[Senate Prints 105-30]
[From the U.S. Government Publishing Office]
105th Congress S. Prt.
COMMITTEE PRINT
1st Session 105-30
_______________________________________________________________________
BALANCED BUDGET RECONCILIATION ACT OF 1997
__________
COMMITTEE RECOMMENDATIONS AS SUBMITTED TO THE BUDGET COMMITTEE ON THE
BUDGET PURSUANT TO H. CON. RES. 84
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
Pete V. Domenici, Chairman
JUNE 1997
Printed for the use of the Committee on the Budget
BALANCED BUDGET RECONCILIATION ACT OF 1997
105th Congress S. Prt.
COMMITTEE PRINT
1st Session 105-30
_______________________________________________________________________
BALANCED BUDGET RECONCILIATION
ACT OF 1997
----------
COMMITTEE RECOMMENDATIONS AS SUBMITTED TO THE BUDGET COMMITTEE ON THE
BUDGET PURSUANT TO H. CON. RES. 84
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
Pete V. Domenici, Chairman
JUNE 1997
Printed for the use of the Committee on the Budget
COMMITTEE ON THE BUDGET
PETE V. DOMENICI, New Mexico, Chairman
CHARLES E. GRASSLEY, Iowa FRANK R. LAUTENBERG, New Jersey
DON NICKLES, Oklahoma ERNEST F. HOLLINGS, South Carolina
PHIL GRAMM, Texas KENT CONRAD, North Dakota
CHRISTOPHER S. BOND, Missouri PAUL S. SARBANES, Maryland
SLADE GORTON, Washington BARBARA BOXER, California
JUDD GREGG, New Hampshire PATTY MURRAY, Washington
OLYMPIA J. SNOWE, Maine RON WYDEN, Oregon
SPENCER ABRAHAM, Michigan RUSSELL D. FEINGOLD, Wisconsin
BILL FRIST, Tennessee TIM JOHNSON, South Dakota
ROD GRAMS, Minnesota RICHARD J. DURBIN, Illinois
GORDON SMITH, Oregon
G. William Hoagland, Staff Director
Bruce King, Staff Director for the Minority
C O N T E N T S
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Page
A. Overview...................................................... 1
B. Summary of Recommendations.................................... 2
C. Reconciliation Process and Procedures......................... 3
D. Additional Views.............................................. 7
E. Title-by-Title Analysis....................................... 9
I. Committee on Agriculture, Nutrition, and Forestry...............10
CBO Cost Estimate...................................... 12
II. Committee on Banking, Housing, and Urban Affairs................20
CBO Cost Estimate...................................... 22
III. Committee on Commerce, Science, and Transportation..............52
Views.................................................. 53
CBO Cost Estimate...................................... 56
IV. Committee on Energy and Natural Resources.......................67
CBO Cost Estimate...................................... 69
V. Committee on Finance............................................71
VI. Committee on the Governmental Affairs..........................198
CBO Cost Estimate...................................... 200
VII. Committee on Labor and Human Resources.........................213
Views.................................................. 214
CBO Cost Estimate...................................... 217
VIII.Committee on Veterans' Affairs.................................224
CBO Cost Estimate...................................... 226
F. Roll Call Vote in Budget Committee............................ 241
A. Overview
The FY 1998 Congressional Budget Resolution (H. Con. Res.
84) adopted by the U.S. Senate on June 5, 1997 was the first
step in implementing the Bipartisan Budget Agreement approved
by the President, the Speaker of the House, the Senate Majority
and Minority Leaders on May 15, 1997. The second major step to
implement the Agreement is embodied in the Balanced Budget Act
of 1997 reported from the Senate Budget Committee on June 20,
1997.
The Balanced Budget Act of 1997 (reconciliation bill)
includes reforms to federal programs within the jurisdiction of
eight Senate authorizing committees. This legislation results
from instructions included in H. Con. Res. 84 to these eight
committees to make changes to laws within their jurisdictions
that would reduce federal spending $137.2 billion over the next
five years, including reductions of $59.4 billion in 2002.
Savings from this reconciliation bill, combined with $138
billion in appropriation savings, and other legislation
directed in the Agreement will place the country's fiscal books
on a road to balance in 2002.
The figures included in this summary print are based on
preliminary estimates for some of the reconciled committees.
Based on these preliminary estimates, however, the reported
reconciliation bill achieves savings of approximately $132.6
billion over the next five years slightly below the
reconciliation instruction, but fundamentally following the
blueprint of the Bipartisan Budget Agreement.
It is the stated intent of the Congressional Leadership and
all parties to the Agreement to take such actions as are
necessary to assure consistency with the Agreement. Such action
may require amendments to the Balanced Budget Act of 1997 as
reported by the Committee to comply with both the budget
resolution's instructions and the Bipartisan Budget Agreement.
B. Summary of Recommendations
RECONCILIATION SUMMARY BY SENATE COMMITTEE
[Preliminary estimates in billions of dollars]
----------------------------------------------------------------------------------------------------------------
Committee 1998 1999 2000 2001 2002 Total
----------------------------------------------------------------------------------------------------------------
Instruction:
Agriculture, Nutrition and OT............ 0.300 0.300 0.300 0.300 0.300 1.500
Forestry.
Banking, Housing and Urban DR............ -0.136 -0.233 -0.365 -0.422 -0.434 -1.590
Affairs.
Commerce, Science and DR............ -- -3.549 -3.549 -4.549 -14.849 -26.496
Transportation.
Energy and Natural OT............ -- -0.001 -0.002 -0.004 -0.006 -0.013
Resources.
Finance.................... OT............ -1.137 -12.681 -19.079 -26.838 -40.911 -100.646
Governmental Affairs....... DR............ -0.632 -0.839 -1.042 -1.185 -1.769 -5.467
Labor and Human Resources.. OT............ -0.242 -0.247 -0.158 -0.088 -1.057 -1.792
Veterans Affairs........... OT............ -0.247 -0.540 -0.659 -0.606 -0.681 -2.733
------------------------------------------------------------------
Total instruction...... DR............ -2.094 -17.790 -24.554 -33.392 -59.407 -137.237
==================================================================
Reported:
Agriculture, Nutrition and OT............ 0.190 0.300 0.350 0.350 0.300 1.490
Forestry \1\.
Banking, Housing and Urban DR............ -0.660 -0.206 -0.332 -0.409 -0.448 -2.055
Affairs.
Commerce, Science and DR............ -- -1.749 -3.449 -3.249 -7.449 -15.896
Transportation.
Energy and Natural OT............ -- -0.001 -0.002 -0.004 -0.006 -0.013
Resources \1\.
Finance.................... OT............ -2.797 -13.459 -22.845 -24.912 -42.067 -106.080
Governmental Affairs \1\... DR............ -0.632 -0.845 -1.049 -1.192 -1.809 -5.527
Labor and Human Resources OT............ -0.239 -0.233 -0.155 -0.085 -1.080 -1.792
\1\.
Veterans Affairs........... OT............ -0.247 -0.540 -0.659 -0.606 -0.681 -2.733
------------------------------------------------------------------
Total reported......... DR............ -4.385 -16.733 -28.141 -30.107 -53.240 -132.606
==================================================================
Reported compared to
instruction:
Agriculture, Nutrition OT............ -0.110 -- 0.050 0.050 -- -0.010
and Forestry.
Banking, Housing and DR............ -0.524 0.027 0.033 0.013 -0.014 -0.465
Urban Affairs.
Commerce, Science and DR............ -- 1.800 0.100 1.300 7.400 10.600
Transportation.
Energy and Natural OT............ -- -- -- -- -- 0.000
Resources.
Finance.................. OT............ -1.660 -0.778 -3.766 1.926 -1.156 -5.434
Governmental Affairs..... DR............ -- -0.006 -0.007 -0.007 -0.040 -0.060
Labor and Human Resources OT............ 0.003 0.014 0.003 0.003 -0.023 --
Veterans Affairs......... OT............ -- -- -- -- -- --
------------------------------------------------------------------
Total comparison....... DR............ -2.291 1.057 -3.587 3.285 6.167 4.631
----------------------------------------------------------------------------------------------------------------
\1\ Final CBO Estimates.
Note: OT=outlays, DR=deficit reduction. Staff estimates unless otherwise indicated.
C. Reconciliation Process and Procedures
Overview
Section 310 of the congressional Budget Act (the Budget
Act) authorizes the inclusion of reconciliation instructions in
the budget resolution. The Budget Committee is not required to
include such instructions, but will include them when changes
in existing direct spending and revenue laws are necessary in
order to implement the budget resolution.
When the budget resolution contains reconciliation
instructions, the Budget Committee specifies, to each committee
to be reconciled, the total amount by which direct spending or
revenues under existing laws is to be changed. The Committee
may also specify the total amount by which the statutory limit
on the public debt is to be changed. Each committee is then
instructed to recommend the appropriate legislative changes to
meet the instructions and to report those recommendations to
the Senate Committee on the Budget. Once all of the committee's
recommendations are received, the Budget Committee consolidates
the legislative language into a single piece of legislation and
reports it to the Senate, without substantive change.
Reconciliation Instructions in the FY 1998 Budget Resolution
Section 104(a) of the budget resolution for fiscal year
1998 (H. Con. Res. 84, 105th Congress, 1st Session) sets out
reconciliation instructions to 8 Senate committees calling for
spending reductions totaling $137.24 billion over 5 years (1998
through 2002). Committees were to report their recommendations
to the Committee on the Budget by June 13, 1997. The Committee
on the Budget consolidated, without substantive change, the
recommendations submitted and ordered the matter reported on
June 20, 1997. As of the printing of this document, preliminary
scoring by the Congressional Budget Office indicated that all
committee had complied with their instructions with the
exception of the Committee on Commerce.
Reconciliation Procedures
In General
Section 310 of the Congressional Budget Act of 1974 sets
forth expedited procedures for the consideration of a
reconciliation measure in the Senate. These procedures provide
for a limited period of consideration and restrict the content
of amendments offered from the floor. In particular, section
313 (known as the ``Byrd Rule'') prohibits the inclusion of
``extraneous'' provisions in the legislation (and any
amendments thereto or conference report thereon).
Motion to Proceed and Time Limits
Since the reconciliation legislation is a privileged
matter, the motion to proceed to the consideration of a
reconciliation bill is not debatable. Total debate on a
reconciliation bill is limited to 20 hours. Note that this is a
limit on overall debate time, not overall consideration. The
time is controlled by and divided equally between the majority
leader and the minority leader or their designees. The 20 hours
does not include time consumed for the reading of amendments,
quorum calls immediately preceding a roll call vote, or roll
call votes. Debate on debatable motion or appeal is limited to
1 hour. The proponent of an amendment or motion is entitled to
one-half of the allotted time. The time in opposition is
controlled by the majority leader or his designee unless he or
she supports the amendment or motion. If so, the time in
opposition is controlled by the minority leader or his
designee.
Compliance with Reconciliation Directives
Section 104(a) of the fiscal year 1998 budget resolution
instructed Senate committees to submit legislation to the
Budget Committee to reduce direct spending for two time
periods: (i) the five-year period of 1998-2002 and (ii) the
last year, 2002. Compliance with reconciliation directives is
measured by the amount of savings the Congressional Budget
Office (CBO) estimates will result from the enactment of the
legislative recommendations submitted by the committees.
The Budget Committee is responsible for scoring
reconciliation bills and any amendments thereto and will make
these determinations based upon cost estimates provided by the
Congressional Budget Office. Because the Budget Committee must
report the committee's recommendations without any substantive
change, any action to bring a committee into compliance must
occur on the Senate floor. If a committee fails to meet its
instructions, one possible remedy is the making of a motion to
recommit with instructions to report back forthwith with an
amendment that brings the committee into compliance. The text
of such an amendment need not be germane to the underlying
bill. A committee could also be brought into compliance by the
offering of a simple floor amendment. This amendment, however,
would have to be germane.
Restrictions upon the Content of Amendments
The Budget Act provides for a number of restrictions upon
the content of amendments offered from the floor to a
reconciliation bill: section 305(b) requires that amendments be
germane; section 310(d) requires that amendments be, in effect,
deficit neutral; section 310(g) prohibits amendments that
effect the Social Security Trust Fund; and section 313
prohibits amendments which are extraneous to the reconciliation
instructions. All of these restrictions are enforced in the
Senate by points of order which require 60 affirmative votes to
waive or overturn the ruling of the Presiding Officer by an
appeal.
Germaneness
Section 305(b)(2) imposes a germaneness requirement upon
all amendments offered to a reconciliation bill. Germaneness is
determined pursuant to the precedents of the Senate and rulings
will be made by the Presiding Officer of the Senate with the
advice of the Parliamentarian. Germaneness is a much more
narrow concept than ``relevance'' which generally requires a
mere subject matter relationship. There are, however, 4 classes
of amendments whichthe precedents of the Senate deem to be per
se germane: (i) committee amendments; (ii) amendments which only strike
language from the bill; (iii) amendments which change numbers or dates;
and (iv) amendments containing non-binding or precatory language within
the jurisdiction of the committee which reported the bill. Note:
amendments which fall into one of the per se germane classes are still
subject to points of order set out in other sections of the Budget Act.
Therefore, for example, while amendments containing non-binding
language within the jurisdiction of a reporting committee may be per se
germane, such language by its very nature has no budgetary effect and
consequently violates section 313(b)(1)(A) as explained below.
If an amendment does not fall within one of the classes of
per se germane amendments discussed above, germaneness is
determined on a case-by-case basis. Members are encouraged to
consult with the Parliamentarian to determine if any particular
amendment is germane.
Deficit Neutrality
Section 310(d) of the Budget Act provides that an amendment
to a reconciliation bill is out of order in the Senate if it
would reduce outlay reductions or revenue increases below the
level called for by the reconciliation instructions unless the
amendment also provides offsetting outlay reductions or revenue
increases. In other words, an amendment may not increase
spending or cut taxes unless it is ``paid for''--that is, it
may not worsen the deficit.
It must be noted, however, that 310(d) provides that ``a
motion to strike a provision shall always be in order''. This
language thus permits language to be removed from a bill
regardless of the budgetary effects.
Social Security
Section 310(g) provides that an amendment to a
reconciliation bill (or the bill itself) is not in order if it
contains ``recommendations with respect to the old age,
survivors, and disability insurance program established under
title II of the Social Security Act''. This language generally
has been interpreted to prohibit the consideration of any
legislation in the reconciliation process which affects the
receipts (taxes paid) into or the outlays (benefits paid) from
the OASDI trust fund. As discussed below, a violation of 310(g)
also constitutes a violation of section 313(b)(1)(F).
Extraneous Matter: section 313, the Byrd Rule
The Byrd rule provides a point of order against extraneous
provisions in a reconciliation bill, an amendment thereto, and
the conference report thereon. It is unique in that it permits
a point of order to be raised against a ``provision''.
Consequently, unlike other points of order which would lie
against the bill or conference report in its entirety, a Byrd
rule point of order, if sustained, will result in the offending
language being stricken from the bill or the conference report.
The Byrd rule provides a specific definition of ``extraneous''
in subsection 313(b). A provision will be considered extraneous
if it:
produces no change in outlays or revenues, unless it
is a term or condition of a provisions which produces
such a change--section 313(b)(1)(A);
increases outlays or reduces revenues if the
reporting committee has failed to comply with its
reconciliation instruction--section 313(b)(1)(B);
is within the jurisdiction of another committee--
section 313(b)(1)(C);
produces changes in outlays or revenues which are
merely incidental to the non-budgetary components of
the provision--section 313(b)(1)(D);
causes the committee's work product to worsen the
deficit in any year beyond those reconciled for--
section 313(b)(1)(E); and
affects the receipts into or outlays from the OASDI
trust fund in violation of section 319(g)--section
313(b)(1)(F).
D. Additional Views
----------
DISSENTING VIEWS OF SENATOR PAUL S. SARBANES
This spending reconciliation bill is plagued by the same
misplaced priorities that characterize the FY98 budget plan as
a whole. In particular, this bill, when combined with the tax
breaks approved by the Senate Finance Committee and the House
Ways and Means Committee, places a disproportionate share of
the burden of deficit reduction on ordinary citizens. Such
citizens will be impacted by the program cuts in this bill
while those at the top end of the income and wealth scale will
reap large tax benefits.
Given the objective of a balanced budget, the inclusion of
tax cuts in the budget plan necessitates program reductions
substantially greater than would be needed to eliminate the
deficit if tax breaks were not a part of the budget plan.
The math is simple. The budget resolution provides for $85
billion in net tax cuts over the next five years and $250 in
net tax cuts over the next 10 years. In the framework of a
balanced budget, these tax cuts require additional program
reductions of $85 billion over the next five years and $250
billion over the next 10 years over what would otherwise be
required. The structure of the bills reported out by the tax
Committees make it clear that those at the very top of the
income pyramid will receive very substantial tax breaks
(thereby absenting themselves from the deficit reduction
effort, indeed shifting the burden to others), while ordinary
people will carry a greater burden of program reductions to
compensate for the tax breaks.
May programs important to working people--e.g., Medicare
and Medicaid--are being reduced to pay for capital gains tax
cuts, inheritance tax cuts, and IRA expansion that will benefit
the wealthiest people in the nation. Indeed, the tax bills
reported from the Committees give the top 1% of the income
scale the same percentage of the tax reductions as the bottom
60 of the income scale.
I cannot support the priorities reflected by these choices.
For every dollar lost to the treasury in tax cuts, one dollar
must be added to the treasury through reductions in programs
that are essential to many of our citizens. Therefore, in
assessing the spending reconciliation bill before us, we should
ask ourselves: Whether providing tax breaks to the very well-
to-do should be a higher priority than adequate funding for
programs essential to the wellbeing of ordinary citizens.
I think not and therefore vote no on the measure before us.
Paul S. Sarbanes.
ADDITIONAL VIEW OF SENATOR PATTY MURRAY
Today the Budget Committee is scheduled to report out the
Budget Reconciliation spending bill. Unfortunately, I was
unable to be present for the final vote, but had I been here I
would have voted ``Aye.''
Several months ago, I made a commitment to the graduating
class at North Seattle Community College, that I would be
honored to be their 1997 commencement speaker. This commitment
was extremely important to me and the graduating class, I
simply could not back out at the last minute. Today's Budget
Committee mark up was not finalized until last night.
I am extremely troubled by some of the provisions within
the reconciliation package as I believe that they violate the
bi-partisan balanced budget agreement that was recently
adopted. I am also disappointed that the Committee will not
have final legislative language and final CBO numbers on parts
of the Finance Committee sections. It is difficult to
understand why the leadership is in such a rush to complete
action on major changes to Medicare and Medicaid. This rush to
bring this bill to the floor does jeopardize our efforts to
enact a balanced budget.
As we all know the Budget Committee cannot amend the
reconciliation legislation. This will be done on the floor next
week. At that time I will be supporting amendments that ensure
this package is in compliance with the agreement and that it
does not violate our commitment to our nation's senior citizens
and our children. We must seize on this unique opportunity to
balance the budget, reform Medicare and expand health benefits
for children. Unfortunately, as it stands now it does not
appear that the current reconciliation language will achieve
these goals.
Today's action by the Budget Committee is an important step
in the process which is why I would have voted to report the
measure to the full Senate. This does not mean that the package
is one I will support when it reaches the floor. I am simply
acting to move us closer to achieving a balanced budget.
I am disappointed that this legislation does violate the
agreement that we worked so hard to achieve. But, I am hopeful
that significant improvements will be made on the floor and
that we can send to the President a bill that he can sign.
Patty Murray.
E. Title-By-Title Analysis
The following is a title-by-title analysis of the
legislation. In each case, the analysis is that of the
respective committee and is presented as it was submitted to
the Budget Committee without revision. In certain cases, the
final Congressional Budget Office estimate was not available
when the committee made its submission. Where that occurred,
the Budget Committee has included that CBO estimate at the end
of the committee's analysis.
CONGRESSIONAL BUDGET OFFICE COST ESTIMATE
Reconciliation recommendations of the Senate Committee on Agriculture
(Title I)
Summary: The Senate Agriculture Committee reconciliation
recommendations would increase federal Food Stamp spending by
$1.5 billion over the 1998 to 2002 period.
The Personal Responsibility and Work Opportunity
Reconciliation Act (PRWORA) of 1996 limited Food Stamp receipt
to a period of three months in any 36-month period for able-
bodied adults who do not have dependent children and who are
not working or participating in an appropriate training or work
activity. The title would allow states to exempt some
individuals from this limitation and would provide additional
federal Food Stamp Employment and Training funds to states.
This title contains an intergovernmental mandate as defined
in the Unfunded Mandates Reform Act of 1995 (UMRA). CBO
estimates that the costs of complying with the mandate would
not be significant. The title does not contain any private-
sector mandates as defined in UMRA.
Estimated cost to the Federal Government: The estimated
budgetary impact of the title for the 1998-2002 period is shown
in the following table. The appendix table shows the budgetary
impacts through 2007.
The effects of this legislation fall within budget function
600 (Income Security).
ESTIMATED BUDGETARY IMPACT OF THE RECONCILIATION RECOMMENDATIONS OF THE SENATE COMMITTEE ON AGRICULTURE
----------------------------------------------------------------------------------------------------------------
Outlays by fiscal years, in millions of dollars--
-----------------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
DIRECT SPENDING
Food Stamp Spending Under Current Law............... 23,794 24,450 25,884 27,226 28,645 29,417
===========================================================
Proposed Changes:
Section 1001: Hardship exemption................ 0 110 110 110 120 130
Section 1002: Additional funding for employment
and training................................... 0 80 190 240 230 170
-----------------------------------------------------------
Total Changes................................. 0 190 300 350 350 300
===========================================================
Spending Under Title I.............................. 23,794 24,640 26,184 27,576 28,995 29,717
----------------------------------------------------------------------------------------------------------------
Basis of estimate: The Personal Responsibility and Work
Opportunity Reconciliation Act (PRWORA) of 1996 limited Food
Stamp receipt to a period of three months in any 36-month
period for able-bodied adults who do not have dependent
children and who are not working or participating in an
appropriate training or work activity. An individual can
reestablish eligibility for another three-month period after a
month of working or participating in an allowable employment or
training program. The Secretary of Agriculture can provide a
waiver from the provision for areas that have an unemployment
rate greater than ten percent or insufficient jobs. The
Department of Agriculture estimates that currently about 35
percent of the people who otherwise would be affected by this
provision live in areas that are covered by a waiver.
Title I contains two provisions that address this component
of current law. The first would allow states to exempt a
certain number of individuals from the requirements. The second
provides additional federal money for Food Stamp Employment and
Training.
Section 1001: Exemption
Under this provision, each state would be allowed to
continue food stamp benefits past the three month limit for 15
percent of the state's covered individuals, as estimated
annually by the Secretary of Agriculture based on Food Stamp
Program administrative data. Covered individuals would be
defined as individuals who are covered by the time-limit
provision by virtue of their age, work status, and household
circumstances, do not live in an area that is covered by a
waiver, and are not receiving benefits under a three-month
period of eligibility.
Based on CBO's analysis of the Food Stamp administrative
data and projections of Food Stamp participation, CBO assumes
that approximately 1.1 million Food Stamp recipients would, in
fiscal year 1998, be able-bodied, between the ages of 18 and 50
with no children in the home, and not working or complying with
an appropriate work activity. Of these individuals, CBO assumes
that 75 percent would not be in a three-month period of
eligibility and, of the remainder, 65 percent would not reside
in a waiver area.
Under these assumptions, the Secretary would identify
approximately 550,000 individuals nationwide as covered
individuals, and would distribute the number among the states.
States could, therefore, allow a total of about 82,000 people
(15 percent) to receive food stamps each month who would
otherwise be ineligible. CBO assumes that only about 74,000
people would actually continue to receive benefits because a
few states would choose not to implement the exemption.
Continuing food stamps for these newly exempt individuals (at
an average cost of about $120 a month) would increase Food
Stamp outlays by $100 million in 1998, $130 million in 2002,
and $580 million over the 1998-2002 period.
Section 1002: Additional funding for employment and training
Under current law, the Food Stamp Employment and Training
component of the Food Stamp Program has two federal funding
sources. The federal government provides a stated amount
annually in funds that do not require a state match. States may
also draw down an unlimited amount of additional funds at a 50
percent match rate. In 1996, the federal government provided
about $75 million dollars in federal-only funds and about the
same amount as a match to state funds.
Section 1002 would increase the federal-only Food Stamp
Employment and Training funds by $140 million in each of fiscal
years 1998 to 2001 and by $80 million in fiscal year 2002. In
addition to the increase in federal-only employment and
training funds, CBO estimates that this section would increase
Food Stamp benefits and slightly reduce federal matching funds
for employment and training. In total, CBO estimates that
Section 1002 would increase federal outlays by $910 million
over the 1998-2002 period.
The bill would create new procedures for states to use in
drawing down federal-only funds. Under current law, states draw
down money based on their costs, regardless of who they serve
in what type of employment and training service. Under the
bill, the Secretary of Agriculture would set two levels of
reimbursement rates, and states would receive federal funding
on a per-placement basis. The federal government would pay a
state the higher amount when it placed an individual who is
subject to the 3-month time limit in the type of activity that
would allow him to retain his food stamps. The federal
government would pay the lower amount when a state placed the
same individual in another type of service, or when it served
any person who is not subject to the time limit. The type of
reimbursement the state received would not depend on whether
the individual lived in an area covered by a waiver. The bill
also would require that states spend at least 75 percent of the
federal-only money on the types of employment and training
services that would receive the higher reimbursement rate.
Furthermore, in order to receive any federal-only funds a state
must continue to spend state funds at a minimum of 75 percent
of its fiscal year 1996 level.
The requirement that states spend 75 percent of the
federal-only money on designated services would induce states
to spend more on these types of services. By 2000, CBO
estimates that states would spend an additional $100 million on
such services. In the first few years, however, states would
draw down less than the full amount of federal-only money
because many would have to restructure their Employment and
Training programs to focus on the types of services that would
be eligible for the higher rate. The amount that a state does
not drawn down would be available for reallocation in future
years and to other states.
Additional spending for employment and training services
will also result in payment of additional Food Stamp benefits.
CBO assumes that states would spend 50 percent of the new money
in areas that are not covered by a waiver in fiscal year 1998,
and 70 percent by fiscal year 2000 and later. CBO assumes that
the Secretary of Agriculture would set the higher reimbursement
rate at about $90 per placement per month and the lower rate at
half that amount. Under these assumptions, CBO estimates that
20,000 individuals in an average month would remain eligible
for Food Stamps at a cost of $25 million in fiscal year 1998.
By 2001, CBO expects that 60,000 individuals would remain
eligible at a cost of about $90 million. In 2002 the amount of
new federal funds is somewhat lower, so fewer people would
remain eligible (55,000) at a lower cost ($85 million).
Because the bill would require states to maintain their
effort at only 75 percent of their 1996 amount and provides
such a large amount of new federal funds, CBO expects that the
aggregate states would withdraw about 20 percent of what they
otherwise would have spent on employment and training services.
Because these funds would have received a federal match, CBO
estimates that federal outlays would be lower by $17 million in
1998 and $19 million in 2002.
Estimated impact on State, local, and tribal governments:
This title contains an intergovernmental mandate as defined in
UMRA, but CBO estimates that the cost of complying would not
exceed the threshold established in that act ($50 million in
1996, adjusted annually for inflation). The bill would require
states to continue spending at least 75 percent of FY 1996
expenditures for employment and training and workfare programs
under Food Stamps in order to continue receiving federal
funding for those programs. Under current law, CBO estimates
that state spending, in aggregate, would meet this maintenance-
of-effort requirement and therefore the total cost of this
mandate would not be significant. States meeting this new
requirement would receive additional funds for Food Stamp
employment and training programs totaling $140 million in
fiscal year 1998 and $640 million over the period 1998 to 2002.
Estimated impacts on the private sector: The bill contains
no private-sector mandates as defined in UMRA.
Comparison to other estimates: On June 16, CBO prepared an
estimate of the House Agriculture Committee's reconciliation
recommendations. That bill also contains a new exemption and
additional funds for employment and training. The cost estimate
of the exemption provisions are the same in the two estimates.
The estimates of the changes to federal spending resulting from
the additional employment and training funds differ because of
key differences in the policies.
First, the House increases Food Stamp Employment and
Training funding but does not change the program's structure:
states would continue to be reimbursed based on their actual
costs. The CBO baseline assumption about per-placement costs is
$100 per month per person. In the Senate bill, the Secretary of
Agriculture would set two reimbursement amounts that states
would draw down on a per-placement basis. CBO assumes that the
Secretary would set that rate at $90 a month for the higher
rate and $45 per month for the lower rates. These amounts are
lower than the CBO baseline amount because the Administration
assumes a lower amount in its legislative proposal on the
provision, which is similar to the Senate provision.
Second, the House bill requires that 75 percent of the
federal-only funds be spent on people subject to the time
limit. The Senate bill requires that 75 percent of the federal-
only funds be spent on people subject to the time limit in the
types of services that would allow them to retain Food Stamp
eligibility. This difference results in lower federal spending
in the first few years, as states must restructure their
employment and training services in order to draw down all the
federal-only money, and in higher Food Stamp outlays in later
years because more people retain benefits.
Third, the House bill requires that states maintain their
spending at their 1996 level in order to receive any of the
additional federal-only funds provided in this bill. The Senate
requires that states maintain 75 percent of their 1996 level in
order to receive any federal-only funds. This difference
results in lower spending in the Senate version because states
would withdraw more of their effort.
Estimate prepared by: Federal Cost: Dorothy Rosenbaum;
Impact on State, Local, and Tribal Governments: Marc Nicole;
and Impact on the Private Sector: Ralph Smith.
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
APPENDIX TABLE--FEDERAL BUDGETARY EFFECTS OF TITLE I
[By fiscal year, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 ---------------------
1998-2002 1998-2007
--------------------------------------------------------------------------------------------------------------------------------------------------------
DIRECT SPENDING
Section 1001: Hardship Exemption:
Budget authority........................................ 110 110 110 120 130 130 130 140 140 140 580 1,260
Outlays................................................. 110 110 110 120 130 130 130 140 140 140 580 1,260
Section 1002: Additional funding for Employment and
Training:
Budget authority........................................ 150 190 210 210 150 120 130 130 130 130 910 1,550
Outlays................................................. 80 190 240 230 170 120 130 130 130 130 910 1,550
Total, Direct Spending:
Budget authority........................................ 260 300 320 330 280 250 260 270 270 270 1,490 2,810
Outlays................................................. 190 300 350 350 300 250 260 270 270 270 1,490 2,810
--------------------------------------------------------------------------------------------------------------------------------------------------------
Title I--Agriculture
descriptive language
Section 1001. Hardship exemption
A state agency may provide a hardship exemption for a
portion of those individuals in a state who are no longer
eligible to receive food stamp benefits due to the work
requirement time limits under section 6(o)(2) of the Food Stamp
Act.
The average monthly number of hardship exemptions a state
agency may grant is limited to 15 percent of the estimated
number of individuals in the state to whom the work requirement
time limits apply. These ``covered individuals'' are defined as
those: not excepted (e.g., because of age, disability, etc.);
not living in an area for which a waiver has been granted under
section 6(o)(4) of the Food Stamp Act; not complying with the
work requirement; and not in their first (or second) 3 months
of eligibility under the work requirement. If a state chooses
to provide exemptions under this new rule, it can do so in any
way--including defining categories of recipients who will be
exempted--so long as it adheres to the 15 percent limit.
For FY 1998, the Secretary will determine the estimated
number of covered individuals from which each state may exempt
15 percent, using the FY 1996 survey conducted under the
Integrated Quality Control System and other information deemed
necessary by the Secretary due to the timing of the survey and
its limitations. The estimate will reflect adjustments for
those covered by current-law exceptions (e.g., age,
disability), those covered by waivers, those complying with the
work requirement, and those in their first or second 3-month
periods of eligibility. In later fiscal years, the number of
covered individuals in a state from which the state may exempt
15 percent will be estimated by adjusting the FY 1998 number to
reflect changes in the state's food stamp caseload in the prior
year and the Secretary's estimate of changes in the proportion
of food stamp recipients living in areas covered by waivers.
If a state's food stamp participation, during a fiscal
year, varies from the prior year's caseload by more than 10
percent, the Secretary will adjust, upward or downward
accordingly, the estimated number of covered individuals which
the state may exempt to reflect the increase or decrease.
If a state exempts more or less than an average of 15
percent of individuals who are no longer eligible to receive
food stamp benefits in a fiscal year, the Secretary must
decrease or increase the number of allowable exemptions, in the
next fiscal year, to compensate for the number of the state's
exemptions over or under 15 percent in the previous year.
The Secretary can require documentation from states to
ensure compliance with the rules governing the hardship
exemption.
The Committee intends to give states flexibility in
administering the 15 percent hardship exemption. States would
not, for example, be required to terminate individuals from the
food stamp program prior to awarding them exemptions. Persons
completing their third month of benefits could be given
exemptions for the fourth month without first having their food
stamp benefits terminated.
Those states wishing to grant the exemptions provided under
this legislation may benefit from assistance from the
Department as to the effect of exempting certain categories of
food stamp recipients. To help states evaluate options
available to them, the Committee encourages the Department to
prepare technical assistance materials that give examples of
criteria that states might wish to apply in granting hardship
exemptions, together with the Department's best estimate of the
percentage of the caseload that would be covered by each of
these criteria. The Committee encourages the Department to
provide states with as much information of this kind as
possible before the beginning of fiscal year 1998. The
Committee also encourages the Department to continue reviewing
information from states and update the information it provides
to the states.
