids are my 
age, they will have to pay twice as much in federal taxes as we 
do now just to keep our largest entitlements going in the same 
form as they are today? No new spending, no new benefits, 
double the taxes just to pay the status quo for my kids when 
they are my age.
    Clearly we cannot let this happen. How do we prevent it? 
That is the key question. How do we meet the mission of these 
programs and prevent that from happening to my kids and your 
kids and your grand kids?
    The President proposes a particular set of reforms in these 
programs to help get on a path toward long-term sustainability, 
and we can and should debate whether these are the right 
combination of reforms or not. But I do not think there is an 
honest debate to be had on whether or not Congress should act 
on this. We simply must.
    I will simply end with one quote from, I think, the first 
witness we had which was the Comptroller, General David Walker, 
who spoke to this Committee a few weeks ago where he said, 
``Healthcare is the number one fiscal challenge for federal and 
state governments. Number two, it is the number one 
competitiveness challenge for American businesses. Number 
three, it is a growing challenge for American families. Let me 
just tell you if there is one thing that can bankrupt America 
it is healthcare. We need dramatic and fundamental reform.''
    I clearly agree with that statement, that assessment. This 
is the Budget Committee, and the budget buster for America 
today and for sure tomorrow is healthcare. That is why we are 
going to have to figure how to meet the mission of these very 
important programs while making sure we can keep our budget 
balanced and not double the tax burden on the next generation.
    With that, I yield. Thank you, Chairman.
    Chairman Spratt. Thank you, Mr. Ryan.
    Mr. Secretary, you can offer your statement for the record. 
And without objection, it will be made part of the record so 
that you can summarize all or part of it.
    In addition, I ask unanimous consent that all members who 
care to submit a statement be allowed to submit an opening 
statement for the record at this point. Without objection, so 
ordered.
    Mr. Secretary, the floor is yours. Thank you again for 
coming.

          STATEMENT OF MICHAEL O. LEAVITT, SECRETARY,
          U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Secretary Leavitt. Thank you, Mr. Chairman, Mr. Ryan, 
ladies and gentlemen of the Committee.
    I would prefer to have my statement as part of the record 
and would like to summarize just to give our discussion some 
context.
    This is a big budget as you have indicated, and it has 
required hundreds of people the better part of a year. There 
are tens of thousands of individual decisions made. I found it 
best to have these discussions in the context of the guidance 
that I have given those who have prepared it. I think that 
might be helpful for you to know. And I will try to answer your 
questions in the context of those of the guidance I gave them.
    Make no mistake about it. This is a budget aimed at 
reducing the deficit and looking to balance the budget by 2012. 
Any time that you are developing a budget, no one knows better 
than this Committee you are faced with making decisions about 
competing, noble ideas.
    I have little question that the decisions that I made in 
some of those tens of thousands of decisions will not be the 
same ones that you would. I am here to explain to you as best I 
can the basis on which those were made.
    I would like to just tell you in billboard phrases, if I 
could, the guidance that I gave the budget preparers at HHS. I 
pointed out first of all, it is a deficit reduction budget. 
Second, I indicated to them there would be some new things that 
we needed to add to the budget, but I wanted them to be truly 
critical.
    I gave them four examples. One would be high-demand, 
highly-effective programs. I will give you an example of that, 
the Indian Health Service or Head Start. I wanted to protect 
that. Presidential initiatives, a good example would be the 
Community Health Centers. Pressing new problems, I was 
concerned and continue to be about drug efficacy and safety and 
the speed with which we are able to approve new generic drugs.
    You will also see some things that have been here before, 
health IT. I am anxious to see progress made there. Fraud and 
abuse in Medicare, a subject that I feel some passion about 
right now.
    So those are new things. Then I said to them we are going 
to have to make these decisions with respect to ongoing 
problems. I would like you to look for six or seven things in 
particular.
    One, if you find any one-time funds that we finished the 
project, let us not repeat them.
    Second, I said I want to have a bias towards actually 
providing services, not just building infrastructure for the 
future. We all know that you need infrastructure and you need 
services. But when you are working to devise a budget to 
balance, I wanted to emphasize direct services.
    The next would be looking for grant programs where the 
activities have been completed. I see a lot of these at NIH. 
And in order to continue to focus on new science and to get the 
best of the best, rather than allow grants just to continue 
perpetually, when they reach the end of their term, I have 
asked for them to automatically be renewed and to put more new 
grant programs that they compete for.
    And that is an example of the kind of thing. And sometimes 
that comes out looking like it is a reduction, but the reality 
is you are getting more new grants than you were before.
    Under-performing programs, there will be disagreement on 
what is under-performing. We have tried to find programs that 
we could measure. And if we cannot measure it, then we have got 
to have some method of demonstrating that it is a performing 
program. And when we have not, it has been a candidate for 
reduction.
    You will see some things that I have been back to this 
Committee and others for a couple of years now. One would be 
durable medical equipment, some old controversies that I still 
feel some passion about.
    You mentioned the Medicare and the entitlements. There is 
no question that that is where we need to focus. And I have 
gone through Medicare as carefully as I can and looked for 
every component piece of it and asked the question, is there 
some way we can begin to turn the line down a little.
    I made the point to them and I will to you today that I 
have been looking--this is weight reduction, not amputation. 
But you will see a whole series of very small changes. When I 
say small, they are individual components that when you add 
them all up, it gets to a big number over time.
    If you went out ten years, it would be a much bigger number 
than that. And if you went out twenty, we would start into the 
trillions. The point is there is a time and a life of every 
problem when the changes are big enough you can see they need 
to be made, but still small enough you can make them. And right 
now we need to be focused on them.
    The changes that I have recommended in this budget, if we 
did them all, would still only keep the Medicare Trust Fund 
solvent for four more years. So it is a start. And you may not 
agree with all of them, but I am prepared to defend them.
    And if you want to talk them about them individually, I 
would be delighted to do it. And why don't we go directly to 
questions, Mr. Chairman.
    [The prepared statement of Michael O. Leavitt follows:]

       Prepared Statement of Hon. Michael O. Leavitt, Secretary,
              U.S. Department of Health and Human Services

    Chairman Spratt and Congressman Ryan, thank you for the invitation 
to discuss the Department of Health and Human Services' budget proposal 
for fiscal year 2008.
    For the past six years, this Administration has worked hard to make 
America a healthier, safer and more compassionate nation. Today, we 
look forward to building on our past successes as we plan for a hopeful 
future.
    The President and I have set out an aggressive, yet responsible, 
budget that defines an optimistic agenda for the upcoming fiscal year. 
This budget reflects our commitment to bringing affordable health care 
to all Americans, protecting our nation against public health threats, 
advancing medical research, and serving our citizens with compassion 
while maintaining sensible stewardship of their tax dollars.
    To support those goals, President Bush proposes total outlays of 
nearly $700 billion for Health and Human Services. That is an increase 
of more than $28 billion from 2007, or more than 4 percent. This 
funding level includes $67.6 billion in discretionary spending.
    For 2008, our budget reflects sound financial stewardship that will 
put us on a solid path toward the President's new goal to achieve a 
balanced budget by 2012.
    I will be frank with you. There will never be enough money to 
satisfy all wants and needs, and we had to make some tough choices.
    We take seriously our responsibility to make decisions that reflect 
our highest priorities and have the highest pay-off potential. We 
recognize that others may have a different view, and there are those 
who will assume that any reduction signals a lack of caring. But 
reducing or ending a program does not imply an absence of compassion. 
We have a duty to the taxpayers to manage their money in the way that 
will benefit America the most.
    I would like to spend the next several minutes highlighting some of 
the key programs and initiatives that will take us down the road to a 
healthier and safer nation.
                  transforming the health care system
Helping the Uninsured
     The President has laid out a bold path to strengthen our 
health care system by emphasizing the importance of quality, expanded 
access, and increasing efficiencies.
     The President's Affordable Choices Initiative will help 
States make basic private health insurance available and will provide 
additional help to Americans who cannot afford insurance or who have 
persistently high medical expenses.
     It moves us away from a centralized system of Federal 
subsidies; and,
     It allows States to develop innovative approaches to 
expanding basic health coverage tailored to their populations
     The President's plan to reform the tax code with a 
standard deduction ($15,000 for families; $7,500 for individuals) for 
health insurance will make coverage more affordable, allowing more 
Americans to purchase insurance coverage.
Value-driven Health Care
     The Budget provides funds to accelerate the movement 
toward personalized medicine, in order to provide the best treatment 
and prevention for each patient, based on highly-individualized 
information.
     It provides $15 million for expanding efforts in 
personalized medicine using information technology to link clinical 
care with research to improve health care quality while lowering costs; 
and,
     It will expand the number of Ambulatory Quality Alliance 
Pilots from 18 sites in FY 2008.
Health IT
    The President's budget proposes $118 million for the Office of the 
National Coordinator for Health Information Technology to keep us on 
track to have personal electronic health records for most Americans by 
2014 by supporting our efforts to:
     Implement agreed upon public-private health data 
standards.
     Initiate projects in up to twelve communities based on 
recommendations of the American Health Information Community. These 
projects will demonstrate the value of widespread availability and 
access of reliable and interoperable health information.
     Develop the Partnership for Health and Care Improvement, a 
new, permanent non-governmental entity to effect a sustainable 
transition from the AHIC.
         addressing the fiscal challenge of entitlement growth
    The single largest challenge we face is the unsustainable growth in 
entitlement programs such as Medicare and Medicaid. The Administration 
is committed to strengthening the long-term fiscal position of Medicare 
and Medicaid and to moderating the growth of entitlement spending. The 
FY2008 Budget begins to address Medicare and Medicaid entitlement 
spending growth by proposing a package of reforms to promote 
efficiency, encourage beneficiary responsibility, and strengthen 
program integrity.
Medicaid
    Medicaid is a critical program that delivers compassionate care to 
more than 50 million Americans who cannot afford it. In 2008 we expect 
total Federal Medicaid outlays to be $204 billion, a $12 billion 
increase over last year.
    The Deficit Reduction Act (DRA) that President Bush signed into law 
last year has already transformed the Medicaid program. The DRA reduced 
Medicaid fraud and abuse and also instituted valuable tools for States 
to reform their Medicaid programs to resemble the private sector.
    In FY 2008, we are also proposing a series of legislative and 
administrative changes that will result in a combined savings of $25.3 
billion over the next five years, which will keep Medicaid up to date 
and sustainable in the years to come. Even with these changes, Medicaid 
spending will continue to grow on average more than 7 percent per year 
over the next five years.
    Along with the fiscally responsible steps we are taking with 
Medicaid, we are following the same values in modernizing Medicare.
Medicare
    Gross funding for Medicare benefits, which will help 44.6 million 
Americans, is expected to be nearly $454 billion in FY 2008, an 
increase of $28 billion over the previous year.
    In its first year, the Medicare prescription drug benefit has been 
an unparalleled success. On average, beneficiaries are saving more than 
$1,200 annually when compared to not having drug coverage, and more 
than 75 percent of enrollees are satisfied with their coverage. Because 
of competition and aggressive negotiating, payments to plans over the 
next ten years will be $113 billion lower than projected last summer.
    We also plan a series of legislative reforms to strengthen the 
long-term viability of Medicare that will save $66 billion over five 
years and slow the program's growth rate over that time period from 
6.5% to 5.6%.
    Similarly, we are proposing a host of administrative reforms to 
strengthen program integrity; improving efficiency and productivity; 
and reduce waste, fraud and abuse--all of which will save another $10 
billion over the next five years.
                promoting health and preventing illness
    We are also taking steps in other ways to transform our health care 
system. Helping people stay healthy longer also helps to reduce our 
nation's burden of health care costs. The President's budget will:
     Fund $17 million for CDC's Adolescent Health Promotion 
Initiative to empower young people to take responsibility for their 
personal health.
     Strengthen FDA's drug safety efforts and modernize the way 
we review drugs to ensure patients are confident the drugs they take 
are safe and effective.
     Enhance FDA and CDC programs to keep our food supply one 
of the safest in the world by improving our systems to prevent, detect 
and respond to outbreaks of food borne illness; and,
     Include $87 million to increase the capacity for the 
review of generic drugs applications at the FDA and increase access to 
cheaper generic drugs for American consumers.
                 providing health care to those in need
    SCHIP expires at the end of FY 2007 and the President's budget 
proposes to reauthorize SCHIP for five more years, to increase the 
program's allotments by about $5 billion over that time, to refocus the 
program on low-income uninsured children, and to target SCHIP funds 
more efficiently to States with the most need.
    The President's budget proposes nearly $2 billion to fund health 
center sites, including sites in high poverty counties. In FY 2008, 
these sites will serve more than 16 million people.
    We propose increasing the budget of the Indian Health Service to 
provide health support of federally recognized tribes to over $4.1 
billion, which will help an estimated 1.9 million eligible American 
Indians and Alaskan Natives next year.
    We are also proposing nearly $3 billion to support the health care 
needs of those living with HIV/AIDS and to expand HIV/AIDS testing 
programs nationwide.
    In addition, we are requesting that Congress fund $25 million in FY 
2008 for treating the illnesses of the heroic first responders at the 
World Trade Center.
                 protecting the nation against threats
    We must continue our efforts to prepare to respond to bioterrorism 
and an influenza pandemic.
    Some may have become complacent in the time that has passed since 
the anthrax-laced letters were delivered in 2001, but we have not. 
Others may have become complacent because a flu pandemic has not yet 
emerged, but we have not.
     The President's budget calls for nearly $4.3 billion for 
bioterrorism spending.
     In addition, we are requesting a $139 million in funding 
to expand, train and exercise medical emergency teams to respond to a 
real or potential threat.
     Our budget requests $870 million to continue funding the 
President's Plan to prepare against an influenza pandemic. The budget 
requests funding to increase vaccine production capacity and 
stockpiling; buy additional antivirals; develop rapid diagnostic tests; 
and enhance our rapid response capabilities.
     In FY 2008, the Advanced Research and Development program 
is requested within the Office of the Assistant Secretary for 
Preparedness and Response (ASPR). Total funding of $189 million will 
improve the coordination of development, manufacturing, and acquisition 
of chemical, biological, radiological, or nuclear (CBRN) Medical 
Countermeasures (MCM).
                       advancing medical research
    The research sponsored by NIH has led to dramatic reductions in 
death and disease. New opportunities are on the horizon, and we intend 
to seize them by requesting $28.9 billion for NIH.
    Our proposal in FY 2008 will allow NIH to fund nearly 10,200 new 
and competing research grants, continue to support innovative, 
crosscutting research through the Roadmap for Medical Research, and 
support talented scientists in biomedical research.
               protecting life, family and human dignity
    Our budget request would fund $884 million in activities to help 
those trying to escape the cycle of substance abuse; children who are 
victims of abuse and neglect; those who seek permanent, supportive 
families through adoption from foster care; and the thousands of 
refugees that come to our country in the hopes of a better life.
    Our budget request also includes $ 1.3 billion to help millions of 
elderly individuals and their family caregivers to remain healthy and 
independent in their own homes and communities for as long as possible, 
including the $28 million for our Choice for Independence initiative 
that will help states create more cost-effective and consumer-driven 
systems of long-term care.
             improving the human condition around the world
    If we are to improve the health of our own people, we must reach 
out to help other nations to improve the health of people throughout 
the world.
    Our budget requests $2 million to launch a new Latin America Health 
initiative to develop and train a cadre of community health care 
workers who can bring much needed medical care to rural areas of 
Central America.
    CDC and NIH will continue to work internationally to reduce illness 
and death from a myriad of diseases, and in so doing will support the 
President's Malaria Initiative; the Global Fund to Fight HIV/AIDS, 
Tuberculosis, and Malaria; and the President's Emergency Plan for AIDS 
Relief.
    These are just some of the highlights of our budget proposal. Both 
the President and I believe that we have crafted a strong, fiscally 
responsible budget at a challenging time for the federal government, 
with the need to further strengthen the economy and continue to protect 
the homeland.
    We look forward to working with Congress, States, the medical 
community, and all Americans as we work to carry out the initiatives 
President Bush is proposing to build a healthier, safer and stronger 
America.
    Now, I will be happy to take a few questions.

