[Senate Hearing 110-128]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-128
 
    BOOMERS AND THE BUDGET: WHAT DOES IT MEAN FOR AMERICA'S SENIORS?

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                           FEBRUARY 15, 2007

                               __________

                            Serial No. 110-2

         Printed for the use of the Special Committee on Aging



  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html


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                       SPECIAL COMMITTEE ON AGING

                     HERB KOHL, Wisconsin, Chairman
RON WYDEN, Oregon                    GORDON H. SMITH, Oregon
BLANCHE L. LINCOLN, Arkansas         RICHARD SHELBY, Alabama
EVAN BAYH, Indiana                   SUSAN COLLINS, Maine
THOMAS R. CARPER, Delaware           MEL MARTINEZ, Florida
BILL NELSON, Florida                 LARRY E. CRAIG, Idaho
HILLARY RODHAM CLINTON, New York     ELIZABETH DOLE, North Carolina
KEN SALAZAR, Colorado                NORM COLEMAN, Minnesota
ROBERT P. CASEY, Jr., Pennsylvania   DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri           BOB CORKER, Tennessee
SHELDON WHITEHOUSE, Rhode Island     ARLEN SPECTER, Pennsylvania
                      Julie Cohen, Staff Director
            Catherine Finley, Ranking Member Staff Director


                                  (ii)


                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Gordon H. Smith.....................     1

                           Panel of witnesses

Michael Astrue, commissioner, U.S. Social Security 
  Administration, Washington, DC.................................     2
Leslie Norwalk, acting administrator, Centers for Medicaid and 
  Medicare Services, U.S. Department of Health and Human 
  Services, Washington, DC.......................................    13
Josefina G. Carbonell, assistant secretary for Aging, U.S. 
  Department of Health and Human Services, Washington, DC........    29
Brian Montgomery, assistant secretary for Housing, U.S. 
  Department of Housing and Urban Development, Washington, DC....    46

                                APPENDIX

Questions from Senator Smith for Michael Astrue..................    55
Questions from Senator Smith for Leslie Norwalk..................    56
Questions from Senator Smith for Josefina Carbonell..............    60
Questions from Senator Smith for Brian Montgomery................    61
Testimony submitted by John Erickson, CEO of Erickson Retirement 
  Communities....................................................    64

                                 (iii)





    BOOMERS AND THE BUDGET: WHAT DOES IT MEAN FOR AMERICA'S SENIORS?

                              ----------                              --



                      THURSDAY, FEBRUARY 15, 2007

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:03 a.m., in 
room 562, Dirksen Senate Office Building, Hon. Gordon H. Smith 
(ranking member of the committee) presiding.
    Present: Senator Smith.

  OPENING STATEMENT OF SENATOR GORDON H. SMITH, RANKING MEMBER

    Senator Smith. Good morning, ladies and gentlemen. We 
welcome you to this hearing of the Senate Special Committee on 
Aging.
    Senator Kohl is the chairman of this Committee, and he and 
I continue to have, as we did in the 109th Congress, a very 
constructive and bipartisan relationship that continues the 
tradition of this Committee.
    Senator Kohl is delayed because of his need to be in an 
Appropriations Committee markup and will be here when, and if, 
he is able to make it.
    In addition, we have two scheduled votes, I believe, at 
10:30. So I would propose that, after my statement, we get 
everybody's testimony in. Then we can recess for a brief time 
and come back for Q&A.
    With each new year comes a new budget and a new 
responsibility for Congress to ensure that our Government and 
the important programs it supports are sufficiently funded.
    Last week, President Bush released his outline for fiscal 
year 2008. I felt it appropriate to convene members of this 
Committee to hear directly from top agency officials on how 
programs and services for seniors will be impacted by the 
President's budget.
    Today, we are fortunate to be joined by Commissioner 
Michael Astrue of the Social Security Administration; Acting 
Administrator Leslie Norwalk of the Centers for Medicare and 
Medicaid Services; Assistant Secretary for Aging Josefina G. 
Carbonell at the Administration on Aging; and Assistant 
Secretary Brian Montgomery at the Department of Housing and 
Urban Development.
    All our witnesses' respective agencies are vitally 
important to this discussion, and I look forward to their 
comments.
    I would like to extend a special thank you to Commissioner 
Astrue, whose first day on the job was this past Monday. He 
reminded me he is entitled to a honeymoon of at least a week. 
[Laughter.]
    I appreciate his willingness to make this debut before 
Congress as the new SSA commissioner here before the Aging 
Committee.
    In my opinion, the Social Security Administration is one of 
the Government's most important agencies to the well-being of 
society's most vulnerable. I look forward to speaking with 
Commissioner Astrue about SSA's funding needs to ensure that 
the agency continues to provide quality service.
    Along with SSA, the Centers for Medicare and Medicaid 
Services is tasked with running some of the most vital programs 
for our health-care safety net. I am deeply concerned about the 
impact of many of the proposals put forth in the fiscal year 
2008 budget related to Medicare and Medicaid. Given that about 
92 million Americans receive benefits from these important 
programs, we should think twice before cutting care to those in 
need solely on the basis of reducing costs.
    I am pleased with the President's request to provide 
funding for the newly created Choices program at the 
Administration on Aging (AoA). America's baby-boomer population 
is facing the often tough process of planning for their long-
term care needs, and the Choices program will help them make 
more informed decisions.
    This is definitely a step in the right direction, but we 
need to recognize that the budget for the agency as a whole has 
been cut by $28 million from 2007. As AOA is a main source of 
funds for the coordination of local services for the elderly 
across America, I look forward to hearing from the assistant 
secretary on this and other critical resources at AOA.
    Last, we are fortunate to have with us today Assistant 
Secretary Montgomery from the Department of Housing and Urban 
Development. HUD provides critical housing programs and 
services for the elderly, such as a reverse mortgage program 
and assistance programs for those who need affordable housing. 
My hope is that the assistant secretary will shed some light on 
the funding needs of these important programs.
    So, with that, awaiting our Chairman, I think in the 
interest of time we will go ahead.
    So, Michael, take it away.