Section 1002. Additional funding for employment and training
New money is added to the existing mandatory unmatched
federal grants to states for the Employment and Training
program for food stamp recipients. Current grant levels--
totaling $81 million for FY 1998, $84 million for FY 1999, $86
million for FY 2000, $88 million for FY 2001, and $90 million
for FY 2002--are increased to $221 million in FY 1998, $224
million in FY 1999, $226 million in FY 2000, $228 million in FY
2001 and $170 million in FY 2002. The amounts provided are to
remain available until expended, so as to facilitate
reallocation of unused funds.
The total grant amounts noted above (including ``old'' and
``new'' money) will be allocated to state agencies using a
formula, determined by the Secretary, that reflects each
state's proportion of able-bodied adults without dependents
subject to the work requirement time limits who are not
excepted (e.g., because of age, disability, etc.) under section
6(o)(3) of the Food Stamp Act. The Secretary will base state
agencies' allocations on information from the FY 1996 survey
conducted under the Integrated Quality Control System (and
other factors deemed necessary by the Secretary due to the
timing of the survey and its limitations), adjusted to reflect
changes in the state's food stamp caseload in the prior year.
To the extent state agencies do not use all of the
unmatched federal grant money allocated for a fiscal year, the
Secretary will reallocate the unexpended amounts to other
states. Unexpended amounts from one fiscal year may be
reallocated for use in the following fiscal year.
States will be paid specific amounts based on the average
monthly number of recipients placed in employment and training
activities. Payment rates will be set by theSecretary to
reflect the reasonable cost of efficiently and economically providing
the appropriate services, as periodically adjusted by the Secretary.
A higher payment rate will be paid in the case of able-
bodied adults without dependents subject to work requirement
time limits who are placed in workfare or in employment and
training programs supervised or operated by a state or
political subdivision requiring participation for 20 hours or
more per week--but not including job search or job search
training (or Job Training Partnership Act or Trade Adjustment
Assistance programs). A lower payment rate will be paid in the
case of recipients placed in other, less rigorous, employment
and training activities. The Committee encourages the
Department to set the payment rates so as to allow for the
creation of the maximum number of work/training opportunities.
State agencies will be required to use 75 percent of their
unmatched federal grant money to serve food stamp recipients
subject to work requirement time limits who are placed in
employment and training programs qualifying for the higher
payment rate.
In order to receive their unmatched federal grant money,
state agencies must maintain their federally matched
expenditures for employment and training program
administrative/operating costs at no less than 75 percent of
the FY 1996 level.
Federal matching money for any employment and training
activities will continue to be available for all support costs
(e.g., transportation, child care). But in the case of
administrative/operating costs, federal matching money will
only be available for costs incurred to place individuals for
whom unmatched federal grant money has not been used.
congressional budget office cost estimate
Reconciliation Recommendations of the State Committee on Banking,
Housing, and Urban Affairs (Title II)
Summary: This bill would permanently prohibit the Federal
Housing Administration (FHA) from providing foreclosure
avoidance relief to mortgagors who have defaulted in making
payments on FHA-insured single-family mortgages. The bill would
also authorize a so-called Mark-to-Market approach for the
restructuring of certain FHA-insured multifamily mortgages and
for renewing section 8 contracts; section 8 contracts would be
renewed at market rents for FHA-insured projects that currently
receive above-market rents, and mortgages would be written down
to levels that could be supported by those lower rents. The
bill would also make several other changes to the section 8
program that would reduce costs. First it would establish
minimum rents of up to $25 per month for all section 8 project-
based programs. Second, it would eliminate federal preference
rules for admitting new recipients into units with project-
based assistance. Third, it would generally prohibit rent
increases for projects assisted under the section 8 new
construction and substantial or moderate rehabilitation
programs, if their assisted rents exceeded the fair market rent
(FMR) established by the Department of Housing and Urban
Development (HUD) for that housing area. Finally, the bill
would limit rent increases for units without tenant turnover.
This title contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act of 1995
(UMRA) and would impose no costs on state, local, or tribal
governments.
Estimated cost to the Federal Government: CBO estimates
that the committee's proposals would reduce direct spending by
about $2.1 billion over the 1997-2002 period. The estimated
budgetary effects of these proposals by program over the 1997-
2002 period are shown in table 1. Table 2 shows the estimated
changes in direct spending by provision through 2007.
TABLE 1: ESTIMATED BUDGETARY IMPACT OF THE RECONCILIATION RECOMMENDATIONS OF THE SENATE COMMITTEE ON BANKING,
HOUSING, AND URBAN AFFAIRS
[By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
DIRECT SPENDING
FHA Single-Family Mortgage Insurance Fund
Spending under current law:
Estimated budget authority...................... -772 -977 -1,226 -1,221 -1,109 -1,095
Estimated budget outlays........................ -772 -977 -1,226 -1,221 -1,109 -1,095
Proposed changes:
Estimated budget authority...................... 0 -136 -161 -183 -183 -183
Estimated outlays............................... 0 -136 -161 -183 -183 -183
Spending under Title II:
Estimate budget authority....................... -772 -1,113 -1,387 -1,404 -1,292 -1,278
Estimate outlays................................ -772 -1,113 -1,387 -1,404 -1,292 -1,278
FHA Multifamily Mortgage Insurance Fund
Spending under current law:
Estimated budget authority...................... 41 1,357 1,688 1,555 1,419 1,300
Estimated outlays............................... -357 1,566 1,897 1,764 1,628 1,509
Proposed changes:
Estimated budget authority...................... -533 0 0 0 0 0
Estimated outlays............................... -533 0 0 0 0 0
Spending under Title II:
Estiamted budget authority...................... -492 1,357 1,688 1,555 1,419 1,300
Estimated outlays............................... -890 1,566 1,897 1,764 1,628 1,509
Capital Grants
Spending under current law:
Estimated budget authority...................... 0 0 0 0 0 0
Estimated outlays............................... 0 0 0 0 0 0
Proposed changes:
Estimated budget authority...................... 0 218 528 340 76 47
Estimated outlays............................... 0 16 56 84 91 96
Spending under Title II:
Estimated budget authority...................... 0 218 528 340 76 47
Estimated outlays............................... 0 16 56 84 91 96
Section 8 Rental Assistance
Spending under current law:\1\
Estimated budget authority...................... 3,550 10,286 12,295 14,424 16,085 17,461
Estimated outlays............................... 15,941 16,360 17,025 17,717 18,402 19,121
Propsed changes:
Estimated budget authority...................... 0 -2 -2 -2 -113 0
Estimated outlays............................... 0 -6 -101 -234 -320 -366
Spending under Title II:
Estimated budget authority...................... 3,550 10,284 12,293 14,422 15,972 17,461
Estimated outlays............................... 15,941 16,354 16,924 17,483 18,082 18,755
Total Changes in Direct Spending
Estimated budget authority.......................... -533 80 365 155 -220 -136
Estimated outlays................................... -533 -126 -206 -333 -412 -453
CHANGES IN REVENUES
Civil money penalties............................... (\2\) (\2\) (\2\) (\2\) (\2\) (\2\)
----------------------------------------------------------------------------------------------------------------
\1\ CBO's baseline with annual adjustments for anticipated inflation.
\2\ Less than $500,000.
The budgetary effects of this legislation fall within
budget functions 600 (income security) and 370 (commerce and
housing credit).
Basis of estimate
Elimination of FHA's single-family assignment program
Under current law, FHA's assignment program has been
suspended through fiscal year 1997. Section 2002 would
permanently eliminate the assignment program, enabling FHA to
foreclose more quickly on properties that would otherwise enter
the assignment program. CBO estimates that more rapid
foreclosure would reduce FHA's costs by decreasing the amount
of taxes and other expenses that FHA would pay while holding
these properties. Early foreclosures also would expedite the
receipt of sales revenues that FHA would collect on the
affected properties. CBO estimates that 16 percent of all
claims from new loan guarantees will eventually enter the
assignment program if it continues in place. Based on
information provided by FHA, we estimate that eliminating the
program would increase FHA's recoveries on such defaults by an
average of 30 to 40 percent.
CBO estimates that the decrease in FHA's costs from
defaults would reduce direct spending by $846 million over the
next five years. These estimated savings represent the net
decrease in subsidy costs of new loan guarantees expected to be
made by FHA over the 1998-2002 period. Under current law, FHA
guarantees of new single-family mortgages result in offsetting
receipts on the budget because the credit subsidies are
estimated to be negative. (That is, guarantee fees for new
mortgages more than offset the costs of expected defaults.)
Eliminating the assignment program would make such subsidies
more negative and the estimated change in those subsidy
receipts would be recorded in the years in which new loans are
guaranteed. For example, estimated savings for 1998 represent
the present value (subsidy) savings of avoided costs in all
future years associated with the new guarantees made in 1998.
Mark-to-market provisions for FHA-insured multifamily
housing mortgages
The Federal Housing Administration (FHA) currently insures
the mortgages of about 850,000 rental units in projects that
also receive project-based rent subsidies under section 8 of
the United States Housing Act of 1937. About 58 percent of
these units have rents that exceed those for comparable
unassisted units. The original section 8 contracts attached to
these projects were written for periods typically ranging from
15 to 40 years, and most will expire over the next five to ten
years. HUD does not have the authority to renew these contracts
at more than 120 percent of the fair market rent. The vast
majority of these projects could not survive if their rental
income was reduced to market levels and would therefore default
on their mortgages, generating large losses to the FHA
insurance fund and possibly displacing many of the tenants in
these projects. Indeed, CBO's baseline for this fund includes
estimated net losses for these projects of $7.6 billion over
the 1998-2010 period, under the assumption that the rental
income of these projects would be reduced to market levels at
contract expiration.
Subtitle B of the bill--often referred to as the Mark-to-
Market provisions--would generally direct the renewal of
section 8 contracts for above-market units at market rents. In
cases where the market rents would be so low that a project
could not meet its operating and other expenses, even if the
mortgage were extinguished, the bill would authorize exception
rents that would be set at the level necessary to cover project
expenses, including a return to the owner.
The bill would authorize a variety of tools to prevent
defaults on the FHA-insured mortgages once rents were reduced.
In particular, the bill would authorize a bifurcation of the
current mortgage into a first mortgage that could be supported
by the lower rent and a so-called soft second mortgage that
would be repaid over a 50-year period, starting after the first
mortgage was paid off. During the period that the first
mortgage was being paid, the second mortgage would accrue
interest at the applicable federal interest rate. One purpose
of this provision is to prevent a tax liability that owners
would incur if that part of the current mortgage was simply
forgiven. In that way, the provision also intends to encourage
those owners whose section 8 contracts expire after the program
would sunset, at the end of fiscal year 2001, to have their
mortgages restructured early rather than choosing to default on
their mortgages later. The bill would also authorize the
insurance fund to pay for the credit subsidies that would be
associated with any FHA-insured first mortgages or with the
second mortgages, which would typically be held by HUD in the
form of direct loans. For projects that could not support any
mortgage, the fund would pay off the entire mortgage.
The bill also would authorize the insurance fund to pay for
part of the cost of repairs to the projects, not to exceed
$5,000 per unit. In addition, Section 2201 would authorize a
capital grant program that would reduce the restructuring cost
to the insurance fund. Annual grant payments could be used by
owners, for example, to help them pay for repairs through loans
obtained from private lenders rather than through grants paid
for by the fund. Funding for this capital grant program would
not be derived from the insurance fund.
CBO estimates that the Mark-to-Market provisions of the
bill would save a total of $240 million over the 1997-2002
period, as shown in Table 2. Restructuring mortgages would
reduce the annual cash flows from the FHA-insurance fund over
the next 15 to 20 years relative to CBO's baseline, which
assumes mortgage defaults for the projects whose mortgages
would be restructured under the bill. Under credit reform, that
reduction in annual cash flows is scored on a net present value
basis in the year the legislation would be enacted. Assuming
that the bill is enacted before October 1, 1997, CBO estimates
that those savings would amount to $533 million, recorded in
fiscal year 1997. Rent reductions are estimated to save $50
million for existing Section 8 contracts. The capital grant
program wouldincrease direct spending by an estimated $343
million. The budgetary impact of the proposal would represent the net
result of a number of factors, some of which make the cost of
restructuring more expensive and others that make it less expensive
than the cost of defaults.
FHA Insurance Fund. One factor that would make the cost of
restructuring more expensive to the FHA-insurance fund is the
timing of the restructuring. To the extent that owners would
have their mortgages restructured before the time that they
would be expected to default, the FHA insurance fund must make
payments at an earlier date. That shift in timing increases the
cost of restructuring on a net present value basis. CBO
estimates that this impact would not to be very large, however,
because the bill's provisions may entice relatively few owners
whose contracts expire after 2001 to have their mortgages
restructured because most might face large tax liabilities at
the time of restructuring. Based on conversations with staff of
the Joint Committee on Taxation, CBO assumes that, when there
is a realistic possibility that the mortgage would be repaid,
the Internal Revenue Service (IRS) would consider the soft
second mortgages as valid indebtedness because they would
accrue interest at the federal rate. On the other hand, if the
economic circumstances of a project were such that the project
was highly unlikely to ever pay off that debt, the IRS has the
authority to recharacterize the mortgage as a forgiveness of
indebtedness, in which case it would become taxable at the
owner's personal income tax rate. That tax could be
substantially higher than the tax owners would have to pay if
they defaulted on their current mortgage years later, because
(1) the unpaid mortgage balance would be lower at such a later
date and (2) that unpaid balance would be taxed after default
and foreclosure at the capital gains tax rate, which could be
much lower than the owner's marginal personal income tax rate.
Available data suggest that mortgages covering only about
22 percent of all units that could receive the soft second
mortgages (representing about 8 percent of all debt outstanding
in the form of these mortgages) would likely be repaid. For the
purposes of this estimate, CBO assumes that all owners in that
category whose section 8 contacts expire after the program
sunsets would have their mortgages restructured but that only
10 percent of the remaining 78 percent would. In addition, CBO
assumes that none of the owners whose mortgage would be written
off completely would come in prior to the expiration of their
contracts.
A second factor that would increase the cost of
restructuring is the credit subsidies associated with any new
FHA-insured first mortgages. CBO assumes that the great
majority--85 percent--of the first mortgages would need credit
enhancement in the form of FHA insurance because of the
relatively high risk associated with these mortgages. Those
credit subsidies are estimated to add about $131 million to the
cost of restructuring.
A factor that would make the cost of restructuring less
expensive than the cost of defaults is avoidance of the
frictional costs associated with the default and foreclosure
process. CBO assumes that restructuring would reduce losses to
the fund by 4 percent of the unpaid mortgage balance compared
with the cost of a default. Another factor is the use of the
soft second mortgages instead of the outright payment of claims
under a default on the current mortgage. Although most of these
mortgages are expected not to be repaid, CBO estimates that HUD
would be able to recover about 8 percent of their total unpaid
balance upon default.
Capital Grants Program. The availability of funds from the
capital grant program would reduce the cost of restructuring to
the FHA fund, but increase the cost of the proposal to the
government over the long run. CBO estimates that those funds
alone would reduce the restructuring cost to the fund by $531
million on a net present value basis. However, the annual
payments of these grants would generate direct spending of $343
million over the 1998-2002 period, and would continue for as
long as 15 years thereafter.
Reduction in Rents for Units Subject to Mortgage
Restructuring. For projects participating in the mark-to-Market
provisions, rents received by project owners would be reduced
at the time that the mortgage was restructured from their
current high levels to the going market rent for comparable
unassisted units. The bill also would authorize the state and
local government entities that would carry the mortgage
restructuring process to take over the administration of the
section 8 contracts from HUD. Thus, the savings in federal
subsidies from the rent reductions would be offset to some
extent by the cost of fees that HUD would have to pay the
administering agencies.
The Mark-to-Market provisions would result in savings from
existing section 8 appropriations because of the rent
reductions in properties that have their mortgages restructured
prior to the expiration of their section 8 contracts. CBO
estimates that outlays for existing contracts would be reduced
by $50 million over the five-year period. In 1998, average net
savings relative to CBO's baseline would range from $825 to
over $1,800 per unit per year, depending on the type of section
8 program under which a unit is assisted. That estimate
includes the added cost of administrative fees, which are
assumed to be set at the same level as those received by public
housing agencies under the section 8 certificate and voucher
programs--7 percent of the two-bedroom FMR. Because few owners
are expected to restructure their mortgage prior to contract
expiration, CBO estimates that savings would be incurred for at
most 29,000 units, or 20 percent of all units with contracts
expiring after 2001.
Other decreases in the Federal cost of section 8 housing
Under the section 8 rental assistance program, the federal
government generally pays the difference between a maximum rent
that owners receive and 30 percent of a tenant's income.The
bill would modify several other aspects of the section 8 program that
would affect spending from previous appropriations. CBO estimates that
those provisions would save the government $977 million on subsidies
for existing contracts over the 1998-2002 period (see Table 2). They
would also reduce the amounts of budget authority that would need to be
appropriated for renewals of expiring contracts in future years.
Minimum Rents. Section 2202 would allow HUD to set minimum
rents of up to $25 per month for all project-based section 8
programs. Based on data provided by HUD, CBO estimates that
this provision would affect less than 4 percent of assisted
families and would increase their rent contributions on average
by about $12 per month. As a result, outlays for existing
contracts are estimated to decline by about $18 million over
the five-year period.
Repeal of Preferences. Section 2203 would repeal federal
preference rules for admitting new recipients of section 8
project-based assistance. Current rules give priority to
applicants on waiting lists who have the most severe housing
problems and who typically have much lower incomes than other
eligible families. If this provision were enacted, CBO expects
that private owners of assisted projects would offer a portion
of their newly vacant units to working families with somewhat
higher incomes to serve as role models. Because such tenants
would pay a larger share of the rent, federal spending for
existing contracts would decline by an estimated $47 million
over the five-year period.
Freeze Rents for High Cost Units. Starting in fiscal year
1999, section 2003 would bar rent increases in projects
assisted under the section 8 new construction and substantial
rehabilitation or moderate rehabilitation programs, if their
assisted rents exceed the higher of the local market rents for
similar unassisted units or the fair market rent, which is set
by HUD at the 40th percentile of local rents. CBO estimates
that this provision would reduce spending for existing
contracts by $773 million over the five-year period. We
estimate that provision would initially affect about three-
quarters of all units assisted under these programs. That
proportion would decrease by about 4 percent per year, as some
of the assisted rents would begin to fall below the market
rents or the FMR. In addition, the number of units affected
would decline sharply each year as contracts expire. In all,
CBO estimates the average number of affected units to decline
from about 787,000 in 1999 to 418,000 in 2002.
Reduce Rent Increases for Stayers. Starting in fiscal year
1999, Section 2004 would reduce by 1 percentage point rent
increases for units occupied by the same families at the time
of the last annual rent adjustment. (Such families are oftened
referred to as stayers.) This provision would reduce outlays
for existing contracts by and estimated $151 million over the
five-year period. CBO estimates that, in a given year, this
provision would affect between 80 and 85 percent of assisted
units that receive an annual rent adjustment. (The provision
would generate no savings from units that would be affected by
section 2003.) Because of expiring contracts, the number of
affected units is estimated to decline from about 430,000 in
1999 to about 230,000 in 2002.
Interaction Effects. Implementing the Mark-to-Market
provisions would reduce the savings from the two provisions
that would limit rent increases. CBO estimates that this
interaction effect would reduce overall savings to the section
8 program by about $12 million over the five-year period. For
example, when a unit's rent is reduced to market level under
the Mark-to-Market provisions, that unit would no longer be
affected by the rent freeze.
Civil money penalties
Sections 2313, 2320, and 2321 would provide for civil
penalties for varous violations of the section 8 and FHA
programs. Payments of these civil penalties would be recorded
as miscellaneous receipts to the Treasury. CBO expects that any
increase in penalty collections would be insignificant.
Intergovernmental and private-sector impact: This bill
contains no intergovernmental or private-sector mandates as
defined in the Unfunded Mandates Reform Act of 1995, and would
not impose any costs on state, local, or tribal governments. If
they choose, a state housing finance agency or a local housing
agency would be allowed to act as the designee for HUD in
implementing mortgage restructuring for FHA-insured multifamily
housing.
Previous CBO estimates: On June 13, 1997, CBO provided an
estimate for the reconciliation recommendations of the House
Committee on Banking and Financial Services (Title II), as
approved on June 11, 1997. The House and Senate reconciliation
recommendations contain identical FHA single-family assignment
reform and section 8 rental adjustment provisions. The Senate
reconciliation recommendations also include provisions for
restructuring FHA-insured multifamily mortgages and two more
provisions that would affect the federal cost of the section 8
program. As a result of these additional provisions, the
budgetary effects of this bill differ from those in the House
version.
Estimate prepared by: FHA Single-Family Mortgage
Insurance--Susanne S. Mehlman; All Other Provisions--Carla
Pedone.
Estimate approved by: Paul V. Van de Water, Assistant
Director for Budget Analysis.
TABLE 2. ESTIMATED CHANGES IN DIRECT SPENDING OF TITLE II
[In millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1998-2002 1998-2007
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 total total
--------------------------------------------------------------------------------------------------------------------------------------------------------
FHA SINGLE-FAMILY ASSIGNMENT REFORM
Estimated budget authority... 0 -136 -161 -183 -183 -183 -183 -183 -183 -183 -183 -846 -1,761
Estimated outlays............ 0 -136 -161 -183 -183 -183 -183 -183 -183 -183 -183 -846 -1,761
FHA MULTIFAMILY MARK-TO-MARKET PROVISIONS
FHA Insurance Fund:
Estimated budget
authority............... -533 0 0 0 0 0 0 0 0 0 0 -533 -533
Estimated outlays........ -533 0 0 0 0 0 0 0 0 0 0 -533 -533
Capital grants:
Estimated budget
authority............... 0 218 528 340 76 47 42 40 35 30 25 1,209 1,381
Estimated outlays........ 0 16 56 84 91 96 101 106 111 116 121 343 898
Reduce rents to market rents
prior to contract
expiration:
Estimated budget
authority............... 0 -2 -2 -2 -113 0 0 0 0 0 0 -119 -119
Estimated outlays........ 0 \1\ -1 -1 -13 -35 -33 -14 -7 -5 -4 -50 -113
Subtotal mark-to-market
provisions:
Estimated budget
authority............... -533 216 526 338 -37 47 42 40 35 30 25 557 729
Estimated outlays........ -533 16 55 83 78 61 68 92 104 111 117 -240 252
OTHER SECTION 8 PROVISIONS
Minimum rent up to $25 per
month for families with
project-based section 8:
Estimated budget
authority............... 0 0 0 0 0 0 0 0 0 0 0 0 0
Estimated outlays........ 0 -3 -5 -4 -3 -3 -2 -2 -2 -1 -1 -18 -26
Eliminate preference rules
for project-based section 8:
Estimated budget
authority............... 0 0 0 0 0 0 0 0 0 0 0 0 0
Estimated outlays........ 0 -3 -7 -10 -13 -14 -15 -16 -17 -18 -20 -47 -133
Freeze rents for high cost
units:
Estimated budget
authority............... 0 0 0 0 0 0 0 0 0 0 0 0 0
Estimated outlays........ 0 0 -71 -182 -248 -272 -268 -245 -239 -237 -235 -773 -1,997
Reduce rent increases for
stayers by 1 percentage
point: \2\
Estimated budget
authority............... 0 0 0 0 0 0 0 0 0 0 0 0 0
Estimated outlays........ 0 0 -17 -37 -46 -51 -53 -55 -62 -69 -76 -151 -466
Interaction of mark-to-market
with freeze and stayers
provisions:
Estimate budget authority 0 0 0 0 0 0 0 0 0 0 0 0 0
Estimated outlays........ 0 (\1\) (\1\) (\1\) 3 9 10 3 2 0 0 12 27
Subtotal other section 8
provisions:
Estimated budget
authority............... 0 0 0 0 0 0 0 0 0 0 0 0 0
Estimated outlays........ 0 -6 -100 -233 -307 -331 -328 -315 -318 -325 -332 -977 -2,595
TOTAL PROPOSED CHANGES IN DIRECT SPENDING
Estimated budget authority... -533 80 365 155 -220 -136 -141 -143 -148 -153 -158 -289 -1,032
Estimated outlays............ -533 -126 -206 -333 -412 -453 -443 -406 -397 -397 -398 -2,063 -4,104
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
\2\ Estimate includes effects of interaction with freeze provision.
Explanation of Provisions
Subtitle A--Mortgage Assignment and Annual Adjustment Factors
Sec. 2002. Extension of foreclosure avoidance and borrower assistance
provisions for FHA single family housing mortgage insurance
program.
This section extends the foreclosure avoidance and borrower
assistance provisions enacted in 1995. The original Federal
Housing Administration (FHA) single family mortgage assignment
program was created in 1959, but was not operational until 1976
after a court consent decree required the Department of Housing
and Urban Development (HUD) to implement the program.
Subsequent modifications to the temporary mortgage assistance
program and the assignment program required HUD to accept
defaulted FHA borrowers into the program. As a condition for
assignment, a borrower's default was be based on circumstances
beyond his or her control, such as sickness or loss of
employment and a reasonable expectation that the borrower will
resume normal and regular mortgage payments and correct any
loan deficiencies within a reasonable time. The program allows
up to 36 months in forbearance in anticipation that a mortgagor
will be able to resume his or her mortgage payments. Since the
majority of assigned loans are insured under the FHA Mutual
Mortgage Insurance Fund (MMIF), the cost of the assignment
program was borne by the Fund.
The Committee noted in 1995 that if the well-intentioned
objectives of the current assignment program are not achieved,
it could cause some $1.6 billion in future losses to the FHA
MMIF. A General Accounting Office (GAO) study indicated that
there were currently 71,500 loans in the program and that it
``operates at a high cost to FHA's Fund and has not been very
successful helping borrowers avoid foreclosures in the long
run.'' Approximately 30% of assigned borrowers eventually
become current and graduate out of the FHA assignment program,
thereby indicating a current failure rate at approximately 70%.
Thus, FHA borrowers were paying higher premiums to meet the
capital ratio standards of the MMIF as well as to cover the
exorbitant costs of the assignment program. The Committee,
therefore, chose to replace the existing program.
The replacement assignment program continued in the
Committee's proposal provides HUD with authority to pay partial
mortgage insurance claims limited to the amount equivalent to
or less than twelve monthly mortgage payments. As a condition
for accepting a partial claim payment, the lender agrees, on a
short term basis, to modify the terms of the loan to a level
where the borrower has the ability to pay and retain the loan
in its portfolio. In some circumstances, however, where the
default and modification may be for a longer period of time,
the replaced program allows HUD to pay the mortgage insurance
claim and accept the borrower into a new assignment program. It
is expected that HUD will use private sector sources for
servicing and foreclosure activities.
Sec. 2003. Adjustment of maximum monthly rents for certain dwelling
units in new construction and substantial or moderate
rehabilitation projects assisted under section 8 rental
assistance program.
Under the Section 8 new construction, substantial
rehabilitation, and moderate rehabilitation programs, the
Department of Housing and Urban Development (HUD) pays the
owner of a rental housing property the difference between 30
percent of the tenant's income and a contract rent that was
established when the project was built. Under the program,
owners are provided an increase in the contract rent each year
to cover the effects of inflation on the costs of operating the
property. The rent increase is known as the annual adjustment
factor (AAF).
This proposal would limit the application of AAFs to only
that portion of the contract rent attributable to the operating
costs of the project. This restraint in the annual growth in
the rents paid to owners will only apply to high-cost projects
with current contract rents in excess of 100 percent of the
fair market rent for the area. Since the portion of the rent
goes to pay debt generally will remain fixed each year, it
should not increase with inflation. This proposal will still
permit increases sufficient to cover the costs of operating and
maintaining a development in decent, safe, and sanitary
condition.
Sec. 2004. Adjustment of maximum monthly rents for nonturnover dwelling
units assisted under section 8 rental assistance program.
For section 8 units for which there has been no resident
turnover since the preceding annual rental adjustment, this
section would reduce the AAF by one percent.
Subtitle B--Multifamily Housing Reform
Part 1--FHA-Insured Multifamily Housing Mortgage and Housing Assistance
Restructuring
The Committee recognizes that the cost of renewing expiring
section 8 rental assistance contracts will begin to grow
substantially. The Committee believes that the expiration of
Section 8 contracts should be seized as an opportunity to
reduce the present costs of the assisted housing programs while
maintaining the long-term availability and affordability of
this important federal housing resource. The Federal Government
has invested billions of dollars in creating and maintaining
this housing as an importantpublic resource. Since 1994, the
Committee has recognized that reforming the assisted and insured
multifamily housing programs of the Federal Government would be an
enormous challenge due to the program complexities, budgetary costs,
and social policy implications. The Committee also recognized that the
inevitable expiration of thousands of housing assistance payment
contracts could not be ignored and that delays would risk a loss of the
affordable housing supply as well as tenant displacement.
In response to this problem, the Committee is incorporating
S. 513, the Multifamily Assisted Housing Reform and
Affordability Act of 1997, which represents a major effort to
address the escalating budgetary costs and operational
inefficiencies affecting the nation's assisted and insured
housing programs. This bill continues the Committee's serious
effort to reform Federal housing programs while ensuring that
residents continue to be provided decent, safe, and affordable
housing.
The Committee bill reduces the ongoing costs of operating
the Department of Housing and Urban Development's (HUD) insured
multifamily rental housing portfolio that receive project-based
rental assistance from HUD's Section 8 programs through a
restructuring process called ``mark-to-market.'' In addition,
it expands the enforcement authorities of the Federal
Government to ensure that the public interest is safeguarded
and that the assisted housing programs serve their intended
purposes.
In 1996, the Committee introduced S. 2042 to authorize HUD
to reduce oversubsidized contract rents to market rent levels
by simultaneously restructuring the underlying FHA-insured
debt. This legislation was reintroduced in the 105th Congress
as S. 513. In crafting this legislation, the Committee has made
a great effort to obtain and incorporate the views of those
involved in rental assisted housing programs, including the
Administration, private sector apartment owners and managers of
assisted housing properties, residents, community groups, and
state and local governments. The Subcommittee on Housing
Opportunity and Community Development has held three hearings
on reforming the federal assisted housing programs.
Project-based section 8 assistance for these properties is
provided under housing assistance payment contracts that are
generally 20 years in duration. In many cases, contract rents
on these properties far exceed market-area rents. Between 1996
and 2004, Section 8 project-based assistance contracts on over
800,000 units will expire. Most of these contracts assist
properties whose mortgages are insured by the Federal Housing
Administration (FHA). The combination of insurance and rental
assistance makes this matter extremely complicated and
difficult since changes to either program can impact the other.
The failure to continue Section 8 assistance will impede the
borrower's ability to meet its debt service payment. The
failure to meet debt service payments will then result in
substantial costs to the FHA insurance funds since FHA
insurance guarantees lenders the repayment of project debts if
borrowers default. However, if the government attempts to
reduce its insurance liabilities by increasing Section 8
subsidies, the cost and commitment of future Section 8
assistance is increased. In other words, this situation has
created a dilemma where the Federal Government will end up
paying for this housing either through the continuation of
direct rental subsidies or through claim payments from the
mortgage insurance funds.
Continuing Section 8 assistance at current subsidy levels,
however, will be extremely difficult in an era of shrinking
federal resources as indicated in recent appropriation actions.
Further, the recent budget resolution adopted by the Congress
places rent limitations on contract renewals that would not be
adequate for a significant portion of the FHA-insured inventory
to meet its operating costs and debt service payments.
Estimates indicate that if project-based housing assistance
contracts were renewed under existing rent levels, the
budgetary cost would grow from $1.2 billion in fiscal year 1997
to almost $8 billion by fiscal year 2006. The Committee also
recognizes that the Section 8 program has allowed project
owners to receive more Federal dollars in rental assistance
than is necessary to maintain properties as decent and
affordable rental housing. The Department has estimated that
almost two-thirds of assisted properties have rent levels that
are higher than comparable market rents. Therefore, renewing
expiring contracts at current levels is not only unacceptable
from a housing policy standpoint, but in an era of diminishing
Federal resources, it is not practical.
The Committee also recognizes that the assisted housing
inventory of almost 8,500 properties is a valuable Federal
investment. This housing currently provides decent, safe, and
affordable housing to almost 1.6 million families. Although
federally assisted housing provides much needed affordable
housing for lower income families and persons, a significant
portion of this stock is physically and financially distressed.
Compounding these problems is HUD's inability to administer
and oversee its portfolio of multifamily housing properties.
Despite the Administration's recent efforts to correct its
management deficiencies, the current HUD management structure
fails to guarantee the viability of the housing stock and does
not provide adequate assurance to the American taxpayer that
funds are being spent appropriately. The General Accounting
Office and the HUD Office of Inspector General (IG) have found
that even though HUD has various enforcement tools to ensure
that properties are properly maintained, poor management
information systems and ineffective oversight of properties
have impeded HUD's ability to identify problems and pursue
enforcement actions in a timely fashion.HUD is further hampered
by the lack of adequate staffing and inadequately trained staff.