    Chairman Spratt. Well, let us start with CHIP.
    Secretary Leavitt. All right.
    Chairman Spratt. That is a particular case where you are 
adding funds. But, unfortunately, under the Children's Health 
Insurance Program, as we understand the projections, in order 
just to keep the kids covered who are now covered, we need 
about 13 to $15 billion over and above the baseline funding, 
five years of $25 billion.
    Is that different from your assumptions about it?
    Secretary Leavitt. It is. Let me state for you as clearly 
as I can the policies we intend to pursue in the 
reauthorization.
    First, important to state we enthusiastically endorse its 
renewal. We see it as being valuable in the same way others do. 
We would, however, like to focus it on children. We recognize 
that some states have included adults, and we follow a policy 
that will allow existing adult populations to continue. 
However, we would like not----
    Chairman Spratt. Are these parents for the most part?
    Secretary Leavitt. For the most part, they are adult 
parents.
    Chairman Spratt. Guardians, parents?
    Secretary Leavitt. There are three states who have 
substantially more adults than they do children on the program. 
And we think it ought to be focused on children.
    We also believe that if we are going to be subsidizing 
states in pursuit of populations over 200 percent of the 
poverty line that we should limit our match to be the same 
match that would be available to them under Medicaid.
    In other words, we want to continue to the enhanced match 
up to 200 percent, but would limit our match to the regular 
FMAP or match that we pay each state.
    Chairman Spratt. Well, at 4.7 million children covered 
today, as I understand it, and there are grave doubts in 
Congress, CBO, this Committee staff, elsewhere that the amount 
you are providing is going to be enough over a five-year period 
of time. We have already got what, 16 states that are about to 
run dry. There is simply not enough provided there, even with 
these changes and eligibility, to even cover the 4.6 million 
kids now covered.
    Is that a concern?
    Secretary Leavitt. We believe that the budget we have 
proposed is adequate to meet the policy guidelines that I have 
just articulated. We are prepared to engage in a conversation 
about what it takes to do that, but we believe our budget 
proposal to be adequate.
    Chairman Spratt. A concern as you look through this budget, 
it looks like kids take it on the chin repeatedly. The Children 
Care Development Block Grant costs $39 million. Not a lot of 
money, but it goes to children and child care. And by the 
estimates we have gotten, child care systems would drop by 
100,000 in the year 2008.
    The CHIP Program was specifically created for children, and 
I would agree with you. Without knowing more about the issue 
that it should be confined to children. It was created in 1997 
as part of the balanced budget agreement. The Clinton 
Administration said we are going to make some tough, hard 
decisions, some big substantial cost reductions in Medicare and 
Medicaid. But our diligence and forbearance, we are going to do 
a few things that are positive as well.
    And one of them was Children's Health Insurance. And it has 
been a very successful program except that only three out of 
ten children are covered. As I understand, only 30 percent of 
the eligible population of children are actually covered.
    Is that your understanding also at HHS?
    Secretary Leavitt. I am not able to validate that 
statistic. I will say to you, Mr. Chairman, that we do believe 
it has been a very positive program as do you. We believe that 
it should be our aspiration as a country to assure that every 
American, children and adult, have access to an affordable 
basic insurance policy.
    We see SCHIP being an important role, but not as the 
vehicle to provide it for everyone or, for that matter, even 
all children. It certainly should be the vehicle we use to 
cover those who are in specific financial need.
    I was in a State yesterday where they are working to 
create, as many states are, a plan that would give everyone in 
their State access to an affordable policy.
    I had discussions with the Governor about ways we could use 
SCHIP to connect to other policies that are being provided in 
the marketplace so that we could keep families together but not 
have to start using SCHIP as the vehicle to bring all adults.
    There are ways to use this program efficiently to target a 
population who needs help, but we ought not to view it as the 
way in which we cover every child or any person under 18. There 
are other ways to accomplish that that we think are superior.
    Chairman Spratt. Would you submit for the record, please, 
your own analysis, your Department's analysis of how many 
children are likely to be covered and provided for under the 
CHIP Program at the level of funding you are requesting?
    Secretary Leavitt. We would be pleased to respond.
    Chairman Spratt. Fine. Others have questions. I want to 
turn to them. But thank you again for your testimony.
    Mr. Ryan. I want to say Governor, but, Secretary----
    Secretary Leavitt. Thank you.
    Mr. Ryan [continuing]. Secretary, you are a Medicare 
trustee, right?
    Secretary Leavitt. Yes, I am.
    Mr. Ryan. Yeah. According to the trustees, the unfunded 
liability of Medicare totals 35 trillion over the next 75 
years, so that is the three-generation window we kind of look 
at.
    This budget reduces the unfunded liability by eight 
trillion over that same period, correct?
    Secretary Leavitt. Yes. If you go out far enough, it gets 
into the trillions.
    Mr. Ryan. How would we make up the rest? Do you have any 
ideas about how we can, in addition to what this budget is 
proposing, take care of the rest and try and bend the curve 
even more to get more savings, so we do not have still a, you 
know, 20 plus trillion dollar unfunded liability?
    Secretary Leavitt. As you pointed out, the proposal that we 
are making today in this budget would reduce the growth rate 
from 6.5 percent down to 5.6 percent.
    Mr. Ryan. So Medicare spending, even if every one of your 
recommended policies occurs, would still continue to grow at--
--
    Secretary Leavitt. Five point six percent a year.
    Mr. Ryan. Instead of six point----
    Secretary Leavitt. That is right. The impact of that going 
out is substantial. The sooner we start making these changes, 
the better the result will be in the long term.
    As I indicated, we have attempted in every case to make 
these weight loss, not amputation. We worked to find ways that 
we would not affect beneficiaries, but that we could deliver 
good, basic healthcare to our seniors in a sustainable way.
    Mr. Ryan. Given that Medicare and Medicaid essentially sort 
of pay for today's healthcare for the targeted populations that 
Medicare and Medicaid want to help, the road sort of leads back 
to getting at the root cause of healthcare inflation in order 
to drive down these out-year costs and, you know, reduce this 
incredible unfunded liability. The Administration put out a 
very bold plan on healthcare itself.
    Can you walk through the thinking, the methodology, and 
basically the strategy for going after high healthcare 
inflation and how your proposal deals with sort of bending the 
curve on medical inflation by more rationally getting benefits 
distributed by, you know, having the uninsured cared for and 
those things? How do you fix healthcare so that you can fix 
these entitlements and what is the Administration's plan to do 
that? That is basically my question.
    Secretary Leavitt. Mr. Ryan, I would argue that we do not 
actually have in this country a healthcare system. What we have 
is a large, robust, rapidly-growing healthcare sector that 
employs millions of people, but there is nothing that connects 
it into an economic system.
    There are lots of economic systems in our lives. Our banks, 
for example. I have a bank card. You have one. Other members of 
the Committee have them. Banks competed for our business on the 
basis of interest rates and service, but they all use the same 
system to optimize the value that they provide us.
    The same is true with many other systems. The internet 
itself is an economic system that is built with a group of 
standards that connect us all together.
    We believe the first step is to move healthcare from a 
large, robust, undisciplined sector to a system. To build that 
system, we believe that there are five components. The first is 
electronic connectedness. We have to connect electronic health 
records.
    Second, there is a need for us to have quality measures 
independently so that people know what they are buying and how 
good it is, so they can compare it.
    The third would be what I refer to as episodes of care or 
buckets of care that you can compare so that you can take 
comparable cost and comparable quality and make a decision as 
to value.
    Mr. Ryan. So real transparency and price and quality?
    Secretary Leavitt. I am talking about a system of 
competition based on value and the ability to compare so that 
the market actually works. There are other aspects to it, but 
that would give you a summary.
    Mr. Ryan. And how does the Administration's plan advance 
this?
    Secretary Leavitt. Well, I will tell you that by April of 
this year, we will have 60 percent of the healthcare 
marketplace that will have committed, including the federal 
government, to use our purchasing power to adopt the four 
cornerstones I mentioned.
    Health records. For example, it is now the policy of the 
federal government that if you are going to do business with us 
in the future, you have to have connected electronic health 
records. If you are going to do business with us, you have to 
have identifiable quality measures that have been developed by 
the medical community and use them. If you are going to do 
business with us, you have to have comparable costs and you 
need to know we are going to use these to create incentives to 
drive quality up and cost down.
    We have been joined by the largest payers in the country in 
doing that, including states, including the largest employers, 
and we will have 60 percent of the entire marketplace committed 
to making that a criteria of selection for their vendors by 
April. And by 2008, you will see this begin to unfold.
    Within two years, you will see competition based on value 
beginning to turn up in markets around the country. In five 
years, you will see this as value being a very important part 
of the market generally. And in ten years, this will be 
ubiquitous.
    We believe that, in fact, competition based on value will 
begin to moderate that curve and give us the relief that we so 
desperately need to maintain a prosperous economy.
    Mr. Ryan. OK. So if we take a given market and use the 
payers in a given market, let us take the private payers, take 
a couple big companies like Blue Cross and United and Aetna, 
big payers, but the biggest being you, the Medicare 100 percent 
file, that gives us enough of a data sample to measure the 
price of a good and to get into measuring quality as defined by 
the providers, and that will give us enough data to basically 
be able to make this value equation? Is that kind of what you 
are essentially saying?
    Secretary Leavitt. You properly point out that because 
there is no national market for healthcare, this has to be done 
regionally.
    I was in Detroit, for example, two weeks ago, and I had the 
big three auto makers join with the federal government and 
states in that region and the largest other payers, and we all 
committed ourselves to pursue this as a policy of selection. 
When we buy healthcare, this is what we are going to ask for.
    Now, Detroit and in that area, very soon you will begin to 
see hip replacements, knee replacements, and other things 
comparable cost and comparable quality based on standards that 
the medical family have developed.
    Mr. Ryan. And this will be made available to the public, 
not just those who buy through these different networks, not 
just necessarily federal employees or people who are in the 
networks of the other payers?
    Secretary Leavitt. Once this information is available, it 
will find its way into the purchase of healthcare in many 
different ways. Employers will provide it. Health plans will 
provide it. I am sure there will be a travelocity for 
healthcare that will begin to develop. People will begin to 
have the capacity to make comparable purchases.
    And we have all had experiences like this. We know how 
effective this would be. Competition works in healthcare if we 
have access to----
    Mr. Ryan. Information.
    Secretary Leavitt [continuing]. Reliable, consistent 
information about the quality and the cost.
    Mr. Ryan. And I will just finish with this because the 
Chairman has been liberal with the time. The Medicare 100 
percent file, which is a HIPAA compliant claims file that you 
have, you do have the ability, do you not, to release that data 
in any given market so that payers, patients can use your data 
along with other data samples to get this measure? And you can 
and are you releasing that 100 percent file?
    Secretary Leavitt. I have authority to do that under 
certain conditions, and we are preparing a process by which it 
can be released in coordination with all of the other 
activities we are doing.
    Mr. Ryan. That is what I am trying to get at. To the extent 
that you can simplify and make much easier the ability to 
release that Medicare 100 percent file, which is HIPAA 
compliant, that all to the better to get this transparency 
thing off the ground, and that would be very helpful.
    Thank you.
    Chairman Spratt. Mr. Cooper.
    Mr. Cooper. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary.
    My five minutes, I would like to focus on the healthcare 
tax expenditure reform that the Administration is proposing and 
also a couple of Medicaid issues.
    First, this may be surprising to you, but I would like to 
praise you and the Administration for your efforts to reform 
the largest individual tax expenditure in America, one that 
Congress never passed into law, and one that is horribly 
regressive. You are the first Administration to have the 
courage to face this issue. I hope that you succeed.
    And I would like to give some of my Democratic colleagues a 
little bit of confidence here because no less a liberal figure 
than Andy Stern of the SEIU has proposed essentially abandoning 
the employer-based health insurance system.
    Bob Greenstein, a noted expert on budget issues and health 
issues from the Center for Budget and Policy Priorities, says 
positive things about your tax proposal on his web site. And 
liberal senators like Ron Weiden have put forward health plans 
that make substantial changes in what many Americans assume to 
be the only health system we have.
    So there are many good features to your proposal. A lot of 
us are worried that the deduction is too meager. If you are 
going to open this up, you might as well turn it into a tax 
credit so that lower-income people are benefited a little bit 
more than in the Administration's proposal.
    And I would just urge you to be open to modifications like 
that so that we can both reform our tax code and have a more 
efficient healthcare system at the same time.
    Secretary Leavitt. Thank you, Mr. Cooper.
    We do have a commitment to take this issue on because it is 
a prerequisite to any states who are currently striving to 
create opportunities for every resident of their State to have 
an affordable basic policy.
    I am meeting over the next 100 days with every Governor and 
having a discussion with their legislature and with them about 
what tools they need. And without exception, they always run 
into one dilemma and it is the dilemma of the school aide that 
does not work enough hours to get benefits, married to a 
construction worker. Between the two of them, they make pretty 
good money, but they do not have enough money to pay their 
taxes and buy healthcare. And they are discriminated against.
    And as you say, there is no defensible policy that would 
cause us to give one group of citizens a tax benefit to help 
them buy and not the other, and we are anxious and willing to 
have these conversations. We believe the proposal we have made 
has the impact, but we are open to talk.
    Mr. Cooper. Mr. Secretary, while you are talking with the 
Governors in your upcoming meeting, it seems that federal, 
state tensions are at an all-time high in terms of 
reimbursement battles over Medicaid, the match, and I would 
assume the SCHIP match as well. Some people call this fiscal 
integrity issues.
    I hope there is a way to align interest so that people are 
not gaming the system. A report I saw recently from a State-
sponsored think tank said that the states are essentially 
playing a game of catch me if you can as they use provider 
donations, provider taxes, DISH payments, UPLs, every possible 
acronym you can think up to gain the match.
    But as we are looking at the states, there was one element 
of your budget proposal that worried me. I have been told that 
you try to eliminate best price for Medicaid drug 
reimbursement.
    And we just had a hearing in the Government Reform 
Committee last Friday that said states and the federal 
government could be saving four or five billion dollars a year 
if we just had a better and more efficient comparing of best 
price among the states because some states are still using 
antique average wholesale prices. They are not bargaining. They 
are not using their Medicaid rebate like they should, and they 
are leaving billions of dollars on the table.
    And when we are scrapping for pennies to cover children, 
that seems to be a terrible problem. And I hope that 
abandonment of best price is not part of the Administration's 
budget.
    Secretary Leavitt. Our strategy is to deal with the issue 
because Medicaid right now is the highest payer of prescription 
drug in the market. And there is clear evidence of that.
    We want to give states the ability to deal with large 
prescription drug benefit managers the same way that the 
healthcare plans so that they can get the benefit of 
competition. And we believe that will have a positive impact on 
those costs.
    Mr. Cooper. How about your efforts to persuade your former 
fellow Governors to behave a little bit better and if they 
have--for example, the average Medicaid match is supposed to be 
57 percent. Some states are higher, some are lower. But a lot 
of states have gained this so that they get 80 percent federal 
dollars, 90 percent federal dollars.
    Secretary Leavitt. There are many instances in Medicaid 
finance that could use purification. The reality is a lot of 
that has happened. And all I think we should look to have is a 
true partnership where we are both putting up our share of the 
money in real dollars.
    And there is nothing inherently wrong with an 
intergovernmental transfer so long as it is not a scheme to 
take federal dollars and to put them up as match for other 
federal dollars and begin that cycle. And that has happened a 
lot, and we are doing, frankly, everything we can to dissuade 
states from doing that and to close their opportunities to do 
it because we do not think it is fair and it is not in the 
interest of the program.
    Mr. Cooper. I see that my time is expired. Thank you.
    Secretary Leavitt. Thank you.
    Chairman Spratt. Mr. Ryan has an announcement to make to 
the Committee.
    Mr. Ryan. It is with a great deal of sadness that I want to 
announce that our colleague and friend, Charlie Norwood, lost 
his battle with cancer today. Charlie just passed away earlier 
today of cancer. He was 65 years old.
    And I know I speak on behalf of all my colleagues and 
friends that this is a sad day for all of us. And Charlie and 
his family are going to be in our thoughts and our prayers. And 
I just simply wanted to take this time to announce that.
    Thank you.
    Chairman Spratt. Charlie Norwood was as tough and partisan 
a fighter as you ever met in this institution. But on certain 
occasions, he crossed the aisle and worked with us as Democrats 
on healthcare issues. He was a worthy member of this 
institution. And I would ask everyone to observe a moment of 
silence in his memory and service here.
    Thank you.
    Let us see. Mr. Conaway.
    Mr. Conaway. Thank you, Mr. Chairman.
    It is with great sadness with the loss of Charlie. What an 
incredible fight he put up over the last two years to go 
through what he did and still try to do the job that we all 
want to do here.
    Mr. Secretary, thank you for coming today.
    I want to talk to you a little bit about SGRs and all of 
that, but it seemed to me while you were discussing this grand 
plan of 60 percent of the payers and arguably one of the 
largest sectors we have got for our economy banding together to 
do whatever you want to do.
    Is there an example where in the free market system without 
the government being involved where 60 percent of the payers 
were able to do that and not run afoul of our antitrust laws? I 
mean, how are we going to square those two?
    Secretary Leavitt. They are not coordinating their actions 
as a contractual matter, but what they are doing is we have 
identified these four cornerstones of health IT, quality 
assessment, price packaging into identifiable episodes of care 
and the use of incentives, and we have created a--actually, the 
government did not create it. The HR officers of the country in 
cooperation with the medical community created a series of 
questions that could be provided to those who are procuring 
health insurance to use as a criteria for their purchase.
    And it has been done with the guidance of counsel and all 
of those that would--and not just government counsel, but you 
can bet that the major purchasers of the country have, in fact, 
scrutinized.
    Our purpose is not to create any kind of effort other than 
to begin creating some standards upon which we could go from a 
sector to a system.
    Mr. Conaway. The one sector that we do set the price at and 
that is physician reimbursements for those who are under the 
Medicare system. It does not seem that that current system 
works very well. We are constantly ratcheting down physician 
reimbursements. They are at the same level they were at 2001. 
It is now six years later. You know, pick a number for 
inflation, and I do not think that is a sustainable model where 
you have got the government setting the price and doing that to 
these physicians.
    The impact is we have got evidence that the number of 
physicians who are accepting new Medicare patients has dropped 
in Texas from in the 70 percent range to 62 percent and 
falling.
    And so as we go through this process, let us not kill the 
goose that laid the golden egg, and that is the ability of 
folks to feed their families and to make money at this system.
    The broader question, I guess, is, we talk about government 
keeping its promises. What have we promised in regards to 
Medicare/Medicaid? What is this promise that we can look at and 
say, all right, can we afford the promise? We have got $32 
trillion of unfunded promise out there right now, but can we 
afford this promise? What does it look like? What level of 
care? What should be covered in that? Do we have a good idea of 
what that promise ought to look like that this government is 
making day in and day out?
    Secretary Leavitt. Well, it bears constant review in terms 
of how we are delivering on the promise. There would be lots of 
people in this government who would and in this country who 
would articulate the promise differently.
    But what we do know is that we need to provide those who 
are elderly, those who are poor, those who are disabled, those 
that are children who need protection. We know that we need to 
provide for mothers who are expectant, to protect their 
children. We need to provide them with basic health insurance 
and we need to pay for most of it.
    We have made that commitment. Now, we also need to do it in 
a way that is efficient enough that we can keep it. And right 
now I think the evidence is we are not doing it efficiently and 
we are not doing it in a way that will allow anyone in the 
future generation to maintain that promise.
    Mr. Conaway. One of your comments, you said that we are 