STATEMENT OF MICHAEL ASTRUE, COMMISSIONER, U.S. SOCIAL SECURITY 
                 ADMINISTRATION, WASHINGTON, DC

    Mr. Astrue. Thank you very much, Mr. Chairman.
    Mr. Chairman and members of the Committee, I am very 
pleased to be here today to discuss the impact of past years' 
budget allocations on Social Security beneficiaries now and in 
the future.
    Let me say at the outset that we appreciate your unflagging 
support for SSA, and I am looking forward to working with you 
and this Committee during my term.
    As I said at my confirmation hearing, my goal is to be a 
good steward of the program for both current and future 
beneficiaries. For current beneficiaries, this role means 
setting high standards for management, performance, service and 
program integrity, and committing to meeting those standards. 
It also means being painstaking in making sure the Agency 
adheres to the law and best-demonstrated practices of 
accounting, efficiency and compassion.
    For future beneficiaries, good stewardship means engaging 
with others in the Agency and the executive branch, with 
members of this Committee and other Senators, as well as 
outside groups and experts, to provide unbiased data about all 
the options for safeguarding the financial stability of the 
program.
    It is part of our obligation to the American public that we 
must continue the best possible support for older Americans, 
people with disabilities and their families in the coming 
decades.
    SSA's mission is to deliver high-quality service to every 
claimant, beneficiary and the American taxpayer. In my written 
statement, I detail the magnitude of those workloads.
    Our traditional workloads are to make Social Security and 
SSI payments, process benefit claims and conduct hearings on 
appeals of SSA decisions. We also issue new and replacement 
social security cards, process earnings records, issue Social 
Security statements, and handle transactions through the 800-
number service centers.
    At the same time, other workloads are growing, not only due 
to demographics, but also because many pieces of new 
legislation require SSA to undertake additional work.
    For example, the new Medicare prescription drug program 
required that, among other responsibilities, SSA take 
applications and make eligibility determinations for 
individuals with limited income and resources who might qualify 
for extra help with prescription drug coverage.
    In the last 5 years, reductions to the President's budget 
requests have totaled $720 million, equivalent to about 8,000 
workyears. These numbers are not just statistics. They 
represent a diminished level of service. I share your concern 
about the impact this reduction has had on applicants who filed 
for disability benefits.
    The Commissioner of Social Security has very little 
discretion relating to most of the Agency's expenditures. 
Almost everything the Agency does is mandated by Congress. So, 
unlike a regulatory agency that can prioritize enforcement or a 
grant-making agency that can impose a percentage cut across the 
board, the Commissioner does not have that flexibility.
    For example, in recent years, SSA has concentrated 
resources on handling initial claims. However, the number of 
hearings pending, as well as processing times at the hearings 
level, has continued to increase since fiscal year 2001. The 
outlook for fiscal year 2007 is even more challenging.
    Unfortunately, funding for SSA's administrative expenses 
will be $200 million below the President's budget request. For 
a time, it appeared that the shortfall would be much greater.
    We appreciate the significant increase from fiscal year 
2006 levels that was included in House Joint Resolution 20, as 
it was approved yesterday, I believe, by the Congress.
    We also are greatly relieved that we will not have to 
resort to employee furloughs, which looked like a real 
possibility.
    However, reductions from the President's budget for the 
coming year would have a direct effect on SSA's ability to 
process key workloads. If we had received the President's 
budget each year from fiscal year 2002 through fiscal year 
2006, SSA would be in much better shape, not only in initial 
disability claims and hearings backlogs, but also in program 
integrity work.
    Funding shortfalls have meant substantial reductions in 
scheduled program integrity activities, which include reviewing 
whether recipients of disability insurance benefits continue to 
be eligible and whether SSI recipients continue to meet income 
and resource criteria for program eligibility.
    We have faced some increasingly difficult decisions. Over 
time, as we worked to keep pace with initial claims and 
hearings, we reduced spending for program integrity work, and 
that is a very disturbing trend. This work is tremendously 
important for safeguarding the trust funds, as well as the 
Treasury's general revenue funds. Social Security continuing 
disability reviews save $10 for every $1 invested, and SSI 
redeterminations save $7 for every $1 spent.
    Accordingly, the President's budget for fiscal year 2008 
includes $213 million for increased program integrity work and 
proposes a comparable adjustment to the discretionary spending 
caps. My written statement details the number of CDRs and 
redeterminations that we estimate this funding will allow.
    In conclusion, Mr. Chairman, let me express my gratitude to 
my predecessor, Commissioner Barnhart, for her excellent work 
throughout her tenure. I will do everything I can to live up to 
her standard and will be another good steward for the Social 
Security Administration.
    I know that our employees have a deep commitment to finding 
better ways to be more responsive to those who depend on our 
service and fiscal stewardship.
    Thank you. I will be happy to answer later any questions 
that you or other members of the Committee may have.
    [The prepared statement of Mr. Astrue follows:]
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    Senator Smith. I have just been informed that there will be 
three votes. So what I am going to try to do is ask each of you 
a question and try and get this hearing done. This deserves a 
lot more time than we are being given, but three votes will 
take 45 minutes to an hour, and I know you all have schedules, 
as well.
    So such questions that are not asked by me or colleagues 
who may yet show up, will be submitted to you in writing for 
your responses.
    How about backlogs? You got a handle on those, Michael?
    Mr. Astrue. Well, I am working on it. It really is an 
important priority for me and one of my main interests in 
coming back to the Agency.
    It is going to take a little bit more time to decide what 
we are actually going to do.
    One thing that I have said is there has been an important 
initiative in the Agency, that is being tested in the Boston 
region, on a number of changes to the disability system. I 
think the intent of the plan was to treat that as a package and 
then roll it out region by region, one or two a year for many 
years.
    I think that we have to approach the backlog issue with 
much more urgency than that, so what I have indicated is----
    Senator Smith. Do you have the resources?
    Mr. Astrue. Well----
    Senator Smith. I mean, I am specifically concerned about 
disability cases and the transition from paper to electronics.
    Mr. Astrue. The resources are a real issue. Let me focus, 
perhaps, just on one for a moment, which is at the Office of 
Disability Adjudication and Review (ODAR), which handles all of 
the hearings and appeals.
    The Administrative Law Judges (ALJs)--our numbers stayed 
flat, approximately, over the last 5 years for the case levels. 
The threat of furloughs has meant that we have had a hiring 
freeze. There are severe restrictions on overtime.
    The impact specifically, if I remember the numbers 
correctly on ODAR, is that for support staff for each ALJ--
because we try to highly leverage the ALJs--5 years ago, it was 
about 5.2 employees per ALJ; that is down to about 4.2. That 
has, I think, had a serious impact on the efficiency of the ALJ 
work.
    Plus, we have the issue--we have been waiting for some 
time, and I gather that help is maybe imminent--but we haven't 
been able to get a new roster for ALJs for 10 years. However, 
if that roster comes out later this year, depending on where 
the funding is, it is going to be difficult to hire the number 
of ALJs that we would need to make a serious dent in that 
(ODAR) workload. So that is, I think, very dependent on the 
funding.
    At the earlier stage of the process, the funding is 
important too. We may have a little bit more flexibility, 
through administrative changes, to make some impact on those 
workloads. But clearly, if the funding stays bare-bones, it 
could be very limited in terms of what we do, particularly 
since a lot of the changes that are going to be efficient over 
the long run require technology investments up front.
    If you are dealing with furloughs and restrictions on 
workloads, you are clearly dealing with budgets where you are 
just making patches in the systems, instead of the larger 
investments that are more efficient in the long run.
    Senator Smith. I am going to have one other question for 
you, Michael, but it is really a joint question for you and 
Leslie.
    So, Leslie, why don't we go to your testimony?

STATEMENT OF LESLIE NORWALK, ACTING ADMINISTRATOR, CENTERS  FOR 
 MEDICAID  AND  MEDICARE  SERVICES,  U.S. DEPARTMENT OF HEALTH 
               AND HUMAN SERVICES, WASHINGTON, DC