In response to these problems, the Committee developed a
comprehensive reform proposal that reduces the growing costs of
providing Section 8 rental assistance while protecting existing
residents and maintaining the affordability and availability of
the housing stock. The bill would focus on the most significant
problems affecting this portfolio, that is, oversubsidized
housing properties and housing of poor quality. Oversubsidized
housing properties would have their rental subsidies reduced to
the level of market comparables or to the minimum level
necessary to support proper operations and maintenance. To
achieve these lower rent levels without forcing loan defaults,
the bill would provide a variety of tools that would reduce the
project's debt service such as refinancing and restructuring
the mortgage. In response to the long recognized problems with
HUD's capacity, the Committee has also designed a new
administrative and oversight structure to ensure the long-term
viability of this important housing resource. The Committee has
proposed to alter significantly the administration and
management of this portfolio by shifting these responsibilities
from HUD to capable public entities such as State and local
housing finance agencies that have demonstrated expertise in
affordable housing and management. The Committee bill would
also terminate the government's relationship with owners who
have failed to comply with federal requirements such as housing
quality standards and prevent the continued subsidization of
properties that are not economically viable.
Sec. 2101. Findings and purposes.
The Committee believes that the assisted and insured rental
housing programs are too costly, inefficiently administered,
and too often exposed to mismanagement by private owners. The
Committee believes that the operational flaws need to be
corrected in order to protect the financial liability of the
Federal Government and to ensure that the housing stock
provides long-term affordable, decent, and safe housing.
The findings and purposes contained in this section
describe the problems affecting the current assisted and
insured rental housing programs and the solutions that will
make the programs more efficient and effective at the least
cost to the American taxpayer.
The Committee recognizes that there exists a need for
decent, safe, and affordable housing throughout the Nation and
that the inventory of assisted and insured rental housing is an
important resource for meeting some of this need. HUD's ``Worst
Case Housing Needs'' report found that the number of households
with unmet worst case needs for housing assistance rose to an
all-time high of 5.3 million households in 1993. The study also
found that the private market stock of extremely low-rent units
declined by 478,000 units between 1985 and 1993. The Committee
recognizes that this housing represents a substantial and
significant Federal investment in meeting the affordable
housing needs of an estimated 2 million lower income families
and persons. The Committee, however, observes that federally
assisted housing properties are plagued by high subsidy costs
and mismanagement.
The Committee finds that the subsidy costs of most of the
assisted and insured housing inventory are substantially
greater than those of comparable, unassisted rental units in
the same housing market. Many of the contracts for this subsidy
will expire during the next several years. It is estimated that
if the Federal Government renews these contracts at the same
rent levels, then the cost of renewing all expiring project-
based rental assistance contracts will increase from $1.2
billion in fiscal year 1997 to almost $8 billion by fiscal year
2006. As a result, these costs will require an increasingly
larger portion of the discretionary budget authority of the
Department.
The Committee recognizes, however, that many of these
rental assistance contracts are attached to properties whose
mortgages are insured by the Federal Housing Administration
(FHA). Therefore, if these contracts are not renewed or reduced
to market levels, FHA's mortgage insurance funds will be
exposed to huge claims, potentially resulting in tenant
disruption and forcing HUD to act as the landlord for these
properties.
A portion of the federally assisted housing inventory is
also plagued by mismanagement and some properties are
physically or financially distressed. These problems have been
affected by the Department's lack of capacity to administer and
manage its housing portfolio.
The Committee finds that the public interest and the
interests of the housing stock and its residents and
communities will be served by a system that: reduces the cost
of Section 8 rental assistance to these properties by reducing
the debt service and operating costs while retaining the low-
income affordability and availability of this housing;
addresses the physical and economic distress of this housing
and the failure of some project managers and owners to comply
with management and ownership rules and requirements; and
transfers and shares many of the loan and contract
administration functions and responsibilities of the Secretary
to capable State, local, and other entities.
Therefore, it is the intent of this legislation: (1) to
preserve low-income rentalhousing affordability and
availability while reducing the long-term costs of project-based rental
assistance; (2) to reform the design and operation of Federal rental
housing assistance programs to promote greater project operating and
cost efficiencies; (3) to encourage owners of eligible multifamily
housing projects to restructure their FHA- insured mortgages and
project-based rental assistance contracts before the expiration of the
housing assistance contract; (4) to streamline and improve project
oversight and administration; (5) to resolve the problems affecting
financially and physically troubled housing projects through
cooperation with residents, owners, State and local governments, and
other interested parties; and (6) to grant additional enforcement tools
to use against those who violate agreements and program requirements,
in order to ensure that the public interest is safeguarded and that the
Federal multifamily housing programs serve their intended purposes.
Sec. 2102. Definitions.
Under this section, the Committee bill defines what types
of multifamily housing properties would be eligible for ``mark-
to-market.'' This would focus portfolio restructuring on only a
segment of the assisted and insured housing inventory--
specifically, assisted properties with contract rents above
market rent levels.
The Committee has elected to address only the assisted
portfolio with contract rents above market rents for the
following reasons. One, the costs of Section 8 rental
assistance attached to these properties are much greater than
those in the below market assisted inventory and the budgetary
costs to maintain this inventory is greater. Therefore, greater
budgetary savings will be realized on the oversubsidized stock.
Further, most of the Section 8 contract rents on the below
market assisted stock are regulated on a budget-based process.
In other words, the rents are already set at the minimum level
necessary to meet operating and debt service expenses. On the
other hand, the above market assisted stock, which is generally
newer assisted properties, have contract rents that are higher
than prevailing market rates due to the initial construction
costs and automatic rent increases that have been provided
during the term of the assistance contract regardless of
operating needs.
Two, restructuring the debt on the below market and older
assisted portfolio would likely achieve only minimal Section 8
subsidy savings since the unpaid principal balance (UPB) on the
remaining mortgage is small. Older assisted properties have an
average UPB of $14,000 per unit compared to an average UPB of
$35,000 per unit for newer assisted properties. Therefore,
allowing below market assisted properties for debt
restructuring would not be cost beneficial especially when
considering the time and transaction costs of such a process.
Sec. 2103. Authority of participating administrative entities.
The Committee believes portfolio restructuring is being
undertaken to reform and improve the programs from a financial
and operating perspective, but not to abandon the long-term
commitment to resident protection and ongoing affordability.
Balancing the fiscal goals of reducing costs with the public
policy goals of maintaining affordable housing requires an
intermediary accountable to the public interest. In light of
the Department's capacity and management problems documented by
the Inspector General and the General Accounting Office, the
Committee believes that capable public entities should act as
participating administrative entities (PAEs) on behalf of the
Federal Government. The Committee believes that State housing
finance agencies (HFAs), local HFAs, public housing agencies,
and other State and local housing and community development
entities have the capacity to implement the mortgage
restructuring program outlined in this bill.
The Committee expects many public entities to volunteer and
establish working agreements with the Secretary to implement
``mark-to-market.'' The Committee believes that State and local
HFAs can carry out portfolio restructuring consistent with the
public interest for three primary reasons: (1) State and local
HFAs already have a track record of working with HUD through
the multifamily loan risk-sharing programs created under the
1992 Housing and Community Development Act, multifamily
mortgage sales program, and the multifamily property
disposition demonstration program; (2) many State and local
public entities have experience with the Section 8 programs as
contract administrators and bond financiers of Section 8
assisted properties and various other multifamily affordable
housing programs such as the Low Income Housing Tax Credit
program and HOME; and (3) HFAs are publicly accountable and
closely scrutinized by their respective governments.
This section provides the Secretary with the authority to
select capable public entities that are determined to meet
specific criteria related to management capacity, financial
performance and strength, and expertise in affordable housing.
Further, public entities that qualified under the mortgage
risk-sharing and fiscal year 1997 demonstration had to meet
similar criteria, which the Secretary had to determine, to
ensure that only capable entities could act on behalf of the
Federal Government. For example, the 1997 demonstration
provided the Secretary with the authority to determine and
select capable public entities. In fact, HUD has selected 42
state and local housing finance agencies. By allowing these
qualified entities to automatically qualify, the Committee
believes thatit will streamline HUD's efforts in implementing
this legislation in a timely manner.
These criteria would form the basis for determining if the
public entity had the capacity, experience, and management
capability to implement portfolio restructuring in a manner
that balances the social and fiscal goals of the legislation.
The first criterion requires that the entity is located in the
State or local jurisdiction in which the eligible multifamily
housing project or projects are located. The Committee believes
that this criterion will ensure that the public entity has some
knowledge of the local markets and local housing needs. The
second, third, and fourth criteria, as discussed below, are
those used by rating agencies to evaluate the financial,
administrative, and management performance of public entities.
The second selection criterion requires that the entity has
demonstrated expertise in low-income affordable rental housing.
The entity also has to have a history of stable, financially
sound, and responsible administrative performance. In this
context, historical financial performance, the experience and
qualifications of the entity's personnel and financial
management, and the quality and dependability of reporting and
monitoring systems would be important factors. Lastly, the
entity must demonstrate financial strength in terms of asset
quality, capital adequacy, and liquidity. This would include
revenue sources, cost controls, loan loss reserves, and various
characteristics of its real estate assets such as underwriting
and delinquency rates.
The Committee encourages qualified PAEs to create
partnerships or subcontract with various other entities such as
public housing agencies, private financial institutions,
mortgage servicers including current mortgagees of FHA-insured
mortgages, nonprofit and for-profit housing organizations,
Fannie Mae and Freddie Mac, the Federal Home Loan Banks, and
other State or local mortgage insurance companies or bank
lending consortia. Further, coordination or partnerships among
different State and local housing entities would be encouraged
under this bill.
Under this bill, PAEs would be responsible for the entire
universe of eligible multifamily housing properties in their
jurisdiction. The Committee is very concerned about PAEs taking
on the portfolio restructuring responsibilities for only those
projects where little or no physical, financial, or management
problems exist. The Committee, however, does not expect that a
PAE would necessarily take on the entire portfolio in its
jurisdiction if there are other qualified public entities in
the jurisdiction that could share the portfolio
responsibilities.
In cases where a qualified public entity is not available
or does not volunteer, the Secretary would be allowed to either
perform the restructuring in-house or use alternative
administrators. Alternative administrators could be
partnerships created out of private and public entities. The
Committee believes that a public entity should be involved in
all restructuring deals in order to protect the Federal
government's investment.
The Committee bill authorizes PAEs to perform a variety of
functions in order to reduce project rents, address troubled
projects, and correct management and ownership problems. PAEs
would be given portfolio restructuring program responsibilities
through a working agreement with the Secretary called
``Portfolio Restructuring Agreements.'' The main elements of
these cooperative agreements would (1) establish the
obligations and requirements between the Secretary and the PAE,
(2) identify the eligible multifamily projects for which the
PAE is responsible for, (3) require the PAE to review and
certify comprehensive needs assessments, and (4) identify the
responsibilities of both the Secretary and the PAE in
implementing the portfolio restructuring program.
Under these agreements, PAEs would be authorized to take a
number of actions in order to fulfill the goals of ``mark-to-
market.'' These actions would include the use of a number of
tools to restructure the project's debt, screening out bad
projects and bad owners from the renewal and restructuring
process, creating partnerships with other housing and financial
entities, and ensuring the project's long-term compliance with
housing quality and management performance requirements.
Sec. 2104. Mortgage restructuring and rental assistance sufficiency
plan.
Central to the Portfolio Restructuring Agreement is the
``mortgage restructuring and rental assistance sufficiency
plan.'' This plan would be developed at the initiative of the
owner, in cooperation with the qualified mortgagee currently
servicing the loan, and with the PAE before contract
expiration.
Under these plans, owners who elect to continue Section 8
rental assistance would be required to determine the most cost-
effective and efficient manner to reduce project-based
assistance rents, determine the project repair and capital
needs, and ensure that competent management is provided to the
project. Each plan would also: require the owner to take such
actions as necessary to rehabilitate, maintain adequate
reserves, and maintain the project in decent and safe
condition; require the owner to maintain affordability and use
restrictions for the remaining term of the existing mortgage
and, if applicable, the remaining term of the second mortgage;
and meet subsidy layering requirements established by the
Secretary. The PAE would establish appropriate affordability
and use restrictions that are consistent with the post-
restructuring rent levels, but in a manner that does not impact
the physical and financial viability of the project. In other
words, the Committee does not expect PAEs to set affordability
and use restrictionsthat would compromise financial stability
so that debt service and operating expense payments could not be met.
Resident and community participation
One of the most important elements of the Committee bill is
the opportunity and ability of residents, local governments,
and community groups to participate in the mortgage
restructuring process. The Committee believes that those who
are most affected by renewal and restructuring decisions--the
residents, local governments, and communities--must be given
the opportunity to provide meaningful input. Resident and
community participation, however, should not be used to unduly
delay the renewal and restructuring process.
Residents, local governments, and community entities would
be provided an opportunity to participate meaningfully in the
discussion of major issues such as physical inspections, a
project's eligibility for restructuring or renewal, and the
Portfolio Restructuring Agreement. Under the renewal and
restructuring procedures, these affected parties would be
given: the rights to timely and adequate notice of proposed
decisions, timely access to all relevant information, an
adequate period of time to analyze and comment on all relevant
information, and if requested by any of the parties, a meeting
with the PAE and other affected parties.
The Committee bill also facilitates the participation of
residents and community groups by authorizing an annual fund of
$10 million for capacity building and technical assistance
purposes. These funds are intended to be used by resident
groups and nonprofit organizations to assist residents and
community groups in understanding the renewal and restructuring
process and to facilitate their participation in key decisions
that affect their lives. Further, this fund could be used to
assist residents and nonprofits in developing plans to acquire
projects where owners have expressed an interest to sell.
Rent setting
One of the most important elements of restructuring is
establishing the appropriate rent levels at the time of
restructuring. In addition, the Committee was concerned about
the administrative burden in rent setting. The rent level
affects financing and the project's future viability due to the
uncertainty facing future congressional appropriations for
contract renewals. The Committee considered a variety of rent
setting approaches such as using (1) a formulaic approach that
would set the rents based on some percentage of HUD's fair
market rent (FMR) system, (2) market rents based on comparable
properties in the same locality, and (3) rents based on
operating costs (budget-based).
The Committee bill reflects the belief that rents should be
set at a reasonable level near or at market levels but through
a process that will not require a significant amount of
resources or time. The bill would set rents at comparable
market rent levels where comparable rents are available and
easily determined. The Committee believed that setting rents at
comparable market rent levels was appropriate so that the
Federal Government was not oversubsidizing properties and so
that rent levels were not more than what the property could
command on the market.
In addition, the Committee was concerned that HUD's
existing FMR system is problematic in some respects and in
specific cases results in either an over-estimate or under-
estimate of prevailing market rents in metropolitan or regional
areas. For example, in cities or states with rent regulated
apartments, the controlled or stabilized rents have been
included in the FMR calculations, despite their relative lack
of relevance in determining the costs of operating or providing
housing--resulting in an underestimate of prevailing market
rents.
The Committee, however, recognized that many assisted
properties were built in areas where the private market would
not build properties because of the neighborhood conditions and
low-income clientele. Also, the Committee was concerned about
the inherent subjectivity in determining market rents and the
past problems with other programs such as the Low Income
Housing Preservation and Resident Homeownership Act. In cases
where no comparable properties exist, the Committee bill would
establish rents at 90 percent of the FMR. The Committee used 90
percent of FMR as a proxy for comparable market rents since the
national median of comparable market rents is about 90 percent
of FMR.
The Committee also recognized that a small portion of the
inventory could not meet its operating expenses at market rent
levels even if the entire debt service was eliminated. In these
cases, the Committee bill would allow for exception rents set
at the minimal level necessary for proper operations and
maintenance. Exception rents would be set using a budget-based
method. Budget-based exception rents would be capped at 120
percent of the FMR and only 20 percent of the inventory's units
could receive these rents. The Committee established these
limitations to minimize the administrative work for the PAEs or
Secretary in determining these rents. A recent study by HUD
indicated that about 20 percent of the inventory would need
exception rents.
The Committee, though, is sensitive to the reality that
many of the propertieswhich may require budget-based exception
rents may be concentrated in certain metropolitan or regional areas. To
address this problem, the Secretary has the authority to waive the 20
percent limitation in any jurisdiction which can demonstrate a special
need. The Committee expects that the Secretary shall utilize this
important discretionary tool to address the unique circumstances of
various communities and regions throughout the nation. The Secretary
should consider relevant local or regional conditions to determine
whether good cause exists in granting such a waiver. Such factors
should include, but should not be limited to: (1) whether the
jurisdiction is classified as a ``high cost area'' under other federal
statutes or programs; (2) prevailing costs of constructing or
developing housing; (3) local regulatory barriers which may have
contributed to increased development costs; (4) State or local rent
control or rent stabilization laws; (5) the costs of providing
necessary security or services; high energy costs; the relative age of
housing in a jurisdiction; or (6) other factors which may have
contributed to high development or operational costs of affordable
housing in a given jurisdiction.
The Committee believes that such waivers will be used on a
limited basis. Nonetheless, the Committee firmly intends that
the Secretary should grant due deference to the need to
maintain affordable housing and preserve the federal investment
in high cost areas. Therefore, the Committee instructs the
Secretary to properly utilize this authority based on local
factors. Such concerns should outweigh the federal desire for a
``one-size-fits-all'' solution which may be unworkable in
practice in certain jurisdictions.
Exempt multifamily housing projects
In addition to the assisted and insured properties with
rents below market rent levels, the Committee bill would exempt
two other types of properties from debt restructuring.
Properties with mortgages financed through obligations that
prohibit a mortgage modification or rent reduction would be
exempt from the Committee's restructuring program. Most of
these properties receive Section 8 new construction or
substantial rehabilitation assistance and are financed by State
and local housing agencies. The Committee is sensitive to these
contractual obligations and believes that the Federal
Government should honor those agreements. The Committee,
however, is concerned about the high subsidy costs and rent
levels of these properties and therefore, allows the Secretary
to reduce the rents using a budget-based method, without
affecting the financing. The other class of exempt properties
would be those where restructuring would not result in
significant Section 8 savings to the Federal Government. In
these cases, the Committee expects the PAEs to perform a cost-
benefit analysis of the estimated Section 8 savings compared to
the transaction costs of conducting debt restructuring.
The Committee bill would not automatically renew the
contracts on exempt properties. All properties would be subject
to restructuring and renewal prohibition criteria. The
Secretary and its designees would have to screen all properties
with expiring contracts before a renewal decision is made. This
would encompass reviewing the ownership, management, and
economic viability of the properties to ensure that the Federal
Government is only assisting viable properties that have been
managed and operated well.
Sec. 2105. Section 8 renewals and long-term affordability commitment by
owner of project.
Under this section, owners whose projects have been
restructured under this program would be required to accept
section 8 renewals for as long as the existing mortgage and if
applicable, the second mortgage remains outstanding.
Sec. 2106. Prohibition on restructuring.
One of the most critical functions of portfolio
restructuring will be screening owners and properties under the
federal assistance programs. The Committee recognizes that the
Federal Government did not adequately screen owners/developers
and proposals for construction or rehabilitation at the outset
of the assistance programs and as a result, a segment of the
inventory has been fraught with waste, fraud, and abuse.
The Committee believes that the renewal and restructuring
process provides the Federal Government an important
opportunity to cleanse the inventory of bad project owners and
properties which hurt residents and communities, and threaten
the financial interests of the American taxpayer. Some owners
and managers have engaged in practices which do not warrant
continued federal assistance. Some properties are in such
distressed physical condition that the costs of rehabilitation
or assistance may be unfeasible. The Committee expects that
those properties whose repair and rehabilitation estimates
exceed $5,000 per unit be carefully examined before considering
renewal or restructuring. It is highly questionable why a
project would be in a physically or financially distressed
condition when the assistance programs have provided high
contract rent subsidies with generous automatic rent increases.
In these cases, the Committee suspects that the property was
either poorly managed or exists in a market where the housing
is not sustainable.
The Committee bill lays out the criteria which PAEs would
use to determine which properties would qualify for renewal and
restructuring. These criteria would primarilyfocus on ownership
and management performance and the economic viability of the
properties. All properties, whether FHA-insured or not, would be
subject to this screening process. The Secretary may choose not to
renew a contract or consider a mortgage restructuring if: (1) the owner
has engaged in adverse financial or managerial actions, including the
material violation of a law or regulation, the material breach of a
Section 8 contract, the repeated failure to make mortgage payments, or
the failure to maintain the property; (2) the owner fails to follow the
procedures of this title; or (3) the poor condition of the property
cannot be remedied in a cost-effective manner. Owners or purchasers who
have been rejected would be provided an opportunity to dispute the
basis for the rejection and an opportunity to remedy the problem.
The Secretary or PAE would be provided the discretion in
affirming, modifying, or reversing any rejection. The
Committee, however, expects that modifications or reversals
should be carefully used. The Committee believes that owners
should be provided a fair and reasonable process for
challenging rejections but that the process should not be
administratively burdensome or allow for repeated challenges.
Properties or owners that have been rejected under the
prohibition criteria would be dealt with by the Secretary in a
number of possible ways. One option would be to sell or
transfer the project to a qualified purchaser. The Committee
bill would give a preference to resident organizations and
tenant-endorsed community-based nonprofit and public agency
entities. If sale or transfer to a qualified purchaser is
accepted, the project could then reenter the mortgage
restructuring process. Another option that could be exercised
by the Secretary would be partial or complete demolition of the
project if the project is in such poor condition that
rehabilitation would not be cost-effective. The Secretary could
also exercise its foreclosure and property disposition powers
to deal with troubled projects and owners. Under any
circumstance where a project is disqualified from the
restructuring process, residents would be protected with the
provision of tenant-based assistance and reasonable moving
expense funds.
The Committee expects that the Secretary or its
intermediaries consult with all affected parties when
considering a restructuring or renewal proposal or when dealing
with owners or properties that may be disqualified. The
Committee understands that the current HUD use of Special
Workout Assistance Teams (SWAT) has done a fairly adequate job
of consulting with all affected parties when dealing with
troubled properties and owners. The Committee, however, expects
that the SWATs or intermediaries to consider more creative
options in resolving troubled properties rather than just
converting all project-based assistance to tenant-based
assistance. Some options such as transfers or sales to
nonprofits and resident-sponsored entities would be one
possibility.
Sec. 2107. Restructuring tools.
The Committee recognizes that restructuring a multi-billion
dollar inventory is a challenging and risky task. Therefore,
the Committee believes that those responsible for managing this
inventory should have the maximum number of tools at its
disposal. Since the majority of assisted projects could not
meet operating and debt service payments at or near market rent
levels, the Committee bill authorizes a number of tools that
would allow projects to operate at reduced rent levels without
causing mortgage defaults or harm to residents. The
restructuring tools would allow the Secretary or its
intermediaries (PAEs) to reduce rent levels with a
corresponding modification of the debt service. Tools would
also be provided to the PAEs to facilitate the refinancing of
new loans.
Refinancing of debt financed at high interest rates and the
restructuring of debt through a bifurcation of the mortgage
would be the two primary tools provided under the Committee
bill. In some cases, projects developed with Section 8 new
construction, substantial rehabilitation, or moderate
rehabilitation assistance were financed with high interest rate
loans. The Committee believes that a refinancing of part or all
of the mortgage would reduce the debt service and therefore,
reduce Section 8 contract rents and the long-term need for
Section 8 rental assistance.
Debt restructuring
The second primary tool, bifurcation of the mortgage, would
also be used to reduce debt service payments while preventing
adverse tax consequences to owners. Under current tax law, debt
forgiveness or restructuring could result in the triggering of
a large income tax liability on the owners and investors
without generating sufficient cash with which the owners and
investors could pay the tax. As a result, an effective tax
solution is needed to avoid resistance and delays from owners
and investors. Debt forgiveness or restructuring can result in
an event that reduces the outstanding mortgage that is owed by
the owners and investors. This reduction in the mortgage amount
will result in a tax liability--referred to as ``cancellation
of indebtedness'' or COD. COD is generally treated as ordinary
taxable income under the Internal Revenue Code. Based on these
considerations, the Committee rejected debt forgiveness
proposals, both to avoid a loss to the federal treasury and to
avoid granting a windfall gain to owners and investors.
The Committee believes that the tax risks to debt
restructuring can be addressed within the current Internal
Revenue Code without requiring a statutory amendment using the
approach provided under the bill. After consultation with
Department of Treasury officials, and staff from the Joint
Committee on Taxation and Senate Finance Committee,the
Committee developed a ``bifurcated'' mortgage approach. Under this
approach, the existing mortgage would be split into two obligations.
The first piece would be determined on the amount the mortgage could be
supported by the rental income stream. Payment on the second piece
would be deferred until the first mortgage is paid off or from excess
project income.
It is the Committee's firm intention that workouts
utilizing mortgage bifurcation will be implemented in a manner
which will not result in a cancellation of indebtedness. This
approach will effectively achieve the Committee's goals of
reducing the Section 8 subsidy needs while simultaneously
reforming the program and the stock. The Committee points to
the Section 223(f) refinancings which occurred during the mid-
1970s, as well as other current industry mortgage bifurcation
practices, as models for tax-neutral debt restructuring. The
Committee instructs the Department of Treasury and the Internal
Revenue Service to view the mortgage bifurcation proposal in
light of its goals of reducing costs while protecting the
federal investment in affordable housing.
The Committee believes that, based on analogous structures,
a bifurcated mortgage would not result in an immediate tax
liability even if the second mortgage accrued at interest at a
below-market rate. Section 7872 of the Code provides for
exemptions to the Original Issue Discount (OID) rules for
transactions, similar to the proposed bifurcation, where
government funding is involved. Like these similar transactions
(such as the Flexible Subsidy program), debt restructuring
under ``mark-to-market'' encompasses (1) new government funding
in the form of a payment from the FHA insurance fund, (2)
public purpose in the transaction creating the new funding, (3)
a process initiated and controlled by the Federal Government,
and (4) applicability limited to HUD properties. Based on these
elements, the Committee believes that the tax risks associated
with ``mark-to-market'' can be prevented, and looks to the
Treasury to confirm the validity of this approach.
Credit enhancement
The Committee bill also allows the use of FHA mortgage
insurance and other forms of credit enhancement to facilitate
the restructuring program. The Committee strongly believes that
FHA mortgage insurance and other forms of credit enhancement
are necessary for debt financing considering the short terms of
Section 8 contract renewals that are being provided in recent
appropriation acts. Without long term Section 8 contracts, debt
financing would be extremely difficult for restructured
projects. If no insurance is provided when mortgages are
restructured, debt restructuring costs would likely be higher
than if the mortgages were restructured with insurance because
private lenders would set the terms of the loans to reflect the
risk of default. In other words, if private financing was
obtained without insurance, financiers would likely heavily
discount the debt to reduce their risks. The Committee
understands that these projects could not have been built or
financed without the original FHA mortgage insurance due to the
inherent risks in developing low-income housing and the areas
that these projects were built in.
The Committee expects that the use of FHA mortgage
insurance and other forms of credit enhancement will be
explored carefully to minimize the default risk to the Federal
government. In some cases, mortgage insurance may not be
necessary when owners can obtain reasonable financing without
insurance. Thus, the Committee bill provides broad discretion
to explore and create new forms of credit enhancement that
would reduce the default risk and credit subsidy costs to the
Federal government. The Committee bill also includes the use of
mortgage insurance under risk-sharing arrangements currently
practiced under the mortgage risk-sharing programs enacted
under the Housing and Community Development Act of 1992.
Mortgage insurance under these risk-sharing arrangements would
be encouraged by not applying the current statutory limitations
on the number of units that can be made available for mortgage
insurance under this program.
Residual receipts
Another important tool provided is the use of residual
receipts funds. Certain project owners are restricted in the
amount of profits they can receive from a project's annual
surplus cash after expenses. Residual receipts are surplus
funds in excess of profits. Project owners are required to
deposit residual receipt funds into an account but are unable
to use these funds except for certain circumstances such as
repairs. Some housing industry experts believe that residual
receipt accounts are quite significant and growing. For those
projects that had residual receipts accounts, one property
owner estimated that the average residual receipts account was
about $3,500 per unit or $402,500 per project. On a national
scale, the residual receipts balance could be as high as $300
million. The Committee would allow the Secretary and PAEs to
acquire these funds for repair and maintenance purposes. Since
these funds cannot be acquired before the mortgage is repaid,
the Committee bill would allow the acquired funds to be
expedited by providing an owner with a share of the receipts,
not to exceed 10 percent of the account. Any acquired residual
receipt funds would be used for providing rehabilitation
grants.
Rehabilitation assistance
One of the most significant problems that the Committee
bill addresses is the deferred maintenance and rehabilitation
needs of some properties in the HUD inventory. A recent HUD
study estimated that the deferred maintenance and
rehabilitation needs are about an average of $9,000 per unit.
HUD's finding, however, is questionable considering recent
evaluations by the General Accounting Office and comprehensive
needs assessments that are required under current law.
The Committee bill provides rehabilitation assistance but
limits the amount to $5,000 per unit and requires a 25 percent
match from the owner as discussed above. The purpose of this
matching requirement is to encourage owners to invest their own
funds in their properties and to reduce the risk to the Federal
Government. This requirement is modeled after the Capital
Improvement Loan program. Rehabilitation assistance would be
provided either through project reserves, grants funded from
acquired residual receipts, additional debt writedown as part
of the mortgage restructuring transaction, or from the
rehabilitation grant program established under section 2201.
GSEs' affordable housing programs
The purpose of subsection (b) is to provide technical
assistance and other support under the current GSEs' affordable
housing programs for maintaining the availability of affordable
housing. This subsection should not be interpreted as to impose
any new regulatory mandate on Fannie Mae or Freddie Mac to
continue existing Section 8 contracts in their current
subsidized form.
Sec. 2108. Shared savings incentive.
To maximize the participation of capable public entities
into the portfolio restructuring program and to ensure that the
American taxpayer is paying the least cost to maintain the
affordable housing stock, the Committee bill includes a shared
savings incentive provision. Under this provision, the
Secretary would be able to negotiate with public third parties
to establish agreements where the Federal Government and third
parties would share in any savings resulting from restructuring
transactions.
Sec. 2109. Management standards.
Participating administrative entities would be required to
establish and implement management standards related to
conflicts of interest between owners, managers, and contractors
with an identity of interest. These standards would be
developed pursuant to guidelines established by the Secretary
and consistent with housing industry standards.
Sec. 2110. Monitoring of compliance.
Under this section, each PAE would be required to establish
contractual agreements with project owners to ensure long-term
compliance with the provisions of this part. The agreements
would provide for the enforcement of the provisions and
remedies for breach of those provisions.
Sec. 2111. Review.
To ensure compliance with this legislation, HUD would be
required to conduct annual reviews on the actions taken under
``mark-to-market'' and the status of every multifamily
property. HUD would have to annually report the findings of
this review to Congress.
Sec. 2112. GAO audit and review.
This section requires the Comptroller General of the United
States to conduct an audit to evaluate a representative sample
of all eligible projects and the implementation of portfolio
restructuring. These reports would have to contain a
description of the audit and any legislative recommendations.
Sec. 2113. Regulations.
This section requires HUD to use negotiated rulemaking
procedures for developing regulations necessary to implement
``mark-to-market.'' The ``mark-to-market'' demonstration
program enacted previously would be repealed.
Sec. 2115. Termination of authority.
The program established under this subtitle would be
repealed on October 1, 2001, but would not apply to projects
that have already entered into binding commitments.
Part 2--Miscellaneous Provisions
Sec. 2201.--Rehabilitation grants for certain insured projects.
This section establishes new authority for the Secretary to
recapture interest reduction payment (IRP) subsidies from
section 236 insured multifamily housing properties for purposes
of providing rehabilitation grants to properties that suffer
from deferred maintenance.
Sec. 2202. Minimum rent.
The Secretary would be authorized to require project-based
Section 8 assisted households to pay minimum rents up to $25 a
month.
Sec. 2203. Repeal of Federal preferences.
This section repeals Federal preferences for all project-
based Section 8 programs.
Part 3--Enforcement Provisions
Part 3 of the Committee bill contains a number of
provisions that will minimize the incidence of fraud and abuse
of federally assisted programs. Such key provisions include (1)
expanding HUD's ability to impose sanctions on lenders, (2)
expanding equity skimming prohibitions, and (3) broadening the
use of civil money penalties. Many of these provisions were
included in previous legislative bills such as the 1994
``Housing Choice and Community Investment Act'' (S. 2281), S.
1057, which was introduced in the 104th Congress, and the
Administration's 1996 legislative proposal ``The Housing
Enforcement Act of 1996.'' These provisions will assist the
Secretary in ensuring that federal funds are spent as intended.
Subpart A--FHA Single Family and Multifamily Housing
Sec. 2311. Authorization to immediately suspend mortgagees.
HUD conducts a number of loan servicing activities in order
to ensure that FHA-insured projects are providing decent, safe,
and sanitary housing. One of these activities is to review
inspection reports from its mortgagees. According to HUD
regulations, mortgagees are required to perform annual physical
inspections of all HUD insured projects. Mortgagee inspections
can be an effective and useful tool to not only ensure that
projects are providing good housing, but also to minimize
duplication of effort between mortgagees and HUD and to reduce
HUD staff responsibilities. Unfortunately, the HUD Office of
Inspector General has found numerous instances where
inspections are either inadequate or not performed. Further,
some mortgagees have failed to protect the financial interests
of the Federal government by misappropriating mortgagor funds
and failing to remit payments collected from mortgagors.