going to do this in a way that we do not affect beneficiaries. 
How do we do that?
    Secretary Leavitt. Well, there would not be a single person 
on Medicare who would not continue to receive their Medicare 
benefits. But there may be a difference in the way a person who 
makes a half a million dollars receives them over a person who 
makes $50,000.
    Mr. Conaway. So we will affect beneficiaries, it just--I 
mean, I did not understand how.
    Secretary Leavitt. They will not lose their benefits. They 
may pay for some of them if they have the ability, but that is 
the way our tax system works.
    Mr. Conaway. OK. And the SRG system? Any hope on the 
horizon?
    Secretary Leavitt. Well, I point at the fact that----
    Mr. Conaway. SGR system. Excuse me.
    Secretary Leavitt [continuing]. The system requires 
retooling. We cannot just continue to go on every six months 
putting in the so-called doc fix and then moving on. I would 
argue that the system of competition based on value that I 
described ultimately has to be part of the solution.
    We ultimately need to begin to reward those who provide 
medical services for the highest possible quality at the best 
price. And if we do, they will have an economic model they can 
sustain and our country will have a capacity to keep the 
promise for future generations.
    Mr. Conaway. My time has expired. Thank you, Mr. Secretary. 
Appreciate you being here.
    Chairman Spratt. Mr. Allen of Maine.
    Mr. Allen. Mr. Secretary, thank you for being here.
    I could not help but think that if Charlie--Charlie and I 
had a number of lively debates on healthcare policy in the 
Commerce Committee, and I wish he were here. He would enjoy the 
conversation with you.
    You and I differ on the issue of legal abortion, but I 
believe that people can work across that division because to 
the extent we can reduce unintended pregnancies, I think we are 
in search of a common goal.
    I have two simple questions and then a more difficult one, 
I think.
    You agree, I assume, that the correct and consistent use of 
condoms and other methods of contraception is an effective way 
to prevent unintended pregnancies?
    Secretary Leavitt. As you know, this Administration 
supports the ABC approach. And to the degree that that is 
consistent, yes.
    Mr. Allen. And are you prepared to work to prevent 
unintended pregnancies by supporting sex education programs 
that offer young people medically-accurate information about 
both contraception and abstinence?
    Secretary Leavitt. It is my belief that those programs are 
best determined at the local level with the involvement of 
parents. And to the degree that we are supporting programs, 
then, yes, we need to work for medical accuracy.
    Mr. Allen. In Maine, my State has now rejected abstinence-
only money from the federal government because our experience 
has been that more comprehensive programs turn out to be more 
effective at reducing unintended pregnancies.
    And in looking at your budget, it looks to me like funding 
for abstinence-only programs is expected to be about 176 
million in fiscal year 2007 and in the 2008 budget request, the 
President is proposing increasing that to $204 million.
    But Title 10 money is flat funded. And so, you know, where 
I come from, we see the Title 10 money as more scientifically-
based, more likely to reduce unintended pregnancies.
    Why not an increase for Title 10?
    Secretary Leavitt. I respect what you have suggested and 
also the State of Maine. And it is obviously their decision as 
to whether or not they pursue those monies. Title 10 is 
substantially larger as a matter of absolute dollars than the 
$204 million, but it has been the belief of this Administration 
that those dollars pay off and that we want to increase them in 
some proportion, though it is small by comparison to the other 
dollars that are invested by this government.
    Mr. Allen. So it is a choice. Let me turn to one other 
issue I wanted to raise with you. I have a number of issues 
with the President's healthcare proposal that go to the problem 
of what happens when you enhance the individuals market. I am 
afraid you will wind up leaving people who are older and sicker 
without the opportunity to get health coverage.
    But the question I have for you is, as I understand the 
President's proposal, it diverts Medicaid disproportionate 
share hospital payments away from hospitals and other 
healthcare providers in order to fund this new program. But 
Medicaid DISH payments today are about $17 billion a year and 
that money goes to a variety of hospitals that are providing 
uncompensated care to people who simply walk in and need the 
service.
    What in your proposal do you propose to do for those 
hospitals? The issue of uncompensated care is not going to go 
away. The people are not going to go away. Have you thought 
through what happens when you divert that much money?
    Secretary Leavitt. Yes. Let me speak on both of those 
matters, especially with respect to the employer market. The 
employer market is the vast majority of our market today, will 
likely continue to be that way perpetually, and it needs to be 
protected because it is such an important delivery system.
    However, there are many people, for one reason or another, 
who end up having to leave the employer market. They either go 
out on their own or their job changes in such a way. And it is 
that problem we have to create a viable alternative for because 
the goal here has to be to get every American access to an 
affordable basic policy.
    There are certain parts of that problem that the states 
cannot solve on their own. One part is the issue of the tax 
deductibility and the indefensibility of the policy that we 
currently have evolved to. No one voted for it. We just evolved 
to it.
    Now, with respect to the matter of uncompensated care 
funds, there are some $30 billion that we currently send from 
the federal government into states for the providing of 
essentially three important ongoing needs.
    The first would be to have uncompensated care, and there is 
no question that we will continue to have people who do not 
have insurance and there needs to be a means by which those 
hospitals can meet those obligations. It is something we all 
feel committed to.
    A second purpose would be to assure that public hospitals 
are able to remain open and viable.
    The third area is in helping sustain the overhead of 
various hospitals.
    The principle at play here is rather than perpetually 
paying the bills of people who are uninsured, does it not make 
sense that we use at least some portion of that to help them 
get insurance? No one is suggesting we take all of that money.
    We are saying let us look at this in order of magnitude and 
figure out how best to get them insured because they are better 
off and so is the system if they have insurance because they 
get preventative care, they get regular primary care. Right now 
they get it in the emergency room, and it is not a healthy 
system.
    So the President has asked that I actually go out and sit 
with the states, and I have been in, I think, eleven of them 
since the State of the Union, and I will be in another ten or 
eleven in the next two weeks.
    And I am sitting with the Governor, I am sitting with the 
legislators, I am sitting with the people who run their health 
system and saying to them how can we use this money better to 
meet those three needs. And if, in fact, we could actually get 
everybody insured, would it not make sure that we would not 
need to spend all of that money perpetually paying their bills.
    There is no specific proposal on the table except to sit 
down and collaboratively come up with a better way to do what 
we all intend, which is to provide high-quality care to people 
and to have everyone have access to an affordable basic policy.
    Mr. Allen. Thank you. My time has expired. We could go on 
for a while, but I appreciate your comments.
    Chairman Spratt. Mr. Alexander.
    Mr. Alexander. Thank you, Mr. Secretary.
    I apologize for the way my voice sounds. I am getting 
improper healthcare, I guess.
    But the first thing I want to do is thank you for the 
attention that you have given Louisiana. We have many people 
there that are depending on the charity hospital system that 
has provided healthcare for Louisiana citizens for years. And 
you have been there on numerous occasions, and we appreciate 
it.
    Quite frankly, I am surprised you have not pulled out all 
your hair dealing with that issue down there. But, again, thank 
you.
    My question is about nursing homes. The nursing homes that 
provide skilled nursing care are looking at a pretty sizable 
reduction and not a cut but a reduction in growth of their 
program as we look at a freezing of the market basket the first 
year and then a reduction in the next five years.
    My question is, are market basket and inflation synonymous 
and, if not, how are they different as you look at them?
    Secretary Leavitt. This is a very good illustration that I 
think will help members of the Committee understand the way I 
went about dealing with this and other Medicare issues.
    Skilled nursing is a--we get a Med Pac recommendation. They 
also give us an analysis of the marketplace. They told us, for 
example, that the skilled nursing facilities now have a 9.7 
percent margin in 2006 and an 11 percent in 2007. They 
recommended that we have a zero update in 2008.
    We also concluded by looking at Med Pac that there would be 
a 1.3 percent productivity gain. Well, frankly, I looked at 
those margins, I looked at the fact that we are seeing an 
increase in the market, and I said we have got to do something 
to turn that line down a little bit. It looks to me like here 
is a place we could afford to do it.
    Now, frankly, I would prefer as we talked to have a more 
market-based system. But given the fact that we set prices 
essentially here, and that is my job, that is the rationale I 
use.
    Let us just take the productivity gain, give half of it to 
them, we will put half of it into taxpayers, and they are still 
having substantial operating margins and we are seeing an 
increase in the number. That tells me what the market, in fact, 
if it could find its way to a level, would likely find its way 
to a level that I have suggested. And, you know, it is not 
perfect, but it is the best logic given what I have to work 
with that I could come up with.
    Mr. Alexander. Thank you, sir.
    That is all, Mr. Chairman.
    Chairman Spratt. Ms. Schwartz.
    Ms. Schwartz. Thank you, Mr. Chairman.
    Secretary Leavitt, good to see you again.
    I wanted to follow-up on some of the conversation we had 
last week at the Ways and Means Committee, and I appreciated 
some of your answers then and thought maybe we could follow-up 
on some of them today. And this is really about the proposals 
around the additional coverage for the uninsured as you see it 
and some of the tax provisions.
    And, again, I am going to try and do this in a sort of a 
yes, no and see if we can get to it and just to be clear what 
some of your intentions are and the Administration's intentions 
are. And there may be ways for us to find some common ground 
for us to move forward. And I certainly hope there are because 
we have a shared agreement that we need to get more people 
insured in this country.
    I think you would start out by agreeing that there are 
currently about 46, 47 million uninsured Americans, this is 
without ongoing insurance in this country, and about 160 
million rely on employer-sponsored coverage.
    So those are numbers, I think, we agree to. And that the 
President's tax scheme that, according to your own estimates, 
would still leave about 90 percent of those who are not insured 
now uninsured.
    Secretary Leavitt. It is important to look at the two 
proposals the President has made together because as I go out 
to work with the State of Pennsylvania and the State of New 
Jersey and all those states that are currently working on 
proposals to increase the number of insureds, it is evident to 
me that they have this tax problem that they have to solve.
    And if they had the tax problems solved and then combined 
it with their own access, the number of people who would 
actually gain coverage would be very high than if we just had a 
tax program. There will be a limited number of people who will 
better be able to afford it and will. But if you combine that 
with a basic affordable plan, you are going to see lots of 
people get insurance who currently----
    Ms. Schwartz. Well, let us flesh that out if we may. You 
are using numbers like lots of people, and I think your own 
estimate is--and it sounds like lots of people actually if you 
want to talk about two, three, four million people will get 
some tax advantages, you know. And that is about six percent, 
though, of the number of uninsured.
    So you are saying that is a great goal, that is what we can 
afford to do, that is all we can do? What sort of----
    Secretary Leavitt. Well, how many would Governor Rendell's 
proposal in Pennsylvania cover?
    Ms. Schwartz. Well, it is interesting. As you know, he is 
relying on some things that you are going to take away. One of 
them is the enhanced SCHIP reimbursement, and working with the 
federal government to be able to use the CHIP Program, you are 
taking away with one hand what you are offering with the other. 
And there is----
    Secretary Leavitt. Well, that is one way to get----
    Ms. Schwartz. Let me just say it is complicated and it is 
not going to be in one fell swoop. But the proposal that you 
are putting out, that the President has put out basically says 
that we have to reduce benefits to those who get health 
insurance through their employer.
    And I think that you have stated yourself that one of the 
intentions here is that the President believes or you do that 
people are getting too much healthcare, that it is too 
comprehensive. You want to make sure that people get a basic 
coverage, but that you are going to reduce the tax advantages 
for a very comprehensive plan, one.
    Two, you are going to put the people who are in the 
individual marketplace are going to have to find insurance on 
their own rather than in a group. And while you have said that 
the marketplace may respond to that, we do not, in fact, know 
that. It is a very expensive way to buy health insurance now.
    And for families that have family incomes of maybe $50,000, 
even 60 or $70,000 before tax dollars to find seven, eight, 
ten, twelve thousand dollars out of pocket to buy health 
insurance in the expectation of maybe getting a tax deduction 
or tax credit later is really not realistic.
    So that the number of people who will actually be helped by 
your proposal, even in Pennsylvania where our Governor is 
hopeful that they can do through waivers and a whole other 
combination of factors, cover more people, in fact, you are not 
helping them anywhere near as much as you might if you actually 
did not have to take away with one hand in order to give to 
another group.
    Secretary Leavitt. It will not surprise the gentlewoman 
from Pennsylvania that I disagree with a number of your 
conclusions.
    Ms. Schwartz. OK.
    Secretary Leavitt. The principle here is, what we are 
discussing is what will government do to subsidize those in 
need. And the question is, is there more virtue in a thousand 
people having a basic affordable plan or five hundred people 
having a comprehensive plan and five hundred of them having 
nothing?
    Now, I believe that----
    Ms. Schwartz. So let me just stop you there. You are saying 
then that it is the Administration's intention to reduce 
benefits for people who have them because they get too much 
and----
    Secretary Leavitt. It is not. It is not.
    Ms. Schwartz [continuing]. And to make sure that--and maybe 
you are saying it is a good thing--is to help those who are the 
poorest maybe be able to get them the most. And I represent a 
lot of lower, middle-income folks who are struggling to be able 
to meet all their expenses, to pay health insurance if they 
can. They value their employer-based health insurance. It is 
not easy to buy it in the individual marketplace.
    The fact is that you are really driving this to just those 
who are really--you are not really helping them. Let me just 
end it there. You are not really helping them enough to truly 
make a difference.
    Secretary Leavitt. Well, may I point out that the 
President's proposal, his tax proposal alone would benefit 80 
percent of your constituents and every person in this country 
who is on an employer-sponsored insurance plan, and it would 
benefit 100 percent of those who have nothing.
    Now, that sounds like serious help to me. And I would also 
point out that there are a lot of people in this country who 
end up leaving the employer-sponsored health insurance plans 
because of changes in their employment, because of changes in 
their circumstances, and they have nowhere to go. And this is 
about creating pooling where they have the ability to buy it in 
the individual market if they have to go there.
    Ms. Schwartz. Let me just interrupt. I am sorry. I did not 
see any proposal around pooling. You are putting people into an 
individual marketplace and I have not----
    Secretary Leavitt. Well, you have not looked at the 
proposal.
    Ms. Schwartz [continuing]. Seen any of those proposals. 
Maybe you have them, but we have not seen any of them because 
if you do it without pooling, it is very expensive and 
sometimes unacceptable even with a tax deduction.
    Secretary Leavitt. The proposal is that we create a basic 
affordable plan for everyone in a State and that would require 
a State to choose a method of developing funding for those that 
are chronically and seriously ill. That is why these two 
proposals have to be done together.
    You cannot just say here is one proposal, here is another. 
The value of the plan is that we are working collaboratively 
with the states to actually get at solving the problem and 
having every American have a basic affordable policy.
    Chairman Spratt. Mr. Smith from Nebraska.
    Mr. Smith. Thank you, Mr. Chairman.
    Mr. Secretary, I appreciate this opportunity.
    I will begin by saying that when the proposal was newly 
released, I was not as big of a fan as I am now after learning 
more. And I do have to say that in many cases, even some 
employer-provided pooling of healthcare right now, adverse 
selection is taking place based on the generosity of some 
plans. And I do not say we should take that away necessarily as 
we should use more market-based principles with that.
    So I appreciate, and I look forward to learning even more 
about it.
    That being said, within the context of public health in 
general and the programs that states and the federal government 
offer, I hear concerns from the front lines of healthcare that 
many beneficiaries are not utilizing the appropriate channel of 
benefits perhaps.
    What is being done perhaps to delineate the difference in 
services? Say the emergency room versus the clinic or walk-in 
urgent care, whatever the case might be. Are we able to provide 
the states the flexibility to address those so that consumers 
and beneficiaries can take advantage of what is most 
appropriate utilizing the most cost-effective manner?
    Secretary Leavitt. Your seat mate, Mr. Alexander, spoke 
some of Louisiana. In Louisiana, 43 percent, almost double the 
number of people, almost triple the number of people go to 
emergency rooms to get the most basic of care because they do 
not have existence of those facilities there.
    They have a two-tiered system where if you are employed and 
have insurance, you go to one system. If you are not employed 
and poor, you go to another. And the quality of care that they 
receive is not what it would be if they had access to 
preventative medicine.
    And this is a good example. In Louisiana, the federal 
government sends them about a billion dollars a year. We could 
provide as a government assistance for virtually every person 
under 150 percent of the poverty line to have a basic 
affordable policy, have almost $300 million left over to pay 
for uncompensated care to support hospitals. And those people 
would have access to preventative care.
    So our policies do impact that, and that is one of the 
reasons that the President feels so strongly about having 1,200 
new community health centers. That is where we can provide 
assistance, but those would be so much more viable financially 
if people walked in with an insurance card instead of to the 
community health center or to a clinic as opposed to going to 
an emergency room where they are not going to get that care. It 
is more expensive and less efficient, and they are not as 
healthy as a result.
    Mr. Smith. OK. Thank you.
    I yield back the balance of my time.
    Chairman Spratt. Mr. Doggett.
    Mr. Doggett. In our discussion about the plan that you and 
President Bush have to raise taxes, to provide more coverage 
for the uninsured, we discussed this last week. You said to Ms. 
Schwartz here as you told me last week what you thought were 
the purported benefits of your plan.
    In terms of the purported cost, there are, as you said, 20 
to 25 percent of the people. I believe that is a little over 30 
million people, as I described it to you last week, who receive 
insurance through an employer, who will pay more taxes if your 
proposal is adopted.
    Secretary Leavitt. On that day, the Chairman of the 
Committee asked me if the President's tax cuts were not made 
permanent, would I see that as a tax increase. I said if the 
federal government raises more taxes as a result, it seems like 
to me that might be considered a tax increase.
    Mr. Doggett. Well, I am glad for you to take that up with 
him. I am asking a specific question. If your proposal is 
adopted, will there not be 30 million people plus in this 
country who receive insurance today through an employer plan 
who will pay more taxes the year after your plan is adopted?
    Secretary Leavitt. There will be three who receive benefit 
and one that will not, and they will----
    Mr. Doggett. Mr. Secretary, is it not true, under your 
estimates under the written documents that you proposed, under 
all the assumptions that you have outlined that over 30 million 
people--you can call it 20 percent. You can call it one in 
four. You can call it one in five. But 30 million plus people 
will pay more income taxes after your plan is adopted than do 
today?
    Secretary Leavitt. I am prepared to stipulate to that to 
the extent that----
    Mr. Doggett. You agree with that?
    Secretary Leavitt [continuing]. If you will understand and 
stipulate that 120 million people will receive a benefit----
    Mr. Doggett. I understand you and the President----
    Secretary Leavitt [continuing]. And that the federal 
government will not collect a dollar in taxes more.
    Mr. Doggett [continuing]. At the State of Union address 
want to talk about the benefits. I want to talk about the 
person who has got a wife with breast cancer, a child with a 
disability, or is a high-risk job. And of all the people for 
you all to propose a tax increase on, you are proposing a tax 
increase on that person because they happen to have a decent 
health insurance policy.
    Secretary Leavitt. That is not true.
    Mr. Doggett. And as I--well, it--you just----
    Secretary Leavitt. It is not true.
    Mr. Doggett. You just, quote, stipulated that you are going 
to raise taxes on 30 million people who----
    Secretary Leavitt. Mr. Doggett, you continue to make that 
assertion. I would like to be clear that you believe that.
    Mr. Doggett. Yes.
    Secretary Leavitt. I would like it clear I do not.
    Mr. Doggett. Well, you just stipulated. You do not want to 
say that it is a tax increase because you claim it is revenue 
neutral.
    Secretary Leavitt. That is exactly what it is.
    Mr. Doggett. Yes. But if I am the person paying the tax 
bill, it is sure a tax bill on me if I have that kind of 
insurance policy. I am going to be paying more taxes and so are 
30 million people.
    And, indeed, the numbers actually go up now that I have had 
a chance to look at your ten-year figures because they show 
that by the end of the ten years, 40 percent, twice as many, 