    Ms. Norwalk. Senator Smith, I would like to thank you and 
Chairman Kohl for inviting me this morning to discuss the 
President's fiscal year 2008 budget proposals. I am honored to 
share this panel with my very distinguished colleagues.
    As you know, CMS is the largest purchaser of health care in 
the world. We will provide coverage under Medicare, Medicaid 
and SCHIP to nearly 100 million beneficiaries in fiscal year 
2008. That is roughly one in three Americans.
    Combined, Medicare and Medicaid pay about one-third of 
National health expenditures and account for nearly one-fifth 
of the President's overall budget.
    This Administration has worked for the past 6 years to 
efficiently and effectively manage Medicare, Medicaid and all 
programs that impact seniors. Together with Congress and our 
partners, especially those joining me at the table today, we 
have made great strides in improving health-care benefits and 
quality for millions of seniors.
    The new Medicare prescription drug benefit, or Part D, is a 
great example of our collaborative efforts and one that has had 
a profound impact on seniors' lives. Just one year into the new 
benefit, more than 90 percent of people with Medicare have drug 
coverage, and that is from Medicare Part D or another source. 
Beneficiary satisfaction is high, and the costs that were 
projected initially are lower, both for beneficiaries and for 
taxpayers.
    Unprecedented collaboration at the Federal, State and local 
levels made this initial success possible, and it continues 
today. We continue to work with our partners, including the 
Administration on Aging, to reach additional seniors who could 
benefit from Part D, particularly those who might qualify for 
the low-income subsidy.
    We have been working diligently to address systems and 
other issues that have arisen, and I am particularly grateful 
to SSA in this regard for its collaboration.
    I recognize many on this Committee are aware of problems 
encountered with the premium withhold, and I want to assure you 
that we are working closely with SSA to address those problems.
    Medicare Advantage has also been a great success for the 
Medicare program, providing valuable assistance to millions of 
seniors. On average in 2006, beneficiaries enrolled in Medicare 
Advantage plans saved about $82 a month in out-of-pocket 
expenses and are expected to save even more in 2007. 
Beneficiaries in all 50 States now have access to at least one 
Medicare Advantage plan.
    Experts have underscored repeatedly in recent years the 
importance of taking action now to address Medicare's long-term 
financial challenges. For example, in its March 2006 report to 
Congress, MedPAC cautioned, ``Even if policymakers succeed at 
moving providers toward greater efficiency, they may still need 
to make other policy changes to help ensure the program's 
financing is sustainable into the future.'' The President's 
budget is a first step toward doing just that. The President's 
budget for Medicare and Medicaid focuses on long-term 
sustainability for both programs. We are committed to modern, 
comprehensive care for those currently enrolled and to ensuring 
that future generations of seniors have access to comparable 
benefits.
    Legislative and administrative changes proposed for the 
Medicare program would slow the projected annual average growth 
over the next 5 years from 6.5 percent to 5.6 percent per year. 
Our Medicaid proposals would slow the growth rate from 7.3 
percent to 7.1 percent over that same time period.
    In addition to the budget's reform initiatives, we have 
implemented many provisions of the Deficit Reduction Act signed 
into law last year.
    These reforms represent the most important changes in 15 
years to end the long-standing Medicaid bias toward 
institutional care. While institutional care may be the best 
choice for many, provisions in the DRA, like cash and 
counseling and Money-Follows-the-Person, are helping to make 
home and community-based services a real option for Medicaid 
beneficiaries, particularly those who are dual-eligible.
    Finally, I want to acknowledge the letter that three 
members of this Committee and seven other Senators sent to the 
President on Tuesday offering to work together to pass 
legislation that would: ensure that all Americans have 
affordable, quality, private health-care coverage, while 
protecting Government programs; modernize Federal tax rules for 
health coverage; create more opportunities and incentives for 
States to design solutions for their citizens; take steps to 
create a culture of wellness through prevention strategies, 
rather than perpetuating our current emphasis on sick care; 
encourage more cost-effective, chronic and compassionate end-
of-life care; and improve access on information on price and 
quality of services.
    CMS is committed, with Congress, to continue improvements 
to Medicare, Medicaid, SCHIP reauthorization and initiatives 
like affordable choices that ensure all Americans have access 
to affordable, quality, private health insurance. Through 
innovation and modernization, we can make all of these programs 
stronger for today's seniors and future generations.
    I thank you, Senator. I am happy to take whatever questions 
you have now and certainly answer those that you want to submit 
for the record.
    [The prepared statement of Ms. Norwalk follows:]
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    Senator Smith. Thank you, Leslie.
    As you might recall, you and I met with Michael's 
predecessor, and we discussed the enormous transition 
difficulties in implementation on Medicare Part D. I expressed 
to you then, and I express to you now, the frustration that 
many feel, and I have certainly felt, that beneficiaries are 
bearing the financial brunt of the Government's inability to 
correctly withhold Part D premiums from their Social Security 
checks, and so they come with a one-lump sum recoupment.
    During our meeting, I urged that CMS and SSA figure out how 
to implement a solution that permits beneficiaries the option 
to have retroactively owed premiums deducted from their checks 
in installments, rather than the harsh, one-lump sum.
    To date, your agencies have not found a solution, and I 
continue to hear complaints from seniors about this. I am 
wondering why your agencies can't pull this together, and what 
you can do to smooth this out.
    Ms. Norwalk. Well, we agree that there have certainly been 
issues in the past over premium withhold, and we find if even 
one beneficiary has a problem, that is regrettable. We have 
much work to do to ensure that we can reduce those numbers from 
one month to the next. We have made some great progress.
    As to your specific point about gradually repaying those 
payments that were not properly withheld to begin with, Mike 
and I, in fact, had a discussion earlier this week to discuss 
just that.
    Our initial proposal or initial discussions with Social 
Security in 2005 focused more specifically on paying gradually 
over time--paying a single month's premium over several months, 
and we thought that didn't make sense.
    Certainly, we did not anticipate the sorts of problems that 
we have been having with premium withhold, and I think 
gradually repaying payments that would be overpayments are a 
different issue.
    While Mike and I talked about that from a policy 
perspective, I think that that makes some sense. It is one of 
the things that we have been working with the prescription drug 
plans to allow those beneficiaries who need to repay over a 
certain amount of time to do that on a gradual basis and 
appreciate the ease it would be for those beneficiaries to have 
those taken out of their Social Security checks on a gradual 
basis rather than a lump sum.
    Now, I can't speak specifically to the systems implications 
it has for Social Security, but I am quite sure that they would 
not be insignificant.
    Senator Smith. No problem, though, is it, Michael?
    Mr. Astrue. Well----[Laughter.]
    That is partly up to the Congress. I think that certainly 
whatever decision Acting Administrator Norwalk makes, we will 
implement as quickly and as effectively as we can.
    I do want to acknowledge that, with this era of budget 
reductions, one of the areas of the agency that has really been 
taking a hit, and it has been very hard, has been the systems 
area. The exact amount of time and money that the systems 
adjustments will require, once we know what any change in 
policy is, I can't provide right now, because we don't know 
what it would be. But we will certainly try to do our best as 
quickly as possible.
    I will say that I certainly have felt, right from the get-
go, that CMS has been trying very hard to address this issue. 
When I was going through the confirmation process, out of 
respect for the Senate and for Commissioner Barnhart, I walled 
myself off from the executive branch.
    But Mark McClellan, in his last week, and Leslie did ask 
the White House for me to make an exception, in essence, so 
they could sit down, particularly while Mark was still on 
board, to talk through what the experience had been and what we 
can do better and that type of thing.
    So I think there is a genuine commitment to trying to do 
this better. I had the first level briefing from my staff on 
this, and so I do know that there has been substantial 
improvement.
    But nobody is fooling him- or herself in thinking that we 
are where we need to be, because we are not. We are going to 
continue to try very hard to get to where we need to be.
    Senator Smith. Well, thank you. It is an urgency, and we do 
need to find a solution. The sooner we do, the better service 
we are going to provide to seniors on cutting through all the 
complexity of Part D.
    Leslie, anybody on the Finance Committee especially knows 
the tremendous demographic and financial pressures that 
Medicare and Medicaid will be under. Yet balanced against the 
need for sustainability of these programs is just the harsh 
reality that the President's budget proposes cutting $75.6 
billion from Medicare. I don't know how that squares with 
efficiencies in actually delivering the same care or improved 
care to seniors.
    Where does the $76 billion or $75.6 billion come from?
    Ms. Norwalk. Well, it is, of course, that is a 10-year 
projection. One of the things that we start with for sources of 
information is MedPAC. Starting with MedPAC, augmented 
certainly with our Office of the Actuary, as well as work that 
has been done, watching what we hear from the private market, 
MedPAC tells us there are a number of questions in determining 
whether or not current payments are adequate and what changes 
would be expected to come in the coming year.
    They have a number of indicators that they look at across 
each of the sectors, including beneficiary access, capacity and 
supply, access to capital, payments and costs, volume, quality, 
as well as economy-wide productivity and input prices. These 
are things that help guide not just MedPAC but certainly the 
agency in determining how to put together its budget.
    One of the things that MedPAC said in its executive summary 
in the report to Congress last March was focusing, in fact, on 
this efficiency and the productivity gains that they think that 
providers should be able to make, particularly institutional 
providers. As I noted in my opening statement, this is 
particularly important given the sustainability of the program.
    One of the comments that MedPAC makes is strategies to 
address Medicare's long-term sustainability, including 
constraining payment rates for health-care providers, 
rationalizing benefits, increasing the program's financing, 
encouraging greater efficiency from health-care providers. 
Increasing efficiency is the most desirable because it would 
enable Medicare to do more with its resources.
    In many of their recommendations in the report from last 
March, they focus on the productivity across the entire sector. 
If you look at our budget, productivity, as accounted for by 
the Bureau of Labor Statistics for this year, I think it is for 
2007, is anticipated to be 1.3 percent.
    So, you will see many of our recommendations are things 
like market basket minus half of that number, or .65. So, for 
example, the hospital sector would be getting an increase in 
payments of 3.25 percent for fiscal year 2008.
    If you look at our proposals over time, you will see that 
most of them have those sorts of productivity adjustments to 
the market basket going forward. There are a few exceptions to 
that, and we also looked at what MedPAC said in most other 
areas. MedPAC really focuses on a single year. We are looking 
longer-term.
    But we looked at, for example, skilled nursing facilities 
and home health facilities. MedPAC, looking at those factors I 
mentioned at the outset, such as access to capital, quality, 
volume, the ability for beneficiaries to see those particular 
provider types, recommended for those two facility types just 
flat rates, no market basket increase at all.
    So a lot of our discussion in putting that budget together, 
we looked very closely at what we are seeing in the markets, 
the ability for beneficiaries to actually get these services, 
margins and the like, and we paid very close attention to them 
across the board.
    Senator Smith. So you are representing the Administration's 
view that a cut of nearly $76 billion from a current service 
level basis will not be felt by seniors.
    Ms. Norwalk. Well, we do watch from one year to the next. 
We do want to ensure that seniors continue to have access to 
these services and they continue to have quality improvements.
    In many of the different provider types, we have seen 
explosive growth in the number of providers that are providing 
services in any number of these industries. We have not seen 
them falling off over time. We have seen healthy margins in 
many of these industries.
    Moreover, we are looking at historically what has been 
happening over time, for example, in the hospital industry. The 
updates that have been provided historically over the past 20 
years are about 63 percent of the market basket. We are 
proposing an 83 percent of market basket, so it is actually 
greater than historical reimbursement rates in that particular 
sector.
    So we look at each of those sectors specifically, and 
absolutely are concerned that seniors have access to these 
services on an ongoing basis.
    Senator Smith. Well, I could talk to you all day on this, 
but the vote has started and I do want to get in our other 
witnesses and their testimony.
    So, Josefina Carbonell, thank you for being here. If you 
can abbreviate it, all of your testimony will be put into the 
record.