The Committee bill addresses these problems by allowing
HUD's Mortgagee Review Board to immediately suspend mortgagees
where there is adequate evidence that the mortgagee's actions
are threatening or resulting in financial losses to the
American taxpayer. Immediate suspension is currently available
to other federal entities such as Ginnie Mae.
Sec. 2312. Extension of equity skimming to other single family and
multifamily housing programs.
The Committee bill would extend the coverage of the equity
skimming penalty to all multifamily and all single family
programs. The equity skimming penalty would be extended to all
insured, held, or acquired mortgages, Section 202 insurance
program, and insured and held mortgages under the section 542
mortgage insurance programs. Equity skimming is the act,
typically by an owner or management agent, of willfully using
any project funds for purposes not attributable to operating or
maintenance expenses. A similar provision was included in the
Committee's 1994 housing legislation and S. 1057.
Sec. 2313. Civil money penalties against mortgagees, lenders, and other
participants in FHA programs.
The National Housing Act is amended by S. 513 to authorize
the Secretary to levy civil money penalties against persons or
entities who knowingly submit false information, make false
statements, or withhold information from the Secretary in
connection with a FHA insured mortgage or title I application.
This provision would strengthen HUD's ability to deter
unlawful actions by participants in FHA insurance programs.
Civil money penalties will also strengthen the Secretary's
ability to protect program abuses.
Subpart B--FHA Multifamily Provisions
Sec. 2320. Civil money penalties against general partners, officers,
directors, and certain managing agents of multifamily projects.
The Committee bill also closes a loophole in the current
statute regarding civil money penalties. Specifically, the
Secretary would be authorized to use civil money penalties on
general partners, officers, directors, and certain managing
agents of multifamily mortgagors. Civil money penalties would
also be expanded to cases where a mortgagor has failed to
maintain the project in good condition and where a mortgagor
hasfailed to provide adequate management.
Civil money penalties under current law has had limited
impact since the term ``mortgagor'' has been interpreted to
mean the entity (instead of the person) that owns the project.
Sec. 2321. Civil money penalties for noncompliance with section 8 HAP
contracts.
Coverage of civil money penalties would also be extended to
include all project-based section 8 assistance programs. This
section would allow the Secretary to impose civil money
penalties against project owners that have failed to comply
with the rules and terms of section 8 contracts. This would
assist the government's efforts in ensuring that owners
maintain their assisted units in decent, safe, and sanitary
condition.
Sec. 2322. Extension of double damages remedy.
This section amends section 421 of the Housing and
Community Development Act of 1987 to include multifamily
housing for the elderly and persons with disabilities under
section 202 of the Housing Act of 1959. In addition, the double
damages remedy would be extended to multifamily housing
properties with mortgages insured under the risk-sharing
programs authorized under section 542 of the Housing and
Community Development Act of 1992.
Sec. 2323. Obstruction of Federal audits.
Section 2323 would expand the criminal penalties provisions
under section 1516 of title 18 of the United States Code. This
would address problems being experienced by HUD's Office of
Inspector General in performing audits of HUD program
participants.
DISSENTING VIEWS OF SENATOR ERNEST F. HOLLINGS
The Committee has been tasked with a totally unrealistic
objective in trying to meet our Reconciliation Instructions to
raise over $26 billion in spectrum auctions. The underlying
assumptions are without basis. There is no way the FCC can
raise $26 billion from spectrum auctions. Yet, here we are once
again being told that shortfalls in the budget can be made up
by spectrum auctions--the Congress' favorite way to plug a
budget number.
The assumptions in the Budget Resolution stand
communications policy on its head. The best example of why the
Congress should not micromanage the FCC's process was last
fall's Omnibus Appropriations Act. The budget negotiators fell
short on their projected receipts and decided to make up the
difference through spectrum auctions. The problem, however, was
that the Congressional Budget Office (CBO) told the budget
negotiators what spectrum to auction, what limitations could be
placed on its use and that the receipts from this specific
auction had to be collected in FY 1997. The result, of course,
is that Congress dictated the auction which netted only 13
million dollars--far less than the 2.8 billion dollars
originally projected. Some licenses were assigned for only ONE
DOLLAR!
When will the Congress learn from its own mistakes? The
legislation reported by the Committee calls for the following
auctions in an effort to meet its target:
1. Auction of the returned analog spectrum.--The budget
proposal requires an auction of 78 MHZ of analog spectrum in
2002 with a return of the analog spectrum in 2006. There are
many problems inherent in this. First, the proposal backloads a
majority of the auction revenue for FY 2002 but the winning
bidders will not have access to the spectrum for at least 4
years. In a effort to protect consumers from this short-sighted
policy, the Committee adopted a provision that requires the FCC
``to extend or waive this date for any station in any
television market unless 95 percent of the television
households have access to digital local television signals,
either by direct off-air reception or by other means.''
This provision is necessary because the transition to
digital television is fraught with many uncertainties, such as
tower construction, potential zoning delays, and most
importantly, no one knows how quickly consumers will respond to
the new technology. Even if local stations are transmitting
digital signals, most consumers are not likely to go out and
buy a new television set until their current sets are no longer
needed. Most consumers keep their sets at least thirteen years
with a nationwide average of 2.4 television sets per household.
2. Auction of 36 MHz of spectrum from Channel 60-69.--This
spectrum was originally set aside for the transition to digital
television. Again, here the Congress is micromanaging the job
of the FCC and codifying a policy that could have dire
consequences to the American consumer. No one knows if the FCC
computer model will actually work. The FCC's Table of
Allocations likely will be challenged at the FCC and possibly
in the courts. The budget deal will enshrine the FCC's plan
before we know its implications and possible foreclose
necessary revisions to the FCC's plan. Such a result is again
unacceptably shortsighted. It is highly unlikely this proposal
will result in a valuable block of spectrum by 2002.
3. ``Spectrum Penalty''.--The Budget Committee assumed a $2
billion ``penalty fee'' to be levied against broadcasters. The
Commerce Committee deleted this provision because there was no
basis for it other than to fill in a budget gap. This had to be
one of the more incredulous proposals of all.
4. Auction of additional 120 MHz.--This proposal also falls
short of reality. FCC Chairman Reed Hundt wrote the House
Commerce Committee on June 9, 1997 informing the Committee that
the FCC could not identify that amount of spectrum for an
auction. Now, if the FCC submits on the record that there is no
spectrum available, how can the Budget Committee second guess
the expert agency?
Finally, the Committee eliminated several other proposals
that were counter to sound communications policy, were totally
unrealistic and obviously pulled out of ``thin air.''
Unfortunately, it will be the American consumer who will not
only pay the price for these shortsighted decisions in terms of
bad policies, but when these auctions fail, we once again will
prove that spectrum auctions are far too speculative and will
not produce a balanced budget.
congressional budget office cost estimate
Reconciliation recommendations of the Senate Committee on Commerce,
Science, and Transportation (Title III)
Summary: Title III contains three subtitles aimed at
providing budgetary savings from auctioning licenses for use of
portions of the electromagnetic spectrum, imposing spectrum
lease fees on certain users of the electromagnetic spectrum,
and extending previously enacted increases in vessel tonnage
duties. CBO estimates that enacting the provisions of Title III
would produce note budgetary savings totaling $15.9 billing
over the 1998-2002 period and $16.9 over the 1998-2007 period.
This title contains no intergovernmental mandates as
defined in the Unfunded Mandates Reform Act of 1995 (UMRA) and
would not impose any costs on state, local, or tribal
governments. The title would extend an expiring private-sector
mandate on owners or operators of vessels that enter U.S.
ports. UMRA is unclear whether extension of an expiring mandate
would impose new direct costs on the private sector. In any
case, such costs would not exceed the $100 million threshold
specified in UMRA.
Description of major provisions: Subtitle A contains
several provisions relating to assignment of licenses for using
the electromagnetic spectrum. It would instruct the Federal
Communications Commission (FCC) to use competitive bidding to
assign licenses for most mutually exclusive applications of the
electromagnetic spectrum, and it would extend the FCC's
authority to conduct such auctions through fiscal year 2007.
Under current law, that authority expires at the end of fiscal
year 1998. The subtitle would also broaden the commission's
authority to use competitive bidding to assign licenses.
Current law restricts the use of competitive bidding to those
mutually exclusive applications in which the licensee would
receive compensation from subscribers to a communications
service.
In addition, Subtitle A would require the FCC and the
National Telecommunications and Information Administration
(NTIA), to make available blocks of spectrum for allocation for
commercial use and to assign the rights to use those blocks by
competitive bidding by the end of fiscal year 2002. The
additional licenses to be assigned by competitive bidding would
grant the right to use 145 megahertz (MHz) currently under the
FCC's jurisdiction, of which 85 MHz must be located below 3
gigahertz (GHz), and an additional 20 MHz also below 3 GHz to
be identified by the NTIA and transferred to the FCC's
jurisdiction. The subtitle also would authorize federal users
of the electromagnetic spectrum that have been identified by
NTIA for relocation to receive compensation from the private
sector to facilitate the relocation of the agency to another
band of spectrum.
Under current law, a part of the spectrum currently
reserved for television broadcasting will become available for
reallocation as broadcasters comply (over the next several
years) with the FCC's direction to adopt digital television
broadcasting technology to replace the current analog
technology. This subtitle would make available for licensing
and assignment by competitive bidding certain frequencies that
are currently allocated for analog television broadcasting,
including a part of the spectrum between 746 MHz and 806 MHz
(frequencies currently allocated for primary use by ultra high
frequency television broadcasting on channels 60 through 69).
Subtitle B would direct the FCC to allocate 12 MHz of
spectrum available of a nationwide basis to private wireless
services. The subtitle would direct the FCC to charge a lease
fee, based on the value of the frequencies, to private wireless
services granted access to the 12 MHz of reallocated spectrum.
The subtitle stipulates that no fee would be imposed on
licensees holding the right to use frequencies that are
currently allocated to private wireless services. The subtitle
also would prevent the FCC from using auctions to assign
virtually any license for private wireless services. Private
wireless services are land mobile telecommunications systems
that are operated by private companies and nonprofit
organizations for their internal use, rather than for the
provision of telecommunications services to subscribers.
Subtitle C would extend previously enacted vessel tonnage
duties through fiscal year 2002.
Estimated cost to the Federal Government: CBO estimates
that the provisions of Title III would reduce direct spending
by about $15.9 billion--$15.7 billion from spectrum auctions
and $196 million from extending vessel tonnage fees--over the
next five years. In addition, CBO estimates that enacting the
title would increase costs to the FCC, subject to appropriation
of the necessary funds, by less than $500,000 over fiscal years
2001 and 2002 for completing a study on conversion from analog
to digital television. (Additional small discretionary expenses
would be incurred for subsequent studies after 2002.) Table 1
summarizes the estimated budgetary impact of Title III over the
1998-2002 period, and Table 2 displays detailed estimates
through 2007.
TABLE 1.--ESTIMATED BUDGETARY IMPACT OF THE RECONCILIATION RECOMMENDATIONS OF THE SENATE COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
----------------------------------------------------------------------------------------------------------------
By fiscal years, in millions of dollars--
------------------------------------------------------
1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
CHANGES IN DIRECT SPENDING
Subtitle A: Spectrum Auctions: \1\
Estimated budget authority........................... 0 -1,700 -3,400 -3,200 -7,400
Estimated outlays.................................... 0 -1,700 -3,400 -3,200 -7,400
Subtitle C: Vessel Tonnage Fees:
Estimated budget authority........................... 0 -49 -49 -49 -49
Estimated outlays.................................... 0 -49 -49 -49 -49
Total Changes in Direct Spending:
Estimated budget authority........................... 0 -1,749 -3,449 -3,249 -7,449
Estimated outlays.................................... 0 -1,749 -3,449 -3,249 -7,449
----------------------------------------------------------------------------------------------------------------
\1\ Including the effect of Subtitle B on auctions to be held under Subtitle A.
The budgetary effects of this legislation fall within
budget functions 370 (commerce and housing credit), 400
(transportation), and 950 (undistributed offsetting receipts).
Basis of estimate
Spectrum auctions
CBO estimates that the federal government would collect
$15.7 billion in offsetting receipts over the 1998-2002 period
and $16.7 billion over the 1998-2007 period from enacting the
provisions contained in Subtitles A and B. Assuming
appropriation of the necessary amounts, CBO also estimates that
the FCC would incur costs of less than $500,000 every two
years, beginning in fiscal year 2001, to prepare the studies on
digital television conversion required by the bill.
Broaden and Extend. CBO expects that extending and
broadening the FCC's authority to auction licenses through 2002
(under section 3001) would increase receipts by $5.7 billion
over the 1998-2002 period. Most of the estimated receipts would
be generated by the auction of licenses permitting the use of
frequencies above 3 GHz that have not been specifically
designated for reallocation or auction under existing law. CBO
anticipates that, in complying with its mandate to assign
licenses for most mutually exclusive applications of the
spectrum by competitive bidding, the commission will make
available such frequencies under the general authority that
would be extended by this section. This subtitle also would
require the FCC to use competitive bidding to assign rights to
use 165 MHz of spectrum below 10 GHz, of which 60 MHz may be
located above 3 GHz. Our estimate for extending and broadening
the FCC's auction authority includes the expected receipts from
the reallocation of 60 MHz between 3 GHz and 10 GHz. Subtitle B
also would restrict the FCC's discretion to auction licenses
for private wireless services, and we have reduced our
estimates of extending and broadening the FCC's auction
authority granted in Subtitle A accordingly.
Reallocation of 105 MHz below 3 GHz. CBO estimates that the
provisions of Subtitle A requiring the FCC to use competitive
bidding to assign the rights to use 105 MHz of spectrum located
below 3 GHz (85 MHz to be reallocated by the FCC and 20 MHz to
be identified by NTIA) would generate $5.6 billion over the
1998-2002 period and $6.6 billion over the 1998-2007 period.
CBO's estimate of receipts for future FCC auctions is based on
the expectation that prices for FCC licenses will fall from the
levels of recent years as more spectrum is brought to the
market. CBO has further reduced its estimate for the 85 MHz of
spectrum identified for auction in this subtitle because the
legislation does not specify the location on the
electromagnetic spectrum for 40 MHz of the 85 MHz under 3 GHz
that it would require the commission to reallocate and auction.
Some doubt exists as to whether sufficient spectrum that would
be attractive to commercial users can be identified and
auctioned to meet the 85 MHz target.
Subtitle A would authorize federal agencies scheduled for
relocation by NTIA to receive compensation from a licensee
entering the band in order to facilitate that relocation of the
federal user. CBO would expect some licensees or service
providers to compensate federal agencies for their relocation
costs, but we are uncertain as to the extent and timing of the
reimbursement. Because the funds paid by the private sector
could be spent by the agencies without further appropriations
action, this provision would have no net budgetary impact.
Analog Return. CBO estimates that enacting section 3002,
which pertains to the recovery and auction of frequencies now
allocated for analog television broadcasting, would yield $2.7
billion in auction receipts. This section would require the FCC
to delay the recovery of the frequencies used by analog TV
broadcasters in a market beyond December 31, 2006, if more than
5 percent of households in that market do not have access to
digital local television signals. The meaning of this
legislative language is unclear. For the purposes of this
estimate, CBO assumes ``access to digital local television
signals'' means that households would need to possess the
equipment necessary to receive digital signals in their home.
Such a stipulation would introduce significant uncertainty as
to when bidders would be able to use the frequencies and could
reduce auction receipts by 50 percent or more. Our estimate
reflects that uncertainty.
Channels 60-69. CBO estimates that enacting section 3003,
which pertains to the allocation of current television
frequencies between 746 MHz and 806 MHz for commercial and
public safety uses, would yield $1.7 billion in auction
receipts. Under this section the FCC would be required to
auction 36 MHz of spectrum for commercial purposes in 1998, but
the winners of the auction would not receive full use of the
spectrum until 2006 or until 95 percent of the population has
access to digital local television signals. Assuming that
``access to the spectrum'' means that households would need to
possess the equipment necessary to receive digital signals in
their home, CBO believes that bidders would be uncertain as to
when they could fully utilize the spectrum and would discount
their bids accordingly.
Spectrum Lease Fees. CBO estimates that the spectrum lease
fees to be established under Subtitle B would produce no
additional receipts. The FCC has indicated that in order to
allocate 12 MHz of spectrum as required by the subtitle,
incumbent services and licensees would have to be relocated to
other bands. Under the principles of the commission's rules
adopted in the emerging technology band proceeding, which made
spectrum available for personal communications services, the
licensees granted the right to use the 12 MHz of spectrum
allocated for private wireless radio services would be required
to cover the cost of relocating incumbent license holders. CBO
anticipates that the cost of such relocation requirements would
discourage would-be private wireless licensees from seeking
licenses and, accordingly, that no fees would be collected.
Vessel Tonnage Duties
Subtitle C would extend, through fiscal year 2002, the
increase in vessel tonnage duties that was enacted (and
subsequently extended) in two earlier reconciliation acts.
These earlier acts increased per-ton duties from $0.02 to $0.09
(up to a maximum of $0.45 per ton per year) on vessels entering
the United States from western hemisphere foreign ports and
from $0.06 to $0.27 (up to a maximum annual duty of $1.35 per
ton) on those arriving from other foreign ports. As specified
in earlier acts, the additional amounts collected would be
deposited into the general fund as offsetting receipts. Based
on the current levels of shipping traffic at U.S. ports, CBO
estimates that the enactment of this section would increase
offsetting receipts by $49 million in each of fiscal years 1999
through 2002.
Estimated impact on state, local and tribal governments:
This title contains no intergovernmental mandates as defined in
the Unfunded Mandates Reform Act of 1995, and would not impose
any costs on state, local, or tribal governments. Subtitle A
would instruct the FCC to allocate a portion of the spectrum
for public safety services. State and local governments would
be eligible for licenses to that portion of the spectrum.
Subtitle A also would allow state and local governments to use
unassigned radio frequencies for public safety purposes under
certain circumstances.
Estimated impact on the private sector: Subtitle C would
impose a mandate on the private sector by extending the current
vessel tonnage duty. CBO estimates that the direct costs of
this mandate would not exceed the annual $100 million threshold
specified in UMRA.
Under current law, the duty imposed on both domestic and
foreign vessel owners at U.S. ports expires the end of the
fiscal year 1998. At the time of expiration, this duty would
revert to a prior lower amount. This bill would extend the
current duty through fiscal year 2002.
The direct cost of this mandate would depend on what base
case is used. Measured against the private-sector costs that
would be incurred if current law remains in place and the
amount of the duty declines, the total cost of extending this
mandate would be $49 million annually beginning in fiscal year
1999. The cost to domestic vessel owners would be less than
this amount, however, because owners of foreign vessels would
incur a portion of those costs. In contrast, measured against
current private-sector costs, the direct cost of this mandate
would be zero, because duties would be extended at their
current levels. UMRA is unclear about which comparison is
required. In either case, the cost of the additional duties
imposed on owners of domestic vessels would not exceed the
statutory threshold for private-sector mandates.
Estimate prepared by: Federal Costs: Spectrum--Rachel
Forward; David Moore and Perry Beider. Vessel Tonnage Fees--
Deborah Reis. Impact on State, Local, and Tribal Governments:
Pepper Santalucia. Impact on the Private Sector: Jean Wooster.
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
TABLE 2. ESTIMATED 10-YEAR BUDGETARY EFFECTS OF TITLE III: RECONCILIATION RECOMMENDATIONS OF THE SENATE COMMITTEE ON COMMERCE, SCIENCE, AND
TRANSPORTATION
[Estimated budgetary effects of title III on direct spending, fiscal years 1997-2007
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal years, in million of dollars--
------------------------------------------------------------------------------------------------------------------------
1997-2007
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
SPECTRUM (Subtitles A & B)
Auction Receipts Under Current
Law:
Estimated budget authority. -9,600 -7,100 -1,600 -550 -150 0 0 0 0 0 0 -19,000
Estimated outlays.......... -9,600 -7,100 -1,600 -550 -150 0 0 0 0 0 0 -19,000
Proposed Changes:
Broaden and Extend: \1\
Estimated budget
authority............. 0 0 -800 -1,500 -1,700 -1,700 0 0 0 0 0 -5,700
Estimated outlays...... 0 0 -800 -1,500 -1,700 -1,700 0 0 0 0 0 -5,700
Reallocation of 105 MHz
below 3 GHz:
Estimated budget
authority............. 0 0 -500 -800 -1,300 -3,000 -500 -500 0 0 0 -6,600
Estimated outlays...... 0 0 -500 -800 -1,300 -3,000 -500 -500 0 0 0 -6,600
Analog Return:
Estimated budget
authority............. 0 0 0 0 0 -2,700 0 0 0 0 0 -2,700
Estimated outlays...... 0 0 0 0 0 -2,700 0 0 0 0 0 -2,700
Channels 60-69:
Estimated budget
authority............. 0 0 -400 -1,100 -200 0 0 0 0 0 0 -1,700
Estimated outlays...... 0 0 -400 -1,100 -200 0 0 0 0 0 0 -1,700
Total Changes:
Estimated budget
authority............. 0 0 -1,700 -3,400 -3,200 -7,400 -500 -500 0 0 0 -16,700
Estimated outlays...... 0 0 -1,700 -3,400 -3,200 -7,400 -500 -500 0 0 0 -16,700
Auction Receipts Under Title
III:
Estimated budget authority. -9,600 -7,100 -3,300 -3,950 -3,350 -7,400 -500 -500 0 0 0 -35,700
Estimated outlays.......... -9,600 -7,100 -3,300 -3,950 -3,350 -7,400 -500 -500 0 0 0 -35,700
VESSEL TONNAGE FEES (Subtitle C)
Vessel Tonnage Fees Under
Current Law: \2\
Estimated budget authority. -49 -49 0 0 0 0 0 0 0 0 0 -98
Estimated outlays.......... -49 -49 0 0 0 0 0 0 0 0 0 -98
Proposed Changes:
Estimated budget authority. 0 0 -49 -49 -49 -49 0 0 0 0 0 -196
Estimated outlays.......... 0 0 -49 -49 -49 -49 0 0 0 0 0 -196
Vessel Tonnage Fees Under
Proposal:
Estimated budget authority. -49 -49 -49 -49 -49 -49 0 0 0 0 0 -294
Estimated outlays.......... -49 -49 -49 -49 -49 -49 0 0 0 0 0 -294
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ CBO estimates that receipts in 2002 from the ``broaden and extend'' authority included in Subtitle-A would be lower than they would otherwise be,
because of restriction contained in Subtitle B regarding the auction of licenses for private wireless services. The amount shown in the table reflects
that interaction between the subtitles.
\2\ These amounts represent proceeds from the increase in tonnage fees originally mandated in the Ominbus Budget Reconciliation Act of 1990, which are
recorded in the budget as offsetting receipts. The tonnage fees that were established prior to that time (and are still in effect) are recorded as
governmental receipts (i.e., revenues); the proceeds from those fees (about $15 million a year) are not included in this table.
Subtitle A--Spectrum auctions
Section 3001. Spectrum auctions
Subsection 3001(a) would extend the FCC's authority to use
auctions to assign licenses, set to expire in 1998, to the year
2007. The FCC's auction authority was established in the
Omnibus Budget Reconciliation Act of 1993.
The subsection also would broaden the FCC's auction
authority to include virtually any service in which mutually
exclusive applications are filed for licenses. In addition, the
FCC may postpone an auction if it determines that doing so
would be more likely to recover for the public a fair portion
of the value of the spectrum, as long as the auction is
completed before the end of fiscal year 2002. Public safety,
noncommercial public broadcasting, international satellite
systems, digital television, and potentially all broadcasting
services are exempt from auctions.
Subsection 3001(a) specifically provides for an exemption
to the FCC's competitive bidding authority ``for public safety
radio services, including private internal radio services used
by State and local government and non-government entities that
protect the safety of life, health, or property and that are
not made commercially available to the public.'' The reference
to non-government uses recognizes that utilities, railroads,
pipelines, and other industries use radio spectrum for public
safety purposes. In addition, this exemption includes spectrum
allocated for certain private mobile and special emergency
radio services where public safety is the sole or primary
purpose of the use, such as private ambulance services,
volunteer fire departments, and automobile emergency road
services.
Subsection 3001(b) requires the FCC to auction 45 megahertz
(MHz) of spectrum located between 1,710-1,755 MHz no later than
December 31, 2001, for commercial use. Government use of this
band is to continue until December 31, 2003 unless such use is
exempted from relocation.
Subsection 3001(c) directs the FCC, by September 30, 2002,
to auction not less than 100 MHz of spectrum below 10 gigahertz
(GHz), at least 40 of which must be located below 3 GHz. This
100 MHz of spectrum is to be reallocated from government to
private use pursuant to joint efforts by the FCC and NTIA. The
frequencies chosen by the FCC must not have been assigned or
designated for assignment using auctions by the FCC prior to
the date of enactment, nor reserved for government use under
section 305.
This subsection provides that in using any license assigned
under the subsection the licensee must avoid interference with
space research uses and earth exploration satellite services
authorized under notes 750A and US90 to section 2.106 of the
FCC's rules, if such rules are in effect on the date of
enactment.
In making its reassignments, the FCC must consider the cost
of relocation to incumbent licensees. The FCC also must
consider the needs of public safety and comply with
international spectrum allocation agreements. Coordination with
the Secretary of Commerce also is required under this
subsection when government use is affected by the
reassignments.
The subsection requires the FCC to submit a report to the
President, the Senate Commerce Committee, and the House
Commerce Committee recommending bands of frequencies for
reallocation. The report must include relocation plans for
displaced users.
Subsection 3001(c) provides that the FCC must notify the
Secretary of Commerce when the FCC is unable to relocate
incumbent licensees effectively. The notification must explain
why the incumbents cannot be accommodated. With the assistance
of NTIA, the FCC must submit a report to the Secretary of
Commerce describing why incumbents cannot be accommodated in
existing non-government spectrum. NTIA must review this report
when determining if a commercial user can be relocated to
government spectrum.
Subsection 3001(d) directs the Secretary to submit a report
with the Secretary's recommendations to the President, the
Congress, and the FCC if the Secretary receives a report from
the FCC pursuant to subsection 3001(c)(6).
In addition, the subsection requires private parties
causing federal entities to relocate to reimburse such entities
for the costs of relocation . This will allow private industry
to pay to move government users off valuable spectrum and speed
relocation to less valuable spectrum at no cost to the
taxpayer.
Subsection 3001(d) also requires a party seeking to
relocate a federal government station that is located within a
frequency band allocated for federal and non-federal use to
file a petition for relocation with NTIA. The NTIA must limit
or terminate the federal government station's license within 6
months when the stated requirements are met.
Subsection 3001(e) directs the Secretary to make available
for reallocation a total of 20 MHz in a second report, for
other than federal government use under section 305, that is
located below 3 GHz and that meets the criteria set forth in
section 113(a) of the National Telecommunications and
Information Administration Organization Act.
Within 12 months after it receives the second report from
the Secretary, the FCC must submit a plan to the President, the
Senate Commerce Committee, and the House Commerce Committee to
implement the report. The FCC must then implement its plan.
Section 3002. Digital television services
Section 3002 contains a definitive analog spectrum return
date of December 31, 2006. This will maximize the value of
analog television broadcast spectrum that will be auctioned in
2001 (although not actually reassigned until 2006 at the
earliest, as incumbent television licensees finish converting
to digital transmission). The Committee recognizes that digital
conversion may not have taken place by this return date.
Therefore, an extension or waiver of this section shall be
granted for any station in a television market unless 95
percent of television households have access to digital
television. The Committee notes that a television household can
have access to a service without subscribing to it or buying
it. For example, where a digital cable television system
carries local signals and passes a television household, that
household is considered to have access to digital television
whether it subscribes to the service or not.
The section also provides that a commercial digital
television license expires on September 30, 2003 and that the
license will be renewed only if the licensee is transmitting
programming in digital format in the 30 largest markets by
November 1, 1999.
Under this section, the FCC is required to report to
Congress, no later than December 31, 2001, and every 2 years
thereafter, on the status of digital television conversion. The
report must contain information on market penetration,
percentage of television householdswith access to digital
television, and the cost of purchasing digital television receivers or
conversion equipment.
Section 3002 also requires the FCC to ensure that
broadcasters return analog spectrum as the analog television
licenses expire. Such analog spectrum must be auctioned by the
FCC by July 1, 2001. The FCC is required to report the total
revenues from the auctions by January 1, 2002.
The section further directs the FCC to encourage the
transmission of digital television signals in the top 30
markets by November 1, 1999. This section is not intended to
override any FCC rule or guideline on the digital conversion
timetable.
Section 3003. Allocation and Assignment of New Public Safety and
Commercial Licenses
Subsection 3003(a) provides for the reallocation, by
January 1, 1998, of 24 MHz of spectrum between 746 MHz and 806
MHz for public safety use. The remaining 36 MHz is to be
auctioned for commercial use.
Subsection 3003(b) directs the FCC to commence assignment
of the public safety licenses no later than September 30, 1998.
In addition, the FCC must begin auctioning the commercial
licenses no later than March 31, 1998.
Subsection 3003(c) requires the FCC to waive any licensee
eligibility and other requirements, including bidding
requirements, in order to provide for public safety use of
unassigned frequencies by a State or local government when such
use is necessary and technically feasible without causing
interference to existing stations.
Subsection 3003(d) provides for flexible spectrum use,
subject to interference limits and any technical restrictions
designed to protect full-service analog and digital television
licenses during a transition to digital television. Under this
subsection, licenses may be aggregated, disaggregated, or
transferred to any other person qualified to be a licensee.
Subsection 3003(e) protects public safety users from
interference from broadcasters.
Subsection 3003(f) directs the FCC to minimize the number
of digital television allotments between 746 MHz and 806 MHz
and maximize the amount of spectrum for public safety and new
services. The FCC also must recover an additional 78 MHz of
spectrum to be auctioned.
Subsection 3003(g) prohibits anyone holding an analog or
digital television license between 746 and 806 MHz from
operating at that frequency after the digital transition is
complete. Such licenses must be returned immediately pursuant
to FCC rules.
Subsection 3003(h) provides protection for low-power
television stations by requiring the FCC to assign each station
a frequency below 746 MHz, as long as such action does not
cause interference with primary licensees.
Subsection 3003(j) directs the FCC to provide for
flexibility in spectrum use.
Section 3004. Private Wireless Spectrum Availability
Subsection 3004(a) would require the FCC, within 6 months
of enactment, to implement a system of spectrum lease fees for
private wireless service licenses. Such lease fees would
supplement auctions in compensating the public for spectrum
use. Certified frequency advisory committees would assist the
FCC in determining and collecting the appropriate fee amounts.
The FCC is to develop a formula for computing the fees.
Subsection 3004(a) also provides that the spectrum lease
fees must be based on the approximate value of the assigned
frequencies. The FCC is directed to consider several factors in
assessing the value and is allowed to adjust its formula when
necessary. The lease fees are capped so that, over a 10-year
license term, the amount will not exceed revenues gained from
the auction of comparable spectrum.
The subsection further directs the FCC to apply spectrum
lease fees to private wireless systems.
Subsection 3004(b) allocates not less than 12 MHz located
between 150 MHz and 1000 MHz to private wireless within 6
months after the date of enactment. Initial access to this
spectrum should commence not later than 12 months after
enactment.
Subsection 3004(c) authorizes the FCC to use a certified
private frequency advisory committee for the computation and
collection of the lease fees.
Subsection 3004(d) allows the FCC to consider whether the
public interest might be better served by assigning private
wireless licenses outside the auctions process where specific
criteria set forth in this subsection are met. These criteria
basically seek to identify those instances in which auction
revenues in any event would be likely to be minimal.
Subsection 3004(e) requires all proceeds from spectrum
lease fees to be deposited in the Treasury, except that a
certified frequency advisory committee may retain a fair amount
of the spectrum lease proceeds to cover its costs in
administering the lease fee program.
congressional budget office cost estimate
Reconciliation recommendations of the Senate Committee on Energy and
Natural Resources (Title IV)
Summary: Title IV would revise the terms under which the
Department of Energy (DOE) could lease excess capacity of the
Strategic Petroleum Reserve (SPR) to foreign governments and
would allow the department to spend any proceeds collected
after 2002 to purchase oil for the SPR without further
appropriation. CBO estimates that enacting this legislation
would reduce direct spending by a total of $13 million over the
1999-2002 period.
Title IV contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform act of 1995
(UMRA) and would have no impact on the budgets of state, local,
or tribal governments.
Estimated cost to the Federal Government: This provision
would remove some of the statutory impediments to leasing the
excess capacity of the SPR to foreign governments. For example,
products stored on behalf of foreign governments would not be
considered part of the U.S. reserve and could be exported.
Estimates of how much of the excess capacity (currently about
110 million barrels) would be leased are speculative, because
the decision to lease resides with foreign governments, not
DOE. At this time, most nations needing capacity either have
plans for domestic storage or face regulatory barriers to using
U.S. facilities. CBO expects, however, that one or more nations
would chose to store small quantities of oil in the SPR to
accommodate growth in their storage requirements or to satisfy
other strategic objectives. We estimate that such leasing
activity would generate receipts totaling about $13 million
over the 1999-2002 period, assuming a storage fee of about
$1.20 per barrel (in 1997 dollars). Beginning in 2003, this
provision would no longer generate net receipts, because DOE
would be authorized to spend the proceeds from leasing to
purchase oil for the reserve without further appropriation.