will not be within the deduction area, and that is because you 
have chosen to treat people with good insurance differently 
than you treat the Medicare Advantage plans that you want to 
benefit under Part D. You let them adjust their benefits 
according to the CPI for medical expenses, but on these health 
insurance plans, you limit it to just the cost of living, do 
you not?
    Secretary Leavitt. Well, I would assume then by your 
position that you would think it is a good idea for us to 
continue to have people who have to buy it from----
    Mr. Doggett. Well, I am glad to answer questions from you 
after this hearing. But my question to you, sir, is, is it not 
true that you go up to 40 percent of the plans that are not 
within the standard deduction because you have applied a 
different and discriminatory cost-of-living index here 
different from what you do for the Medicare Advantage Program?
    Secretary Leavitt. It is true that we believe that by 
targeting those increases at a lower rate that we can have a 
positive impact on medical inflation.
    Mr. Doggett. But you do not want to do that for Medicare 
Advantage programs. In fact, the Commonwealth Fund came out 
with a study within the last couple of months that I am sure 
your office is familiar with that in year 2005 under Medicare 
Part D, you paid the Medicare Advantage programs almost a 
thousand dollars per beneficiary more than it cost us under the 
traditional Medicare.
    You do not have any disagreement with that study, do you?
    Secretary Leavitt. What I do have a disagreement with is 
that it is not about paying more. It is about getting 
integrated care and establishing a policy where we can have 
more----
    Mr. Doggett. So you think you are getting value for your 
thousand dollars more per person?
    Secretary Leavitt. We do, and we are also of the 
understanding or when I say understanding, we also have 
established policies in the law that over time would begin to 
reduce that difference. It was done as a deliberate policy 
matter to assure that we have integrated----
    Mr. Doggett. Well, in order to----
    Secretary Leavitt. Could I continue?
    Mr. Doggett. Let me just ask you to respond at the same 
time since my time is expiring. Would you be in favor of 
applying the same cost-of-living index there that you now 
propose for this new tax on health insurance policies?
    Secretary Leavitt. We are working to establish a policy 
with Medicare Advantage that allows for beneficiaries to have 
integrated healthcare, and we want it to be available in every 
part of the country because we believe that part of 
establishing this long-term benefit is integrated care.
    And when you have integrated care and not just fee-for-
service medicine where we are paying providers for how much 
they provide as opposed to the benefit, we think in the long 
term, and evidence bears this out, that the Medicare Trust Fund 
benefits and that those who are the beneficiaries themselves--
--
    Mr. Doggett. Is that a yes or no on whether you would treat 
the Medicare Advantage Program the same way you propose----
    Secretary Leavitt. We would not.
    Mr. Doggett [continuing]. This health insurance tax?
    Secretary Leavitt. We would not.
    Mr. Doggett. So you are going to keep giving them more 
benefit?
    Secretary Leavitt. The law is what it is, and we support 
the current law.
    Mr. Doggett. Thank you.
    Chairman Spratt. Mr. Tiberi of Ohio.
    Mr. Tiberi. Thank you, Mr. Chairman.
    Governor, thank you for being here today.
    Last week after the budget was introduced by the 
Administration, predictably I saw headline after headline 
claiming that there were deep cuts in Medicare and deep cuts in 
Medicaid in particular. Upon closer look, it appeared to me 
that every year in the budget, there is actually growth in both 
Medicare and Medicaid spending.
    Can you comment on that?
    Secretary Leavitt. The Medicare rate of growth right now is 
6.5 percent a year. If we made every change that we have 
proposed, we would reduce the growth rate from 6.5 percent down 
to 5.6 percent. It would sustain the viability or the solvency 
of the Medicare Trust Fund by just four years. But it is an 
important start.
    Mr. Tiberi. Which was my follow-up question. I heard a lot 
over the last year about entitlement spending and particularly 
Medicare and Social Security.
    When you look at those programs particularly under your 
jurisdiction, Medicare and Medicaid, what is your biggest fear 
over the next two years if we do not begin to tackle the 
problem with the growth of those programs?
    Secretary Leavitt. I am trustee of the Medicare Trust Fund 
as well as Secretary of Health and Human Services. We now 
measure Medicare as a percentage of the entire gross domestic 
product.
    I have a grandson that was born last year. When he reaches 
his father's age, it will have gone from 3.2 percent to 8.1 
percent. When he gets to be my age, it will be 14 percent. And 
I am not talking about the federal budget. I am talking about 
the gross domestic product of the entire country.
    My biggest fear is that we will not make the logical small 
changes now that could prevent that from happening because we 
all know that will not occur. We will either have been 
eliminated from the economic playing field as a country or we 
will have changed it. And let us hope we do not change it too 
late.
    Mr. Tiberi. Mr. Secretary, one of the programs that I 
support and initially opposed was the Medicare drug benefit. I 
opposed it initially because of the cost. I supported it after 
meeting with two surgeons in my district, heart surgeons, who 
convinced me that the way that the Medicare system was 
structured, we were incentivizing the wrong way. Rather than on 
preventative care and focusing on preventative care, we were 
paying them to do opening chest cavities and repairing hearts.
    The number of the dollars that were told to us that were 
going to be spent on the drug benefit have come in 
significantly lower than what we were told. I believe after 
talking to physicians in my district that prevention does work.
    How do we as policy makers here put more of the focus on 
preventative costs up front so we can save on the long-term 
cost both in our regular healthcare system and with respect to 
Medicare and Medicaid?
    Secretary Leavitt. Well, prevention is the key. Frankly, 
the prescription drug benefit was an important step in that 
direction. I am sure as your cardiologist friends would tell 
you, Medicare reimbursed heart operations that would cost 150 
or $200,000 a piece that we could have prevented for $1,000. 
And we are now changing that.
    I will tell you another very important change and that is 
beginning to gravitate away from the fee-for-service 
reimbursement and moving toward an integrated care.
    You walk into a hospital, you ask a hospital administrator 
what is the most expensive--in fact, a hospital administrator 
asked me this. He said what do you think the most expensive 
medical device is in this hospital. I said I do not know. Is it 
a CAT scan? He said, no, it is a ballpoint pen in the hand of a 
physician.
    We do not know in many cases the degree or cost that each 
individual--you put five people who are being treated for the 
same thing, they will end up with radically different treatment 
patterns and the result is much higher cost.
    So having integrated care where you have the--we talked 
earlier before you came about quality measurement, cost 
measurement begins to create a market of competition based on 
quality. When we do that, we will begin to see quality go up 
and cost go down.
    Mr. Tiberi. Thank you, Mr. Chairman.
    Chairman Spratt. Thank you.
    Mr. Andrews from New Jersey.
    Mr. Etheridge from North Carolina.
    Ms. Hooley from Oregon.
    Ms. Hooley. Thank you, Mr. Chair.
    It is nice to have you in front of Committee.
    Secretary Leavitt. Thank you.
    Ms. Hooley. It is interesting because the questions I am 
going to ask you are all bits and pieces of our healthcare 
system because, as you stated early, and I totally agree with 
you, we do not have a healthcare system. It is very much a 
piecemeal system. But since that is what we currently have, I 
am going to ask you those piecemeal questions.
    This budget gives rural healthcare initiatives, it is a 
$142 million cut, and leaves 17 million for rural healthcare. 
That is going to be difficult because for many of our rural 
communities, that is the only healthcare they have. It is very 
hard to get doctors out there. It is very hard for the rural 
communities to get healthcare.
    And I know you have increased funding for community-based 
health centers. I am happy about that. I think that is a very 
good thing to do. Again, it is nice for people in all areas to 
be able to go into a community health center. So I am happy 
about that.
    But those community health centers do not specifically 
target rural communities. And, again, it seems like we 
continually spend less money in those under-served rural 
communities. I find it unacceptable.
    So I do not know if you want to comment on that or not, 
but----
    Secretary Leavitt. I mentioned the other day at the Ways 
and Means Committee that I governed a State for eleven years 
that had areas that were so rural you had to order a haircut 
out of the catalogue, let alone healthcare, and that delivering 
healthcare to those areas, I understand the difficulties of it.
    We have made a substantial investment through the 
``Medicare Modernization Act'' to increase by $25 billion the 
amount going into rural healthcare. There are as a result of 
that areas where in this budget I felt like we have other ways 
of reaching the same goal. And so we have chosen to do it that 
way. But I am sensitive to the problem you are talking about.
    Ms. Hooley. And, again, I just think 17 million for this 
whole country for rural healthcare is just too little.
    Secretary Leavitt. Well, we spend a lot more than 17 
million for rural care. That is one program that we have 
chosen. We are actually proposing about a like amount to 
increase nurse visits that can in large measure be used in 
rural areas.
    Ms. Hooley. I was talking to one of my hospital 
administrators and this is a nonprofit hospital. And he was 
worried about CMS's proposal released on January 18th that will 
cut $3.9 billion in Medicaid funding over the next five years.
    The rule is designed to cut funding for public providers, 
but you know and I know that those cuts are going to be felt by 
all providers, including the not-for-profit hospitals. Those 
cuts are in addition to across-the-board cuts to hospital, 
hospice, ambulance providers.
    Then you include the budget's failure to fund Medicare 
physician payment reform which will result in a payment cut of 
ten percent for physicians next year. And all of that adds up 
to a pretty dire situation for our safety net providers.
    They are getting hit hard by this budget. And, again, I 
want to tell you that I think it is particularly difficult for 
rural providers.
    Have you done anything specific to examine how these cuts 
are going to impact patient access to care if more providers 
stop accepting Medicare and Medicaid patients?
    And let me just talk to you a little bit about that. Some 
of my communities literally, they will not accept any more 
Medicare patients. I mean, they cannot. They are filled up or 
they cannot afford to accept any more with the cuts.
    What are we going to do about that? I mean, I am worried 
about our whole system because of the reimbursement rate, the 
way our system is currently.
    Secretary Leavitt. Congresswoman, I worry about that too. 
It is one of the reasons that I am so passionate about making 
certain that there are Medicare Advantage plans available in 
every part of our country, because they provide an integrated 
care with the assurance that there will be physicians who are, 
in fact, able to treat Medicare patients and to accept new 
ones.
    Now, I have already acknowledged that I think the way we 
reimburse physicians, it is kind of a witch's brew that nobody 
really understands. It is a very complicated system, and I 
would like to see a system that is different than that.
    So I worry about the same thing. As you said, we have what 
we have. We need to migrate towards something better. But in 
the meantime, that is one way we can do it.
    Ms. Hooley. Well, again, I find physician after physician 
has told me they just simply cannot afford to accept Medicare 
patients any longer. So I jokingly tell them this, but I am 
dead serious when I tell some of my friends who are my age, 
make sure when you get a new physician before you retire that 
you get a young physician because if yours retires on you, you 
will never find another physician to go to. And I think that is 
actually a really horrible message to give to people, but that 
is what I tell people.
    Secretary Leavitt. I mentioned earlier that I am very 
anxious to see us find ways to make the business model of 
physicians, particularly small-practice physicians, viable. And 
part of that will be in developing a system that can gather 
information and reward high quality and at the best price. And 
if we do that, both physicians will be sound and able to make 
their businesses work and we can provide care.
    I would say that there are few people with more to worry 
about in this area than me. I have 43 million beneficiaries, 
including my parents, who depend on that. And we will do all we 
can, but we have got to deal with how we finance this system in 
the long term. We have got to work on this because we cannot go 
on just every six or eight months trying to figure out how to 
keep it together for the next six or eight months.
    Ms. Hooley. Thank you.
    Chairman Spratt. Mr. Hensarling.
    Mr. Hensarling. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary.
    Secretary Leavitt. Thank you.
    Mr. Hensarling. Just as a point of clarification, since we 
continue to hear the word cut used over and over and over, is 
the Administration proposing to spend more money on Medicare in 
this budget or less?
    Secretary Leavitt. We will spend 5.6 percent more per year 
going over the course of the next----
    Mr. Hensarling. And how about Medicaid?
    Secretary Leavitt. Same, 7.1 percent.
    Mr. Hensarling. And how about the life of the 
Administration? Have you spent more money on Medicare and 
Medicaid each and every year of the Administration?
    Secretary Leavitt. Each year.
    Mr. Hensarling. That is what I thought. I missed some of 
this hearing. When I walked in, I must admit I was a little 
incredulous by what I was hearing. I heard nothing from the 
other side except how tax relief has been the source of all of 
our problems and that we must increase taxes on the American 
people.
    And now I hear voices from the other side of the aisle 
castigating the Administration for what they view as a tax 
increase. I am having a little hard time seeing how they can 
have it both ways.
    How do you say we need tax increases and then when you 
purport to have a tax increase, all of a sudden, you are being 
criticized?
    Furthermore, as I understand it, if there are people who 
will see a short-term increase in their tax liability, is it 
the poorest of Americans that might see such?
    Secretary Leavitt. No. It will be the upper 20 percent of 
income. This would perhaps be the most progressive tax policy 
move that we will have seen in decades.
    Mr. Hensarling. So you might be said to be taxing the rich; 
is that correct?
    Secretary Leavitt. Well, it is not a tax increase because 
it does not gather any additional revenue. Those that it 
affects----
    Mr. Hensarling. Well, I agree with you, Mr. Secretary. I 
understand that this is----
    Secretary Leavitt. I might add that----
    Mr. Hensarling [continuing]. Revenue neutral.
    Secretary Leavitt. I might add that those who are in that 
situation have options. They----
    Mr. Hensarling. Well, indeed, there is a way that they can 
align their affairs such that they do not have any increase in 
their tax liability; is that correct?
    Secretary Leavitt. That is correct. They can.
    Mr. Hensarling. Well, I for one want to congratulate you 
and the Administration for this policy. I certainly reserve the 
right of final judgment until I see all the details.
    But I would hope that what we would do as a Congress is try 
to come together and work in a bipartisan fashion to find ways 
to make healthcare more affordable, more portable, more 
accessible, of high quality and with patient choice. And, yet, 
we have had this odd quirk in federal policy where we 
essentially have third parties buy our health insurance for 
you.
    To the best of my knowledge, we do not have analogous 
program for letting third parties buy our homes or our 
automobiles. Are you aware of any other federal policy that----
    Secretary Leavitt. I am not.
    Mr. Hensarling. Well, again, I would like to congratulate 
you for taking a very bold step forward that would empower 
millions of self-employed people and not to mention people who 
are now for all intents and purposes forced to take the health 
insurance of their employer's choice and empower them to go out 
and buy the health insurance that is best for them and their 
families.
    It is a very empowering thing and it puts them in control 
of their healthcare. I frankly think it is one of the greatest 
steps forward I have seen to improve healthcare, not only its 
quality, but its affordability.
    Mr. Secretary, prior to you coming to our Committee, we 
heard from the head of CBO, the head of OMB, and I believe the 
Secretary of the Treasury, and I do not care to put words in 
their mouth, but I think they have all said something along the 
lines of the number one fiscal challenge of this nation is to 
find out ways to reform entitlement spending because if we do 
not, within a generation, some models differ, we are looking at 
either, A, having no federal government to speak of except 
Medicare and Medicaid and Social Security or a tax increase of 
somewhere between 50 and 100 percent on future generations.
    If people refuse to embrace entitlement reforms and 
entitlement spending, imagine, if you would for me, please, 
what does the world look like if the next generation is saddled 
with a new tax burden of between a 50 and 100 percent increase 
and what does that do to their healthcare?
    Secretary Leavitt. I mentioned a little earlier today, but 
it bears repeating, that I have a grandson who today lives in a 
world where 3.2 percent of the gross domestic product is 
Medicare alone. If you add Medicaid to that, it about doubles 
it. When he becomes his father's age, it will be eight percent 
of the gross domestic product. When he becomes my age, it will 
be 14 percent of the entire economy.
    Now, it does not take a lot of imagination to recognize 
that you cannot sustain a competitive economy with that kind of 
expenditure going into one sector.
    Mr. Hensarling. Thank you, Mr. Secretary. I see my time is 
up.
    Thank you, Mr. Chairman.
    Chairman Spratt. Mr. Andrews of New Jersey.
    Mr. Andrews. Thank you very much, Mr. Chairman.
    Thank you, Mr. Secretary.
    I want to ask you about the allocation of the benefit that 
you are proposing with respect to covering the uninsured with 
healthcare.
    First of all, do we have any data on the--I think you used 
the phrase 20 percent of those whose health insurance plans 
have a value of more than $15,000 for a family and who, 
therefore, would pay taxes on the value of the healthcare 
benefit that exceeds $15,000.
    Do we have any income distribution data about who those 
people are that would get that tax increase?
    Secretary Leavitt. We do.
    Mr. Andrews. What does it look like?
    Secretary Leavitt. If you divide the economic spectrum into 
five parts, they are the upper 20 percent.
    Mr. Andrews. Is everyone in the upper 20 percent?
    Secretary Leavitt. Well, just like any other statistic, 
there are those that are not, but on balance, they are in the 
upper 80 percent.
    Mr. Andrews. Could you supplement the record with a written 
answer to that question for us so you could show us? What I am 
specifically interested in is the income distribution by either 
adjusted gross income or gross income.
    Secretary Leavitt. The Department of Treasury has that 
information. I would be happy to----
    Mr. Andrews. If you would supply that.
    Second thing I want to ask you is under this plan, let us 
say we have a person who is uninsured--well, let me just give 
you this statistic. Forty-one percent of the people who make 
between 20,000 and $40,000 a year are uninsured according to a 
recent study. Forty-one percent of people's incomes are between 
20,000 and 40,000.
    Say if someone has an income of $30,000 a year, their gross 
income, and they are a renter and they say they have two 
children and their adjusted gross income with exemptions and 
whatnot is down at about 23,000, tell me how this proposal 
affects them.
    Secretary Leavitt. It is clear that the benefits of this 
proposal alone would not provide an adequate assistance for 
them to buy health insurance.
    Mr. Andrews. What would it provide though?
    Secretary Leavitt. Well----
    Mr. Andrews. A person with, let us say, a $23,000 AGI who 
has no health insurance, what is the value of this proposal?
    Secretary Leavitt. Well, if they had no health insurance, 
it would not benefit them.
    Mr. Andrews. So they get nothing?
    Secretary Leavitt. That is right.
    Mr. Andrews. So in my State, for example----
    Secretary Leavitt. Get nothing now.
    Mr. Andrews. That is right. In my State, a family health 
insurance policy may cost 12, 13, $14,000 a year on the 
average. So the value of this tax benefit to someone who cannot 
afford to buy the family policy is really nothing?
    Secretary Leavitt. As you will recall earlier, I mentioned 
that you cannot look at this as one proposal. There are two 
proposals. The second would be to have the federal government 
assist the states in closing the affordability gap----
    Mr. Andrews. How much money are you putting into that----
    Secretary Leavitt [continuing]. Just like the ones that----
    Mr. Andrews. And how much money are you putting into that 
proposal?
    Secretary Leavitt [continuing]. Just like the ones you have 
described.
    Mr. Andrews. I understand.
    Secretary Leavitt. We are working now with the states to 
develop a proposal. We would like to work with the Congress in 
the same way. It is clear to us that we have to, first of all, 
assure that there are basic plans available and, second, that 
they are affordable. An important part of making them 
affordable would be to have this tax equalization. It is 
indefensible, but we----
    Mr. Andrews. How much is budgeted toward that initiative?
    Secretary Leavitt. That has not been budgeted yet because 
we want to work with the Congress and with the states to 
determine how it should be developed.
    Mr. Andrews. Well, you say yet. I mean, is there a place 
holder? Is it correct to say that in the proposal before us, 
the amount is zero right now for that?
    Secretary Leavitt. The proposal has not yet been made, but 
it is very clear from what the President said is he wants to 
work with the Congress to do two things. One is to provide 
supplement to states to close the affordability gap to be able 
to help exactly the person that you are talking about be able 
to afford policy and then close the gap on the tax issue.
    Mr. Andrews. My understanding is that the revenue loss you 
are projecting for the first five years of this 20/80 plan is 
$126.4 billion. Why did we not take the $126.4 billion and put 
it into SCHIP? Would that not have been a more rational way to 
try to get to the people who are uninsured?
    Secretary Leavitt. We do not think so. We think----
    Mr. Andrews. Why not?
    Secretary Leavitt. Because we think it is the 
responsibility of the federal government to assure that if a 
person is elderly, disabled, if they are poor, if they are a 
woman who is pregnant, if they are a child needing protection, 
it is the responsibility of the federal government to assure 
that they have health insurance.
    And we do that through Medicare, Medicaid, and SCHIP. 
Everyone else, we believe that it is better for the states to 
assure that there is a marketplace that will provide a basic 