  STATEMENT OF JOSEFINA G. CARBONELL, ASSISTANT SECRETARY FOR 
     AGING, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, 
                         WASHINGTON, DC

    Ms. Carbonell. Thank you, Senator Smith, Chairman Kohl, 
members of the Committee, thank you for this wonderful 
opportunity to discuss the Administration on Aging's priorities 
and, our budget request for FY 2008.
    We are witnessing sweeping transformations in this country. 
Every seven seconds today, and for the next 20 years, someone 
in America will turn 60.
    The framers of the Older Americans Act programs anticipated 
the aging of our population and charted out a vision for a 
national aging services network of public and private 
organizations focused on a common mission to ensure the dignity 
and independence of older Americans.
    The Act charged this network with the responsibility to 
promote the development of a comprehensive and coordinated 
system of home- and community-based services that will enable 
our seniors to remain independent in their own homes and 
communities for as long as possible.
    The Act and the services network is one of our Nation's 
great success stories. The network has built the foundation of 
our Nation's systems of home- and community-based care, and it 
reaches into every community and serves over 8 million seniors 
and almost 1 million family caregivers each year.
    The network has also fulfilled the intent of the Act to use 
the Federal investments to leverage other funds and to 
integrate services. For every dollar we invest in the Act, the 
network leverages about 3 additional dollars in public and 
private support. Today, the network is managing a total of 
about $4 billion in funding, making it the largest provider of 
home- and community-based services in the Nation.
    The network has been playing a major role in the 
transformation of Medicare, and this has been most visible in 
our partnership with the Centers for Medicare and Medicaid 
Service (CMS) to provide community-level education, outreach 
and personalized assistance to millions of seniors during the 
campaign. The network supported over 84 percent of the 49,000 
events that were held at the community level.
    The modernization of the programs under the Older Americans 
Act is my number-one priority. I am guided in this effort by 
the President's New Freedom Initiative, by input from our 
consumers and key stakeholders, and through our network's 
innovations in rebalancing State and local systems of care.
    Senator Smith, as you well know, it was the aging network 
in your own home State of Oregon that led the way for the rest 
of the Nation over 15 years ago when it successfully redirected 
Medicaid funding for long-term care and created a more balanced 
system where half of all public funding for long-term care is 
spent on cost-efficient home- and community-based care.
    All of us have heard from consumers, both older and younger 
alike, that they want to remain at home. But our system is 
still biased in favor of expensive institutional care. People 
find it very difficult to learn about and access lower-cost 
alternatives.
    We have implemented several projects in this area for the 
last five years to help modernize our programs and improve 
their efficiencies so we can help seniors remain at home. Of 
particular note, I want to call attention to the map that we 
have on display.
    We are very proud of the investments that we have done 
jointly with the Centers for Medicare and Medicaid Services in 
establishing our aging and disability resource centers. They 
were designed to really help States make it easier for 
consumers to learn about and access services through a one-
stop-shop kind of entry point to long-term care. We are 
currently supporting over 100 local ADRC projects in 43 States.
    We launched the ``Own Your Own Future Campaign,'' together 
with CMS, the National Governors Association and others, to 
educate individuals on the importance of planning ahead for 
one's long-term care. To date, we have reached nearly 4 million 
consumers in nine States.
    We are also working with the Centers for Disease Control 
and Prevention (CDC) in 20 States to deploy evidence-based 
prevention programs at the community level that have proven to 
be effective in reducing the risk of disease, disability and 
injury among the elderly.
    We are using consumer-directed models of care to put 
consumers in the driver's seat when it comes to making 
decisions about the type of care they receive and the manner in 
which they receive it.
    I was thrilled to see this Committee and the rest of 
Congress for how, in a bipartisan effort, they embraced the key 
elements of the modernization and efficiency agenda in the 
reauthorization of the Older Americans Act in 2006.
    Our priority for the FY 2008 budget is to maintain our core 
programs, improve the flexibility to the States and local 
communities and further strengthen the efficiency and modernize 
the way that we do business for consumers.
    Data has shown that the services we are providing are 
effective at helping people to remain at home longer and to 
participate more fully in community life. Overall, our core 
programs are very customer-friendly, but, most importantly, our 
data show that customer satisfaction rates exceed 85 percent 
for all of our key programs.
    Our FY 2008 budget also includes $28 million for our 
Choices for Independence demonstration. This request will allow 
us to move forward and evaluate our modernization efforts so we 
can document their impact on the health and well-being of older 
people, and on Medicare and Medicaid costs.
    In closing, I would like to note that, under the leadership 
of President Bush, we have initiated the modernization and 
improved efficiency of health and long-term care in the United 
States, in partnership with many of the Members on this 
Committee.
    Last year, the President stated, we've got to have an 
interesting debate in health care in America. I guess if I had 
to summarize how I view it, I would say there is a choice 
between having the government make decisions or consumers make 
decisions. I stand on the side of encouraging consumers. Health 
care policy ought to be aimed at bolstering the consumer 
empowering individuals to be responsible for their care 
decisions.
    That is the key strategy we are using to modernize and 
prepare our programs for the challenges of the 21st century and 
to do it in a fiscally responsible manner. We are putting our 
consumers front and center.
    Thank you for the opportunity to participate today. I have 
appreciated the Committee's support for all our programs in the 
past and look forward to continuing to work with you in the 
future. I would be happy to answer any questions.
    [The prepared statement of Ms. Carbonell follows:]
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    Senator Smith. Thank you very much, Josefina. I will have 
some questions for you in written form.
    Brian, can you give us the abbreviated version?

STATEMENT OF BRIAN MONTGOMERY, ASSISTANT SECRETARY FOR HOUSING, 
 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, WASHINGTON, 
                               DC

    Mr. Montgomery. Yes, sir. You saw me crossing as she was 
writing. [Laughter.]
    I want to thank you for the opportunity to----
    Senator Smith. We will include it all in the record, 
though.
    Mr. Montgomery. OK. Thank you, Senator.
    I also want to thank Chairman Kohl for the opportunity to 
address HUD's efforts in this area.
    Let me be clear with one fact: The senior population today 
represents a greater portion of the overall population than at 
any time in our history. I want to add that that number is not 
on the decline. As such, the housing needs of seniors are ever-
increasing and ever-expanding.
    Not only does the baby-boomer generation have strength in 
numbers, but many also have considerable wealth and are active 
participants in the democratic process. They are living longer 
and more active lives than previous generations. Many have the 
resources to manage their own retirement. They have an 
undeniable common voice.
    Unfortunately, however, the resources necessary to answer 
the needs of the growing senior population are not always 
available. In an effort to better illustrate this need, let me 
provide you with some senior housing statistics.
    Of the 21.8 million households headed by seniors in 2001, 
80 percent were homeowners and 20 percent were renters. 
Approximately 73 percent of senior homeowners own their homes 
free and clear. The median net worth of elderly households in 
2000 was almost $189,000, compared to $55,000 for the total 
population.
    Now, 80 percent of seniors being homeowners may sound good, 
but the remaining 20 percent, or 4.3 million, are renters. We 
simply are not producing the necessary affordable housing at a 
pace that adequately reflects their needs.
    Our own data from 2003 estimates that there are over 1 
million senior renters experiencing worst-case housing need, 
generally defined as people without housing assistance paying 
more than half of their income for housing or living in 
severely substandard housing. In short, this Nation is facing a 
shortage of housing assistance for low-income senior citizens.
    Now, in a highly competitive budget environment, we are 
pursuing creative and innovative ways to address the housing 
population facing the elderly, and that would include the low-
income renters and also many seniors who are considered house-
rich but cash-poor.
    Harvard University's ``State of the Nation's Housing'' 
report in 2002 found that 8.4 million of the Nation's 21 
million elderly have incomes of less than $10,500. Now, the 
median income for a resident in a HUD Section 202 project is 
only $9,480 a year.
    As you may know, HUD's Section 202 program provides an 
important resource to address the housing needs of low- and 
very low-income seniors. However, consider this alarming fact. 
AARP estimates that there are 10 seniors waiting for each 
Section 202 unit that becomes available.
    The bottom line here is that in order to meet the need we 
have to be able to build more units, and we have to be able to 
build them faster.
    Since the inception of the Section 202 program, there have 
been roughly 400,000 units funded, or an average of 8,300 per 
year. Now, in order to meet the need as identified in a 
Commission on Affordable Housing study, we would need to 
produce more than 56,000 units per year over the next 13 years.
    Well, in order to help reach these goals, we need to find 
creative and resourceful ways to increase production. As such, 
the fiscal year 2008 budget proposes an innovative 
demonstration program aimed at increasing the production of 
Section 202 units.
    We developed this program for a number of reasons. Chief 
among them, of course, is the sheer growth of the population in 
question. Additionally, the cost of construction is ever-
increasing, as is the need to renew rental assistance contracts 
on these projects. That need for renewal in itself will 
continue to erode the funding available to produce additional 
units.
    Now, this demonstration project will seek to utilize low-
income housing tax credits and other housing resources, such as 
tax-exempt bond financing, home program funds and even private 
grants, to help expand production under the current 202 
program. It is our goal to take the positives from the housing 
tax credit and 202 program and produce vastly more units with 
strong senior services components.
    Finally, for seniors who have accumulated assets in their 
home, we have the Home Equity Conversion Mortgage, or HECM, for 
short, also known as a reverse mortgage. It is designed to 
enable senior homeowners to convert the equity in their homes 
into tax-free income.
    Now, since fiscal year 2000, when we insured just 6,600 
loans, the HECM program has been experiencing double-digit 
growth each year. In fiscal year 2005, we endorsed 43,000 
loans, representing a 14-percent increase over the prior year. 
In fiscal year 2006, volume really exploded. It increased by 77 
percent to more than 76,000 loans. Endorsements continue to 
accelerate with nearly 35,000 so far this fiscal year, which 
puts us on a pace to insure about 90,000 loans.
    We are also proposing legislative changes that would 
enhance this very important program, which includes eliminating 
the current cap altogether and offering a home purchase 
alternative.
    Senator Smith. Brian, I apologize, but----
    Mr. Montgomery. Yes, sir.
    Senator Smith [continuing]. This pink slip is about to get 
red. [Laughter.]
    Mr. Montgomery. Thank you, sir.
    [The prepared statement of Mr. Montgomery follows:]
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    Senator Smith. We will put it all in the record.
    I thank our witnesses. I thank you all for your attendance. 
I apologize that the leadership doesn't check with me on the 
voting schedule. [Laughter.]
    So, with that, we are adjourned.
    [Whereupon, at 10:44 a.m., the committee was adjourned.]
                            A P P E N D I X