Table 1 shows the estimated budgetary impact of enacting
Title IV over the 1998-2002 period. Table 2 (at the end of this
estimate) shows the estimated budgetary effects through 2007.
TABLE 1. ESTIMATED BUDGETARY IMPACT OF THE RECONCILIATION
RECOMMENDATIONS OF THE SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES
------------------------------------------------------------------------
By fiscal years, in millions of
dollars--
---------------------------------------
1998 1999 2000 2001 2002
------------------------------------------------------------------------
CHANGES IN DIRECT SPENDING
Lease Excess SPR Capacity:
Estimated budget authority.. 0 -1 -2 -4 -6
Estimated outlays........... 0 -1 -2 -4 -6
------------------------------------------------------------------------
The effects of this legislation fall within budget function
270 (energy).
Intergovernmental and private-sector impact: Title IV
contains no intergovernmental or private-sector mandates as
defined in UMRA and would have no impact on the budgets of
state, local, or tribal governments.
Previous CBO estimate: On June 16, 1997, CBO transmitted a
cost estimate for the reconciliation recommendations of the
House Committee on Commerce (Title III), which included
provisions that would authorize DOE to lease the excess
capacity of the SPR to foreign governments (Subtitle B). The
estimated budgetary impact of the House and Senate proposals is
the same.
Estimate prepared by: Federal Costs: Kathleen Gramp.
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
TABLE 2. ESTIMATED 10-YEAR BUDGETARY EFFECTS OF TITLE IV: RECONCILIATION RECOMMENDATIONS OF THE SENATE COMMITTEE
ON ENERGY AND NATURAL RESOURCES
[In millions of dollars, by fiscal years]
----------------------------------------------------------------------------------------------------------------
1998-2007
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 total
----------------------------------------------------------------------------------------------------------------
Lease of Excess SPR Capacity:
Estimated budget authority. 0 -1 -2 -4 -6 0 0 0 0 0 -13
Estimated outlays.......... 0 -1 -2 -4 -6 -6 0 0 0 0 -19
----------------------------------------------------------------------------------------------------------------
Title IV--Lease of Excess Strategic Petroleum Reserve Capacity
report language
The Committee's recommendation would add a new section 168
to EPCA that would authorize the Secretary to lease
underutilized Strategic Petroleum Reserve facilities for the
storage of petroleum owned by a foreign government or its
representatives. If necessary or appropriate, lease terms could
exceed the five-year limitation of section 649(b) of the
Department of Energy Organization Act. The provision also
provides that, after October 1, 2002, funds resulting from the
leasing of SPR facilities shall be available to the Secretary,
without further appropriation, to purchase petroleum products
for storage in the SPR.
DIVISION 1--MEDICARE
Subtitle A--Medicare Choice Program
Chapter 1--Establishment of Medicare Choice
Medicare Choice Program
Medicare Health Plan Options
Present Law
Medicare beneficiaries have two basic coverage options.
They may elect to obtain services through the traditional fee-
for-service system under which program payments are made for
each service rendered, or Medicare beneficiaries may enroll in
a managed care organization that has a contract with the Health
Care Financing Administration (HCFA).
There are two types of contracts: cost and risk. Under cost
contracts, Medicare arranges to reimburse the organization in a
different way for Medicare covered services but essentially
pays the same amount as it would under the Medicare fee-for-
service program. The Committee is not proposing to change the
Medicare HMO cost contracting program. Therefore, the following
description of current law for Medicare payments to HMOs refers
only to Medicare risk contracts.
Organizations eligible to contract with HCFA on a risk
basis must be organized under State laws and be either:
1. A Federally qualified health maintenance
organization (HMO) as defined by section 1310(d) of the
Public Health Service Act; or
2. An organization called a ``competitive medical
plan'' (CMP) that meets the following requirements:
a. Provides at least the following services
to its enrollees:
(1) Physician services;
(2) Inpatient hospital services;
(3) Laboratory, x-ray, emergency, and
preventive services; and
(4) Out-of-area coverage.
b. Is compensated on a periodic, capitated
basis without regard to the volume of services
provided to members.
c. Physician services are provided by
physicians on salary or through contracts with
individual physicians or groups of physicians.
d. Assumes full financial risk on a
prospective basis for the provision of health
care services, except the organization may
insure for:
(1) Services exceeding $5,000 per
member per year;
(2) Services provided to members by
providers outside the network;
(3) Not more than 90 percent of costs
which exceed 115 percent of income in a
fiscal year; and
(4) Make arrangements with other
providers to accept all or part of the
risk.
e. Meets solvency standards satisfactory to
the Secretary.
For Medicare purposes, the requirements for HMOs and CMPs
are essentially identical. For simplicity, the term ``Medicare
HMO'' is used in this document to refer to both HMOs and CMPs
that have Medicare risk contracts.
Eligibility
Present Law
Any person entitled to coverage under Medicare Part A and
enrolled under Medicare Part B, or enrolled under Medicare Part
B only, except persons with end-stage renal disease, is
eligible to enroll in a Medicare HMO that serves the geographic
area in which the person resides. A Medicare beneficiary
developing end-stage renal disease after having enrolled in a
Medicare HMO may continue enrollment in that Medicare HMO.
Election and Enrollment
Present Law
Persons are automatically enrolled in the Medicare fee-for-
service system when they first become eligible for Medicare.
Once enrolled in the Medicare program, persons wishing to
enroll in a Medicare HMO must do so directly through the
Medicare HMO.
Each Medicare HMO is required to have at least a 30 day
annual open enrollment period for Medicare beneficiaries. Open
enrollment periods are not coordinated. Secretary may waive
open enrollment under certain conditions. Medicare HMOs must
accept persons on a first-come basis up to plan capacity.
Disenrollment
Present Law
Medicare beneficiaries enrolled in Medicare HMOs may
disenroll at any time and return to the regular Medicare
program or switch to another Medicare HMO at the time of that
Medicare HMO's open enrollment period.
Information
Present Law
Information on Medicare HMOs must be obtained from the
Medicare HMOs directly. The Health Care Financing
Administration (HCFA) does not distribute any specific
information on Medicare HMO options to Medicare beneficiaries.
Medicare HMOs are required to make available to enrollees
at the time of enrollment, and at least annually thereafter,
the following information:
1. The enrollee's rights to benefits from the
organization;
2. The restrictions on Medicare payment for services
furnished to the enrollee by other than the Medicare
HMO's providers;
3. Out-of-area coverage provided by the Medicare
HMO;
4. Coverage of emergency services and urgently needed
care;
5. Appeal rights of enrollees; and
6. Notice that the Medicare HMO is authorized by law
to terminate or refuse to renew its Medicare contract,
and, therefore, may terminate or refuse to renew the
enrollment of Medicare individuals.
Marketing
Present Law
Medicare HMOs must submit any brochures, application forms,
and promotional or informational material to the Secretary for
approval 45 days before distribution of the material.
Benefits
Present Law
Medicare HMOs are required to provide all services and
items covered by Part A and Part B of the Medicare program.
Beneficiaries must receive all Medicare covered services from
the HMO's providers, except in emergencies or unless the plan
has an approved point-of-service option which allows some out
of service use.
Medicare HMOs may adopt cost-sharing requirements that are
different from the cost-sharing requirements in the Medicare
program. However, the average total amount of cost-sharing per
enrollee may not exceed the average total amount of cost-
sharing per enrollee in the fee-for-service Medicare program.
Medicare HMOs may offer additional benefits. The additional
benefits may be included in the basic package of benefits
offered by the HMO, subject to the approval of HCFA. Or,
additional supplemental benefits may be offered for an
additional, separate premium payment. The same supplemental
benefit options must be offered to all of the HMO's Medicare
enrollees and premiums for supplemental benefits may not exceed
what the Medicare HMO would have charged for the same set of
services in the private market.
Medicare HMOs are required to include additional benefits
in their basic benefit package to the extent that the HMO
achieves a ``savings'' from Medicare. The ``savings'' is the
amount by which the capitated payment from Medicare exceeds the
estimated rate the HMO would charge for coverage in the private
market (called the adjusted community rate, or ACR). The
additional benefits may be in the form of:
1. Reduced cost sharing;
2. Expanded scope of benefits; or
3. Reduction in the premium charged to the
beneficiary by the Medicare HMO.
Instead of offering additional benefits up to the full
value of their ``savings,'' Medicare HMOs may elect to have a
portion of their ``savings'' placed in a benefit stabilization
fund. This fund enables Medicare HMOs to continue to offer the
same benefit package from year to year without concern about
the degree of annual fluctuation in the Medicare payment
amount.
beneficiary protections and health plan standards
Present Law
Quality assurance. Medicare HMOs are required to have an
ongoing quality assurance program. Medicare HMOs are also
required to contract with Medicare Peer Review Organizations
(PROs) for external quality oversight.
Capacity and enrollment. Medicare HMOs must have at least
5,000 enrollees, unless the HMO serves a primarily rural area
(specified in regulation as 1,500 enrollees).
50/50 Rule. No more than 50 percent of a Medicare HMO's
enrollment may be Medicare or Medicaid beneficiaries (called
the ``50/50'' rule). Medicare HMOs serving areas where more
than 50 percent of the population qualifies for Medicare or
Medicaid may receive a waiver of this rule.
Access. An HMO must make all Medicare covered services and
all other services contracted for available and accessible
within its service area, with reasonable promptness and in a
manner that assures continuity of care. Urgent care must be
available and accessible 24 hours a day and 7 days a week.
Emergency Services. Medicare HMOs must also pay for
emergency services provided by nonaffiliated providers when it
is not reasonable, given the circumstances, to obtain the
services through the Medicare HMO.
Consumer Protections. Medicare HMOs may not disenroll or
refuse to re-enroll a beneficiary because of health status or
need for health care services.
Medicare HMOs must have meaningful grievance and procedures
for the resolution of individual enrollee complaints. An
enrollees who is dissatisfied with the outcome of the grievance
procedure has the right to a hearing before the Secretary if
the amount involved is greater than $100. If the amount is
greater than $1,000, either the enrollee or the Medicare HMO
may seek judicial review.
Medicare HMOs must also inform beneficiaries of the rights
to appeal and of HCFA's appeals process.
Physician Incentive Policies. A Medicare HMO may not adopt
physician compensation policies that may directly or indirectly
have the effect of reducing or limiting services to a specific
enrollee.
Contract Termination. A Medicare HMO terminating its
contract with HCFA must arrange for supplementary coverage for
its Medicare enrollees for the duration of any preexisting
condition exclusion under the enrollee's successor coverage for
the lesser of 6 months or the duration of the exclusion period.
If a Medicare HMO terminates its Medicare contract, other
Medicare HMOs serving the same service area must hold a 30 day
open enrollment period for persons enrolled under the
terminated contract.
medicare payments to hmos
Present Law
Medicare HMOs are paid a single monthly capitation payment
issued by Medicare for each enrolled beneficiary. In order to
determine appropriate payments to HMOs, two key numbers are
calculated: the adjusted average per capita cost, or AAPCC, and
the adjusted community rate, the ACR.
The AAPCC is Medicare's estimate of the average per capita
amount it would spend for a given beneficiary (classified by
certain demographic characteristics and county of residence)
who obtained services on the usual fee-for-service basis.
Separate AAPCCs are established for enrollees on the basis of
age, disability status, and other classes determined by the
Secretary (which, by regulation, includes sex, whether they are
in a nursing home or other institution, and whether they are
also eligible for Medicaid) and the county of their residence.
These AAPCC values are calculated in four basic steps:
1. Medicare national average calendar year per capita
costs are projected for the future year under
consideration. These numbers are known as the U.S. per
capita costs (USPCCs). USPCCs are developed separately
for Parts A and B of Medicare, and for costs incurred
by the aged, disabled, and those with ESRD in those two
parts of the program.
2. Geographic adjustment factors that reflect the
historical relationship between each county's and the
Nation's per capita costs are used to convert the
national average per capita costs to the county level.
3. Expected Medicare per capita costs for the county
are adjusted to a fee-for-service basis by removing
both reimbursement and enrollment attributable to
Medicare beneficiaries in prepaid plans.
4. The recalculated county per capita cost is
converted into rates that vary according to the
demographic variables enumerated above: age, sex,
institutional status, and Medicaid status.
For each Medicare beneficiary enrolled in a Medicare HMO,
Medicare will pay the Medicare HMO 95 percent of the rate
corresponding to the demographic class to which the beneficiary
belongs.
The ACR is an estimate of what each Medicare HMO would
charge comparable private enrollees for the set of benefits the
Medicare HMO will be furnishing to Medicare beneficiaries under
its contract. The starting point for this estimate is the
community rate that the HMO actually charges its non-Medicare
enrollees. This figure is then adjusted to reflect differences
between the scope of benefits covered under Medicare and those
offered under private contracts, as well as expected
differences in the use of services by Medicare enrollees as
compared to other HMO members. The ACR is an estimated market
price for those services and may include allowances for reserve
funds or profits.
The degree to which the average Medicare payment rate to a
Medicare HMO exceeds the Medicare HMO's ACR is the ``savings''
amount available to provide additional benefits to Medicare
enrollees, beyond the basic services covered by Medicare.
premiums
Present Law
Section 1876 provides for requirements relating to
benefits, payment to the plans by Medicare, and payments to the
plans by beneficiaries. A Medicare beneficiary enrolled in an
HMO/CMP is entitled to receive all services and supplies
covered under Medicare Parts A and B (or Part B only, if only
enrolled in Part B). These services must be provided directly
by the organization or under arrangements with the
organization. Enrollees in risk-based organizations are
required to receive all services from the HMO/CMP except in
emergencies.
In general, HMOs/CMPs offer benefits in addition to those
provided under Medicare's benefit package. In certain cases,
the beneficiary has the option of selecting the additional
benefits, while in other cases some or all of the supplementary
benefits are mandatory.
Some entities may require members to accept additional
benefits (and pay extra for them in some cases). These required
additional services may be approved by the Secretary if it is
determined that the provision of such additional services will
not discourage enrollment in the organization by other Medicare
beneficiaries.
The amount an HMO/CMP may charge for additional benefits is
based on a comparison of the entity's adjusted community rate
(ACR, essentially the estimated market price) for the Medicare
package and the average of the Medicare per capita payment
rate. A risk-based organization is required to offer
``additional benefits'' at no additional charge if the
organization achieves a savings from Medicare. This ``savings''
occurs if the ACR for the Medicare package is less than the
average of the per capita Medicare payment rates. The
difference between the two is the amount available to pay
additional benefits to enrollees. These may include types of
services not covered, such as outpatient prescription drugs, or
waivers of coverage limits, such as Medicare's lifetime limit
on reserve days for inpatient hospital care. The organization
might also waive some or all of the Medicare's cost-sharing
requirements.
The entity may elect to have a portion of its ``savings''
placed in a benefit stabilization fund. The purpose of this
fund is to permit the entity to continue to offer the same set
of benefits in future years even if the revenues available to
finance those benefits diminish. Any amounts not provided as
additional benefits or placed in a stabilization fund would
beoffset by a reduction in Medicare's payment rate.
If the difference between the average Medicare payment rate
and the adjusted ACR is insufficient to cover the cost of
additional benefits, the HMO/CMP may charge a supplemental
premium or impose additional cost-sharing charges. If, on the
other hand, the HMO does not offer additional benefits equal in
value to the difference between the ACR and the average
Medicare payment, the Medicare payments are reduced until the
average payment is equal to the sum of the ACR and the value of
the additional benefits.
For the basic Medicare covered services, premiums and the
projected average amount of any other cost-sharing may not
exceed what would have been paid by the average enrollee under
Medicare rules if she or he had not joined the HMO. For
supplementary services, premiums and projected average cost-
sharing may not exceed what the HMO would have charged for the
same set of services in the private market.
Organizational and Financial Requirements
Present Law
Under section 1876 of the Social Security Act, Medicare
specifies requirements to be met by an organization seeking to
become a managed care contractor with Medicare. In general,
these include the following: (1) the entity must be organized
under the laws of the State and be a Federally qualified HMO or
a competitive medical plan (CMP) which is an organization that
meets specified requirements (it provides physician, inpatient,
laboratory, and other services, and provides out-of-area
coverage); (2) the organization is paid a predetermined amount
without regard to the frequency, extent, or kind of services
actually delivered to a member; (3) the entity provides
physicians' services primarily through physicians who are
either employees or partners of the organization or through
contracts with individual physicians or physician groups; (4)
the entity assumes full financial risk on a prospective basis
for the provision of covered services, except that it may
obtain stop-loss coverage and other insurance for catastrophic
and other specified costs; and (5) the entity has made adequate
protection against the risk of insolvency.
Provider Sponsored Organizations (PSOs) that are not
organized under the laws of a state and are neither a Federally
qualified HMO or CMP are not eligible to contract with Medicare
under the risk contract program. A PSO is a term generally used
to describe a cooperative venture of a group of providers who
control its health service delivery and financial arrangements.
Contracts, Administration and Enforcement
Present Law
Contracts with Medicare HMOs are for one year, and may be
made automatically renewable. However, the contract may be
terminated by the Secretary at any time (after reasonable
notice and opportunity for a hearing) if the organization no
longer meets the requirements for Medicare HMOs. The Secretary
also has authority to impose certain lesser sanctions,
including suspension of enrollment or payment and imposition of
civil monetary penalties. These sanctions may be applied for
denial of medically necessary services, overcharging,
enrollment violations, misrepresentation, failure to pay
promptly for services, or employment of providers barred from
Medicare participation.
The Secretary transmits to each Medicare beneficiary's
selected plan a payment amount equal to the pertinent Medicare
payment amount for that individual in that payment area.
Payments occur in advance and on a monthly basis.
Payments to plans are made with funds withdrawn from the
Federal Hospital Insurance Trust Fund and the Federal
Supplementary Medical Insurance Trust Fund. The allocation from
each fund is determined each year by the Secretary, based on
the relative weight that benefits from each fund contribute to
the determination of the Medicare payment amounts.
Reasons for Change
The existing Medicare HMO risk contracting program has
enjoyed only limited success for a number of reasons. First of
all, there has been no assertive effort by the Health Care
Financing Administration to inform Medicare beneficiaries of
the option of enrolling in a Medicare HMO and encourage them to
do so.
Second, the current Medicare risk-contracting program is,
for the most part, limited to closed panel health maintenance
organizations and does not allow Medicare beneficiaries a
choice of the full range of health plan options currently
available to the non-Medicare population.
The greatest impediment to increased enrollment in Medicare
HMO plans is the existing methodology for computing the amount
that the Medicare program pays for enrollees in Medicare HMOs.
The payments, which are the direct result of per capita
spending in an area by the traditional Medicare program, vary
greatly from county to county.
For example, in 1995, monthly payment amounts range across
counties from $221 per month to $767 per month. Not
surprisingly, most Medicare HMO activity is concentrated in
high-payment areas.
Using the county as the geographic area also causes
volatility of Medicare payment rates from year to year,
especially in sparsely populated counties. Such unpredictable
payment rates discourages HMOs from offering plans in many
market areas.
Lastly, the Medicare program is not realizing any financial
benefits from the enrollment of Medicare beneficiaries in
private health maintenance organizations. The Medicare risk
contracting program is structured so that any savings achieved
by enrollment in private health plans are returned to the
beneficiaries in the form of additional benefits.
Committee Provision
A new ``Medicare Choice'' program is created. Medicare
Choice builds on the existing Medicare program which allows
health maintenance organizations (HMOs) to enter into risk
contracts with the Health Care Financing Administration. Under
Medicare Choice, Medicare beneficiaries will have the
opportunity to choose from a variety of private health plan
options the health care plan that best suits their needs and
preferences.
Medicare Choice Plan Options
Medicare beneficiaries will be given the option of
enrolling in the traditional fee-for-service Medicare program
or enrolling in a Medicare Choice plan available in the area of
their residence.
The types of health plans that may be available as Medicare
Choice plans include:
(1) Fee-for-service indemnity health plans which pay
providers on the basis of a privately determined fee
schedule;
(2) Preferred provider organizations (PPOs) which
offer enrollees the option to use providers with whom
discounts have been negotiated;
(3) Point-of-service plans (PoS) which give
beneficiaries in a coordinated care plan the option of
using out-of-network providers;
(4) Provider sponsored organization (PSOs) plans,
which are plans formed by affiliated providers and
which enroll and treat beneficiaries for a capitated
payment;
(5) Health maintenance organizations (HMOs) which are
tightly closed networks of contracted or salaried
providers which coordinate care and provide health
services for a capitated payment;
(6) Medical savings accounts (MSAs) combined with
high deductible health plans. (A limited option for a
maximum of 100,000 Medicare beneficiaries and only from
1999 to 2002.); and
(7) Any other types of health plans that meet the
standards required of Medicare Choice health plans.
ELIGIBILITY
Any person entitled to coverage under Medicare Part A and
enrolled in Medicare Part B, is eligible to enroll in a
Medicare Choice plan that serves the geographic area in which
the person resides, except persons with end-stage renal disease
(ESRD). However, a Medicare beneficiary developing end-stage
renal disease after having enrolled in a Medicare Choice plan
may continue enrollment in that Medicare Choice plan.
ELECTION AND ENROLLMENT
The Medicare Choice plans will be responsible for enrolling
individuals. Plans must hold open enrollment during the month
of November and during other specified times including when
beneficiaries in the plan's area becomes newly eligible for
Medicare, and when another plan's contract in the area is
terminated. In addition to these specified times, plans may be
open for enrollment at any other time. If an individual does
not make an election upon initial enrollment, that individual
will be deemed to have chosen the traditional fee-for-service
Medicare plan.
Guaranteed Renewal. Medicare Choice plan sponsors may not
cancel or refuse to renew a beneficiary except in cases of
fraud or non-payment of premium amounts due the plan.
DISENROLLMENT
As under current law, Medicare enrollees will be able to
disenroll from a Medicare Choice plan and enroll in another
Medicare Choice plan or revert to the traditional Medicare
program at any time. A beneficiary's disenrollment and
reenrollment will become effective on the first day of the
month following their notification to disenroll. There will be
an exception for MSA plan holders who will only be able to
enroll and disenroll in an MSA plan during the coordinated
enrollment period and during certain other periods such as when
a plan's contract is terminated or when the beneficiary moves
out of the area served by the plan.
INFORMATION
Information to be distributed by the Secretary. The
Secretary of HHS is responsible for developing informational
materials that include (1) General information about Medicare
choice plans and (2) information describing and comparing the
Medicare Choice plans available in each area. The materials
will be mailed to each Medicare beneficiary no later than 15
days prior to the annual coordinated information period. And no
later than 30 days prior to a beneficiary becoming eligible for
Medicare. The Secretary of HHS may contract with private
organizations to develop and distribute the informational
materials. The Secretary will coordinate with the States, to
the extent possible, in developing and disseminating any
information that is provided to beneficiaries.
General Information. The general information distributed by
the Secretary will include at minimum (1) The Medicare Part B
premium rate for the upcoming calendar year (paid by all
Medicare beneficiaries with Part B benefits); (2) instructions
on how to enroll in a Medicare choice plan; (3) enrollees'
rights and responsibilities in a Medicare Choice Plan,
including appeal and grievance rights; (4) notice that Medicare
Choice plan sponsors are authorized by law to terminate or
refuse to renew their Medicare contracts, and, therefore, may
terminate or refuse to renew the enrollment of Medicare
individuals.
Comparative Information. The comparative informational
material distributed by the Secretary will be in a standardized
chart-like format, written in the most easily understandable
manner possible, and include the information described below as
well as any other information the Secretary determines is
necessary to assist Medicare beneficiaries in selection of a
Medicare Choice plan. The Secretary will develop this
information in consultation with outside organizations,
including groups representing the elderly, eligible
organizations under this section, providers of services, and
physicians and other health care professionals. The comparative
information will be of a similar level of specificity as the
information distributed by the Office of Personnel Management
for the Federal Employees Health Benefits Program (FEHBP).
The comparative informational materials will contain at a
minimum for each plan in the area:
(1) A description of the plan's covered items
and services, including those that are in
addition to those provided in the government-
run Medicare fee-for-service plan;
(2) Supplemental benefits offered by the plan
and premiums associated with such supplemental
benefits;
(3) All cost-sharing amounts including
premiums, deductibles, coinsurance, or any
monetary limits on benefits;
(4) Special cost sharing and balance billing
rules for medical savings account plans and
private fee-for-service plans;
(5) Quality indicators for the traditional
Medicare program and each of the Medicare
Choice plans, including disenrollment rates for
the previous two fiscal years (excluding
disenrollment due to death or moving outside a
plan's service area) enrollee satisfaction
rates, and health outcomes information;
(6) The plans' service areas;
(7) The extent to which beneficiaries may
select the provider of their choice, including
providers both within the network and outside
the network (if the plan allows out-of-network
services);
(8) An indication of beneficiaries' exposure
to balance billing and the restrictions on
payment for services furnished to the enrollee
by other than the Medicare Choice plan's
participating providers; and
(9) An overall summary description on how
participating plan physicians are compensated.
MARKETING
Medicare Choice plans may prepare and distribute marketing
materials and pursue marketing strategies so long as they
accurately describe the benefits available from the plan in
comparison to the traditional Medicare program. Marketing will
be pursued in a manner not intended to violate the
antidiscrimination requirements. Marketing materials will not
contain false or materially misleading information, and will
conform to all other applicable fair marketing and advertising
standards and requirements.
Medicare Choice plan sponsors must submit any brochures,
application forms, and promotional or informational material to
the Secretary for review. Materials not disapproved by the
Secretary within 45 days may be distributed. Marketing
materials reviewed and not disapproved in one HHS regional
office will be deemed approved for use in all other areas where
the Medicare Choice plan is offered.
BENEFITS
Benefits and Cost-Sharing. All Medicare Choice plans, other
than medical savings account plans, must offer, at a minimum,
coverage for the same items and services as the traditional
Medicare program. Medicare Choice plans may require cost-
sharing that is different from the cost-sharing requirements in
the Medicare program. However, the average total amount of
cost-sharing per enrollee for Medicare covered items and
services in a Medicare Choice plan may not exceed the average
total amount of cost-sharing per enrollee in the traditional
Medicare program. MSA plans and fee-for-service plans will be
exempted from these cost-sharing requirements.
Additional Basic Benefits. Medicare Choice plans may
include additional benefits as part of their basic benefit
package offered to Medicare enrollees and included in the basic
premium price.
Supplemental Benefits. Medicare Choice plans may offer
optional, supplemental benefits to Medicare Choice plan
enrollees for an additional premium. The supplemental benefits
may be marketed and sold by the Medicare Choice plan separate
from the Medicare Choice enrollment process. However, if the
supplemental benefits are offered only to enrollees in the
sponsor's Medicare Choice plan(s) the same supplemental benefit
options must be offered to all of the Medicare Choice plan
sponsor's Medicare enrollees for the same premium amount.
National Coverage Determinations. If the Secretary of HHS
makes a national coverage determination that will result in
added costs for Medicare Choice plans, the Medicare Choice
plans arenot responsible for assuming responsibility for such
coverage until the beginning of the next contract year. Medicare Choice
plan enrollees may obtain any new benefits on a fee-for-service basis
until the new coverage requirement goes into effect at the beginning of
the next contract year.
Hospitalized at Time of Disenrollment. In the case of a
Medicare beneficiary who is hospitalized at the time of
enrollment or disenrollment from a Medicare Choice plan,
responsibility for payment for the hospitalization is
determined by the status of coverage at the time of admission
to the hospital.
Medicare as Secondary Payor. Medicare Choice plans may
recover payment for services provided to a plan enrollee which
qualify for coverage under workers compensation, automobile, or
other insurance policies of an enrollee.
BENEFICIARY PROTECTIONS AND HEALTH PLAN STANDARDS
Beneficiary Antidiscrimination. Medicare Choice plan
sponsors may not discriminate against individuals on the basis
of health status or anticipated need for health services during
the enrollment, disenrollment, or provision of services.
Balance Billing. Current law balance billing restrictions
will apply to all Medicare Choice plans except Medical Savings
Account Plans and Fee-for-Service plans.
Information to be distributed by the Medicare Choice Plan
upon enrollment.
(1) Benefits offered including exclusions from
coverage;
(2) The number, mix, and distribution of
participating providers;
(3) Out-of-area coverage;
(4) Optional supplemental coverage including the
premium price for optional supplemental benefits;
(5) Prior authorization rules;
(6) Plan grievance and appeals procedures, including
both general Medicare procedures and plan-specific
procedures;
(7) Coverage of emergency services and urgently
needed care;
(8) A description of the organization's quality
assurance program;
(9) The organization's coverage of out-of-network
services (if any); and
(10) The plan's service area.
In addition to the above material specified to be
distributed by the Medicare Choice plan, all Medicare Choice
plans must have available to distribute, at the request of any
eligible Medicare beneficiary, the comparative and general
information developed and distributed by the Secretary.
Also, at the request of a beneficiary, plans must provide
information on utilization review procedures.
Access to Services and Specialists. Medicare Choice plans
must make all Medicare covered services and all other services
contracted for available and accessible within their service
areas, with reasonable promptness and in a manner that assures
continuity of care. All Medicare Choice plans must provide
access to the appropriate providers, including specialists
credentialed by the Medicare Choice plan sponsor, for all
medically necessary treatment and services.
Emergency Services. Urgent care must be available and
accessible 24 hours a day and 7 days a week. Medicare Choice
plans must also pay for emergency services provided by
nonaffiliated providers when a medical condition manifesting
itself by acute symptoms of sufficient severity (including
severe pain) such that a prudent layperson, who possesses an
average knowledge of health and medicine, could reasonably
expect the absence of immediate medical attention to result in
placing the health of the individual in serious jeopardy,
serious impairment to bodily functions or serious dysfunction
of any bodily organ or part.
Post-Stabilization Guidelines. A plan must comply with
guidelines to be issued by the Secretary regarding post-
stabilization care. These guidelines shall provide that a
provider of emergency service shall make a documented good
faith effort to contact the plan in a timely fashion from the
point at which the individual is stabilized to request approval
for medically necessary post-stabilization care. The plan shall
respond in a timely fashion with a decision as to whether the
services will be authorized. If a request is denied, the plan
shall, upon request from the treating physician, arrange for a
physician who is authorized by the plan to review the denial to
communicate directly with the treating physician.
In the case of emergency services or urgent care provided
outside of the Medicare Choice plan's service area to an
enrollee of a Medicare Choice plan which utilizes an integrated
network of providers, the provider will accept as payment in
full from the Medicare Choice plan the amount that would be
payable to the provider, under the Medicare program and from
the individual enrolled in Medicare, if the individual were not
enrolled in the Medicare Choice plan.
Ongoing Quality Assurance Program. Each Medicare Choice
plan sponsor must have arrangements for an ongoing quality
assurance program, including review by an external
organization. The program must:
(1) Stress health outcomes;
(2) Provide written protocols for utilization review;
(3) Provide review by physicians and other health
care professionals of the process followed in the
provision of health services;
(4) Monitor and evaluate high volume and high risk
services;
(5) Evaluate the continuity of care enrollees
receive;
(6) Have mechanisms to identify underutilization and
overutilization of services;
(7) Alter practice parameters after identifying areas
for improvement;
(8) Take actions to improve quality;
(9) Make available information on quality and
outcomes to facilitate beneficiary comparisons;
(10) Be evaluated on an ongoing basis as to its
effectiveness;
(11) Include measures of consumer satisfaction; and
(12) Provide the Secretary with such access to
information collection as may be appropriate to monitor
and ensure the quality of care provided under this
part.
Independent Accrediting Organizations. Medicare Choice plan
sponsors will be accredited for meeting quality standards
established by the Secretary of HHS. Medicare Choice plans
accredited by external independent accrediting organizations,
recognized by the Secretary of HHS as establishing standards at
least as stringent as Medicare standards, will be ``deemed''
accredited for Medicare purposes.
Coverage Determinations. A Medicare Choice organization
would be required to make determinations regarding
authorization requests for nonemergency care on a timely basis.
Appeals of denials would generally have to be decided within 30
days of receiving medical information, but not later than 60
days after the coverage determination. Physicians would be the
only individuals permitted to make decisions to deny coverage
based on medical necessity. Appeals of determinations involving
a life-threatening or emergency situation would have to be made
in an expedited manner and within 72 hours of denial.
Grievance and Appeals Procedures. Medicare Choice plan
sponsors must have meaningful grievance procedures for the
resolution of individual enrollee complaints. An enrollee who
is dissatisfied with the outcome of the grievance procedure has
the right to appeal through a hearing before the Secretary if
the amount involved is greater than $100. If the amount is
greater than $1,000, either the enrollee or the Medicare Choice
plan sponsor may seek judicial review.
Independent Review of Certain Coverage Denials. The
Secretary will contract with an independent, outside entity to
review and resolve reconsiderations that affirm denial of
coverage.
Confidentiality and Accuracy of Enrollee Records. A
planmust have procedures to maintain accurate medical records,
safeguard the privacy of the individuals' records, and make these
records accessible to beneficiaries.
Ability to Service Enrollment. Medicare Choice plans must
demonstrate the capacity to adequately serve their expected
enrollment of Medicare beneficiaries.