affordable policy and that we should do two things in the 
federal government.
    One is to resolve the indefensible position that we 
currently have, which I assume you would want to change, where 
those who----
    Mr. Andrews. My time is expiring. My own observation is 
that this is a continuation of the indefensible, an 
exacerbation of the indefensible because you are taking 126 
billion in tax expenditures and not putting it toward the 
people who are most in need.
    Chairman Spratt. Mr. Ryan has a question for clarification.
    Mr. Ryan. Rob, I want to ask a clarifying question of 
Secretary Leavitt because I think there may have--at least I 
got confused in a stage of it.
    If a person has an adjusted gross income of $23,000, you 
said no value whatsoever would come to them.
    Secretary Leavitt. They have no insurance. They have to buy 
insurance as a condition to get the benefit.
    Mr. Ryan. OK. But their tax benefit would be--because this 
refund--this is deductible. The deduction applies to FICA taxes 
as well, correct?
    Secretary Leavitt. It does, but they would have to buy 
insurance in his example that they do not have any insurance.
    Mr. Ryan. OK. So they buy insurance. Then the deduction in 
that person's case would basically just apply to what they pay 
in FICA taxes, correct?
    Secretary Leavitt. That would be true if their adjusted 
income was what you suggested.
    Mr. Ryan. You would not have--yeah. OK. You would not have 
an income tax liability at that AGI on income taxes?
    Secretary Leavitt. That is right.
    Mr. Ryan. You would have a FICA tax liability and so the 
deduction would just be the value of the deduction on FICA 
taxes? If then you bought insurance, it would reduce the cost 
by that amount? Is that basically how you calculate it?
    Secretary Leavitt. That is correct.
    Mr. Ryan. OK. Thank you.
    Mr. Andrews. Will the gentleman just yield?
    Mr. Ryan. Yeah, sure.
    Mr. Andrews. That is sort of my point.
    Mr. Ryan. Yeah. No. I just----
    Mr. Andrews. Someone in that position, A, does not get any 
benefit if they do not buy insurance, which I do not think they 
can afford to do. And even if they did----
    Mr. Ryan. It does not cover the cost.
    Mr. Andrews [continuing]. Their marginal rate is so low 
that it is really a pretty minimal subsidy.
    Thank you.
    Chairman Spratt. Mr. Porter from Nevada.
    Mr. Porter. Thank you, Mr. Chairman.
    Mr. Secretary, it is good to see you again. Thank you very 
much.
    Secretary Leavitt. Thank you.
    Mr. Porter. First, at the 2,500 foot level in Nevada, you 
know, in prior campaigns, I heard frequently from seniors how 
the Medicare prescription drug benefit was going to damage 
their current health plans. We had thousands of phone calls, of 
course funded by political action groups.
    I just want you to know that many of those seniors that 
called back then are now saying thank you, and they felt that 
they were not necessarily given the facts.
    But in Nevada, we have close to 90 plus percent of our 
seniors have signed up. A lot of that has to do with your 
efforts and many, of course, volunteers helping in Nevada. But 
I get calls frequently from these seniors that really 
appreciate the program. So I wanted to say something very 
positive.
    Almost 90 some thousand of those seniors are in my 
district, and certainly it is not perfect and certainly it has 
challenges, but I want to send you that message. Many of those 
folks that were complaining are now telling us it is working 
and they appreciate it.
    On the child welfare side, we have had a chat in the last 
week, and your staff has been very responsive to a very serious 
emergency in Nevada on child welfare. And I want to thank you.
    Now I want to get back to 40,000 feet for a moment. A few 
weeks ago, we heard that, in this Committee, that close to $600 
billion, and I could be off on the numbers, but close to $600 
billion is being spent a year on child welfare programs.
    Now, there is, of course, variation of number of children 
that are on welfare, and I realize every one of these children 
has a name and a family and a challenge, so I do not mean to 
discount them individually.
    But there is somewhere between 12 and 20 some million 
children a year that are in poverty. If you divide those kids 
into 600 billion, that is almost 30 to $50,000 a child a year 
is being spent currently by the federal government.
    Now, I can say facetiously we should give each child a 
check for $50,000 a year, but we know that is never going to 
happen, nor should it.
    But what can we do to make sure that this 20 to 50,000, and 
it is appalling to me that that much money is being spent and 
not reaching the child, what can we do to help cut through the 
red tape, through all the bureaucracy so these kids can benefit 
from this massive budget, because this is not a question of we 
need more money? And there is a lot of programs that we do. It 
looks like we need to make sure that that child gets that 
money.
    Is there anything else that we can be doing to make sure 
these kids reap the benefit?
    Secretary Leavitt. Without validating a specific number----
    Mr. Porter. Absolutely.
    Secretary Leavitt [continuing]. Let me just acknowledge 
that having served as Governor for eleven years and managed 
these programs, we have done remarkably well in this country 
with a change of direction.
    We concluded that we ought to turn the responsibility for 
management of the programs over to the State. We allowed them 
to have the flexibility. We began to create requirements that 
would require people to work and begin to integrate in a way 
that would provide the building of lives and the fostering of 
self-reliance as opposed to the perpetual maintenance.
    I believe that that was a sound policy. I think it is a 
sound application in the area of healthcare as well as welfare.
    Mr. Porter. And, again, not to discount the child and his 
or her trauma, we looked at government agencies last year and 
we have six or seven agencies looking at frozen pizzas. You 
know, one looks at pepperoni and one looks at cheese, one looks 
at sausage.
    I just hope there is some way that there is not 
duplication, overlapping of these services. And I appreciate 
what you are doing to try to give the states more control.
    But the factor remains is that money is still not getting 
to the child, and I appreciate your efforts in making sure that 
we can channel those monies to the right place and not 
duplicate services. And I know you are in a unique situation. 
You suggest any kind of cut anywhere, it sounds like you are 
cutting an essential program.
    I am assuming that some of these things that you are making 
an adjustment to are because of overlaps and because of 
duplication; is that not correct?
    Secretary Leavitt. One of the guidelines I gave the 
preparers of the individual decisions that needed to be made 
was that we ought to look for places in the federal government, 
and there are many, where because of siloed budgets and because 
of siloed approaches, there are more agencies of government 
dealing with the same problem than one. And it happens a lot.
    And so there are instances where we have eliminated 
programs because they were being covered by other places. And 
there would be those who champion the program that is being 
reduced or eliminated, but if you are going to have a deficit 
reduction budget, you have got to deal with those priorities.
    Mr. Porter. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Chairman Spratt. Mr. Etheridge of North Carolina is not 
here, I do not believe.
    Mr. Bishop.
    Ms. Bishop. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary.
    I have some statistics I want to share with you and then 
ask you a question. I represent a district in New York. In 
2003, the HMOs in New York operated at an aggregate profit of a 
billion dollars. The hospitals operated at an aggregate loss of 
391 million.
    In 2004, the HMOs had an aggregate profit of 847 million, 
the hospitals a loss of 127 million. In 2005, the HMOs had a 
profit of 1.1 billion. Hospitals lost only 95 million. And over 
that same period of time, the HMOs increased their premiums on 
an annual basis by about ten percent.
    So my question is, why when we are looking to bend the rate 
of growth in the Medicare program and, as I understand it, 
there will be some $66 billion worth of lost payments over the 
next five years and that those payments will be principally 
taken out of the providers, why is it that we are taking the 
Medicare payments out of the providers and keeping in place the 
subsidies to the HMOs?
    Secretary Leavitt. I am not expert, Mr. Bishop, on New York 
hospitals, but I know enough because of my interaction with 
Governor Pataki and now Governor Spitzer on New York hospitals 
to know that there were too many of them and that their 
business model was floundering as a result and that you have 
been through a so-called BRAC commission-like process. And we 
have helped in being able to reduce the number of beds and 
hopefully increase the profitability.
    I would argue that there may be a difference in the cases 
of the hospitals in New York and HMOs because the care has been 
managed more carefully, and we all aspire for that to happen 
with the hospitals in New York as well.
    Ms. Bishop. More to the point of my question, though, why 
do we continue to subsidize entities that have such a healthy 
profit margin at the expense of entities that even if they are 
exceptionally well-run, at full capacity, are struggling to 
operate at a break even?
    Secretary Leavitt. Well, first of all, I am not able to 
validate the statistic. I will assume that you got it from a 
credible source, but the principle obviously here is that we 
desire to see integrated care and we want to see it everywhere. 
We want to see it in the rural areas that we had just spoken 
of.
    And this system was established over time working our way 
starting with a subsidy and then moving out the way we do, and 
we are having success. We have over seven million people now 
that are on Medicare Advantage, and they are very happy with it 
and they are receiving excellent care and they are not having 
trouble getting a physician on Medicare.
    Ms. Bishop. But don't those Medicare Advantage plans cost 
us more than traditional fee-for-service Medicare recipients?
    Secretary Leavitt. We believe that having integrated care 
and having them available in every part of the country 
ultimately provides our system with an advantage that we hope 
to preserve.
    Over time, built into the law is the ability to normalize 
those payments in a fashion that will assure we have a robust 
system of integrated care.
    Ms. Bishop. Let me switch the subject. Head Start, arguably 
the central domestic public policy initiative of this 
Administration has been No Child Left Behind. There is a fairly 
substantial body of evidence that suggests that if you get kids 
started right, the chances of them succeeding as they go 
through the system is increased over those who do not have in 
this case early childhood education or pre-k education.
    Why is it if that is the case, and if we are all agreed 
that we all want students performing at grade level, we all 
want to eliminate the achievement gap between rich kids and 
poor kids and White kids and African-American kids, why is it 
that we would not be increasing our investment in a proven 
success story like Head Start?
    I mean, you talked before, and I do not mean to be 
disrespectful, but you talked before about siloed decision 
making. Is this a case of siloed decision making where we have 
one program that has a set of goals and another program that 
might contribute to those set of goals, but because of some 
financial imperative, we are not funding it to the extent that 
it should be funded?
    Secretary Leavitt. It is a good example of siloed decision 
making, but not perhaps in the same way you have thought about. 
It would be in my judgment lots better if we had the ability to 
coordinate what goes on in Head Start with what goes on in our 
schools, our public schools much closer. And there are clearly 
silos there.
    We send Head Start about $8 billion a year. It is a very 
important program. Do we believe it could be more efficient? We 
do. And I did protect it from any significant cuts. But in a 
deficit reduction budget, we concluded that we could reach 
greater efficiency there and that we are going to work with 
them to achieve it.
    Ms. Bishop. OK. Thank you, Mr. Secretary. Appreciate it.
    Chairman Spratt. Mr. Garrett.
    Mr. Garrett. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here for all this time. 
Appreciate it. And I appreciate the efforts that you and the 
Administration are making in a difficult area.
    As previously indicated, we have a number of people coming 
before us earlier testifying to the dire situation that we may 
face or will face when it comes to mandatory spending. And I 
would hope that we have bipartisan agreement that we are facing 
that. Although at times, I am not quite sure that we are even 
yet to that point of agreeing that if we do not do something 
down the road, we will face that problem.
    Let me just make this one observation. When these proposals 
come down from the Administration, what happens then, as you 
are probably aware, is the healthcare community in general gets 
whipped up, if you will, about the dire warnings, right or 
wrong, that may be coming down the track, whether it is the 
hospital community or the provider community. And then we as 
members hear from them in our office.
    Part of that is because while I again applaud the attempts 
to make some overall structural changes that you have in here, 
you address the subsidies to upper income retirees for services 
under Medicare Part B and D, and also we talked about the 
standard healthcare deduction. Part of the savings does come, I 
will use the word tinkering around the edge with regard to 
provider services.
    I come from the State of New Jersey where it is the high 
cost of healthcare, high cost of living in general. Hospital 
funding is an issue. Obviously you can appreciate it is 
difficult in our area.
    The nonpartisan Medicare Payment Advisory Committee 
recently voted and recommended to Congress that hospitals 
receive a full inflation update in 2008 stating that the 
Medicare margins were at the lowest levels recorded.
    Likewise, we can hear from other providers in the State, 
and they would look at these things and say we should not be 
tinkering around the edge. I guess I would suggest that we may 
need to make some broad changes than just addressing that.
    So that would be my first question is whether we should be 
going in that direction. And, secondly, it is hard to get 
around some of these numbers and get your hands around them.
    My understanding is, according to the Medicare trustee, the 
unfunded liability of Medicare totals $35 trillion over the 
next 75 years. I have a hard time, quite honestly, getting my 
hands around a billion dollars. Well, I would never get my 
hands around a billion dollars. But if I could, 10,000 $1,000 
bills stacked up in front us would equal a billion dollars, and 
we are talking about an unfunded liability of $35 trillion.
    Are we doing enough, I guess, is the question to the 
equation of addressing it with this legislation or should we be 
doing even more?
    And the last question goes to the suggestions that come 
from the other side of the aisle, and that is could we not just 
simply maybe use some of the savings that you are talking about 
in here and throw them into programs like increase funding for 
SCHIPs or increase funding for some of these other programs 
that are already on the books? But if we did that, would that 
actually bring us to the solution that we see in the charts and 
that is addressing the long-term dire predictions that we have?
    Secretary Leavitt. Congressman, the healthcare financing 
system is--I referred to it earlier as a sort of witch's brew 
that nobody fully understands. I have spent a lot of time 
studying it as have others.
    There are those who believe that there just is not enough 
political will in the world to change healthcare and the way it 
is financed. I would argue that the inverse of that may be 
true.
    There is just too much political will because every time a 
proposal like the one that I am making today comes onto the 
table, everybody just unholsters their political will and aims 
it at each other. And there is an ongoing proprietary ideologic 
debate that just keeps us from making any change.
    I am of the belief that the only power strong enough to 
begin to reshape the financing of our healthcare system is a 
market where people are able to make decisions based on quality 
and cost comparisons and that when competition based on value 
begins to happen, it begins to allow the hospitals that are 
efficient to emerge.
    It allows those that are not--we can make deliberate, overt 
decisions about whether or not we ought to subsidize them as 
opposed to the covert subsidies that we currently have in place 
that no one understands, that no one accounts for, that no one 
is in a position to predict the outcomes. Whenever there is a 
proposal like this one comes on the table, the outcome is 
predictable.
    Now, I am of the belief that if we construct a system of 
healthcare that is based on competition, on value, that we will 
begin to see it rationalize. It will not happen over night.
    But, you know, you ask about Med Pac. I made a 
recommendation that we take the full so-called market basket 
and we cut it by .65 percent. I had a rationale for doing that. 
I am not sure if the market would have guessed that exactly, 
but I believe strongly that if there were productivity there, 
that other people would begin to mirror that and we would see 
that would be a pretty good estimation. I am saying a lot more 
than you asked.
    Mr. Garrett. No. That is fine.
    Secretary Leavitt. And I am enjoying saying it and the time 
is up.
    Mr. Garrett. I appreciate it.
    Chairman Spratt. Mr. McGovern of Massachusetts.
    Mr. McGovern. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here.
    I want to take my five minutes to talk about the issue of 
hunger in America. I think we cannot talk about any health or 
education issue if we do not first talk about hunger amongst 
America's children.
    And this is, as you know, a very serious issue, a very real 
issue all throughout our country. There is not a community in 
America that is hunger free. We are the richest nation in the 
world, and I think that is something that every one of us in 
this Congress and every one of us in government should be 
ashamed of.
    If we want to make sure that no child is left behind, then 
we need to make sure that all of our children are fed, 
especially our youngest children. If we are going to make sure 
that we have healthy children ready and able to learn, then we 
must be much more serious about eliminating child hunger and 
malnutrition in America.
    Yet, when I look at this budget, to be honest with you, I 
do not see the kind of bold commitment that I think is called 
for, and it is a challenge for you and it is a challenge for 
this Congress.
    When my colleague, Mr. Bishop, talked about Head Start, 
well, the fact of the matter is Head Start has been basically 
flat funded since fiscal year 2003. And in the fiscal year 2008 
budget, it is actually cut by $100 million.
    Now, you said at the beginning that you protected the 
program. I would just respectfully differ with you on that. The 
House Committee on Education and the Workforce estimates this 
year's budget means Head Start, early childhood education 
programs would experience a 13 percent cut in funding in real 
terms since 2002.
    And, you know, we can argue about the efficiency of the 
program, and that is a nice argument for us to have here, but 
the impact, you know, for many of the children served by these 
programs, I mean, Head Start provides the only meals that they 
will receive on any given day. And for low-income and poor 
families, Head Start and Early Head Start is the only access to 
child care.
    You can say, well, we are not really targeting food and 
feeding these kids, but we have stories here from people all 
across the country who are involved in these programs, they are 
cutting back on the days of service or they are cutting back on 
transportation. Well, if you cut back on the days of service or 
you cut back on transportation, so a child cannot get to one of 
these programs, then you are literally taking food out of that 
child's mouth.
    As for our senior citizens, there has been a lot of 
questions already here and a lot of discussion about the 
proposals on Medicare and Medicaid. But we all know that one of 
the most fundamental issues facing the low-income elderly is 
making sure that they are adequately fed.
    Now, from our own experience with our elderly family 
members, everyone on this Committee knows that many 
prescription drugs do not work correctly if they are taken on 
an empty stomach. And some drugs will actually do you grave 
harm. We also know that many senior citizens require special 
diets.
    I was in Massachusetts yesterday and was talking to some 
doctors who work in an emergency room at one of our major 
hospitals who was telling me about the number of senior 
citizens that they treat in emergency rooms who have severe 
illnesses because they are taking their prescription drugs on 
an empty stomach because they do not have the food. They are 
making choices, and they do not have enough to be able to have 
the meals that they need to remain healthy.
    Yet, when I look at the budget between HHS and USDA, this 
budget eliminates or reduces or further restricts eligibility 
in nearly every one of the cornerstone programs that provide 
food, meals, nutrition, or income support to senior citizens.
    I guess my point is that we all talk about the numbers 
here, about how we are trying to consolidate programs and be 
fiscally responsible, but a hungry child most likely will end 
up being an unhealthy adult. A hungry child will not be able to 
learn in school. A senior citizen who is shortchanged on their 
food and is taking prescription drugs on an empty stomach gets 
all these other illnesses that we end up all paying for. The 
societal costs are great.
    I think what troubles me about what is before us here, I 
mean, the cuts in Head Start, the ``Older American's 
Act,''Title 3 programs, some of the Social Services and other 
income support programs for children and elderly, I mean, the 
reduction and the cuts, however you want to call them, I think 
in the long run will end up costing us more.
    And I am just trying to figure out, you know, what does it 
take, I mean, for the Administration or for the Congress here, 
for that matter, I mean, to deal with the issue of hunger head 
on? I mean, it is a huge problem. Not a community in America is 
hunger free. And, yet, it hardly gets any discussion, and this 
budget, I think, makes the situation worse. I would just be 
interested in your response.
    Secretary Leavitt. Mr. McGovern, I am not for hunger and I 
do not think----
    Mr. McGovern. And nobody ever is. I mean----
    Secretary Leavitt. I can tell you, I will offer this. As 
Governor and as Secretary of Health and Human Services, you 
brought up Head Start. I have been in a lot of Head Start 
programs. I believe it is a good program. However, I believe we 
could do better with the program if we were coordinating it 
closely with children and with, rather, schools, with our 
public schools, and with the school lunch programs and all of 
the other programs that go into it. We do not.
    And I answered the question earlier. I believe we can do 
better with what we have. We are making a substantial 
investment in Head Start. We are reducing budgets. We are in a 
position of having to make hard decisions between different 
competing priorities, and this is the way I made them. And I 
respect what you have said.
    Mr. McGovern. No. And I appreciate your answer, Mr. 
Secretary. I guess my point is that, you know, as we have this 
debate about how we can better run Head Start, there are Head 
Start programs that are cutting back on services. And there are 