                              ----------                              


            Questions from Senator Smith for Michael Astrue

    Question. With respect to your FY 2008 request for SSA 
administrative resources, what assurances can you provide me 
that SSA will be adequately funded to effectively meet its many 
obligations?
    Answer. SSA's budget is based on the level of resources 
needed to improve service delivery and fiscal stewardship, and 
the requisite staffing to accomplish both. The budget is 
aligned with the performance goals in the Agency Strategic 
Plan, demonstrating the resources required to maintain service 
and improve productivity.
    SSA's first and foremost priority is service. This budget 
request allows SSA to generally maintain service, increase our 
program integrity efforts, and continue to meet Medicare 
prescription drug program responsibilities. However, there will 
be some growth in certain pending workloads in fiscal year (FY) 
2008. SSA will also continue to improve the way it does 
business with investments in technology, such as the Electronic 
Disability (eDib) project. Given significant reductions to our 
budget requests over the last 6 years, it is critical that 
Congress fully fund the FY 2008 President's request for SSA.
    Question. We're in a very tight budget environment--what 
things can you do to advocate for adequate funding for SSA?
    Answer. I have been reviewing SSA's workloads as Congress 
requested at my confirmation hearing and plan to present to the 
Congress my planned changes for the disability program as well 
as the resource needs to make sure the budget will be funded to 
prepare for the initial retirement wave of baby boomers.
    I can assure you that I will continue to inform the 
Congress and the American public about the need for adequate 
funding for SSA's administrative expenses by demonstrating the 
direct relationship among resources, performance and service to 
the public. Adequate funding will enable us to reduce the 
backlogs for initial disability claims and hearings. Funding at 
the President's budget level would also allow the Agency to 
fund program integrity activities, such as continuing 
disability reviews and Supplemental Security Income 
redeterminations, at a more appropriate level.
    I expect to work closely with this committee as well as our 
authorizers and appropriators to fully inform you and the 
public about the importance of these issues.
    Question. What is the agency's view of the success of this 
transition?
    Answer. Let me be clear that I am very concerned about the 
disability backlogs, and I have been reviewing the situation as 
Congress requested at my confirmation hearing. I plan to 
present my planned changes to revise the disability program to 
Congress soon. I am in the process of making some changes and 
in the near future will be prepared to brief staff of the 
committee about the changes that will be made.
    With regard to the transition to eDib, while we are not 
completely finished with the process of converting from paper 
disability files to fully electronic ones, we consider this 
transition to be quite successful. As of January 4, 2007, all 
the SSA field offices and the State Disability Determination 
Services (DDS) in the nation have been certified to work in the 
fully electronic process, and currently hearing offices in 40 
States and territories have been certified for fully electronic 
processing (the hearing office in Eugene, Oregon is scheduled 
for certification in May 2007). This means that these 
components are working solely with electronic folders for most 
new claims with a very small number of claims excluded from 
that process. We eliminated the labor-intensive process we had 
previously which required our field offices to prepare paper 
folders and mail them to the DDS for processing. With the new 
system, there are no mail costs, no mail time, and no 
possibility of folders getting lost. We anticipate that, over 
time, the electronic folder will result in reduced storage, 
mail and shipping costs; and will offer greater portability of 
folders to components throughout the country. While eDib is not 
implemented at all levels of the Agency yet, next year we plan 
to expand it to the Appeals Council.
    The success of any project--even a technology-driven one 
such as the eDib project--requires a learning curve for the 
people who use it and depends on how well those people accept, 
embrace, and use it. With eDib, we asked our employees to move 
from a traditional, paper-based system to a fully electronic 
one. We invested significant time and energy to ensure that 
this aspect of the project would be a success. We shared 
information about eDib well in advance of actual 
implementation, spent considerable amount of time with 
classroom and on-the-job training, and continually followed up 
with refresher training. We also set up a special ``Help Desk'' 
for users to call with problems and suggested changes.
    Question. What's being done to fix the problem?
    Answer. With regard to the situation you describe in 
Oregon, I am pleased to be able to tell you that, currently, 
the disability processing time for the DDS and field office in 
Oregon is 1 to 2 weeks better than the national average. 
Although there has been a learning curve, SSA anticipates a 
return to pre-eDib production levels in FY 2008 and expects 
continued improvement in future years.
    Whenever we encounter a systems problem, we immediately 
involve a highly-specialized technical support team to trouble 
shoot and solve it. And if necessary, we call in vendors if we 
find that the problem is related to vendor code, software, or 
telecommunication lines. Technical problems rarely last more 
than a few minutes, and any impact to processing electronic 
cases is minimal. On a proactive basis, we monitor hardware, 
software, network traffic, and systems performance around the 
clock and make adjustments as necessary.
    eDib provides a secure, centralized Web-based repository of 
medical and other documents associated with disability claims. 
It is a complex system that integrates 150 unique software and 
hardware products, as well as interfaces with numerous SSA and 
external systems. As you might imagine, we occasionally have 
technical issues which cause slowness and/or problems for the 
eDib system. However, the eDib system is available and working 
correctly a high percentage of the time. Specifically, we have 
maintained over a 99 percent availability rate since the 
beginning of FY 2007.
                                ------                                