50/50 Rule. During 1998, Medicare Choice plans must
maintain at least as many commercial enrollees at any time as
Medicare enrollees. (Medicare Choice plans will be relieved of
the requirement to maintain a commercial enrollment equal to or
greater than its enrollment of both Medicare and Medicaid
enrollees.) This requirement may be waived if the Secretary
determines that the plan meets all other beneficiary
protections and quality standards. Beginning January of 1999,
the 50/50 requirement will be repealed.
Rural access. If the Medicare Choice plan restricts
coverage to services provided by a network of providers,
primary care services in rural areas must be available within
30 minutes or 30 miles from an enrollee's place of residence.
The Secretary may make exceptions to this standard on a case-
by-case basis.
Advance Directives. A Medicare Choice plan must maintain
written policies and procedures respecting advance directives.
Nothing in this section will be construed to require the
provision of information regarding assisted suicide,
euthanasia, or mercy killing.
Physician Incentive Plans. Medicare Choice plans may not
operate physician incentive plans as an inducement for
physicians to reduce or limit medically necessary services.
Provider Antidiscrimination. A Medicare Choice plan may not
discriminate in participation, reimbursement or indemnification
against a provider who is acting within the scope of his or her
license or certification under applicable state law, solely
based on such license or certification of the provider. This
provision is not intended to prevent a plan from matching the
number and type of health care providers to the needs of the
plan's members or establish any other measure designed to
maintain quality and control costs consistent with the
responsibilities of the plan.
payments to medicare choice organizations
A Medicare payment amount will be established for each
Medicare payment area (by county) within the United States. The
same Medicare payment amount will apply to each Medicare
beneficiary eligible for coverage within a Medicare payment
area. The Medicare payment rates will be based on the current
Medicare HMO payment methods with adjustments made so that the
variation in Medicare payment amounts across geographic areas
are reasonable.
A base Medicare payment amount will be established for each
Medicare payment area. The link between traditional Medicare
fee-for-service spending and the Medicare payment amounts will
be broken. The base Medicare payment amount for an area will be
determined through adjustments over 5 years.
Beginning in 1998, plans are to be paid the greatest of:
(1) A blended local/national rate (initially based on
1997 rates), updated by the nominal per capita growth
in the gross domestic product (GDP) plus .5 percentage
points;
(2) A minimum payment amount of up to 85% of the
national average payment (to be determined annually
depending on enrollment and other factors), for U.S.
territories the minimum payment amount will equal 150%
of the 1997 payment;
(3) 100 percent of the plan's 1997 payment.
Blended local/national rate. Blending of local and national
rates will be phased in over five years beginning in 1998.
Local rates of 90% in 1998, 80% in 1999, 70% in 2000, 60% in
2001, and 50% in 2002 will be blended with national rates of
10% in 1998, 20% in 1999, 30% in 2000, 40% in 2001, and 50% in
2002.
GME/DSH Payments. 100 percent of the amount of payments for
indirect medical education, graduate medical education (GME),
and disproportionate share (DSH) will be carved out of local
rates over a four year period (1998-2001). Hospitals will be
allowed to submit a Medicare claim for each Medicare Choice
enrollee and receive the amount of medical education and DSH
payments they would otherwise receive for a patient enrolled in
traditional Medicare. During the first 3 years, payments will
be proportionate to the amount of the carve out.
Risk Adjustment. In making payments to Medicare Choice
plans on behalf of Medicare beneficiaries, the Medicare payment
amount will be adjusted by the Secretary to reflect demographic
and health status factors applicable to the beneficiary.
Payments to Medicare Choice plans will also be adjusted for
new enrollees by 5 percent for beneficiaries in their first
year of enrollment, and then 4 percent, 3 percent, 2 percent
and 1 percent in their second, third, fourth, and fifth years
of enrollment respectively. Payments for beneficiaries who
``age-in'' to a Medicare Choice plan--i.e. beneficiaries who
are already enrolled in a risk plan with a Medicare Choice
contract upon turning 65 would not be subjected to this
adjustment if the enrollee remained with the same sponsoring
organization. New Medicare Choice plans in any county where the
Medicare Choice payment is below the national average Medicare
Choice payment will be exempt from the new enrollee adjustment
during the 12 months after they enroll their first Medicare
Choice beneficiary. The new enrollee adjustment would be
discontinued when the Secretary has fully implemented a risk
adjustment methodology that accounts for variations in per
capita costs based on health status and which has been
evaluated as effective by an independent actuary of the
actuarial soundness of the risk adjuster.
Encounter Data Collection. The Secretary will require
Medicare Choice organizations (and risk-contract plans) to
submit, for periods beginning on or after January 1, 1998, data
physician visits, nursing home days, home health visits,
hospital inpatient days, and rehabilitation services.
Study on Input Price Adjustments. With the Medicare Payment
Advisory Commission, the Secretary shall study appropriate
input price adjustments for applying national rates to local
areas--including the Medicare hospital wage index and the
actual case mix of a geographic region. Recommendations shall
be submitted in a report to Congress.
Payment areas with highly variable rates. In the case of a
Medicare Choice payment area for which the AAPCC for 1997
varies by more than 20% from such rate for 1996, the Secretary,
where appropriate, could substitute for the 1997 rate a rate
that is more representative of the cost of the enrollees in the
area.
Request for alternate Medicare Choice payment area. Upon
request of a state for a contract year (beginning after 1998)
made at least 7 months before the beginning of the year, the
Secretary would redefine Medicare Choice payment areas in the
state to: (1) a single statewide Medicare Choice payment area;
(2) a metropolitan system (described in the provision); or (3)
a single Medicare Choice payment area consolidating
noncontiguous counties (or equivalent areas) within a state.
This adjustment would be effective for payments for months
beginning with January of the year following the year in which
the request was received. The Secretary would be required to
make an adjustment to payment areas in the state to ensure
budget neutrality.
Analysis of Payment Variation. The Secretary will conduct
an analysis, based on the developments in the Medicare Choice
program up to December 31, 2000, of the variation in Medicare
payment amounts, taking into consideration measurable input
cost differences, and the degree to which Medicare Choice
payment amounts have enhanced or limited beneficiary choice of
health plans in areas. The Secretary would report the findings
to the appropriate committees of the Congress, and the public,
not later than December 31, 2002.
premiums
Annual filing by Plan. Each Medicare Choice organization
would be required annually to file with the Secretary the
amount of the monthly premium for coverage under each of the
plans it would be offering in each payment area, and the
enrollment capacity in relation to the plan in each such area.
Monthly Amount. The monthly premium charged for a plan
offered in a payment area would equal \1/12\ of the amount (if
any) by which the premium exceeded the Medicare Choice
capitation rate. The organization would have to permit monthly
payment of premiums.
Uniform Plan Premium. Premiums could not vary among
individuals who resided in the same payment area.
Limitation on Cost Sharing. In no case could the actuarial
value of the deductibles, coinsurance, and copayments
applicable on average to individuals enrolled with a Medicare
Choice plan with respect to required benefits exceed the
actuarial value of the deductibles, coinsurance, and copayments
applicable in Medicare FFS. This provision would not apply to
an MSA plan or a private fee-for-service plan. If the Secretary
determined that adequate data were not available to determine
the actuarial value of the cost-sharing elements of the plan,
the Secretary could determine the amount.
Requirement for Additional Benefits. The extent to which a
Medicare Choice plan (other than a MSA plan) would have to
provide additional benefits would depend on whether the plan's
adjusted community rate (ACR) was lower than its average
capitation payments. The ACR would mean, at the election of the
Medicare Choice organization, either: (I) the rate of payment
for services which the Secretary annually determined would
apply to the individuals electing a Medicare Choice plan if the
payment were determined under a community rating system, or
(ii) the portion of the weighted aggregate premium which the
Secretary annually estimated would apply to the individual but
adjusted for differences between the utilization of individuals
under Medicare and the utilization of other enrollees (or
through another specified manner). For PSOs, the ACR could be
computed using data in the general commercial marketplace or
(during a transition period) based on the costs incurred by the
organization in providing such a plan.
If the actuarial value of the benefits under the Medicare
Choice plan (as determined based upon the ACR) for individuals
was less than the average of the capitation payments made to
the organization for the plan at the beginning of a contract
year, the organization would have to provide additional
benefits in a value which was at least as much as the amount by
which the capitation payment exceeded the ACR. These benefits
would have to be uniform for all enrollees in a plan area. (The
excess amount could, however, be lower if the organization
elected to withhold some of it for a stabilization fund.) A
Medicare Choice organization could provide additional benefits
(over and above those required to be added as a result of the
excess payment), and could impose a premium for such additional
benefits. A Medicare Choice organization could not provide for
cash or other monetary rebates as an inducement for enrollment
or otherwise.
Periodic Auditing. The Secretary would be required to
provide annually for the auditing of the financial records
(including data relating to utilization and computation of the
ACR) of at least one-third of the Medicare Choice organizations
offering Medicare Choice plans. The General Accounting Office
would be required to monitor such auditing activities.
Prohibition of State Imposition of Premium Taxes. No state
could impose a premium tax or similar tax on the premiums of
Medicare Choice plans or the offering of such plans.
organizational and financial requirements for medicare choice
organizations
State Licensure. Organizations eligible to contract with
the Secretary of Health and Human Services (HHS) to offer
Medicare Choice plans must be organized and licensed under
state laws applicable to entities bearing risk for the
provision of health services, by each state in which they wish
to enroll Medicare beneficiaries.
Solvency Standards. Eligible Medicare Choice plan
sponsoring organizations must meet solvency requirements
satisfactory to the Secretary of HHS. Organizations licensed in
states recognized by the Secretary of HHS as requiring solvency
standards at least as stringent as those required by Medicare
will be deemed to meet Medicare Choice plan solvency
requirements.
Exceptions for Provider Sponsored Organizations (PSOs). To
help facilitate the availability of Medicare Choice plans
throughout the United States, a waiver process to temporarily
certify PSOs to enroll Medicare beneficiaries without a state
license is established.
Prior to January 1, 2001, PSOs would be granted a waiver
which would allow them to contract directly with HCFA for
Medicare enrollees without first obtaining a state license.
The Federal waiver would allow PSOs to circumvent the
solvency requirements of the State, but other State
requirements, including the State's patient protection
standards, would be imposed upon the PSO through the Medicare
Choice contracting process. The Secretary will enter into
agreements with States to ensure adequate enforcement of State
non-solvency standards. If the Secretary is notified by the
State that the PSO is not in compliance, and the Secretary
agrees that the PSO is not in compliance, the Secretary will
terminate the PSO's Medicare Choice. Before termination of
contract, the PSO must be allowed 60 days to reach compliance.
A PSO's Federal waiver will be effective until the State in
which the PSO is located receives Federal certification that
the State's solvency requirements for PSOs are identical to the
Federal government's solvency standards for PSOs.
Federal solvency standards for PSOs will be developed
through a negotiated rule-making process taking into
consideration risk based capital standards developed by the
National Association of Insurance Commissioners. The target
publishing date of the interim rule on Medicare Choice solvency
requirements for PSOs is April 1, 1998. The rule will be
effective immediately on an interim basis. The final rule will
be published not later than April 1, 1999.
Beginning January 1, 2001, PSOs will be required to have
state licenses to enroll Medicare beneficiaries.
The Secretary is required to report to Congress evaluating
the temporary certification process by December 31, 1998. The
report will include an analysis of state efforts to adopt
regulatory standards that take into account health plan
sponsors that provide services directly to enrollees through
affiliated providers.
A PSO is defined as a locally, organized and operated
entity that provides a substantial proportion of services
directly through affiliated providers, and that is organized to
deliver a spectrum of health care services. A provider is
affiliated if through contract, ownership or otherwise (1) one
provider, directly or indirectly, is controlled by, or is under
common control with the other; (2) both providers are part of a
controlled group of corporations; (3) each provider is a
participant in a lawful combination under which the providers
share substantial financial risk in connection with the PSO's
operations; or (4) both providers are part of an affiliated
service group.
Assume Full Risk. All Medicare Choice plan sponsoring
organizations must assume full financial risk (except, at the
election of the organization, hospice care) on a prospective
basis for the provision of health care services, except the
organization may insure or make arrangements for stop-loss
coverage for costs exceeding an amount established by
regulation and adjusted annually based on the consumer price
index; services provided to members by providers outside of the
organization; and for not more than 90 percent of costs which
exceed 115 percent ofincome in a fiscal year. An organization
may also make arrangements with providers to assume all or part of the
risk on a prospective basis for the provision of basic health services.
Establishment of Other Standards and Interim Standards. The
Secretary would be required to establish by regulation other
standards for Medicare Choice organizations and plans
consistent with this act. By January 1, 1998, the Secretary
would be required to issue interim standards based on currently
applicable standards for Medicare HMOs/CMPs. The new standards
established under this provision would supersede any state law
or regulation with respect to Medicare Choice plans offered by
Medicare contractors to the extent that such state law or
regulations was inconsistent with such standards.
CONTRACTS/ADMINISTRATION AND ENFORCEMENT
The Secretary will enter into a contract with every
organization eligible to offer a Medicare Choice plan and
certified by the Secretary as meeting Medicare Choice plan
standards. The contracts may be made automatically renewable.
Minimum Enrollment. A Medicare Choice organization must
have a minimum of 1,500 commercial enrollees, or no less than
500 commercial enrollees in rural areas. Provider sponsored
organizations can include as commercial enrollees those
individuals for whom the organization has assumed financial
risk. This requirement will be waived for the first two years
of a Medicare Choice contract.
Payments to Plans. The Secretary will transmit to each
Medicare beneficiary's selected Medicare Choice plan a payment
amount equal to the pertinent adjusted Medicare payment amount
for that individual in that Medicare payment area. Payments
will occur in advance and on a monthly basis, except in the
case of an MSA plan which will be paid on an annual basis with
the remainder of the premium being deposited into the holder's
Medicare Choice Medical Savings Account on an annual basis.
Monthly Medicare Choice payments for October 1, 2001 would be
paid on the last business day of September, 2001.
Trust Fund Allocation. Payments to plans will be made with
funds withdrawn from the Federal Hospital Insurance Trust Fund
and the Federal Supplementary Medical Insurance Trust Fund. The
allocation from each fund will be determined each year by the
Secretary of HHS, based on the relative weight that benefits
from each fund contribute to the determination of the Medicare
payment amounts.
Right to Inspect and Audit. The Medicare Choice contract
will provide that the Secretary, or the Secretary's designee,
will have the right to inspect or otherwise evaluate the
quality, appropriateness, and timeliness of services performed
under the contract; the facilities of the plan's sponsor; and
the books and records of the plan sponsor that pertain to the
ability of the sponsor to bear responsibility for potential
financial losses. The Secretary will also require a Medicare
Choice plan sponsor to provide notice to enrollees in the event
of termination of the plan's contract and include in the notice
a description of each enrollee's options for obtaining
benefits.
Rate Disclosure. Each Medicare Choice plan must submit to
the Secretary of HHS a table of its rates for all actuarial
categories of beneficiaries prior to contract approval by the
Secretary.
Risk of Insolvency. Medicare Choice plan sponsors must make
adequate provision against the risk of insolvency, including
provisions to prevent the plan's enrollees from being held
liable to any person or entity for the plan sponsor's debts in
the event of the plan sponsor's insolvency.
User Fees. The Secretary may require plans to share in the
cost of disseminating information to beneficiaries.
Plan Service Areas. Medicare Choice plan service areas must
correspond to Medicare payment areas. The Secretary of HHS may
waive this requirement and approve service areas that are
smaller than Medicare payment areas if the Secretary determines
that the service areas are not defined so as to discriminate
against any population.
Beneficiary Protection upon Contract Termination. A
Medicare Choice plan terminating its contract with the
Secretary of HHS must arrange for supplementary coverage for
its Medicare enrollees for the duration of any preexisting
condition exclusion under the enrollee's successor coverage for
the lesser of 6 months or the duration of the exclusion period.
Prompt Payment. Medicare Choice plan sponsors must provide
prompt payment for covered items and services to providers who
are not under contract with the plan. If the Medicare Choice
plan sponsor does not provide prompt payment, the Secretary may
pay such providers directly and deduct the payment amount from
the payments made to the Medicare Choice plan.
Intermediate Sanctions. The Secretary of HHS may impose
certain lesser intermediate sanctions, including suspension of
enrollment or payment and imposition of civil monetary
penalties. These sanctions may be applied for denial of
medically necessary services, overcharging, enrollment
violations, misrepresentation, failure to pay promptly for
services, or employment of providers barred from Medicare
participation.
Contract Termination and Due Process. A contract may be
terminated by the Secretary of HHS at any time if the
organization no longer meets the Medicare Choice plan
requirements. Prior to terminating a contract for non-
compliance on a Medicare Choice plan sponsor, the Secretary
will provide the Medicare Choice plan sponsor with the
opportunity to develop and implement a corrective action plan.
The Secretary must also provide the Medicare Choice plan
sponsor with the opportunity for a hearing, including the
opportunity to appeal an initial decision, before terminating
the contract.
Previous Termination. The Secretary may not enter into a
contract with a Medicare Choice plan sponsor if a previous
contract with the plan sponsor was terminated within the
previous five years, except in circumstances that warrant
special consideration.
OTHER PROVISIONS
Restrictions on Enrollment for Certain Medicare Choice
Plans. A Medicare Choice religious fraternal benefit society
plan could restrict enrollment to individuals who are members
of the church, convention, or group with which the society is
affiliated. A Medicare Choice religious fraternal benefit
society plan would be a Medicare Choice plan that (i) is
offered by a religious fraternal benefit society only to
members of the church, convention, or affiliated group, and
(ii) permits all members to enroll without regard to health
status-related factors. This provision could not be construed
as waiving plan requirements for financial solvency. In
developing solvency standards, the Secretary would take into
account open contract and assessment features characteristic of
fraternal insurance certificates. Under regulations, the
Secretary would provide for adjustments to payment amounts
under section 1854 to assure an appropriate payment level,
taking account of the actuarial characteristics of the
individuals enrolled in such a plan.
A religious fraternal benefit society is an organization
that (i) is exempt from Federal income taxation under section
501(c)(8) of the Internal Revenue Code; (ii) is affiliated
with, carries out the tenets of, and shares a religious bond
with, a church or convention or association of churches or an
affiliated group of churches; (iii) offers, in addition to a
Medicare Choice religious fraternal benefit society plan, at
least the same level of health coverage to individuals entitled
to Medicare benefits who are members of such church,
convention, or group; and (iv) does not impose any limitation
on membership in the society based on any health status-related
factor.
TRANSITION RULES
Existing Medicare HMO risk-contract plans are pre-
approvedas Medicare Choice plans and have up to three years to meet any
new or different standards.
The Secretary would be prohibited from entering into,
renewing, or continuing any risk-sharing contract under section
1876 for any contract year beginning on or after the date
Medicare Choice standards are first established for Medicare
Choice organizations that are insurers or HMOs. If the
organization had a contract in effect on that date, the
prohibition would be effective one year later. The Secretary
could not enter into, renew, or continue a risk-sharing
contract for any contract year beginning on or after January 1,
2000. An individual who is enrolled in Medicare part B only and
also in an organization with a risk-sharing contract on
December 31, 1998 could continue enrollment in accordance with
regulations issued not later than July 1, 1998.
CHAPTER 2: PROVISIONS RELATING TO MEDICARE SUPPLEMENTAL INSURANCE
PORTABILITY AND OTHER CHANGES
Present Law
1. Medigap Portability. Medicare beneficiaries have a 6-
month open enrollment period to purchase a Medigap insurance
policy when they first turn 65. During this open enrollment
period, medical underwriting (i.e. requiring a beneficiary to
pass a physical exam in order to be able to purchase insurance)
is prohibited. After this initial 6-month open enrollment
period seniors maybe unable to purchase a Medigap policy if
they are forced to change their Medigap insurer or if their
employer stops providing retiree health benefits.
2. Preexisting Condition Limitations. A 6 month pre-
existing condition limitation is currently allowed during the
initial open enrollment period available to beneficiaries when
they first become eligible for Medicare benefits.
3. Medigap for the Medicare Disabled. The 6 month open
enrollment period available to Medicare beneficiaries to
purchase a Medigap insurance policy without any medical
underwriting applies only to beneficiaries turning 65 years
old.
4. Standard Benefit Packages. Current law requires that all
Medigap policies conform with one of ten authorized standard
policies. These standard policies range from very basic cost
sharing coverage to very rich cost sharing plus coverage plus
coverage of extra benefits.
Reason for Change
When a Medicare beneficiary decides to leave the
traditional Medicare program to try a Medicare Choice plan,
they no longer need their supplemental coverage (Medigap)
policy because most (if not all) Medicare Choice plans will
cover the ``gaps'' that traditional Medicare does not cover.
However, Medicare beneficiaries who want to try a Medicare
Choice plan may be discouraged from doing so because once they
give up their Medigap policy to enroll in a Medicare Choice
plan, they may never be able to purchase that policy at the
same price again if they should decide to return to traditional
Medicare. This is because their guaranteed issue period expired
six months after becoming eligible for Medicare at age 65.
In addition, the 10 standardized Medigap policies all
include first dollar coverage which creates an incentive for
over-utilization of Medicare services. A Medigap policy option
with a high deductible and lower premiums may help to reduce
incentives for overutilization of Medicare services.
Committee Provision
Current Medigap Laws will be amended as follows:
1. Portability. Medigap insurers would be required to sell
a Medigap insurance policy without underwriting during a 63 day
period if:
(a) an individual covered under a Medigap policy,
discontinues that policy to enroll in a Medicare Choice
plan or a Medicare Select plan and then decides--before
the end of their first 12 months of their first
enrollment--to return to the traditional Medicare
program;
(b) an individual enrolls in a Medicare Choice plan
upon turning 65 and then decides--before the end of
their first 12 months--to disenroll and enroll in the
traditional Medicare program;
(c) an individual loses their employer sponsored
retiree health benefits,
(d) an individual insured by a Medigap plan, a
Medicare Choice plan, or a Medicare Select plan moves
outside the state in which the insurer is licensed,
moves outside the plan's or the insurer's service area,
or the insurer or health plan goes out of business or
withdraws from the market; or has its Medicare contract
terminated.
(Note. In the case of a beneficiary who previously owned a
Medigap policy, that individual would not be guaranteed issued
a Medigap plan with benefits which are greater than those
contained in the individual's previous policy.)
2. Pre-existing Condition Exclusions. Medigap insurers will
no longer be allowed to impose pre-existing condition
exclusions during guaranteed issue periods (i.e. during first 6
months of Medicare eligibility, and during the new guaranteed
issue periods listed above under portability.)
3. Guarantee issue for the Disabled. Provides a one time
open enrollment period for disabled Medicare beneficiaries
during the six month period after they first become eligible
for Medicare.
4. New Medigap High Deductible Option. The 10 standard
Medigap policies will be amended to allow an optional high
deductible feature. Under this provision, a State must choose
one or more of the current 10 Medigap standard policies and
authorize the sale of those policies with an optional high
deductible feature. The new products will be authorized to have
an annual $1,500 deductible before the policy begins paying
benefits.
Effective Date
January 1, 1998.
CHAPTER 3: PACE PROGRAM
Present Law
OBRA 86 required the Secretary to grant waivers of certain
Medicare and Medicaid requirements to not more than 10 public
or non-profit private community-based organizations to provide
health and long-term care services on a capitated basis to
frail elderly persons at risk of institutionalization. These
projects, known as the Programs of All Inclusive Care for the
Elderly, or PACE projects, were intended to determine whether
an earlier demonstration program, ON LOK, could be replicated
across the country. OBRA 90 expanded the number of
organizations eligible for waivers to 15.
Committee Provision
The provision would repeal current ON LOK and PACE project
demonstration waiver authority and establish in Medicare law
PACE as a permanent benefit category eligible for coverage and
reimbursement under the Medicare program. PACE providers would
offer comprehensive health care services to eligible
individuals in accordance with a PACE program agreement and
regulations. In general, PACE providers would be public or
private nonprofit entities, except for entities (up to 10)
participating in a demonstration to test the operation of a
PACE program by private, for-profit entities.
CHAPTER 4: DEMONSTRATIONS
MEDICARE MEDICAL SAVINGS ACCOUNT DEMONSTRATION
Present Law
Medical Savings Accounts are not currently an option for
Medicare beneficiaries.
Reason for Change
The intention of this act is to give Medicare beneficiaries
the same choices for health care delivery as the private sector
currently has, including Medical Savings Accounts. In addition,
Medical Savings Accounts coupled with high-deductible insurance
policies discourage over-utilization of health care items and
services and therefore help to slow the growth in health care
spending.
Committee Provision
Medicare beneficiaries will be able toelect as a Medicare
Choice option, a medical savings account high deductible insurance
policy in combination with a medical savings account. The high
deductible insurance policy must provide reimbursement for at least the
items and services covered under Medicare Parts A and B--but only after
the enrollee incurs countable expenses equal to the amount of an annual
deductible of not more than $2,250 and not less than $1,500 in 1999,
updated annually by an inflation factor.
To the extent an individual chooses such a plan, the
Secretary of Health and Human Services would pay the premium of
the high deductible insurance policy and also make an annual
contribution to the beneficiary's medical savings account equal
to the difference between the premium of the insurance policy
and the Medicare Choice capitation rate in the beneficiary's
county. Only contributions by the Secretary of Health and Human
Services could be made to a Medicare Choice MSA and such
contributions would not be included in the taxable income of
the Medicare Choice MSA holder.
Contributions to the enrollee's MSA can be used by the
enrollee to pay for any medical care they choose. Withdrawals
from Medicare Choice MSAs are excludable from taxable income if
used for qualified medical expenses regardless of whether an
account holder is enrolled in an MSA Plan at the time of the
distribution. Withdrawals for purposes other than qualified
medical expenses are includable in taxable income. An
additional tax of 50% of the amount includible in taxable
income applies to the extent total distributions for purposes
other than qualified medical expenses in a taxable year exceed
the amount by which the value of the MSA (as of December 31 of
the preceding taxable year) exceeds 60 percent of the MSA
plan's deductible.
Any MSA plan purchased by a Medicare beneficiary must
include a cap on out-of-pocket costs of $3,000.
The demonstration will be limited to the first 100,000
Medicare beneficiaries who enroll and new enrollments will not
be permitted after January 1, 2003.
An exception to the enrollment and date limits listed above
will be made for individuals who already have tax-deductible
MSAs upon turning 65. These individuals will be permitted to
retain qualified MSAs under Medicare Choice without respect to
this demonstration's limit on enrollment or sunset date.
Effective Date
January 1, 1998.
COMPETITIVE PRICING DEMONSTRATION FOR MEDICARE CHOICE
Present Law
Under section 402 of the Social Security Amendments of 1967
(P.L. 90-248, 42 U.S.C. 1395b-1), the Secretary is authorized
to develop and engage in experiments and demonstration projects
for specified purposes, including to determine whether, and if
so, which changes in methods of payment or reimbursement for
Medicare services, including a change to methods based on
negotiated rates, would have the effect of increasing the
efficiency and economy of such health services.
Reason for Change
Under the authority described above, HCFA is currently
seeking to demonstrate the application of competitive pricing
as a method for establishing payments for risk contract HMOs in
the Denver area. HCFA's actions have been challenged in the
courts.
Committee Provision
An Office of Competition would be established within the
Department of Health of Human Services to negotiate with plans
and administer the competitive pricing process.
Plans would submit a premium amount based on core benefit
package which must include benefits currently provided under
Medicare A & B plus prescription drugs. The Office of
Competition would calculate the weighted average premium--90%
would be paid by Medicare and 10% by the enrollee. Plans would
be allowed to offer two standardized supplemental benefit
packages to be included in the comparative information given to
beneficiaries.
The Secretary must establish a technical advisory group in
each demonstration site that includes plan representatives,
beneficiaries, employers and providers. The Secretary must meet
with the technical advisory group at least monthly beginning
six months prior to the demonstration and regularly throughout
the implementation period.
Standardized Medicare payment amount (government contribution)
Not later than June 1 of each year, the Office of
Competition would solicit premium bids on a core package of
standardized benefits.
The government contribution would be set at the weighted
average of the premium bids. The Office of Competition would
have the authority to negotiate with plans to adjust their
premium bids to ensure that the standardized Medicare payment
amount would never be greater than per capita fee- for-service
spending in that area.
The Office of Competition would negotiate with plans to
ensure that premiums are actuarially sound and fair and do not
foster adverse selection.
The standardized Medicare payment amount would be adjusted
upward or downward at the time the beneficiary enrolls in the
plan according to their health status. The beneficiary's share
of the premium would be based on the standardized Medicare
payment amount regardless of the risk adjustment made to the
amount the plan is paid.
Enrollees cost-sharing
Beneficiaries would be required to pay a minimum of 10% of
the premium. If seniors choose a plan that costs less than the
standardized Medicare payment amount, their premium will be
lower. If seniors choose a plan that costs more than the
federal payment, they will have to pay the difference.
Transition/Phase-in
Beginning on January 1, 1999, this competitive pricing
model would be tested as a demonstration in 10 urban areas with
less than 25% Medicare HMO penetration and 3 rural markets. By
December 31, 2001, the Secretary will evaluate the
demonstration project. The President will make a legislative
recommendation to Congress on whether the method of paying
plans as tested in the demonstration project should be extended
to the entire Medicare population.
Effective Date
Payment under the demonstration will begin on January 1,
1999. The demonstration will last no longer than December 31,
2002. The Office of Competition will be established upon
enactment.
MEDICARE ENROLLMENT DEMONSTRATION
Present Law
HMOs with Medicare contracts may directly market to and
enroll Medicare beneficiaries.
Reason for Change
There is some evidence that allowing plans to conduct their
own enrollment operations may lead to greater risk selection
(i.e. ``cherry picking'' healthier beneficiaries). One possible
solution to this would be to require all beneficiaries to
enroll through HCFA. However a preferred option would be to
requiring plans to contract with a private third party enroller
approved by the Secretary.
Committee Provision
The Secretary is authorized to conduct a demonstration for
using a third-party contractor to conduct the Medicare Choice
plan enrollment and disenrollment functions in an area. Such
demonstration shall be conducted separately from the Medicare
competitive pricing demonstrations. In conducting the
demonstrations the Secretary must:
1. Consult with affected parties on the design of the
demonstration, selection criteria for the third party
contractor, and the establishment of performance
standards
2. Establish performance standards relative to
accuracy and timeliness. Should the third-party broker
not comply with these standards, the enrollment and
disenrollment functions would immediately revert to the
Medicare Choice plans.
3. In the case of a dispute between the Secretary and
the Medicare Choice plans in the demonstration
regarding compliance with the standards, the plans
shall conduct these functions.
EXTENSION AND EXPANSION OF SOCIAL HMO DEMONSTRATION
Present Law
The Deficit Reduction Act of 1984 required the Secretary to
grant 3-year waivers for demonstrations of social health
maintenance organizations (SHMOs) which provide integrated
health and long-term care services on a prepaid capitation
basis. The waivers have been extended on several occasions
since then and a second generation of projects was authorized
by OBRA 90.
Committee Provision
The provision would require the Secretary to extend waivers
for SHMOs through December 31, 2000, and to submit a final
report on the projects by March 31, 2001. The limit on the
number of persons served per site would be expanded from 12,000
to 36,000. The Secretary also would be required to submit to
Congress by January 1, 1999, a plan, including an appropriate
transition, for the integration of health plans offered by
first and second generation SHMOs and similar plans into the
Medicare Choice program. The report on the plan would be
required to include recommendations on appropriate payment
levels for SHMO plans, including an analysis of the extent to
which it is appropriate to apply the Medicare Choice risk
adjustment factors to SHMO populations.
COMMUNITY NURSING ORGANIZATION DEMONSTRATION PROJECTS
Present Law
OBRA 87 required the Secretary to conduct demonstration
projects to test a prepaid capitated, nurse-managed system of
care. Covered services include home health care, durable
medical equipment, and certain ambulatory care services. Four
sites (Mahomet, Illinois; Tucson, Arizona; New York, New York;
and St. Paul, Minnesota) were awarded contracts in September,
1992, and represent a mix of urban and rural sites and
different types of health provider, including a home health
agency, a hospital-based system, and a large multi-specialty
clinic. The community nursing organization (CNO) sites
completed development activities and implemented the
demonstration in January 1994, with service delivery beginning
February 1994.
Committee Provision
The provision would extend the CNO demonstration for an
additional period of 2 years, and the deadline for the report
on the results of the demonstration would be not later than 6
months before the end of the extension.
MEDICARE COORDINATED CARE DEMONSTRATION
Present Law
No provision.
Reason for Change
A study sponsored by the Physician Payment Review
Commission (PPRC) concluded that ``an effective case management
program could help Medicare patients who are chronically ill or
who are facing costly, complex treatment options. Based on
experience of private payers, these Medicare patients would
receive more appropriate medical care and Medicare would
experience lower claims cost relative to the current program,
which lacks a coordination of care function.''
Committee Provision
The Secretary would be required to establish a
demonstration program to evaluate methods such as case
management and other models of coordinated care that improve
the quality of care and reduce Medicare expenditures for
beneficiaries with chronic illnesses enrolled in traditional
Medicare.
The Secretary would be required to examine best practices
in the private sector for coordinating care for individuals
with chronic illnesses for one year and, using the results of
the evaluation, establish at least nine demonstration projects
(6 urban and 3 rural) within 24 months of the date of
enactment.