children who cannot take advantage of those programs and there 
are children going without food.
    And I would think that there needs to be more coordinated 
effort to deal with the issue of hunger, not only amongst 
children, but amongst senior citizens. I mean, you must be 
hearing the same stories I am from doctors who are talking 
about the prescription drugs--no matter what you say about the 
prescription drug bill, that is great, but, you know, if senior 
citizens are going without food and we are not providing them 
the necessary safety net to be fed properly to be able to 
support themselves, then we have a problem.
    Secretary Leavitt. One of the real privileges that my 
service in the federal government has provided was an 
opportunity for almost a year to travel all but two states, 
Hawaii and Alaska, and most of them, many times, and to go into 
senior centers, to go into churches, to go into the--I saw the 
fabric of compassion that is available or is established for 
people because we care about our neighbors, we care about our 
family members.
    And the federal government plays an important part in that, 
but we are not the only part of it. And the question before us 
today is, what is the right thing for us to do with the limited 
number of dollars we have in order to weave it into the fabric 
of our community.
    And, you know, could we do more? Yes. With the available 
monies that we are dealing with here, this is how I would 
propose to do that.
    Mr. McGovern. I appreciate your answer, Mr. Secretary. I 
would just close with, you know, I appreciate your statement 
that you are not for hunger, but, as I said, nobody is. It is a 
real problem. It is a growing problem, one that for whatever 
reason, we do not want to address.
    I will just say one last thing, and that is when you go to 
a food bank in any State in this country, what you will see is 
the group in terms of growing clientele are working families. 
And it is a problem that is getting worse. And I think we need 
to do something about it. But I appreciate your answer.
    Secretary Leavitt. Thank you.
    Chairman Spratt. Mr. Bonner.
    Mr. Bonner. Thank you, Mr. Chairman.
    Mr. Secretary, I am sorry. I just got here late, so I will 
try to be careful with my questions because I am sure you have 
probably had two or three times at the apple.
    But one that if you could repeat the answer if you have 
been asked it. It seems that we are constantly putting a band-
aid on the physician reimbursement issue. And I was wondering 
if you could share one more time.
    Is there a permanent fix out there so that we do not have 
to at the end of each year cobble together an agreement that 
basically keeps physicians at a level playing field, does not 
allow them the flexibility to grow and take advantage of the 
technology that is out there today?
    Secretary Leavitt. I believe there is one and we need to 
find it because this doing it every six months is an exercise 
that need not happen. I do not have a formula for you today, 
but I will tell you that the future needs to include the 
capacity for us to compensate physicians and hospitals at least 
in some measure on the basis of not just the quantity of 
services they provide but the outcomes and the quality of the 
services they provide. Now, physicians want to provide quality. 
What they want is to be measured fairly.
    I have spoken at length today about a system of healthcare. 
I do not believe we have a system of healthcare. We have a 
sector of healthcare. We have got to shape it into a system, a 
system that has electronic medical records that will allow us 
to gather the needed information and to find quality measures 
and define what quality care is with the help of the medical 
community.
    Once we begin creating a system of competition based on 
value, then we will have the capacity to solve the so-called 
doc fix on a more permanent basis. Frankly, there are parts of 
that we are not very good at yet, but we are getting better at 
it and we are spending a lot of time and energy not just in 
government but within the medical community, within the 
technology community, within the large payers.
    I reported before you came that we will have 60 percent of 
the entire healthcare marketplace by April who will have 
committed themselves to four important cornerstones of shaping 
a system. Once that system is in place, and I do not believe we 
are a long ways off from where we will start to see its early 
manifestations, we can not only solve the SGR problem, but we 
will be able to begin managing our healthcare expenditures in a 
more rational fashion.
    Mr. Bonner. Let me try to get a couple more questions in. 
You were in Mobile, Alabama where I am from during the selling, 
if you will, of the Part D Program. A quick assessment on your 
feeling. I know we had some bumps early in the journey, but the 
folks in my district, by and large, the calls I get are very 
appreciative of the new program.
    Secretary Leavitt. May I just say that this was a great 
American moment. This was not just about the creation of a new 
program. This was America rallying together.
    I had the personal privilege of seeing, as I mentioned 
earlier, in church basements, in parking lots of shopping 
centers, in senior centers, in hospitals, in clinics, in 
schools, and people going door to door. I saw family members 
who stepped up and helped. In the course of a six-month period, 
we saw 90 percent of the people in this country who are 
eligible sign up for a new benefit.
    And now a year later, we find that 80 percent of them are 
happy with the decision they have made. And the good news is 
the 20 percent who are not have a choice where they can go out 
and improve their situation.
    We saw billions of dollars being saved over what was 
originally planned. A hundred and thirteen billion dollars in 
this budget that is reduced because of the efficiencies that 
are being developed. We have been able to see seniors saving an 
average of $1,200. Most important, we are seeing seniors who 
are getting prescription drugs who did not have them before.
    This was a great American moment. It was not simply about 
the victory of implementing a program. Well, this entire 
country rallied together in a way that allowed this to occur, 
and I am not sure it could have happened in any other place in 
the world besides this country.
    Mr. Bonner. All right. Last question from me. I have asked 
the previous witnesses the last few weeks, the Director of the 
CBO and head of OMB and the Secretary of the Treasury, a tax 
related question, that if we in Congress allow the tax cuts of 
2001 and 2003 to expire, is that a tax cut or a tax increase. I 
will not ask you that question. But some of the candidates 
running for President this year for 2008 are already talking 
about the need for universal healthcare. You said in your 
statement there will never be enough money to satisfy all the 
wants and needs and we had to make some tough choices.
    Do you have any idea how much money you all would need in 
the Department to provide universal healthcare coverage to the 
American taxpayer and could you do it in your existing budget 
or would new revenue have to come in to pay for it?
    Secretary Leavitt. We spend 16 percent of the entire gross 
domestic product of this country on healthcare. In an earlier 
hearing today I saw a poster that indicated that is about twice 
what our economic competitors provide.
    It is my belief the money is in the system. We have the 
capacity to provide an affordable basic health insurance policy 
to every American to give access if we were to, first of all, 
have a basic plan in most states and, second of all, use the 
tools of the federal government to level the playing field so 
that the states can solve the problems.
    There are proposals being considered right now in at least 
18, maybe more, states I know of. They are reaching out to 
solve this problem. There are two problems they cannot solve. 
One is the tax problem we spent a lot of time talking about 
today. And the second is they need help in being able to close 
the affordability gap, and we ought to do that, period.
    Mr. Bonner. Thank you.
    Chairman Spratt. Ms. DeLauro.
    Ms. DeLauro. Thank you, Mr. Chairman.
    And welcome, Mr. Secretary.
    Let me change topics, if I can, for a moment. About two 
weeks ago, the GAO designated that the federal oversight of 
food safety as a high-risk area and need of a broad-based 
transformation, and that if we did not deal with this kind of a 
transformation and deal with both services and expenditures in 
this area, that, in fact, we are at great risk and we needed to 
move sooner than later in this effort.
    And we have seen E-coli outbreaks last year involving 
spinach, Taco Bell restaurants in the northeast. The 
designation by the GAO is one that is significant given that 
they have been doing this over the last 17 years, and it 
involves substantial resources and significant government, as I 
said, services in order that we try to get this food safety 
effort off of this high-risk effort.
    FDA is one of the two main agencies responsible for much of 
the food safety responsibilities, which is in your 
jurisdiction. It is my understanding that the budget request is 
about $10.6 million for food safety. That is in addition to 
what the--from a baseline of about what, $375 million. And that 
after you factor in inflation for salaries, the spending would 
be flat and it even declines.
    One or two other points, and I would just like to have you 
comment on this. FDA is responsible for food safety for 80 
percent of the food in this country, USDA, about 20 percent. 
The funding for FDA is about a quarter of the $1.7 billion that 
we deal with for food safety. USDA and other agencies get 
additional funding for that.
    Now, my question to you is, how seriously are you taking 
this high-risk designation by the GAO? Is it not within your 
jurisdiction to change the funding on this area for food safety 
at FDA?
    And, in fact, what I want to do is to ask you what are you 
prepared to do to deal with implementing this, if you will? It 
is not an order from GAO, but what it lays out is clearly an 
urgent need to remove our food supply system from its high-risk 
designation.
    Secretary Leavitt. I have not read that report. It sounds 
like something I need to read. And I----
    Ms. DeLauro. Mr. Secretary, it is imperative that you read 
this report. I will be flat out with you. FDA and food safety--
I have said this at a public meeting the other day--food safety 
is a stepchild at FDA and it would appear--and I should say 
that I do not know what the priority of food safety and FDA is 
within your jurisdiction.
    Secretary Leavitt. I commit to you that I will get a copy 
of the report and read it, but that sounds as though something 
I need to see. I have not at this point.
    Ms. DeLauro. But tell me who deals with the FDA budget? 
What role do you have in putting together the FDA budget and in 
this instance--we will get to drug safety at another point--but 
the food safety budget for FDA?
    Secretary Leavitt. The FDA brings a budget to me and to my 
budget office and we review it based on the principles and 
priorities. And the report sounds like something that I need to 
read.
    Ms. DeLauro. Well, I think it is and I would urge you to do 
it as quickly as possible. And I will make one final comment.
    It is one of the reasons why, Mr. Secretary, I want an 
independent food safety agency whose only purpose with the 
wonderful scientists, epidemiologists, the people that we have 
day in and day out when they get up in the morning, their view 
is how we make our food safe in this nation, and it is not a 
part of either an FDA or a USDA or some of the 13 other 
agencies that are out there that are dealing with our food 
safety, and we have one independent agency that puts its 
imprimatur and a gold standard on our food safety in this 
country.
    Thank you. My time is up.
    Chairman Spratt. Mr. Etheridge.
    Mr. Etheridge. Thank you, Mr. Chairman.
    Mr. Secretary, thank you. I have been in and out and I 
apologize. I have been on the floor, so please understand. And 
I hope I am not going to ask a question you already answered. 
If you have, raise your hand and I will move on.
    But I do understand regarding physician payments, I would 
like to have a comment on that because in your testimony today, 
you said that you are committed to making the Medicare and 
Medicaid programs more attractive to physicians and other 
providers. And I admire you for that.
    I join my colleague, Representative Hooley, in the fact 
that in rural areas, and not just in rural areas really, it is 
nearly impossible to find a doctor who will accept Medicare or 
Medicaid. Yet, most of the savings in your proposal comes from 
cutting payments to hospitals and other providers.
    I would encourage you to go back and take a look at that 
because if you are making those cuts, it is going to be awful 
hard to get them to move in and take it when we are cutting the 
resources. And I would encourage you and your staff to review 
that one because I think that is going to be hard to do.
    Let me move on a question, and maybe I will just ask you 
here. How do you propose to do that?
    Secretary Leavitt. I was just going to make the point that 
our budget proposes to increase the amount of funding available 
through Medicare by 5.6 percent. We are not cutting. There are 
areas in which we are slowing the growth rate, but we are 
proposing that it continue to increase by 5.6 percent.
    Mr. Etheridge. In talking to doctors, though, I think that 
will be a real problem. I would just say that. We will talk 
about that later.
    The budget cuts public and preventive health funding that 
can address disease, help control healthcare costs over the 
long term. The budget reduces funding for CDC, substance abuse, 
training, and provides insufficient funding for NIH, and that 
is really what I want to ask you a question about, so you can 
keep up with inflation.
    Some of these programs, including important cancer 
prevention research performed at NIH, which is the National 
Cancer Institute, as you know, have long time spans for their 
studies and, thus, need to have funding streams that are pretty 
predictable over a period of time.
    I am told that organizations running experimental trials 
normally funded by NCI are considering halting planned trials 
due to the uncertainty.
    My question is, why does the Administration budget reduce 
or eliminate these priorities at a time when we may have 
something in the pipeline that will make a huge difference?
    Secretary Leavitt. The National Cancer Institute is a very 
good illustration to answer your question. We made the decision 
to reduce the number of noncompetitive grants that had been 
concluded. We want to keep focused on the new science.
    Now, this budget does reflect the fact that there is a 
slight reduction in the total amount. But what is not reflected 
in the number you see is that we will have an increase in the 
number of new investigations.
    What I have found is that over time, some of the proposals 
just were not producing the result that was hoped for and we 
designed a system that would make more grants available. And 
there will be more frequent grants, more of them on a 
competitive basis.
    Mr. Etheridge. Well, let me move to one other area, Mr. 
Secretary, under block grants. The budget that you propose is, 
as you know, cuts block grants to a pretty healthy tune, pretty 
much devastates some of the programs.
    Consider, for example, the Social Services Block Grant is 
one of the most effective federal efforts, I think. The 
National Governors Association calls it the glue that holds 
state and local social service programs together.
    In 1999, you said further reduction in funding for SSBGs 
will result in cuts to vital human services for our most 
vulnerable citizens. Now, that was when you were Governor.
    Despite that, your budget cuts SSBGs' total funding by the 
tune of 1.2 billion a year, a 29 percent cut below the 2007 
level and 37 percent lower than when you wrote the Congress as 
Governor in 1999.
    Secretary Leavitt. Congressman, it will not surprise you to 
know that that is not the first time I have seen that letter 
recently. But I would reflect the fact that----
    Mr. Etheridge. I am going to let you answer. The reason I 
ask that question is because you know what these programs 
provide for. They help reduce poverty. They reach to employer 
services, a host of issues that there is no safety net for if 
we are not there.
    Secretary Leavitt. In 1999, in my own State, we were facing 
a substantial budget deficit, and that was true in most states. 
Today my own State is seeing a $1.7 billion surplus, a 
different situation.
    At the same time, I am presenting a budget hoping to cut 
the deficit to balance the budget by 2012. There is a 
substantial amount of difference in the budget circumstances of 
the states and the budget circumstances of the federal 
government today than there was in 1999 and, hence, I feel 
quite justified in having taken both positions.
    I will also mention, given the fact that I am quite 
knowledgeable about what those grants go for, there is an area 
of categorical funding for almost everything that those grants 
are used for.
    Now, do Governors like to get money from the federal 
government? Yes. Did I feel like we could continue to send it 
to them at the same rate that we have in the past given their 
financial situation and ours? No.
    Mr. Etheridge. Mr. Secretary, you would have to agree, 
though, these programs go to some of the most vulnerable people 
in America and it is very difficult for me to understand. I am 
for balancing the budget. That is why I am on the Budget 
Committee. But to do it on the backs of the most vulnerable 
citizens is very difficult for me to accept.
    Secretary Leavitt. I am not suggesting that we not help the 
most vulnerable. I am suggesting that the states are better 
able to do it right now than we are.
    Mr. Etheridge. Thank you, Mr. Chairman. I yield back.
    Chairman Spratt. Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary.
    Secretary Leavitt. Mr. Scott, you have been very patient. 
Thank you.
    Mr. Scott. Well, that is what you get for being late.
    Secretary Leavitt. I was early.
    Mr. Scott. Thank you.
    You indicated that the budget situation is different now 
than it was just a few years ago. You are absolutely right. For 
the ten-year budget starting in 2001, we have got eight and a 
half trillion dollars less to work with than we thought we 
would have.
    So that does put pressure, and we are making choices. We 
are talking about repealing the estate tax, which would be 
about 80 billion a year. This year, the F&P's tax cuts will be 
about 20 billion a year. People under $100,000 will get no 
measurable benefit from that. So we are making choices.
    Let me ask you on energy assistance under LIHEAP, do I 
understand that the President's budget cuts the amount under 
LIHEAP?
    Secretary Leavitt. We accelerated a billion dollars from 
the 2008 budget to the 2007 budget last year, and what you are 
seeing is a reflection of that. It is clear to me that if we 
have a deficit there that we are prepared to step up and work 
with Congress. We have anticipated, given the nature of what we 
have done in the past, what is necessary. And if more is 
necessary, we will obviously step up and----
    Mr. Scott. We will not reduce the amount or the number of 
people presently served under LIHEAP?
    Secretary Leavitt. If it were and there was a need, then we 
would be prepared to step up and help with Congress to remedy 
it.
    Mr. Scott. Under Head Start, will the number of students 
served go up or down under the budget and will we have 
additional funds to make improvements in the program?
    Secretary Leavitt. We believe that we can find greater 
efficiency in Head Start, and I have talked about one way we 
could do it. We have held the budget essentially in neutral and 
we believe we can find the efficiencies there to not just serve 
the ones that are there but slightly more.
    Mr. Scott. Well, you hope. I mean, do you have specific 
legislation pending in the Education and Labor Committee to 
effectuate these efficiencies or you just cut the money?
    Secretary Leavitt. Mr. Scott, we recognize that Head Start 
is a very important program. We are also trying to balance the 
budget. And----
    Mr. Scott. We are making choices.
    Secretary Leavitt. We are. That is right. And one of the 
things we have got to do is to keep a strong economy because 
the strong economy keeps those tax dollars rolling in, which 
makes it possible for us to fund Head Start. And the 
President's tax proposals have done a good job in being able to 
stimulate the economy and generate revenues. And we are 
making----
    Mr. Scott. So the answer is, no, there is no legislation 
pending in the Education and Workforce Committee----
    Secretary Leavitt. You would have to talk----
    Mr. Scott [continuing]. Education and Labor Committee?
    Secretary Leavitt [continuing]. To Secretary Spellings, but 
none at HHS.
    Mr. Scott. OK. Under CHIP, it is my understanding that 13 
to 15 billion is needed to maintain the present number of 
children and you have substantially less than that in the 
budget.
    Will we be able to serve the number of children that we are 
now serving?
    Secretary Leavitt. I articulated earlier in this hearing 
the policy of the Administration for reauthorization, and we 
believe the budget is adequate to fund that proposal.
    Mr. Scott. Will the number of children served go up or 
down?
    Secretary Leavitt. It would go up.
    Mr. Scott. The number of children served will go up?
    Secretary Leavitt. It will.
    Mr. Scott. How much would it cost to make sure that all 
children under 200 percent of poverty are served?
    Secretary Leavitt. You mean with SCHIP?
    Mr. Scott. Right.
    Secretary Leavitt. I do not know the answer to that.
    Mr. Scott. Are pregnant women eligible in all states?
    Secretary Leavitt. Under Medicaid?
    Mr. Scott. Through SCHIP.
    Secretary Leavitt. No.
    Mr. Scott. Are any states----
    Secretary Leavitt. I could be wrong about that. I do not 
know the answer for sure about all 50 states. States have the 
ability to craft their programs, and I do not know the answer.
    Mr. Scott. Now, the tax plan under the President's plan, as 
I understand it, some people will pay more tax, some people 
will pay less tax. How much more tax will people--if you just 
took one side of the ledger, how much tax increase are we 
talking about?
    Secretary Leavitt. There will be no additional taxes 
collected by the U.S. Government under this proposal.
    Mr. Scott. Aggregate?
    Secretary Leavitt. An aggregate.
    Mr. Scott. Yes. But you will be paying some. Of those who 
are paying more taxes, how much taxes will they pay?
    Secretary Leavitt. I cannot give you----
    Mr. Scott. The 20 percent.
    Secretary Leavitt. I cannot give you the breakout. I can 
tell you that those who do pay will be in the upper 20 percent 
of their income and that it does benefit 80 percent of those 
who have employer-sponsored insurance and 100 percent of those 
who have zero.
    Mr. Scott. Right. But you are doing both sides of the 
ledger at the same time. Could you give us an estimate of how 
much more we would be collecting on one side before you start 
talking about how much less people will be paying on the other 
side?
    Secretary Leavitt. There will be no additional dollars in 
any tax adjustment, any tax adjustment. There are pluses and 
there are minuses.
    Mr. Scott. That is right.
    Secretary Leavitt. There are three winners here, and I 
cannot give you the actual balance of it. I do not know it.
    Mr. Scott. Thank you, Mr. Chairman.
    Chairman Spratt. Thank you, Mr. Scott.
    Mr. Secretary, you have been forthcoming as well as 
forbearing, and we very much appreciate your testimony.
    Secretary Leavitt. Thank you, Mr. Chairman.
    Chairman Spratt. We may have a few questions for the 
record, and I would ask unanimous consent that those members 
who did not have the opportunity to ask questions should be 
given the opportunity to submit questions within seven days of 
the hearing.
    [The information follows:]