            Questions from Senator Smith for Leslie Norwalk

    Question 1--Part D income-sensitive premiums
    The President's Fiscal Year 2008 budget includes a proposal 
to index Medicare Part D premiums to a beneficiary's income. 
Congress enacted a similar change to Medicare Part B premiums 
in the Medicare Modernization Act. However, in Medicare Part B 
there is a single premium amount that was adjusted for all 
beneficiaries. Medicare Part D consists of numerous 
prescription drug plans, each with their own premium that 
reflects a policy's scope of benefits.
    Question 1. Considering the complexity of Medicare Part D's 
premium structure in comparison to Part B, and given your 
agencies inability to correctly withhold those amounts, how 
does CMS expect to administer an income-sensitive premium 
structure without burdening beneficiaries?
    Answer. CMS, working with the Social Security 
Administration and key stakeholders (plans, pharmacies, etc.), 
has made tremendous strides to resolve administrative issues 
encountered in the first year of the program and to lay the 
groundwork for continued improvements in 2007 and beyond. Those 
steps have clearly paid off, with a 97% acceptance rate for 
transactions between CMS and SSA in 2007. We are confident that 
the lessons learned and improved processes will allow us to 
design the income-related premium provision in a way that will 
be most efficient and administrable for affected parties.
    Follow-Up:
    Question a. How much money will CMS raise by eliminating 
the inflation adjustment for the Part B premium increase?
    Answer. If the President's fiscal year (FY) 2008 Budget 
proposal to eliminate the inflation adjustment for the Part B 
premium increase were to be implemented, the Centers for 
Medicare & Medicaid Services (CMS) Office of the Actuary (OACT) 
estimates that, over 5 years (FY 2008--FY 2012), Medicare will 
save $4.13 billion and, over ten years (FY 2008--FY 2017), 
$12.1 billion will be saved.
    Under current law, beneficiaries filing an individual tax 
return with incomes greater than $80,000 and beneficiaries 
filing joint tax returns with incomes greater than $160,000 
will pay a greater share of their costs for Medicare Part B on 
a sliding scale that increases as their income increases. The 
threshold dollar amounts to determine whether the income-
related premium applies to the beneficiary and the amount by 
which the subsidy is reduced would be adjusted for inflation 
taking into consideration the consumer price index for urban 
consumers. Under the FY 2008 proposal, the annual indexing of 
income thresholds for reduced Part B premium subsidies would be 
eliminated beginning on January 1, 2008.
    Question b. In 2020, what percentage of beneficiaries does 
CMS expect to be within that category?
    Answer. The current Centers for Medicare & Medicaid 
Services (CMS) Office of the Actuary (OACT) estimates are 
projected to 2017 and data is not immediately available for a 
projected period that extends to 2020. For FY 2017, OACT 
estimates that under the proposal 9.6 percent of the 
approximately 52 million beneficiaries will be affected by the 
elimination of the inflation adjustment versus the 6.3 percent 
that would be affected under current law. Therefore, 3.3 
percent more of the estimated 52 million beneficiaries will be 
within the category affected by the Budget proposal than under 
current law.
    Question 2--Changing Medicaid through Administrative 
Maneuvers
    I am concerned that the Administration consistently 
attempts to use its administrative authority to rework the 
Medicaid program in a manner that is inconsistent with the 
intent of the Congress. During debate over the Deficit 
Reduction Act, many of the administrative proposals contained 
in your budget were debated and roundly defeated by Congress, 
yet you continue to try to circumvent the will of the Congress 
and advance them outside the legislative process.
    For instance, I, along with many of my colleagues, remain 
opposed to your efforts to limit the use of intergovernmental 
transfers. You try to paint them as fraud and abuse, when those 
of us who know the program recognize that these functions are 
being used by states to generate much needed funding to cover 
millions of poor, elderly and disabled Americans. What's more, 
the plan amendments that allow the states to operate were 
approved by your agency.
    Question 2. Your agency estimates that its proposal to 
restrict the use of IGTs will generate $5 billion in savings to 
the federal government, which likely amounts to close to $9 
billion in total lost funding for the program. How will this 
money be made up within Medicaid so as not to result in lost 
coverage and access for persons currently on Medicaid?
    Answer. The proposed rule is estimated to result in savings 
of $120 million in 2008 and $3.87 billion in 2008-2011. The 
proposed rule does not restrict the use of IGTs. Rather, the 
proposed rule was actually designed to protect health care 
providers. The proposed rule clarifies the definition of a unit 
of government and specifies that governmentally-operated health 
care providers are assured the opportunity to receive full cost 
reimbursement for serving Medicaid individuals.
    Non-governmentally-operated health care providers, 
including many of the ``public'' safety net hospitals, are not 
affected by the Medicaid cost limit provision of the proposed 
rule and therefore, may continue to receive Medicaid payments 
in excess of the cost of providing services to Medicaid 
individuals within existing Federal requirements. Moreover, the 
proposed rule reaffirms State Medicaid financing policy 
requiring that all health care providers be allowed to fully 
retain their Medicaid payments, another provision of which 
clearly demonstrates the Federal government's intent to protect 
the nation's public safety net and its ability to continue 
delivering critical health care services to Medicaid 
beneficiaries and the uninsured. Health care providers can 
realize greater net revenues if State or local government 
sources pay for the full non-Federal share of Medicaid payments 
rather than shift that burden to the health care providers 
themselves.
    Medicaid is a vitally important program that serves very 
vulnerable populations. Clearly the federal government must 
fulfill its obligations to fund its share of the cost of 
providing Medicaid services to the individuals who are eligible 
for Medicaid. However, Medicaid is a partnership with the 
states and both must meet their obligations to fund their share 
of the program. Our intent is to protect the nation's public 
safety net and its ability to continue delivering critical 
health care services to Medicaid beneficiaries and the 
uninsured.
    Follow Up:
    Question a. Has your agency evaluated the impact this 
change will have on the number of people who loose coverage on 
a state-by-state basis given this loss of revenue? If not, I 
would like those numbers.
    Answer. The CMS Office of the Actuary does not prepare 
estimates on a state-by-state basis or by class of facility.
    Question 3--Medicare Part A and B cuts
    As I am sure you know, the Medicare program is expected to 
serve more than 44.6 million Americans in fiscal year 2008 with 
more than 37.3 million of these being elderly recipients. This 
is a cornerstone of health care for most older Americans with 
more than one in seven of all Americans and virtually all of 
the population aged 65 and over served by the program. This 
being the case, I am concerned about the proposals related to 
Part A and Part B of Medicare. Specifically, you have proposed 
cutting $75.6 billion from the program.
    Question 3. How can you ensure that the proposed cuts will 
not diminish the overall health care offered daily to our 
nation's seniors?
    Answer. The President's fiscal year (FY) 2008 Budget 
demonstrates a commitment to improving America's health care 
system by further modernizing and improving Medicare and 
Medicaid; strengthening health care coverage for low-income and 
vulnerable populations; and taking steps to make health care 
more affordable and accessible for all. The proposals in the FY 
2008 Budget are measured steps to improve the financial 
security and long-term stability of the Medicare program.
    In its March 2006 Report to Congress on Medicare Payment 
Policy, the Medicare Payment Advisory Commission (MedPAC) 
suggested a number of strategies to address Medicare's long-
term sustainability, including: constraining payment rates for 
health care providers, rationalizing benefits, increasing the 
program's financing, and encouraging greater efficiency from 
health care providers. Concluding that increasing efficiency is 
most desirable, MedPAC cautioned: ``[e]ven if policymakers 
succeed at moving providers toward greater efficiency, they may 
still need to make other policy changes to help ensure that the 
program's financing is sustainable into the future.''
    In order to ensure the strength and stability of the 
Medicare Program, it is important to annually consider the need 
for a payment update and other policy changes. The update for 
many provider types was frozen by the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 (MMA), and the 
FY 2008 Budget proposals' modest reduction to the rate of 
increase in payments for those providers that are currently 
receiving updates is a deliberate effort to rationalize 
Medicare payments. Even so, these proposals only slightly 
reduce the Medicare rate of growth from 7.4 percent to 6.7 
percent over 10 years. As we seek to improve efficiency, CMS 
will continue monitoring the quality of care that is provided 
to beneficiaries.
    Follow-Up:
    Question a. We know that there are some providers that will 
not accept new patients who are on Medicare. How can you ensure 
that these cuts will not exacerbate that problem?
    Answer. A recent GAO study found that an increasing 
proportion of beneficiaries received physician services and an 
increasing number of physician services were provided to 
beneficiaries who were treated. The percentage of beneficiaries 
reporting major difficulties in accessing physician services 
had remained relatively constant, and there had been no 
reduction in the predominant tendency of physicians to accept 
Medicare patients and payments. The GAO report is entitled, 
``Medicare Physician Services: Use of Services Increasing 
Nationwide and Relatively Few Beneficiaries Report Major Access 
Problems'' (GAO-06-704), published June 2006.
    Question 4--Nursing Home Diversion Programs
    We know that most seniors prefer to age in their home--and 
as baby-boomers continue to age, I expect that sentiment to 
only grow stronger. We have heard quite a bit about nursing 
home diversion programs and the use of home and community based 
services as an alternative to institutional care. In fact, my 
home state of Oregon is doing a great job of keeping people in 
their homes and out of nursing homes.
    Question 4. How extensive have the Department's diversion 
programs been and what barriers have you found in relocating 
nursing home residents in community based settings?
    Answer. The Department is very committed to assisting 
States as they develop and expand programs serving individuals 
who are aging and individuals with disabilities in the 
community. One predominant vehicle that States use to provide 
home and community based services is Section 1915(c) Home and 
Community Based Services (HCBS) Waiver. There are approximately 
300 HCBS waivers throughout the country serving more than one 
million Medicaid beneficiaries. While many States use these 
waivers as essential tools in the deinstitutionalization 
process, they are also using these waivers to stave off 
institutional stays. Of the nearly 300 1915(c) waivers that CMS 
has approved, approximately 115 are designed specifically for 
individuals who, without the HCBS services, would require those 
services in a nursing facility.
    States also use services within their State Medicaid Plan 
to provide needed community based services, such as Home Health 
and Personal Care. As a result of the Deficit Reduction Act of 
2005, States have additional options for the provision of 
community based long term care, such as Section 1915(i), HCBS 
as a State Plan Option, and Section 1915(j), Self-Directed 
Personal Assistance Services. CMS recently approved a Section 
1915(i) State Plan Amendment for Iowa and a Section 1915(i) 
State Plan Amendment for Alabama. These initial State Plan 
Amendments were based on draft guidances, and several other 
States have expressed interest in applying once CMS finishes 
the clearance process for the final guidances. These new DRA 
options are attractive because, in principle, nursing home 
diversion (preventing admissions) is preferable to after-the-
fact efforts to transition nursing home residents back to 
community-living. Moreover, evaluation results from the Cash 
and Counseling Demonstration--the inspiration for 1915(j)--
documented reduced nursing home use attributable to self-
directed services in two of the three states. Medicaid cost 
savings from reductions in nursing home use among the ``cash 
and counseling'' experimental group were especially sizable in 
Arkansas. This may prove to be particularly effective way to 
promote nursing home diversion in rural states where 
traditional home care providers are in short supply.
    An additional provision of the Deficit Reduction Act of 
2005 provides significant funding ($1.75 billion) over five 
years (2007-2011) to enable States to help individuals move 
from institutional settings into the community. CMS awarded 
Money Follows the Person Demonstration grants to 30 States and 
the District of Columbia. While this funding is tied directly 
to deinstitutionalization, it will provide vital assistance to 
States in their diversion efforts in the future by building and 
enhancing essential community capacity. Under the 
demonstration, approximately half of the expected transitions 
are elderly from nursing homes. The actual number of 
individuals' targeted for transition to HCBS under this grant 
program is 26,251.
    Under the Real Choice Systems Change Grants Program, CMS 
awarded $19.6 million for 33 Nursing Home Transition Grants 
(NFT) in Fiscal years 2001-2002. The Fiscal year 2002 grants 
ended on September 30, 2006. Twenty-three grants were awarded 
to States, and 10 grants were awarded to Independent Living 
Partnerships. These grants supported infrastructure development 
to identify and enable nursing home residents who could live in 
the community, with supports, to transition to home and 
community-based services (HCBS). In August 2006, as an 
evaluation of the NFT grants, RTI International completed the 
Final Report for the FY 2001 Nursing Home Transition Grants (17 
grants). States reported that the infrastructure development 
these grants provided enabled 3,371 nursing home residents to 
transition into HCBS. In addition, States reported the 
diverting of into HCBS an additional 266 individuals that would 
have been admitted to a nursing facility.
    As a percentage of all Medicaid long term care expenditures 
for older adults and persons with physical disabilities, 
spending in the community (including home health, personal care 
and HCBS waivers) increased to 26% in 2005, up from 16% in 1995 
(Source: CMS Form 64 Reports).
    Despite the tremendous efforts to serve individuals in 
their homes and communities, barriers still exist. The two 
major barriers to successful transition into HCBS are lack of 
affordable and accessible housing and transportation.
    Other barriers identified include a lack of capacity for 
home and community services, including the ability of States to 
provide financial management services, timely access to home 
modifications, as well as the State's ability to address 
complex medical needs in community settings. In addition, the 
availability or the perspective of surrogate decision makers 
and/or guardians was also identified as a barrier. In addition 
to those noted above, the report revealed that the following 
items could also impede an individual's ability to move to the 
community:

       Lack of funding for case management/relocation 
assistance;
       Restrictive eligibility criteria for HCBS;
       Administrative and bureaucratic barriers;
       Resistance to transition by family members and 
nursing home staff and physicians; and
       Shortage of long-term care workers.

    Follow-Up:
    Question a. Does the Department have any studies, data or 
estimates on the number of low acuity seniors living in skilled 
nursing institutions that could be better served in housing 
with supportive services?
    Answer. We do not have specific data on the number of low 
acuity seniors living in skilled nursing institutions that 
could be better served in housing with supportive services.
    Medicare Part D would not be nearly as successful as it is 
today without the hard work of State Health Insurance 
Assistance Programs (SHIPs) in providing Part D enrollment 
assistance and counseling. In 2006, SHIPs received 
approximately $31 million, which is significantly less than $1 
per Medicare beneficiary. I soon will be introducing 
legislation that will help remedy this funding deficiency and 
provide SHIPs an amount equal to $1 per Medicare beneficiary.
    Question 5--Funding for Part D Outreach and Counseling
    Question 5. What amount does the 2008 budget allocate for 
the SHIPs, and what amount is specifically earmarked for LIS 
outreach and enrollment?
    Answer. The FY 2008 President's Budget Request includes 
$37.6 million for the National Medicare Education Program 
(NMEP) Community Based Outreach, of which $34.9 million is for 
SHIPs. This is funding for SHIP program support and direct 
grants to 54 SHIPS (50 States, District of Columbia, Puerto 
Rico, Guam and the Virgin Islands). The SHIPs provide an 
important role in counseling for LIS. During our 2006 SHIP 
grant year (April 2006--March 2007), 14,792 events were held by 
SHIPs where the target audience was the LIS population. As a 
proxy for LIS, 144,975 individuals with incomes below 150% of 
the federal poverty level were provided one-on-one counseling 
by SHIPs. This represents approximately 13% of all individuals 
who received one-on-one counseling from SHIPs in 2006.
    Although the SHIP funding is not broken out by LIS and non-
LIS categories, we will be gathering additional data from the 
SHIPs on LIS support. In October 2007, CMS will be receiving 
mid-term reports in which the SHIPs will provide data to CMS on 
their LIS activities, demonstrating how they serve the LIS 
population. CMS will continue to collect pertinent performance 
measurement and assessment data on SHIPs in FY 2008 and beyond.
    CMS' fiscal year 2008 budget request has not been approved 
at this time. CMS would consider how these efforts can be 
supported in the future, pending funding.
    Follow-Up:
    Question a. Will funding be provided to the AAAs (Triple 
As) and Native American aging programs, which so far have not 
received dedicated resources to support their Medicare Part D 
efforts?
    Answer. CMS has developed a collaborative partnership with 
the US Administration on Aging (AoA) to leverage the federal, 
State, tribal, and local partnerships called the National Aging 
Services Network. Through this collaborative effort, CMS is 
providing funding and other resources to the AoA and its 
National Aging Services Network to offer outreach and 
education, assistance, and counseling to people with Medicare 
at the local level. This partnership is designed to help 
beneficiaries make informed decisions about their healthcare, 
including Part D coverage options, and have greater access to 
affordable medications.
                                ------                                


          Questions from Senator Smith for Josefina Carbonell

    Question. What type of analysis has your agency done to 
determine the amount of funding needed to allow OAA programs to 
just keep pace with projected population growth and inflation 
in FY 2008?
    Answer. The Administration did not propose to cut funding 
for the Older Americans Act (OAA) Nutrition and Caregiver 
programs, but proposed in the FY 2008 President's Budget the 
same level of funding as proposed in the FY 2007 President's 
Budget.
    FY 2007 Congressional funding for the OAA Nutrition and 
Caregiver programs occurred after the submission of the FY 2008 
President's Budget.
    AoA has not performed an analysis of funding relative to 
inflation. We recognize that as the population of seniors 
grows, the demand for OAA programs will increase over time--
however, the OAA provides only about one-third of total 
national aging services network spending. The State and local 
agencies that make up this network have been and will continue 
to be very effective in leveraging funds from other sources to 
support community-based long term care.
    AoA has addressed expectations for long-term growth in 
service demand through its innovative proposal for the 
``Choices for Independence'' demonstration. The components of 
this demonstration, with rigorous testing and evaluation 
components, aim to increase the capacity of the aging services 
network to offer a comprehensive array of supportive services, 
including nutrition and caregiver services, to elderly 
individuals living in the community.
    Question. How can the AoA appropriately protect seniors 
from financial exploitation when you aren't focusing adequate 
resources toward the problem?
    Answer. Title VII funds are used for the Ombudsman Program 
and for elder-abuse prevention activity, including financial 
exploitation programming in States and communities. States also 
use Title III funds for these purposes and legal services.
    The Administration did not propose to cut funding for 
financial exploitation programs or for Title VII across the 
board, but proposed in the FY 2008 President's Budget the same 
level of funding as proposed in the FY 2007 President's Budget.
    FY 2007 Congressional funding for Title VII occurred after 
the submission of the FY 2008 President's Budget.
                                ------                                


           Questions from Senator Smith for Brian Montgomery

    Question. How do you reconcile the Administration's funding 
for Section 202 Housing with the AARP study?
    Answer. The Department is committed to addressing the 
housing needs of low-income elderly Americans. Even though the 
costs of renewing Section 8 contracts continue to take up a 
larger portion of the overall budget, the Department has 
increased funding for the Section 202 program by $30 million 
over last year's request. We have:

        Constructed almost 400,000 units specifically 
for the elderly.
       303 projects in the construction pipeline worth 
approximately $1.3 billion. The projects in the pipeline will 
generate approximately 12,000 new housing units for the elderly 
over the next 2 years.
       And, we serve an additional 675,000 elderly 
families under other HUD rental assistance programs such as 
Section 8 and Public Housing.