Not later than two years after implementation, the
Secretary would be required to evaluate the demonstrations and
submit a report to Congress. The evaluation would have to
address, at a minimum, the cost-effectiveness of the
demonstration projects, quality of care received by
beneficiaries, beneficiary satisfaction, and provider
satisfaction. If the evaluation showed the demonstration
project to either reduce Medicare expenditures or to not
increase Medicare expenditures while increasing the quality of
care received by beneficiaries and increasing beneficiary
satisfaction, the Secretary would continue the project in the
demonstration sites, and could expand the number of
demonstration sites to implement the program nationally. The
Secretary would be required to submit a report to Congress
every two years for as long as the demonstration project
continued.
In carrying out the demonstration projects, the Secretary
would be required to provide that the aggregate payments in
Medicare be no greater than what such payments would have been
if the demonstration projects had not been implemented. Such
sums as necessary would be authorized to be appropriated for
the purpose of evaluating and reporting on the demonstrations.
MEDICARE SUBVENTION DEMONSTRATION PROJECT
Present Law
Under current law, Medicare is prohibited from reimbursing
for any services provided by a Federal health care provider,
unless the provider is determined by the Secretary of Health
and Human Services to be providing services to the public
generally as a community institution or agency or is operated
by the Indian Health Service. In addition, Medicare is
prohibited from making payment to any Federal health care
provider who is obligated by law or contract to render services
at the public expense.
Reasons for Change
The Committee provision is intended to provide for greater
access by Medicare-eligible military retirees to military
treatment facilities (MTFs) operated by the Department of
Defense, and greater access by veterans to medical centers
operated by the Department of Veterans Affairs.
Committee Provision
The Committee provision would establish two, three-year
demonstration projects under which Medicare would reimburse the
Department of Defense and the Department of Veterans Affairs
for medical care provided to Medicare-eligible military
retirees and veterans, respectively. The Secretary of Health
and Human Services would enter into agreements with the
Secretary of Defense and the Secretary of Veterans Affairs on
the specifications of each demonstration project; these
agreements would be transmitted to Congress prior to operation
of the demonstration projects. Both demonstration projects
permit Medicare payment for services on a fee-for-service basis
and as a capitated payment for services provided in managed
care organizations operated by each department. The Medicare
outlays for both demonstrations are capped, and both
departments would be required to maintain current levels of
efforts.
Effective Date
January 1, 1998.
CHAPTER 5: COMMISSIONS
establishment of the national bipartisan commission on the future of
medicare
Present Law
No provision.
Reasons for Change
In 1995, expenditures out of the Hospital Insurance (HI or
Part A) Trust Fund exceeded all sources of revenues into the
Trust Fund. The Medicare Trustees predict in their 1997 annual
report that in 2001 Medicare will out-spend its revenues and
spend down its current surplus, becoming insolvent with a $23.4
billion shortfall. This shortfall grows rapidly to over one
half trillion dollars in 2007. And, this is before the baby-
boomers begin to retire in 2010.
In the long-term, demographic trends will continue to
increase financial pressure on the HI Trust Fund, challenging
its ability to maintain our promise to beneficiaries. Today,
there are less than 40 million Americans who qualify to receive
Medicare. By the year 2010, the number will be approaching 50
million, and by 2020, it will be over 60 million. While these
numbers are increasing, the number of workers supporting
retirees will decrease. Today, there are almost four workers
per retiree,but in 2030 there will be only about two per
retiree.
The National Bipartisan Commission on the Future of
Medicare will serve as an essential catalyst, and ultimately
lead to a solution that will preserve and protect the Medicare
program for current beneficiaries, their children,
grandchildren, and great-grandchildren.
Committee Provision
The National Bipartisan Commission on the Future of
Medicare will be established to:
1. review and analyze the long-term financial
condition of both Medicare Trust Funds;
2. identify problems that threaten the financial
integrity of both the Hospital Insurance (HI) and the
Supplementary Medical Insurance (SMI) Trust Funds;
3. analyze potential solutions that ensure the
financial integrity and the provision of appropriate
benefits including the extent to which current Medicare
update indexes do not accurately reflect inflation;
4. make recommendations to restore solvency of the HI
Trust Fund and the financial integrity of the SMI Trust
Fund through the year 2030;
5. make recommendations for establishing the
appropriate financial structure of the program as a
whole;
6. make recommendations for establishing the
appropriate balance of benefits covered and beneficiary
contributions;
7. make recommendations for the time periods during
which the Commission's recommendations should be
implemented;
8. make recommendations regarding the financing of
graduate medical education (GME), including
consideration of alternative broad-based sources of
funding for such education and funding for institutions
not currently eligible for Medicare GME support that
conduct approved graduate medical residencies, such as
children's hospitals;
9. make recommendations on the feasibility of
allowing individuals between the age of 62 and Medicare
eligibility age to buy into the Medicare program; and
10. make recommendations on the impact of chronic
disease and disability trends on future costs and
quality of services under the current benefit,
financing, and delivery system structure of the
Medicare program.
The Commission will consist of 15 members, appointed in the
following manner:
3 by the President;
6 by the House of Representatives (not more than 4
from the same political party);
6 by the Senate (not more than 4 from the same
political party); and
the Chairman will be designated by the joint
agreement of the Speaker of the House of
Representatives and the Majority Leader of the Senate.
Members of the Commission may be appointed from both the
public and private sector.
The Commission must submit a report to the President and
Congress no later than 12 months from the date of enactment.
The Commission terminates 30 days after the report is
submitted.
Funding is authorized to be appropriated from both Medicare
Trust Funds.
Effective Date
Upon enactment.
the medicare payment review commission
Current Law
The Prospective Payment Assessment Commission was
established by Congress through the Social Security Act
Amendments of 1983 (P.L. 98-21). The Commission is charged with
reporting each year its recommendation of an update factor for
PPS payment rates and for other changes in reimbursement
policy. It is also required each year to submit a report to
Congress which provides background information on trends in
health care delivery and financing. The Physician Payment
Review Commission was established by the Congress through the
Consolidated Omnibus Budget Reconciliation Act of 1985 (P.L.
99-272). It was charged with advising and making
recommendations to the Congress on methods to reform payment to
physicians under the Medicare program. In subsequent laws,
Congress mandated additional responsibilities relating to the
Medicare and Medicaid programs as well as the health care
system more generally.
The law specified that both Commissions were to be
appointed by the Director of the Office of Technology
Assessment and funded through appropriations from the Medicare
trust funds. In 1995, the Office of Technology Assessment was
abolished. In May 1997, P.L.105-13 was enacted; this
legislation extended the terms of those Commission members
whose terms were slated to expire in 1997 to May 1, 1998.
Reason for Change
Both the ProPAC, which is responsible for hospital and
health facilities payment policy, and the PPRC, which is
responsible for physician payment policy and other Part B
issues, have assumed critically important roles in assisting
Congress with oversight and policy making for the Medicare
program. However, with fee-for-service payment policy becoming
relatively mature after years of refinement, Congress will
require guidance in the future primarily in the Medicare Choice
area. This area will require evaluation and oversight best
suited for a single commission which can view the Medicare
program in terms of an integrated totality between Parts A and
B.
Committee Provision
The Medicare Payment Review Commission will be formed to
replace the Physician Payment Review Commission and the
Prospective Payment Assessment Commission. The new Medicare
Payment Review Commission (MPRC) will submit an annual report
to Congress containing an examination of issues affecting the
Medicare program.
The Commission will review, and make recommendations to
Congress concerning, payment policies under both the Medicare
Choice program and the Medicare fee-for-service program.
Membership
The Commission will be composed of 15 members appointed by
the Comptroller General. The members will include individuals
with national recognition for their expertise in health finance
and economics, actuarial science, health facility management,
health plans and integrated delivery systems, reimbursement of
health facilities, allopathic and osteopathic physicians, and
other providers of services, and other related fields. The
membership will also include representatives of consumers and
the elderly.
tax treatment of hospitals participating in provider-sponsored
organizations
Present Law
To qualify as a charitable tax-exempt organization
described in Internal Revenue Code (the ``Code'') section
501(c)(3), and organization must be organized and operated
exclusively for religious, charitable, scientific, testing for
public safety, literary, or educational purposes, or to foster
international sports competition, or for the prevention of
cruelty to children or animals. Although section 501(c)(3) does
not specifically mention furnishing medical care and operating
a nonprofit hospital, such activities have long been considered
to further charitable purposes, provided that the organization
benefits the community as a whole.
No part of the net earnings of a 501(c)(3) organization may
inure to the benefit of any private shareholder or individual.
No substantial part of the activities of a 501(c)(3)
organization may consist of carrying on propaganda, or
otherwise attempting to influence legislation, and such
organization may not participate in, or intervene in, any
political campaign on behalf of (or in opposition to) any
candidate for public office. In addition, under section 501(m),
an organization described in section 501(c)(3) or 501(c)(4) is
exempt from tax only if no substantial part of its activities
consists of providing commercial-type insurance.
A tax-exempt organization may, subject to certain
limitations, enter into a joint venture or partnership with
afor-profit organization without affecting its tax-exempt status. Under
current ruling practice, the IRS examines the facts and circumstances
of each arrangement to determine (1) whether the venture itself and the
participation of the tax-exempt organization therein furthers a
charitable purpose, and (2) whether the sharing of profits and losses
or other aspects of the arrangement entail improper private inurement
or more than incidental private benefit.
Committee Provision. The proposal would provide that an
organization shall not fail to be treated as organized and
operated exclusively for a charitable purpose for purposes of
Code section 501(c)(3) solely because a hospital which is owned
and operated by such organization participates in a provider-
sponsored organization (``PSO'') (as defined in section
1845(a)(1) of the Social Security Act), whether or not such PSO
is exempt from tax. Thus, participation by a hospital in a PSO
(whether taxable or tax-exempt) would be deemed to satisfy the
first part of the inquiry under current IRS ruling practice.
The proposal would not change present-law restrictions on
private inurement and private benefit. However, the proposal
would provide that any person with a material financial
interest in such a PSO shall be treated as a private
shareholder or individual with respect to the hospital for
purposes of applying the private inurement prohibition in Code
section 501(c)(3). Accordingly, the facts and circumstances of
each PSO arrangement would be evaluated to determine whether
the arrangement entails impermissible private inurement or more
than incidental private benefit (e.g., where there is a
disproportionate allocation of profits and losses to the non-
exempt partners, the tax-exempt partner provides property or
services to the joint venture at less than fair market value,
or a non-exempt partner receives more than reasonable
compensation for the sale of property or services to the joint
venture).
The proposal would not change present-law restrictions on
lobbying and political activities. In addition, restrictions of
Code section 501(m) on the provision of commercial-type
insurance would continue to apply.
Subtitle B--Prevention Initiatives
enhanced coverage for mammography services
Present Law
Under current law, Medicare provides coverage for screening
mammograms. The frequency of coverage depends on the age and
risk factors of the woman. For women ages 35-39, one test is
authorized. For women ages 40-49, one mammogram is covered
every 24 months, except an annual test is authorized for women
at high risk for breast cancer. Annual mammograms are covered
for women ages 50-64. For women aged 65 and over, Medicare
covers one mammogram every 24 months. Medicare's Part B
deductible and Part B coinsurance apply for these services.
Reasons for Change
The Committee provision would expand Medicare's coverage
rules for mammograms.
Committee Provision
The Committee provision would authorize annual mammograms
for all women ages 40 and over, and waive co-insurance payments
for beneficiaries.
Effective Date
January 1, 1998.
new coverage for colorectal screening
Present Law
Medicare does not cover colorectal cancer screening
procedures. Such services are only covered as diagnostic
services.
Reasons for Change
The Committee proposal would establish a new screening
benefit for Medicare beneficiaries.
Committee Provision
The Committee provision would authorize coverage of
colorectal cancer screening tests, and provide the Secretary,
after consultation with appropriate organizations, to determine
which screening procedures shall be reimbursed, payment amounts
or limits for each procedure, and the frequency of each
procedure, with consideration for risk factors. The Committee
provision would direct the Secretary to promulgate the
regulation three months following date of enactment. The
Committee notes the Administration's Medicare reform proposal
contained a provision to provide coverage of preventive
colorectal screening. The Committee expects that this provision
will be implemented expeditiously.
Effective Date
January 1, 1998.
diabetes self-management benefit
Present Law
Medicare covers home blood glucose monitors and associated
testing strips for certain diabetes patients. Home blood
glucose monitors enable diabetics to measure their blood
glucose levels and then alter their diets or insulin dosages to
ensure that they are maintaining an adequate blood glucose
level. Home glucose monitors and testing strips are covered
under Medicare's durable medical equipment benefit. Coverage of
home blood glucose monitors is currently limited to certain
diabetics, formerly referred to as Type I diabetics, where: (1)
the patient is an insulin-treated diabetic; (2) the patient is
capable of being trained to use the monitor in an appropriate
manner, or, in some cases, another responsible person is
capable of being trained to use the equipment and monitor the
patient to assure that the intended effect is achieved; and (3)
the device is designed for home rather than clinical use.
Reasons for Change
The Committee provision provides for improved diabetes
management benefits.
Committee Provision
The Committee provision would include among Medicare's
covered benefits diabetes outpatient self-management training
services. These services would include educational and training
services furnished to an individual with diabetes by or under
arrangements with a certified provider in an outpatient setting
meeting certain quality standards. These services would be
covered only if the physician who is managing the individual's
diabetic condition certifies that the services are needed under
a comprehensive plan of care to provide the individual with
necessary skills and knowledge (including skills related to the
self-administration of injectable drugs) to participate in the
management of the individual's condition.
Certified providers for these purposes would be defined as
physicians or other individuals or entities that, in addition
to providing diabetes outpatient self-management training
services, provide other items or services reimbursed by
Medicare. Providers would have to meet quality standards
established by the Secretary. They would be deemed to have met
the Secretary's standards if they meet standards originally
established by the National Diabetes Advisory Board and
subsequently revised by organizations who participated in the
establishment of standards of the Board, or if they are
recognized by an organization representing persons with
diabetes as meeting standards for furnishing such services.
In establishing payment amounts for diabetes outpatient
self-management training provided by physicians and determining
the relative value for these services, the Secretary would be
required to consult with appropriate organizations, including
organizations representing persons or Medicare beneficiaries
with diabetes.
In addition, the provision would extend Medicare coverage
of blood glucose monitors and testing strips to Type II
diabetics and without regard to a person's use of insulin (as
determined under standards established by the Secretary in
consultation with appropriate organizations). The provision
would also reduce the national payment limit for testing strips
by 10 percent beginning in 1998.
The Secretary, in consultation with appropriate
organizations, would be required to establish outcome measures
for purposes of evaluating the improvement of the health status
of Medicare beneficiaries with diabetes. The Secretary would
also be required to submit recommendations to Congress from
time to time on modifications to coverage of services for these
beneficiaries.
Effective Date
January 1, 1998.
COVERAGE OF BONE MASS MEASUREMENTS
Present Law
Medicare does not have a uniform national policy for
coverage of bone mass measurement.
Reason for Change
Many Medicare coverage decisions are made locally by
individual carriers, that is, contractors to the Medicare
program who process claims for payment for Part B items and
services. There is no consistent national policy regarding
payment for bone mass measurement. Early detection of bone mass
loss is important for women at high risk of developing
osteoporosis.
Committee Provision
The Committee provision would authorize coverage of bone
mass measurement for the following high-risk individuals: an
estrogen-deficient woman at clinical risk for osteoporosis; an
individual with vertebral abnormalities; an individual
receiving long-term glucocorticoid steroid therapy, an
individual with primary hyperparathyroidism, and an individual
being monitored to assess osteoporosis drug therapy.
Effective Date
January 1, 1998.
Subtitle C--Rural Initiatives
Present Law
The Medicare program includes a number of provisions to
help rural seniors receive health services and for Medicare to
pay fairly in rural areas.
Athough the standardized amount under the Medicare
Prospective Payment System (PPS) paid to hospitals is the same
whether they are rural or urban, there are adjustments to that
base payment that are lower for rural areas reflecting the
lower cost of health care in rural America. The wage index, for
example, in a rural area is often significantly lower than in
an urban area.
Certain rural hospitals do receive improved payments over
other rural hospitals, or, they can also have greater
flexibility than urban hospitals in their delivery of care. The
following are some of the special rural hospital designations:
1. Sole Community Hospitals (SCH): geographically
isolated hospitals that represent the only readily
available source of inpatient care in an area. SCHs are
paid the highest of three amounts: (1) payment based on
hospital-specific costs in 1982, updated to the current
year; (2) payment based on hospital-specific costs in
1987, updated to the current year; or (3) the PPS
payment for the hospital. About 60% of SCHs currently
receive payment based on their hospital-specific base
year costs (about 728 hospitals are SCHs).
2. (Expired provision) Small rural Medicare Dependent
hospitals (MDHs): the designation of Medicare
dependent, small rural hospitals expired on September
30, 1994. These hospitals were reimbursed on the same
basis as sole community hospitals. MDHs were hospitals
with 100 beds or less located in a rural area and that
had more that 60% of its inpatient days attributable to
Medicare (in FY 1994, about 390 hospitals were MDHs).
Since the provision expired, these hospitals have been
receiving PPS payments.
3. Rural Referral Centers (RRCs): relatively large
rural hospitals with at least 275 beds or that meet
specific criteria indicating that they receive a high
referral from other hospitals. (about 130 hospitals are
designated RRCs).
4. Limited-Service Hospitals: under current law,
there are several demonstration projects that are in
place allowing hospitals in rural communities greater
flexibility in delivering care. There is also a grant
program to help states coordinate the type of care
delivered among limited service hospitals.
a. Rural Health Care Transition Act: up to $50,000
per year available to nonprofit acute care hospitals in
rural areas with less than 100 beds. The grants can be
used for improvement of outpatient or emergency
services, recruitment of health professionals, or
development of alternative delivery systems (the
program is extended through FY 1997. In FY 1995, grants
were made to 129 facilities in 44 states).
b. Medical Assistance Facility (MAF) Demonstration:
only in the State of Montana, a category of facilities
in remote rural areas that do not qualify as full-
service hospitals but provide emergency services and
short-term inpatient care. Funding is through July 1,
2000.
c. Essential Access Community Hospitals Demonstration
Projects (EACH/RPCH): Provides $25 million per year in
grants to establish rural networks for EACH/RPCHs.
RPCHs are facilities in rural areas that do not qualify
as full-service hospitals but provide temporary
inpatient care to patients requiring stabilization
prior to discharge or transfer to another hospital.
EACHs provide emergency and medical backup services to
RPCHs participating in the network (7 states: WV, CA,
CO, KS, NY, NC, and SD are participating in the
demonstration program).
5. Rural Health Clinics (RHCs). The RHC program
provides Medicare and Medicaid reimbursement to health
clinics in underserved rural communities. Medicare
reimburses RHCs on the basis of their actual costs for
providing care. Once certified as an RHC, a clinic
remains eligible for cost reimbursement indefinitely,
even if the area it serves no longer qualifies as rural
or underserved.
6. Telemedicine. Under a Health Care Financing
Administration (HCFA) demonstration, Medicare began
reimbursing telemedicine services in 1996 at five sites
in four states--North Carolina, West Virginia, Iowa and
Georgia. HCFA is analyzing the demonstration to
determine which telemedicine services should be covered
and how. Outside of the demonstration project, Medicare
reimburses only for certain physician services. HCFA
does not have the authority to reimburse all physician
consultations made with the use of telemedicine.
Medicare requires a face-to-face encounter in order to
cover consultation services, unless standard medical
practice does not require face-to-face contact as in
the case of radiology.
Reasons for Change
Rural providers are often financially dependent on Medicare
payments. The provisions assist rural areas to continue to
provide high quality, cost effective access to health services.
Since the Medicare physician fee schedules were established
in 1989, the number of clinics participating in the RHC program
has grown by over 30 percent a year to nearly 3,000. According
to a November, 1996 Government Accounting Office (GAO) report,
contrary to its original purpose, the RHC program is generally
not focused on serving Medicare and Medicaid populations having
difficulty obtaining primary care in isolated rural areas.
Rather, the payments are being provided to RHCs that are
financially viable clinics in suburban areas. Most RHCs are
conversions of existing physician practices that generally do
not need the RHC program payments to expand care to underserved
portions of the area's population. According to GAO, at many of
the RHCs, their providers receive extraordinarily high
reimbursement for patient visits, as much as $214 for each
patient visit at one clinic compared with an average of $37
received by providers on the Medicare fee schedule.
Committee Provision
The following rural provisions are included in the
Chairman's Mark:
1. A fourth reimbursement option is made available to
Sole Community Providers; it allows SCHs to choose an
alternative target amount based on costs in FY 1994 or
FY 1995.
2. The Medicare Dependent Hospital (MDH) program will
be reinstated effective for cost reporting periods on
or after October 1, 1997. The same program with the
expired provisions setting out the criteria of rural
hospitals with 100 or less beds and 60 percent of
discharges or patient days will be used to identify
eligible hospitals. MDHs will receive Medicare payment
based on the expired provisions payment arrangement.
3. A new Medicare rural hospital flexibility program
will be available to all states. (a) $25 million per
year in FY 1998-2002 is authorized for grants available
to states seeking to establish a network of access to
health care services in rural communities. (b) The
provision also creates a new single designation for
small rural limited-service hospitals known as Critical
Access Hospitals (CAHs). These hospitals must be state
certified, more than 35 miles from another hospital,
make available 24 hour emergency care services, and can
have up to 15 acute care inpatient beds (swing beds are
permitted) for providing care not to exceed 96 hours
(unless inclement weather or other emergency
conditions).
Payment for inpatient and outpatient services
provided at CAHs will be made on the basis of
reasonable costs of providing such services. Such
payment will also continue for designated EACH, RPCH
hospitals in effect on September 30, 1997, as well as
for the MAF demonstration program.
4. Rural Referral Centers (RRCs) can apply to the
Medicare Geographic Classification Review Board to be
reclassified for purposes of a wage index adjustment.
RRCs could apply without having to meet the wage
threshold requiring that the hospital's average hourly
wage (AHW) is at least 108% of the statewide rural AHW.
The Secretary shall make the adjustment required to
allow the change in wage indexes to occur in a budget
neutral manner. In addition, any hospital designated as
a RRC since fiscal year 1991 is permanently
grandfathered.
5. Rural Health Clinics (RHCs). (a) Extends per-visit
payment limits applicable to independent rural health
clinics to provider-based clinic (with the exception of
clinics based in small rural hospitals with less than
50 beds). (b) Requires clinics have a quality assurance
and performance program as specified by the Secretary.
(c) Limits the nurse practitioner/physician assistant
(NP/PA) waiver to clinics already certified as RHCs.
Clinics seeking initial certification will be required
to meet the NP/PA staffing requirement. (d) Requires
triennial recertification of RHCs: (i) the Secretary
must certify that there are insufficient numbers of
needed health care practitioners in the clinic's area;
(ii) clinics that no longer meet the shortage area
requirement will be permitted to retain their
designation only if the Secretary determines that they
are essential to the delivery of primary care services
that would otherwise be unavailable in the area; and
(iii) rural health clinics currently owned and operated
by PA's will be grandfathered through 2002.
6. Medicare reimbursement for telehealth services in
underserved rural areas.
a. The provision requires HCFA to reimburse
for telehealth services in underserved rural
areas, using the health professional shortage
area (HPSA) designation. Reimbursement
methodology would (i) provide a bundled payment
to be shared between the referring and
consulting health care provider that would be
no greater than the standard amount paid to the
consulting health care provider according to
HCFA's current fee schedule for face-to-face
encounters, and (ii) prohibit any reimbursement
for line charges or other facility fees. The
Secretary would also be required to study the
possibility for reimbursement for homebound or
nursing home-bound seniors.
b. The provision also authorizes $27 million
for a 5-year telemedicine demonstration project
for high-capacity computing and advanced
networks.
The Committee is concerned that HCFA is not fully utilizing
existing HCFA telemedicine demonstration projects. The
Committee intends that HCFA provide full Medicare payments to
all sites and providers affiliated with existing HCFA
demonstration projects, regardless of whether the telemedicine
equipment at those sites was purchased with HCFA funds or from
other federal, state, or private funds.
The Committee is also concerned that the current Medicare
telemedicine demonstration does not include rural sites in the
Western United States. Therefore, the Committee strongly
recommends HCFA extend the demonstration to at least three
additional sites located in rural regions of the Western United
States. HCFA should use all sites and providers affiliated with
the demonstration as well as other willing telemedicine
providers within all participating states. To get a cross-
sampling of rural Western sites, the following criteria should
be met:
The first site--(1) is recognized by its state government
as the primary telemedicine project of the state; (2) consists
of a consortium of both public and private academic
institutions, military establishments, health care providers,
telecommunication carriers and Native organizations; (3) is in
existence for at least three years; (4) attempts to unite
health care facilities throughout the state; (5) exists in a
state with communities and Native villages not accessible by
roads due to extremes in geography and climate; and (6) exists
in a state containing significant Native population.
The second site--(1) is located in a frontier state with an
at least two existing telehealth networks that emphasizes
mental health care specialty services; (2) has prior experience
working with other third-party payers both public and not-for-
profit; and (3) has an existing state-wide network of
telehealth sites.
The third site--(1) is located in a Northern Plains state
serving a predominantly rural population; (2) offers a full
range of specialty health care services; (3) includes at least
one network with an emphasis on geriatric and long-term care;
and (4) works with at least one mid-level practitioner to
provide emergency care services.
Effective Date
All provisions are effective in fiscal year 1998. The MDH
program expires on September 30, 2002.
Subtitle D--Anti-Fraud and Abuse Provisions and Improvements in
Protecting Program Integrity
CHAPTER 1--REVISIONS TO SANCTIONS FOR FRAUD AND ABUSE
AUTHORITY TO REFUSE TO ENTER INTO MEDICARE AGREEMENTS WITH INDIVIDUALS
OR ENTITIES CONVICTED OF FELONIES
Present Law
Section 1866 of the Social Security Act sets forth certain
conditions under which providers may become qualified to
participate in the Medicare program. The Secretary may refuse
to enter into an agreement with a provider, or may refuse to
renew or may terminate such an agreement, if the Secretary
determines that the provider has failed to comply with
provisions of the agreement, other applicable Medicare
requirements and regulations, or if the provider has been
excluded from participation in a health care program under
section 1128 or 1128A of the Social Security Act. Section 1842
of the Social Security Act permits physicians and suppliers to
enter into agreements with the Secretary under which they
become ``participating'' physicians or suppliers under the
Medicare program.
Reasons for Change
This provision would help protect against fraud and abuse
in the Medicare program.
Committee Provision
The provision would add a new section giving the Secretary
authority to refuse to enter into an agreement, or refuse to
renew or terminate an agreement, with a provider if the
provider has been convicted of a felony under federal or state
law for an offense which the Secretary determines is
inconsistent with the best interests of program beneficiaries.
This authority would extend to the Secretary's agreements with
physicians or suppliers who become ``participating'' physicians
or suppliers under the Medicare program. Similar provisions
would apply to the Medicaid program.
Effective Date
On enactment.
EXCLUSION OF ENTITY CONTROLLED BY FAMILY MEMBER OF A SANCTIONED
INDIVIDUAL
Present Law
Section 1128 of the Social Security Act authorizes the
Secretary of HHS to impose mandatory and permissive exclusions
of individuals and entities from participation in the Medicare
program, Medicaid program and programs receiving funds under
the Title V Maternal and Child Health Services Block Grant, or
the Title XX Social Services Block Grant. The Secretary may
exclude any entity which the Secretary determines has a person
with a direct or indirect ownership or control interest of 5
percent or more in the entity or who is an officer, director,
agent, or managing employee of the entity, where that person
has been convicted of a specified criminal offense, or against
whom a civil monetary penalty has been assessed, or who has
been excluded from participation under Medicare or a state
health care program. The Committee expects the Secretary to
examine the facts and circumstances of each case carefully
before applying this penalty.
Reasons for Change
This provision would help protect against fraud and abuse
in the Federal programs.
Committee Provision
The provision would specify that if a person transfers an
ownership or control interest in an entity to an immediate
family member or to a member of the household of the person in
anticipation of, or following, a conviction, assessment or
exclusion against the person, that the entity may be excluded
from participation in Federal health care programs on the basis
of that transfer. The terms ``immediate family member'' and
``member of the household'' are defined in this section.
ADDITIONAL AUTHORITY TO IMPOSE CIVIL MONEY PENALTIES
Present Law
Section 1128A of the Social Security Act sets forth a list
of fraudulent activities relating to claims submitted for
payments for items of services under a Federal health care
program. Civil money penalties of up to $10,000 for each item
or service may be assessed. In addition, the Secretary of HHS
(or head of the department or agency for the Federal health
care program involved) may also exclude the person involved in
the fraudulent activity from participation in a Federal health
care program, defined as any program providing health benefits,
whether directly or otherwise, which is funded directly, in
whole or in part, by the United States Government (other than
the Federal Employees Health Benefits Program). Violations of
the anti-kickback statute (sec. 1128B of the Social Security
Act) are punishable only as criminal matters.
Reason for Change
The provisions providing for a civil monetary penalty for
either contracting with an excluded individual or furnishing
items or services ordered by an excluded individual are
intended to close loopholes in current law identified by the
Inspector General of the Department of Health and Human
Services by which individuals excluded from Federal health care
programs continue to participate. The anti-kickback civil
monetary penalty would provide an intermediate sanction, where
such violations under current law may only be prosecuted as
criminal offenses.
Committee Provision
The provision would add a new civil money penalty for cases
in which a person contracts with an excluded provider for the
provision of health care items or services, where the person
knows or should know that the provider has been excluded from
participation in a Federal health care program. A civil money
penalty is also added for cases in which a person provides a
service ordered or prescribed by an excluded provider, where
that person knows or should know that the provider has been
excluded from participation in a Federal health care program.
Lastly, a civil monetary penalty is provided for violations of
the anti-kickback statute.
The Committee notes that the two new civil monetary
penalties for arranging or contracting with an excluded
individual, or for providing items or services ordered or
prescribed by an excluded individual, do not place an
affirmative responsibility on a provider or supplier to
determine the excluded status of any individual. Rather, only
if a provider or supplier knows or should know of an
individual's excluded status, that is, information has come to
the attention of a provider or supplier regarding the excluded
status of an individual and the provider or supplier acts with
deliberate ignorance or reckless disregard of the individual's
excluded status, the provider or supplier may be liable for a
civil monetary penalty.
Effective Date
On enactment.
CHAPTER 2--IMPROVEMENTS IN PROTECTING PROGRAM INTERGRITY
DISCLOSURE OF INFORMATION, SURETY BONDS, AND ACCREDITATION
Present Law
Section 1834(a) of the Social Security Act establishes
requirements for payments under Medicare for covered items
defined as durable medical equipment. Home health agencies are
required, under Section 1861(o) of the Social Security Act, to
meet specified conditions in order to provide health care
services under Medicare, including requirements, set by the
Secretary, relating to bonding or establishing of escrow
accounts, as the Secretary finds necessary for the effective
and efficient operation of the Medicare program.
Reasons for Change
This provision would help protect against fraud and abuse
in the Medicare program.
Committee Provision
The provision would require that suppliers of durable
medical equipment provide the Secretary with full and complete
information as to persons with an ownership or control interest
in the supplier, or in any subcontractor inwhich the supplier
has a direct or indirect 5 percent or more ownership interest, other
information concerning such ownership or control, and a surety bond for
at least $50,000. Home health agencies, comprehensive outpatient
rehabilitation facilities, and rehabilitation agencies would also be
required to provide a surety bond for at least $50,000. The Secretary
may impose the surety bond requirement which applies to durable medical
equipment suppliers to home health agencies, suppliers of ambulance
services, and certain clinics that furnish medical and other health
services (other than physicians'' services).
The amendments with respect to suppliers of durable medical
equipment would apply to equipment furnished on or after
January 1, 1998. The amendments with respect to home health
agencies would apply to services furnished on or after such
date, and the Secretary of Health and Human Services (HHS) is
directed to modify participation agreements with home health
agencies to provide for implementation of these amendments on a
timely basis. The amendments with respect to ambulance
services, certain clinics, comprehensive outpatient
rehabilitation facilities, and rehabilitation agencies would
take effect on the date of enactment of this Act.
The Committee provision would also authorize the Secretary
to require durable medical equipment suppliers to be accredited
or to meet equivalent standards.
Effective Date
Various dates.
PROVISION OF CERTAIN IDENTIFICATION NUMBERS
Present Law
Section 1124 of the Social Security Act requires that
entities participating in Medicare, Medicaid and the Maternal
and Child Health Block Grant programs (including providers,
clinical laboratories, renal disease facilities, health
maintenance organizations, carriers and fiscal intermediaries),
provide certain information regarding the identity of each
person with an ownership or control interest in the entity, or
in any subcontractor in which the entity has a direct or
indirect 5 percent or more ownership interest. Section 1124A of
the Social Security Act requires that providers under Part B of
Medicare also provide information regarding persons with
ownership or control interest in a provider, or in any
subcontractor in which the provider has a direct or indirect 5
percent or more ownership interest.
Reasons for Change
This provision would help protect against fraud and abuse
in the Medicare program.