Questions Submitted to Secretary Leavitt From Hon. James P. McGovern, a 
       Representative in Congress From the State of Massachusetts

    Question 1: Do you or anyone on your staff regularly consult with 
infectious diseases experts to identify current and emerging threats to 
public health, such as resistant infections?

    Answer: CDC has ongoing conference calls with the Infectious 
Disease Society of America regarding antimicrobial resistant 
infections. CDC also works with its Prevention Epi-Centers on several 
projects to monitor the development, spread, and response of infections 
to antimicrobial agents. CDC also monitors rates of antimicrobial 
resistance to a variety of healthcare associated pathogens through its 
National Healthcare Safety Network. These activities allow for CDC to 
converse with infectious disease experts throughout the field to 
identify and discuss current and emerging threats to public health in 
regards to infectious diseases, including resistant infections.

    Question 2: A true solution to resistant bacteria requires 
scientific breakthroughs and discovery. It's my understanding many 
pharmaceutical companies have left the antibiotic market in favor of 
more profitable markets, such as treating chronic conditions. What 
incentives are currently available to encourage research and 
development in this area? If there are any, are they being used?

    Answer: The National Institutes of Health (NIH) is the primary 
Federal agency for conducting and supporting medical research, helping 
to lead the way toward important medical discoveries that improve 
people's health and save lives. To this end, the NIH supports 
extramural and intramural scientists in their efforts to investigate 
ways to prevent disease, as well as the causes, treatments, and even 
cures for common and rare diseases.
    The National Institute of Allergy and Infectious Diseases (NIAID), 
a component of the NIH, is the lead institute for research related to 
antimicrobial resistance. The NIAID has developed new funding 
mechanisms to foster research and development collaborations with 
industry and academia, including the Challenge Grant and Partnership 
initiatives, for product development. Moreover, NIAID has provided 
long-standing support for a number of drug development resources. For 
many pathogens, there are resources for target identification and 
validation, and for assay development. For selected pathogens, 
including the NIAID Priority Pathogens, there are additional resources 
for acquiring compounds, conducting screening, performing in vitro and 
in vivo assays, evaluating animal efficacy and preliminary drug 
exposure studies, and performing safety testing and pharmacokinetic/
pharmacodynamic analyses.
    The NIAID will continue to promote and facilitate interactions 
among industry, academia, public-private partnerships, and government 
to advance product development, and will continue to increase the 
number of targeted initiatives to enhance all phases of product 
development.