    Additionally, the Department has and will continue to have 
discussions with our stakeholders to develop options for 
dealing with this issue, especially as it relates to elderly 
housing. As part of these discussions, the Department is 
proposing $25 million for a demonstration program that will 
leverage federal dollars with tax credits and other mixed 
financing options to not only increase the number of units 
being constructed, but also decrease the time it takes to make 
them available to the elderly.
    Question. How many people are eligible for the program, but 
not able to receive assistance because of the lack of funding?
    Answer. According to the latest available Affordable 
Housing Needs Report (AHNR) issued by HUD's Office of Policy 
Development and Research, there were 2.144 million elderly 
renter households with very low-incomes (below 50 percent of 
the area median income) without housing assistance in 2003. Of 
these households, 1.129 million households had ``worst case 
needs'' for affordable housing, because they either were paying 
more than half their incomes for rent or they lived in 
substandard housing conditions. These household estimates were 
obtained from the American Housing Survey.
    Question. Do you anticipate that your demonstration project 
will fill the unmet gap?
    Answer. Since only $25 million will be available for the 
demonstration project, the Department does not anticipate the 
unmet gap will be filled. However, the Department does not 
believe that the number of additional units generated by the 
demonstration project will be a help in meeting the unmet 
housing need. With the demonstration project, HUD is most 
interested in identifying some best practices which facilitate 
the development of additional affordable housing.
    Question. What are the available alternatives for the 
elderly who cannot find the affordable housing they need 
through this program?
    Answer. The voucher program and other HUD programs as well 
as projects funded through low income housing tax credits and 
locally developed projects using local and state resources are 
all available to assist elderly households obtain affordable 
housing.
    Question. What studies has HUD conducted, or otherwise 
considered, regarding the benefits (economic, social or 
otherwise) of seniors who are able to age-in-place in federally 
assisted housing versus moving to a higher level of care?
    Answer. The Department's Policy Development and Research 
Office has completed a study. The study will be available to 
the public as soon as it has been cleared through the 
Department. We note that the study cites several studies that 
address the issues of seniors aging-in-place.
    Question. In addition to the grants for assisted living 
conversions, what additional action has been taken to address 
this issue faced by so many of our elderly citizens?
    Answer. The Service Coordinator Program continues to link 
elderly residents to social service resources in the community 
that enable the residents to remain in their units longer. Some 
project owners are also refinancing there older projects in 
order to generate funds to make needed modifications to the 
projects to enable residents to remain in their homes longer 
and/or provide additional services to the residents.
    Question. How has HUD worked with other agencies to 
coordinate federal assistance in this area?
    Answer. As a first step, the Department has met internally 
and with other agencies to inventory the current programs and 
services available to the elderly.
    Question. Can you provide the Committee with an update on 
the status of the LEGACY Act?
    Answer. The Legacy Act report has been submitted for HUD 
departmental clearance. The Census Bureau has reviewed the 
report and provided comments to HUD. The Department anticipates 
announcing the availability of the $4 million in appropriated 
funds in FY 2007 and training HUD staff before the end of FY 
2007.
    Question. How many families are in need of this type of 
housing?
    Answer. Using the 2000 Census special tabulation data, 
denoted as STP-276, the report notes that 1.6 million 
grandparent-headed households are raising a grandchild and 
qualify for assistance under the LEGACY Act. An additional 1.1 
million households meet the Act's definition of other 
``relative-headed.'' Therefore, there are approximately 2.7 
million covered households in the United States. Many of these 
households are owners and/or have incomes that would make them 
ineligible for public assistance under the LEGACY Act. The 2000 
Census shows approximately 265,000 grandparent-headed 
households and, at most, 225,000 other relative-headed renter 
households who would qualify for assistance under the LEGACY 
Act.
    Question. Given that the agency didn't request funding for 
the LEGACY Act, do you consider this program to be a priority 
at the Department?
    Answer. The Department considers any program that provides 
a resource to develop additional affordable housing units for 
very low-income elderly persons a priority. The Department is 
working towards announcing the availability of these funds in 
the FY 2007 Notice of Funding Availability.
    Question. Why does the Administration want to eliminate 
this option for states?
    Answer. It appears that this is not a HECM question but a 
needs test for Medicaid and the result, it would appear, is 
that individuals with more than $500,000 equity in their homes, 
would have to sell or lower that equity with a HECM. As such, 
it's outside our purview to address.
    Question. What advice would you give individuals 
considering a reverse mortgage?
    Answer. There are many issues an individual should consider 
before pursuing a reverse mortgage including other housing 
options, e.g., selling their home and using the proceeds to buy 
or rent a new home or moving into assisted living or other 
alternative housing. Considering all housing options will help 
to clarify which option best suits the individual's needs. 
Individuals should also research public benefits that may be 
available to help them address their particular need. For 
example, if an individual is seeking a reverse mortgage to pay 
for property taxes or do home repairs, their State or local 
jurisdiction may offer programs for these purposes. There may 
also be government programs that can also help pay for medical 
expenses and prescription drugs.
    Individuals should also consider the costs associated with 
each of their housing options. While selling the too-large 
family home and purchasing a new senior-friendly home may seem 
the best solution, the cost of the two transactions may make 
this type of arrangement too expensive. Alternatively, the cost 
of a reverse mortgage is most affordable for those who stay in 
their homes for several years. Fortunately, the costs of HECM 
are completely transparent to prospective borrowers. Lenders 
are required by law (Truth in Lending Act) to provide a 
disclosure called a Total Annual Loan Cost (TALC) form, which 
arrays exactly how much this loan cost after 2, 4, 8, and 12 
years. This document shows how the costs represent a smaller 
and smaller proportion of the loan over time. Another cost 
consideration often posed by people who misunderstand the 
benefits of a HECM is that seniors simply take out a home 
equity loan, which appears less expensive than a reverse 
mortgage. However, seniors need sufficient income and credit 
capacity to qualify for these mortgages and ultimately need to 
repay these mortgages, so home equity loans are often an 
impractical solution for cash-strapped seniors.
    Finally, the individual may want to involve family or 
trusted friends in the decision making process. The individual 
may wish to think about the impact of a reverse mortgage on 
their heirs and estate. Whether an individual decides to 
discuss their consideration of a reverse mortgage with family 
and friends is a completely personal decision and choice.
    Question. How prevalent is fraud in this industry?
    Answer. HUD is not aware of much fraud in the reverse 
mortgage industry. In fact, most mortgage fraud is either 
``fraud for property'' which is not going to happen on a HECM 
(FHA's reverse mortgage) since the borrower already owns the 
home, or ``fraud for profit,'' which often includes a 
strawbuyer or an unwitting first-time homebuyer. These are not 
features of reverse mortgages.
    But more importantly, at least with FHA's reverse mortgage 
product, the Department has instituted policies and procedures 
to provide protections for senior homeowners considering an FHA 
reverse mortgage. In addition to the various disclosures 
provided, including the Truth in Lending Act disclosure 
described above, HECM's require that seniors receive counseling 
from a HUD-approved counseling agency. In addition to exploring 
alternatives to a reverse mortgage and the financial 
implications of a HECM, counselors educate individuals on what 
to expect from the various entities involved in the loan 
process. Counselors explain to clients the standard ways for 
HECM borrowers to access their loan proceeds and warn clients 
against signing over funds to loan officers or others involved 
in the loan transaction.
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