    Question 3: Does the Biomedical Advanced Research and Development 
Authority, created under the Pandemic and All-Hazards Preparedness Act, 
apply to gram negative and other dangerous bacterial infections that 
threaten a significant number of Americans annually, but do not 
necessarily threaten ``national security''? If not, shouldn't it, and 
can HHS provide tailored language to this Committee to accomplish that?

    Answer: The mission of the Biomedical Advanced Research and 
Development Authority (BARDA) is to develop and acquire medical 
countermeasures to establish public health emergency preparedness 
against CBRN threats and naturally occurring epidemics such as an 
influenza pandemic. The current top priority medical countermeasures 
have been identified in the recently published HHS Public Health 
Emergency Medical Countermeasures Enterprise (PHEMCE) Implementation 
Plan, and address threats for which the Department of Homeland Security 
has issued a Material Threat Determination (MTD). Broad spectrum 
antibacterials are identified as one of these top priority medical 
countermeasures to address multiple drug resistant anthrax as well as a 
number of Gram-negative biodefense threats.
    BARDA will look for opportunities to leverage the existing 
commercial base of antimicrobial research and development for 
biodefense uses. We will use advanced development and acquisition funds 
to develop, license, and procure antimicrobials for the Strategic 
National Stockpile for biodefense indications. These efforts should 
both provide incentives for industry participation and expedite the 
acquisition of new antimicrobials for the Strategic National Stockpile.
    In addition, NIH has a significant role in this area with a robust 
antimicrobial resistance research and development program. NIH also 
currently supports a comprehensive program to identify and develop 
broad spectrum antimicrobial agents that will address biodefense 
bacterial pathogens, as well as more common bacterial agents.
    Industry partners can obtain further information about this issue 
by visiting the following NIH web site: http://www.niaid.nih.gov/
factsheets/antimicro.htm

    Question 4: As I mentioned, I've been reviewing current law in this 
area. Section 319E(b) directs the Secretary to provide for research 
related to the development of ``new therapeutics, including vaccines 
and antimicrobials, against resistant pathogens'' and ``medical 
diagnostics to detect pathogens resistant to antimicrobials.'' Can you 
update me regarding what has been done in this area and how much money 
has been committed to this effort?

    Answer: The National Institute of Allergy and Infectious Diseases 
(NIAID) supports a robust antimicrobial resistance research portfolio 
that spans basic, translational and clinical research efforts aimed at 
combating the problem of antimicrobial resistance. Current research 
efforts include studies on the basic biology of resistant organisms; 
applied research on new diagnostic techniques, therapies, and 
preventive measures; and studies of how bacteria develop and share 
resistance genes.
    The NIAID has specific research initiatives designed to address 
some of the most crucial, unaddressed aspects of antimicrobial 
resistance. For example, recognizing that prompt and accurate diagnosis 
is key to effective disease management, NIAID has supported several 
research initiatives focused on the development of new diagnostics. 
NIAID is also pursuing new, targeted clinical research studies in an 
effort to focus and mobilize clinical capacity to test interventions on 
methicillin resistant staphylococcus aureus (MRSA) and community 
acquired (CA)- MRSA infection and evaluate the efficacy of off-patent 
antimicrobials. NIAID-supported investigations have also led to the 
identification of a potential vaccine against Staphylococcus aureus, 
which showed promise in mouse studies. Early findings suggest 
development of a vaccine that would protect against S. aureus 
regardless of the antibiotic resistance profile is possible.
    In fiscal year (FY) 2006, the total funding provided by the NIH for 
research on antimicrobial resistance was $221M. The projected NIH 
funding amount for FY 2007 is $221M.

    Question 5: Section 319E(e) requires you to award competitive 
grants for demonstration programs to ``promote judicious use of 
antimicrobial drugs or control the spread of antimicrobial-resistant 
pathogens.'' Would you provide me with a list of demonstration programs 
funded by this program?

    Answer: The CDC has funded the following demonstration programs 
through its extramural grant program in antimicrobial resistance:

2001: AR in Rural Areas and Microbiological Mechanisms of Resistance 
        Samore, Matthew--Rural program in antimicrobials in the 
        intermountain region (Inter-Mountain Project on Antimicrobial 
        Resistance and Therapy, IMPART); University of Utah

Lautinbach, Ebbing--Microbiologic mechanisms of dissemination of 
        antimicrobial resistance genes and relationship to 
        antimicrobial drug use and relationship to drug use: 
        Epidemiology of quinolone resistance in Escherichia coli; 
        University of Pennsylvania, PA

Belongia, Edward--Resistant Enterococcus faecium in humans and poultry; 
        Marshfield Epi Research Center, Marshfield, WI

Zervos, Marcus J.--Molecular epidemiology of resistant Enterococcus; 
        William Beaumont Hospital, Royal Oak, MI

2002: Validation of National Committee for Clinical Laboratory 
        Standards (NCCLS) Breakpoints for Human Pathogens of Public 
        Health Importance

Paterson, David L.--NCCLS interpretive criteria for Salmonella; 
        University of Pittsburgh, PA

Craig, William G.--Validation of NCCLS methods and breakpoints for 
        ESBLs: University of Wisconsin-Madison, WI

James H. Jorgenson--Development of interpretive breakpoint criteria for 
        Neissera Meningitidis; University of Texas Health Science 
        Center at San Antonio, TX

2003: Community Associated MRSA

Chambers, Henry S.__

Molecular Epidemiology of MRSA ; University of California, San 
        Francisco

Daum, Robert S.--Community Associated MRSA; University of Chicago, 
        Chicago, IL

Miller, Loren G.--Clinical, Epidemiologic, & Molecular Descriptions of 
        Epidemic Community Associated MRSA; Harbor-UCLA Research and 
        Education Institute, Torrance, CA

Lowy, Franklin--Prevalence of CA-MRSA in Northern Manhattan; Columbia 
        University, NYC, NY

Zervos, Marcus J.--Characterization of Community-Associated MRSA in 
        Three Urban Areas; William Beaumont Hospital, Royal Oak, MI

2004: Estimates of Economic Cost for Antimicrobial Resistant Human 
        Pathogens of Public Health Importance

Fraser, Victoria J.--Outcomes and costs of antibiotic resistant blood 
        infection; Washington University, St. Louis, MO

Engermann, John--Applied Research on Antimicrobial Resistance, Duke 
        University, Durham, NC

Johnson, James R.--Resistant E. coli in humans and poultry, University 
        of Minnesota Twin Cities, MN

Wittum, Thomas E.--Public Health importance of Agricultural Ceftiofur 
        Use; Ohio State University, Columbus, OH

Lynfield, Ruth--Applied Research on Antimicrobial Resistance: Minnesota 
        State Department of Health. St. Paul, MN

2006: The development of new methods to prevent transmission of 
        Antimicrobial Resistant (AR) pathogens (R01) and reducing 
        Community-Associated Methicillin-Resistant Staphylococcus 
        aureus (CA-MRSA) Infection in households (U01)

Harris, Anthony--New nosocomial interventions to decrease antimicrobial 
        resistance transmission; University of Maryland, Baltimore, MD

Daum, Robert S.--MRSA colonization and control in the Cook County Jail; 
        University of Chicago, Chicago, IL

Climo, Michael W.--Multicenter trail of daily chlorhexidine bathing to 
        reduce nosocomial infections; McGuire (VAH) Research Institute, 
        Richmond, VA

Lautenbach, Ebbing--Novel application of infection control strategies 
        to limit transmission of ESBL's; University of Pennsylvania, 
        Philadelphia, PA

    Question 6: In the professional judgments of the various agencies 
under HHS (e.g., CDC, NIH, FDA), what level of federal funding is 
necessary to implement fully the elements of the interagency PHS Action 
Plan to Combat Antimicrobial Resistance under each agency's 
jurisdiction?

    Answer: Antimicrobial resistance is a complex problem that 
encompasses many classes of microorganisms including bacteria, fungi, 
viruses, and parasites that adversely affects the treatment of both 
human and veterinary diseases. It is a problem that requires attention 
by many diverse interests, including public health experts, the medical 
community, veterinarians, agriculture experts, and regulatory agencies. 
In the United States and around the world, many important human 
infections have become resistant to the antimicrobial drugs for 
therapy. In some areas of the United States, more than 30% of 
infections with Streptococccus pneumoniae, the most common cause of 
bacterial pneumonia and meningitis, are no longer susceptible to 
penicillin. In the 1970s, virtually all were susceptible. Similarly, 
over 50% of Staphylococcus aureus infections acquired in U.S. intensive 
care units in hospitals are now resistant to the semi-synthetic 
penicillins, the preferred class of drugs for therapy. Some bacterial 
infections are now resistant to all available antimicrobial agents. 
Resistance to antiviral drugs, including those targeting, herpes 
viruses, influenza, and the Human Immunodeficiency Virus also continues 
to increase. Thus, action now is paramount in curtailing this growing 
problem.
    In 2001, an interagency task force, co-chaired by CDC, the Food and 
Drug Administration (FDA), and the National Institutes of Health (NIH), 
along with other federal partners published A Public Health Action Plan 
to Combat Antimicrobial Resistance, PART I, Domestic Issues. 
www.cdc.gov/drugresistance/actionplan/index.htm. The plan addresses the 
critical areas of surveillance, prevention and control, research, and 
product development.
    In 2007, NIH spent $220.6 million, CDC spent $17.2 million, and FDA 
spent $24.71 million on antimicrobial resistance activities.

    Chairman Spratt. Thank you again very much for your 
testimony and for coming and being with us today.
    Secretary Leavitt. Thank you.
    [Whereupon, at 4:24 p.m., the Committee was adjourned.]

                                  
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