Committee Provision
The provision would require that all Medicare providers
supply the Secretary with both the employer identification
number and social security account number of each disclosing
entity, each person with an ownership or control interest, and
any subcontractor in which the entity has a direct or indirect
5 percent or more ownership interest. The Secretary of Health
and Human Services (HHS) is directed to transmit to the
Commissioner of Social Security information concerning each
social security account number and to the Secretary of the
Treasury information concerning each employer identification
number supplied to the Secretary for verification of such
information. The Secretary would reimburse the Commissioner and
the Secretary of the Treasury for costs incurred in performing
the verification services required by this provision. The
Secretary of HHS would report to Congress on the steps taken to
assure confidentiality of social security numbers to be
provided to the Secretary under this section. This section's
reporting requirements would then become effective 90 days
after submission of the Secretary's report to Congress on
confidentiality of social security numbers.
Effective Date
Generally on enactment.
IMPROVEMENT OF EXCLUSION AUTHORITY AND NON-DISCHARGEABILITY OF CERTAIN
DEBTS
Present Law
Under the Bankruptcy Code, a provider can assert that any
civil monetary penalty due to the Medicare program is
discharged and does not survive the bankruptcy proceeding.
Current law provides for various causes of exclusion from the
Medicare program. However, several bankruptcy courts have held
that a provider may not be excluded from Medicare during the
pendency of a bankruptcy proceeding because of the court's
automatic stay.
Reasons for Change
Current law supports and sustains Medicare fraud and abuse
by permitting providers to escape sanctions through the
Bankruptcy Code.
Committee Provision
The Committee provision would amend the Social Security Act
to specify that any overpayment determined to have occurred due
to fraud and civil monetary penalty amounts are not
dischargeable under the Bankruptcy Code and that a bankruptcy
court cannot bar exclusions from the Medicare program.
Effective Date
On enactment.
IMPROVEMENTS IN PAYMENT METHODOLOGY
Present Law
Under Part B, Medicare continues to pay for certain items
or services on basis of reasonable charges. Such items or
services include parenteral and enteral nutrition, dialysis
equipment, certain medical supplies, and therapeutic shoes. The
Secretary has a limited ``inherent reasonableness'' authority
under Part B to adjust the amounts Medicare pays for any item
or service that are either grossly excessive or deficient.
Reasons for Change
Replacing reasonable charge methodologies with fee
schedules would provide less variability and more appropriate
payment for those items or services paid according to
reasonable charges, and give providers more predictability of
payment and promote greater efficiency in providing items and
services. Improved flexibility in the application of the
Secretary's inherent reasonableness authority would help ensure
that Medicare pays an appropriate amount for medical items and
services.
Committee Provision
The Committee provision would permit the Secretary to
replace reasonable charge methodologies by fee schedules. The
Committee provision would also provide the Secretary with
greater flexibility to determine the appropriateness of payment
amounts under Part B (excluding physician services) and adjust
payment amounts accordingly.
Effective Date
On enactment.
REQUIREMENT TO FURNISH DIAGNOSTIC INFORMATION
Present Law
Diagnostic test and durable medical equipment providers may
be required by the Secretary to provide certain diagnostic
information with submission of a claim for payment. However,
that information may be available only to the ordering
physician or other health care practitioner.
Reason for Change
Diagnostic test and durable medical equipment providers
often do not have diagnostic information readily to them,
thereby delaying submission of claims for payments or, in the
absence of such information, resulting in a rejection of a
claim for payment. Lack of diagnostic information can also
impede certain program integrity activities.
Committee Provision
The Committee provision would require physician and other
health care practitioners to provide diagnostic information
when ordering an item or service from a diagnostic test or
durable medical equipment supplier.
Effective Date
January 1, 1998.
REPORT BY GENERAL ACCOUNTING OFFICE ON OPERATION OF FRAUD AND ABUSE
CONTROL PROGRAM
Present Law
The Health Insurance Portability and Accountability Act of
1996 (HIPPA) required a report by the General Accounting Office
(GAO) not later than January 1, 2000, 2002, and 2004, on the
operation of a new Medicare fraud and abuse control program
designed to improve investigation and prosecution of fraud
against the Medicare program.
Reason for Change
An earlier GAO report would be useful in providing an
independent assessment of progress in combating fraud and abuse
in the Medicare program.
Committee Provision
The Committee provision would require the first GAO report
no later than June 1, 1998.
Effective Date
On enactment.
COMPETITIVE BIDDING AUTHORITY FOR PART B SERVICES
Present Law
Medicare does not use competitive bidding for the selection
of providers authorized to provide covered services to
beneficiaries.
Reasons for Change
Medicare has the potential of achieving greater value in
both price and quality for covered Part B medical items and
services with the additional flexibility provided by
competitive bidding. Both the General Accounting Office (GAO)
and the Inspector General of the Department of Health and Human
Services report that private payers using competitive
acquisition strategies pay significantly less than Medicare for
certain items. Competitive bidding may also increase quality
because Medicare currently does not evaluate medical items and
services for quality, but quality would be one factor the
Secretary would be required to consider in a competitive
acquisition process.
Committee Provision
The Committee provision would provide the Secretary with
the authority to acquire Part B covered medical items and
services (except physician services) through a competitive
bidding process.
The Secretary would establish competitive acquisition areas
for contract awards for specific items and services. The
Secretary may limit the number of contractors in a competitive
acquisition to the number needed to meet projected demand for
items and services covered under the contracts. Additionally,
the Secretary may not award a contract unless the Secretary
finds the entity meets quality standards specified by the
Secretary.
Generally, the Secretary would be limited in the amount of
payment for an item or services to the amount otherwise payable
under an applicable fee schedule, unless the Secretary
determines an additional amount is warranted by reason of
technological innovation, quality improvement, or similar
reasons specified by the Secretary.
In using this broad, new authority, the Committee
encourages the Secretary to carefully consider any effects on
beneficiary choice and on rural areas.
Effective Date
January 1, 1998.
CHAPTER 3--CLARIFICATIONS AND TECHNICAL CHANGES
OTHER FRAUD AND ABUSE RELATED PROVISIONS
Present Law
Section 1128A of the Social Security Act provides for civil
monetary penalties for offering inducements to any individual
enrolled in a Federal health plan to order or receive any
service from a particular provider. Section 1128D provides for
safe harbors, advisory opinions, and fraud alerts as guidance
regarding application of health care fraud and abuse sanctions.
Section 1128E of the Social Security Act directs the Secretary
of HHS to establish a national health care fraud and abuse data
collection program for the reporting of final adverse actions
against health care providers, suppliers, or practitioners.
Reasons for Change
The Committee provision provides for certain technical
corrections and improvements to the anti-fraud and abuse
provisions enacted as part of the Health Insurance Portability
and Accountability Act of 1996 (``HIPPA'').
Committee Provision
The Committee provision would make certain technical
changes in provisions added by the Health Insurance Portability
and Accountability Act of 1996 (``HIPPA''). In addition, the
Committee provision would clarify that Medicare SELECT
insurance contracts do not violate section 1128A, as amended by
HIPPA, and clarify the application of waivers provided under
1128B(b)(3) to section 1128A(i)(6).
The Committee provision would also provide that mandatory
and permissive exclusions under section 1128 apply to any
Federal health care program, defined as any program providing
health benefits, whether directly or otherwise, which is funded
directly, in whole or in part, by the United States Government
(other than the Federal Employees Health Benefits Program).
The Committee provision would provide for a civil money
penalty of up to $25,000 to be imposed against a health plan
that fails to report information on an adverse action required
to be reported under the health care fraud and abuse data
collection program established under HIPPA. The Committee
provision would require the Secretary to publicize those
government agencies which fail to report information on adverse
actions as required.
The application of exclusion authority under section 1128
of the Social Security Act to federal programs would be
effective on the date of enactment of this Act. The sanction
provision for failure to report adverse action information as
required under Section 1128E of the Social Security Act would
apply to failures occurring on or after the date of the
enactment of this Act. The other amendments made by this
section would be effective as if included in the enactment of
the Health Insurance Portability and Accountability Act of
1996.
Effective Date
Generally on enactment.
Subtitle E--Prospective Payment Systems
CHAPTER 1--PROVISIONS RELATING TO PART A
LONG-TERM CARE AND REHABILITATION HOSPITALS (AND UNITS)
Present Law
Rehabilitation and long-term care hospitals are two of the
categories of hospitals not paid by the Medicare Prospective
Payment System (PPS). These hospitals receive Medicare cost-
based payments with special rules. For a complete explanation
of these payments, please refer to the section titled ``PPS-
Exempt Hospital Payments'' in Subtitle F--Provisions Relating
to Part A.
Reasons for Change
TEFRA payments are not suited, nor were they intended, to
be applied over the long run. The Prospective Payment
Assessment Commission (ProPAC) recommends replacing current
TEFRA payments with a case-mix adjusted prospective payment
system that would provide incentives for controlling costs.
Committee Provision
(a) For rehabilitation hospitals and distinct-part units,
the Secretary shall establish a case-mix adjusted Prospective
Payment System (PPS), effective Fiscal Year 2001. Data will be
collected from all facilities necessary for administering and
evaluating such a system. The case-mix adjuster may reflect a
patient classification system which assigns patients to groups
primarily on the basis of functional status, modified by age
and diagnosis.
(b) For long-term care hospitals, the Secretary shall
collect data in order to eventually establish a case-mix
adjusted PPS. The Secretary shall develop a proposal for an
adequate patient classification system which reflects the
differences in patient resource use and costs among long-term
care hospitals. The Secretary shall collect relevant data
necessary for developing, administering, and evaluating such a
system. The Secretary shall submit recommendations to the
Congress no later than October 1, 1999.
CHAPTER 2--PROVISIONS RELATING TO PART B
Subchapter A--Payment for Hospital Outpatient Department Services
ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS (FDO) FOR CERTAIN OUTPATIENT
HOSPITAL SERVICES
Present Law
Medicare payments for hospital outpatient ambulatory
surgery, radiology, and other diagnostic services equals the
lesser of: (1) the lower of a hospital's reasonable costs or
its customary charges, net of deductible and coinsurance
amounts, or (2) a blended amount comprised of a cost portion
and a fee schedule portion, net of beneficiary cost-sharing.
Thecost portion of the blend is based on the lower of the
hospital's costs or charges, net of beneficiary cost sharing, and the
fee schedule portion is based, in part, on ambulatory surgery center
payment rates or the rates for radiology and diagnostic services in
other settings, net of beneficiary coinsurance. For cost reporting
periods beginning on or after January 1, 1991, the hospital cost
portion and the ASC cost portion are 42 percent and 58 percent,
respectively.
A hospital may bill a beneficiary for the coinsurance
amount owed for the outpatient service provided. The
beneficiary coinsurance is based on 20 percent of the
hospital's submitted charges for the outpatient service,
whereas Medicare usually pays based on the blend of the
hospital's costs and the amount paid in other settings for the
same service. This results in an anomaly whereby the amount a
beneficiary pays in coinsurance does not equal 20 percent of
the program's payment and does not result in a dollar-for-
dollar decrease in Medicare program payments.
Reasons for Change
There is a flaw in the payment formula for certain hospital
outpatient department services. As a result, Medicare overpays
for such services because a beneficiary's coinsurance payments
are not properly credited to reduce Medicare's allowed payment
amounts.
Committee Provision
The provision would require that beneficiary coinsurance
amounts be deducted after the reimbursement calculation for
hospital outpatient services, so that Medicare payments would
reflect the full amount of the beneficiary coinsurance.
Medicare's payment for hospital outpatient services would equal
the blended amount less any amount the hospital may charge the
beneficiary as coinsurance for services furnished during
portions of cost reporting periods occurring on or after
October 1, 1997.
Effective Date
October 1, 1997.
EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL OUTPATIENT
SERVICES
Present Law
a. Reduction in Payments for Capital-Related Costs.--
Hospitals receive payments for Medicare's share of capital
costs associated with outpatient departments. The Omnibus
Budget Reconciliation Act of 1993 (OBRA 93) extended a 10-
percent reduction in payments for the capital costs of
outpatient departments through FY 1998.
b. Reduction in Payments for Non-Capital-Related Costs.--
Certain hospital outpatient services are paid on the basis of
reasonable costs. OBRA 93 extended a 5.8-percent reduction for
those services paid on a cost-related basis through FY 1998.
Reasons for Change
The Committee provision would establish more appropriate
growth in payments.
Committee Provision
a. Reduction in Payments for Capital-Related Costs.--The
provision would extend the 10-percent reduction in payments for
outpatient capital through FY 1999 and during FY 2000 before
January 1, 2000.
b. Reduction in Payments for Non-Capital-Related Costs.--
The 5.8-percent reduction for outpatient services paid on a
cost basis would be extended through FY 1999 and during FY 2000
before January 1, 2000.
Effective Date
On enactment.
PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES
Present Law
Medicare payments for hospital outpatient ambulatory
surgery, radiology, and other diagnostic services equals the
lesser of: (1) the lower of a hospital's reasonable costs or
its customary charges, net of deductible and coinsurance
amounts, or (2) a blended amount comprised of a cost portion
and a fee schedule portion, net of beneficiary cost-sharing.
The cost portion of the blend is based on the lower of the
hospital's costs or charges, net of beneficiary cost sharing,
and the fee schedule portion is based, in part, on ambulatory
surgery center payment rates or the rates for radiology and
diagnostic services in other settings, net of beneficiary
coinsurance. For cost reporting periods beginning on or after
January 1, 1991, the hospital cost portion and the ASC cost
portion are 42 percent and 58 percent, respectively.
Reasons for Change
The current payment methodology for hospital outpatient
department services is complicated and confusing, and a
prospective payment system would simplify determination of
payment amounts. Moreover, the current payment methodology
results in beneficiaries bearing an increasing percentage of
the cost of many hospital outpatient department services.
Committee Provision
The Committee provision would require the Secretary of
Health and Human Services (HHS) to establish a prospective
payment system for covered hospital outpatient department (OPD)
services beginning in 1999. The Secretary would be required to
develop a classification system for covered OPD services, such
that services classified within each group would be comparable
clinically and with respect to the use of resources. The
Secretary would be required to establish relative payment rates
for covered OPD services using 1997 hospital claimsand cost
report data, and determine projections of the frequency of utilization
of each such service or group of services in 1999. The Secretary would
be required to determine a wage adjustment factor to adjust the
portions of payment attributable to labor-related costs for relative
geographic differences in labor and labor-related costs that would be
applied in a budget neutral manner. The Secretary would be required to
establish other adjustments as necessary to ensure equitable payments
under the system. The Secretary would also be required to develop a
method for controlling unnecessary increases in the volume of covered
OPD services.
For 1999, the Secretary would be required to establish a
conversion factor for determining the Medicare OPD fee payment
amounts for each covered OPD service (or group of services)
furnished in 1999 so that the sum of the products of the
Medicare OPD fee payment amounts and the frequencies for each
service or group would be required to equal the total amounts
estimated by the Secretary that would be paid for OPD services
in 1999. In subsequent years, the Secretary would be required
to establish a conversion factor for covered OPD services
furnished in an amount equal to the conversion factor
established for 1999 and applicable to services furnished in
the previous year increased by the OPD payment increase factor.
The increase factor would be equal to the hospital market
basket (MB) percentage increase plus 3.5 percentage points.
Hospitals OPD copayments would be limited to 20 percent of
the national median of the charges for the service (or services
within the group) furnished in 1997 updated to 1999 using the
Secretary's estimate of charge growth during this period. The
Secretary would be required to establish rules for the
establishment of a copayment amount for a covered OPD service
not furnished during 1997, based on its classification within a
group of such services.
The Secretary would be required to establish a procedure
under which a hospital, before the beginning of a year
(starting with 1999), could elect to reduce the copayment
amount for some or all covered OPD services to an amount that
is not less than 25 percent of the Medicare OPD fee schedule
amount for the service involved, adjusted for relative
differences in labor costs and other factors. A reduced
copayment amount could not be further reduced or increased
during the year involved, and hospitals could disseminate
information on the reduction of copayment amount.
The Secretary would be authorized periodically to review
and revise the groups, relative payment weights, and the wage
and other adjustments to take into account changes in medical
practice, medical technology, the addition of new services new
cost data, and other relevant information. Any adjustments made
by the Secretary would be made in a budget neutral manner. If
the Secretary determined that the volume of services paid for
under this subsection increased beyond amounts established
through those methodologies, the Secretary would be authorized
to adjust the update to the conversion factor otherwise
applicable in a subsequent year.
The Committee provision would provide that the copayment
for covered OPD services would be determined by the provisions
of this bill instead of the standard 20-percent coinsurance
other Part B services. The Committee provision would prohibit
administrative or judicial review of the prospective payment
system. The Committee provision would also provide for
conforming amendments regarding approved ambulatory surgical
center procedures performed in hospital OPDs, for radiology and
other diagnostic procedures, and for other hospital outpatient
services.
The Committee provision would become effective for
hospitals described in section 1886(d)(l)(B)(v) of the Social
Security Act, beginning on January 1, 2000, and the Secretary
would have the authority to establish a separate conversion
factor for such hospitals.
Effective Date
Generally January 1, 1999.
Subchapter B--Ambulance Services
PAYMENTS FOR AMBULANCE SERVICES
Present Law
Payment for ambulance services provided by freestanding
suppliers is based on reasonable charge screens developed by
individual carriers based on local billings. Hospital or other
provider-based ambulance services are paid on a reasonable cost
basis; payment cannot exceed what would be paid to a
freestanding supplier. Annual updates in payments for
ambulances services are provided in regulation.
Reasons for Change
The Committee provision would establish an improved payment
methodology for ambulance services.
Committee Provision
The Committee provision would specify payment rules for
ambulance services for FY 1998 through FY 2002. For ambulance
services paid on a reasonable cost basis, the annual increase
in the costs recognized as reasonable would be limited to the
percentage increase in the consumer price index reduced for FY
1998 by 1 percent. Similarly, for ambulance services furnished
on a reasonable charge basis, the annual increase in the
charges recognized as reasonable would be limited to the
percentage increase in the consumer price index reduced for FY
1998 by 1 percent.
The Committee provision would require the Secretary to
establish a fee schedule for ambulance services through a
negotiated rule-making process no later than January 1, 1999.
In establishing the fee schedule, the Secretary would be
required to: (1) establish mechanisms to control Medicare
expenditure increases; (2) establish definitions for services;
(3) consider appropriate regional and operational differences;
(4) consideradjustments to payment rates to account for
inflation and other relevant factors; and (5) phase-in the application
of the payment rates in an efficient and fair manner. The Secretary
would be required to assure that payments in FY 1999 under the fee
schedule did not exceed the aggregate amount of payments which would
have been made in the absence of the fee schedule. The annual increase
in the payment amounts in each subsequent year would be limited to the
increase in the consumer price index minus 1 percentage point. Medicare
payments would equal 80 percent of the lesser of the fee schedule
amount or the actual charge.
The Committee provision would authorize payment for
advanced life support (ALS) services provided by paramedic
intercept service providers in rural areas. The ALS services
would be provided as part of a two-tiered system in conjunction
with one or more volunteer ambulance services. The volunteer
ambulance service involved must be certified as qualified to
provide the service, have a contractual agreement with the
volunteer ambulance service providing the additional ALS
intercept service, provide only basic life support services at
the time of the intercept, and be prohibited by state law from
billing for services. The ALS service provider must be
certified to provide the services and bill all recipients (not
just Medicare beneficiaries) for ALS intercept services.
Effective Date
On enactment.
CHAPTER 3--PROVISIONS RELATING TO PARTS A AND B
Subchapter A--Payments to Skilled Nursing Facilities
PAYMENTS TO NURSING HOMES
Present Law
Medicare pays skilled nursing facilities (SNFs) on a per
day basis for reasonable costs, subject to per day cost limits.
The limits are applied to the per day routine service costs
only (nursing, room and board, administrative, and other
overhead) of a facility. Routine cost limits are updated
annually by the skilled nursing home market basket. OBRA 93
eliminated the annual market basket update for SNF limits for
cost reporting periods beginning in FY 1994 and FY 1995.
Non-routine costs, such as therapy services (e.g., physical
therapy, occupational therapy, and speech therapy services) are
paid according to reasonable costs. There are no cost limits
for non-routine costs. Medicare pays, under Part A and Part B,
a variety of providers (i.e., nursing homes for facility-based
therapists, independent therapists, therapy companies) for non-
routine services.
Freestanding SNF routine cost limits are set at 112 percent
of the mean per day routine costs. Hospital-based SNF routine
cost limits are set at the limit for freestanding SNFs, plus 50
percent of the difference between the freestanding limit and
112 percent of the mean per day routine service costs of
hospital-based SNFs.
Payments for ancillary service and capital costs are
unlimited, since both are paid on the basis of reasonable costs
and neither are subject to limits.
New providers are exempt from Medicare's routine cost
limits for about their first three years of operation. During
this period they receive full cost reimbursement for all
routine services, as well as ancillary and capital costs.
Under certain circumstances, Medicare permits exceptions
payments for facilities that exceed their cost limits.
Low volume SNFs (less than 1500 SNF days per year) may
choose to be paid on a prospective payment basis at 105 percent
of the mean. Low volume SNFs did not receive inflation updates
for 1994 and 1995 prospective rates.
There are no requirements for SNFs to monitor or bill for
any Part B service delivered to a beneficiary when a Medicare
beneficiary is residing at a SNF outside of the 100 days
covered by Medicare.
To research and develop a prospective payment system for
SNF care, HCFA since 1984 has been sponsoring research on a
patient classification system for Medicare SNF patients.
Specifically, HCFA has sought to adapt to Medicare patients a
classification system known as the Resource Utilization Groups
(RUGs), which was developed originally for a Medicaid nursing
home population and which used primarily functional disability
scores for classifying patients. The version of RUGs that HCFA
is currently testing for application to Medicare is known as
RUGs-III is being tested in six states (Kansas, Maine,
Mississippi, New York, South Dakota, and Texas). HCFA
anticipates that 1,000 SNFs will be participating in the
demonstration by the time enrollment closes in 1997.
Reasons for Change
Medicare payments for skilled nursing facilities (SNF) grew
over 28 percent for 1994-1995 according to CBO. Spending growth
of nursing home care is unsustainable in the Medicare program.
Providers are paid based on costs subject to certain limits for
routine services, with no limits for non- routine services.
Providers have no incentives to keep the cost growth of non-
routine services low.
Committee Provision
The proposal extends the FY 1997 routine cost limits until
a new Prospective Payment System (PPS) is established on July
1, 1998:
(a) The Secretary shall determine the standard federal
payment rates for the SNF PPS based on cost reports beginning
in fiscal year 1995, excluding cost reports from new SNFs
exempted from cost limits, and excluding exceptions payments
made to SNFs. The Secretary shall trend the rate forward by the
market basket index of minus one percentage point for fiscal
years 1996, 1997, and 1998.
The standard federal payment rates shall be based on the
average cost of SNF services and determined on a per diem basis
with regional variation. The labor portion of the standard
federal payment will be adjusted by an appropriate wage index.
The standard federal payment rates will be adjusted to
account for case-mix based on a resident classification system
which reflects the relative resource needs of caring for
different types of patients. The Secretary shall collect
resident assessment data and other data in order to develop the
case-mix adjuster.
The standard federal payment rates will be updated annually
by the market basket after fiscal year 1998.
During the four year transition to a fully prospective
system, a SNF's payment shall be based on a blend of the
federal payment rate and the facility's specific rate. The
facility specific rate will include all costs of skilled
nursing services (including routine costs, ancillary costs,
capital related costs, and all Part B services which will be
covered under the new PPS) and will be based on the most recent
settled cost report available, updated annually. For SNFs
participating in the RUGS-III demonstration project, their base
year facility specific rate will be equal to their 1997 RUG
rate.
The Secretary will have the authority to develop normative
standards based on program data which reflects the overall
practices of SNFs for comparable cases. The Secretary may
adjust payments when a variation from the standards cannot be
justified.
As was the case for the development of the Medicare
hospital PPS and physician payment reform, certain
administrative or judicial review will not be permitted for the
establishment of the SNF PPS. Administrative or judicial review
will not be permitted for the determination of the federal per
diem rates, including the computation of the standardized per
diem rates and adjustments for case-mix; and for the transition
for low-volume SNFs and rural hospitals providing SNF care with
inpatient beds.
(b) SNFs will be required to consolidate all bills to
Medicare for all Part B services used by Medicare patients
(with the exception of physician services). Payments for Part B
services would have to be made to the facility. The Secretary
is required to use applicable Part B payment methodologies in
developing fee schedules for items and services subject to
consolidated billing. The Secretary shall rely on new salary
equivalency guidelines for physical therapy, occupational
therapy, respiratory therapy, and speech language pathology in
determining reasonable costs for such services.
(c) New provider exemptions are eliminated for cost
reporting periods beginning on or after July 1, 1998.
(d) The Secretary shall conform payments to low volume
nursing homes with the policies in these provisions.
Effective Date
The new payment system will be effective July 1, 1998.
Subchapter B--Home Health Services and Benefits
PAYMENT FOR HOME HEALTH SERVICES
Present Law
Home health care services are primarily nursing services
(e.g., cleaning and dressing a wound) or therapies (e.g.,
physical therapy) provided by a nurse or other health care
worker in the home.
There are no cost sharing requirements for beneficiaries
for home health services.
Medicare pays home health agencies the lower of their costs
or a limit; there are no exemptions for new entrants. The
limits are based on 112 percent of the average cost per visit
for free-standing agencies for each of the six types of visits.
Medicare's home health policies do not specify the duration
of a visit.
While the limits are computed at the service level, they
are applied to aggregate agency costs. That is, an aggregate
cost limit is set for each agency that equals the limit for
each type of service multiplied by the number of visits of each
type provided by that agency. There is an adjustment made to
payments to reflect the regional variation of wages which is
the same as the local hospital wage index.
In OBRA 93, the per visit cost limits for home care were
frozen for two years. The freeze meant that the cost limits set
in 1993 could not be adjusted in 1994 and 1995 for inflation or
wage cost increases. Cost limits were then recalculated for
cost reporting periods beginning on or after July 1, 1996.
Home health agencies can have their cost reimbursement
payments paid to them from Medicare through periodic interim
payments (PIPs). These lump sum payments are made several times
a year based on anticipated costs incurred in order to help
agencies with their cash flow. PIP payments are reconciled at
the end of the cost reporting year between the Health Care
Financing Administration and the agency.
Reasons for Change
Medicare home health service utilization and costs are
growing at an unsustainable rate for the Medicare program.
ProPAC reports that from 1980-1994, persons using the home care
benefit grew from 26 to 88 persons per 1,000 Medicare enrollees
and from an average of 23 visits to an average of 65 visits per
person using the home care benefit. From 1988 to 1996,
Medicare's payments for home health services increased 37% on
average every year.
Medicare's current cost-based payment system for home care
provides no incentive for providers or patients to be cost
conscious.
Committee Provision
The provision requires the Secretary toestablish a
prospective payment system (PPS) for home health services and implement
the system in FY 2000. Until the new PPS is in effect, an interim
payment system will be in place.
1. Interim payment for home health services for FY 1998-
1999. Reduces per visit cost limits to 105% of the national
median of labor-related and nonlabor costs for freestanding
home health agencies beginning in FY 1998. Home health agencies
will be paid the lesser of: (a) their actual costs; (b) the per
visit limits; or (c) a new agency-specific per beneficiary
annual limit calculated from 1994 reasonable costs, updated by
the home health market basket.
The Secretary is required to expand research on a PPS for
home health that ties prospective payments to a unit of
service, including an intensive effort to develop a reliable
case mix adjuster that explains a significant amount of
variance in cost.
2. To establish the PPS, the Secretary will compute a
standard prospective payment amount that will initially be
based on the most current audited cost report data available to
the Secretary. For FY 2000, payment amounts under the
prospective system will be computed in such a way that total
payments equal amounts that would have been paid had the system
not been in effect, but would also reflect a 15% reduction in
cost limits and per beneficiary limits in effect September 30,
1999. Payment amounts will be standardized in a manner that
eliminates the effect of variations in relative case mix and
wage levels among different home health agencies in a budget
neutral manner. The new payment system will take into account
regional differences or differences based on whether or not
services are provided in an area. Beginning FY 2001, standard
prospective payment amounts will be updated by the home health
market basket index.
3. With the implementation of the home health PPS, as was
the case for the development of the Medicare hospital PPS and
physician payment reform, certain administrative or judicial
review will not be permitted. Administrative or judicial review
will not be permitted for the establishment of the computation
of the initial standard payment amounts and case-mix
adjustments; the transition period (if any) for the prospective
system; and the amount or types of exceptions to the
prospective payment amounts.
4. Beginning in FY 1998, payment for home health services
will be based on the location of where home health services are
furnished.
5. Periodic interim payments are eliminated October 1, 1999
with the implementation of the home health care PPS.
home health benefits
Present Law
Payment for home health care is made from the Part A trust
fund for all home health services except for those provided to
individuals enrolled under Part B, but not entitled to receive
benefits under Part A. Only about 1% of home health services
are reimbursed under Part B.
Eligibility and reimbursement policies are identical for
home health services under Parts A and B. Although the original
1965 home health care benefit required coinsurance, there
currently is no coinsurance requirement and home health
services are not counted towards the Part B deductible. The
Part B deductible applies to all Medicare Part B benefits
excluding home health care. All part B benefits, including
current Part B home health care are included in the calculation
of the Part B premium.
Once beneficiaries qualify for the home health benefit, the
program covers part-time or intermittent nursing care provided
by or under the supervision of a registered nurse and part-time
or intermittent home health aide services, among other
services. Coverage guidelines issued by HCFA have defined part-
time and intermittent.
In order to be eligible for home health care, a Medicare
beneficiary must be confined to his or her home. The law
specifies that this ``homebound'' requirement is met when the
beneficiary has a condition that restricts the ability of the
individual to leave home, except with the assistance of another
individual or with the aid of a supportive device (such as
crutches, a cane, a wheelchair, or a walker), or if the
individual has a condition such that leaving his or her home is
medically contraindicated. The law further specifies that while
an individual does not have to be bedridden to be considered
confined to home, the condition of the individual should be
such that there exists a normal inability to leave home, that
leaving home requires a considerable and taxing effort by the
individual, and that absences from home are infrequent or of
relatively short duration, or are attributable to the need to
receive medical treatment.
A Medicare beneficiary who is ``homebound'' is entitled to
an unlimited number of home-based part-time nursing visits
provided by or under the supervision of a nurse.
Reasons for Change
The Medicare Hospital Insurance (HI or Part A) Trust Fund
will be insolvent in 2001. The rapid and unsustainable level of
growth in home health care has contributed significantly to the
Trust Fund's impending fiscal straights. Redefining the home
health benefit to a predominantly Medicare Supplemental Medical
Insurance (SMI or Part B) Trust Fund benefit will help clarify
and rationalize the current unlimited, and undefined aspects of
the home health benefit.
Committee Provision
(a) Beginning in 1998, the home health benefit will be
redefined. The Part A benefit will be limited to 100 visits
that follow a 3 day hospital stay, and the Part B benefit will
include all other home health visits.
(b) Beginning in 1998, the new Part B home health benefit
will be paid partly from the Part A Trust Fund for a seven year
phase-in period. For example, the newly defined Part B home
health benefit will be paid 14% (1/7) from Part B and 86% (6/7)
from Part A in FY 1998. The next year, payment will be 28% (2/
7) from Part B and 72% (5/7)from Part A, etc. The amount paid
from Part B will be included in the Part B premium calculation
each year, as is all other Part B spending.
(c) Consistent with other Part B services, cost-sharing is
established for Part B home health services at $5 per visit,
billable on a monthly basis, capped at an annual amount equal
to the annual hospital deductible.
(d) Effective for services furnished on or after October 1,
1997, the provision defines part-time and intermittent skilled
nursing and home health aide services furnished any number of
days per week as long as they are furnished (combined) less
than 8 hours each day and 28 or fewer hours each week (or,
subject to review on a case-by-case basis as to the need for
care, less than 8 hours each day and 35 or fewer hours per
week). For purposes of qualifying for Medicare's home health
benefit because of a need for intermittent skilled nursing
care, ``intermittent'' would mean skilled nursing care that is
either provided or needed on fewer than 7 days each week, or
less than 8 hours of each day of skilled nursing and home
health aide services combined for periods of 21 days or less
(with extensions for exceptional circumstances when the need
for additional care is finite and predictable).
(e) The Secretary shall conduct a study on the criteria
that should be applied with regards to the determination of
whether an individual is considered homebound for purposes of
receiving the home health benefit. The Secretary shall report
to Congress with specific recommendations no later than October
1, 1998.
(f) The Medicare Explanation of Benefits notice will
include home health care benefits provided and billed for.
(g) Seamless administration of the home health benefit is
assured by (i) allowing beneficiaries the same appeals rights
either under Part A or Part B ($100 in benefits must be in
dispute), and (ii) requiring fiscal intermediaries to
administer claims for all home health benefits.
Subtitle F--Provisions Relating to Part A
pps hospital payment update
Present Law
Since 1983, Medicare has paid hospitals for most inpatient
services with a fixed, predetermined amount according to
patient diagnosis. The payment system is called the Medicare
Prospective Payment System (PPS).
Medicare's PPS payments are updated each year for
inflation. The inflation update is based on the projected
increase in ``market basket index'' (MB), which estimates the
prices of the goods and services hospitals buy to provide care.
Since fiscal year (FY) 1986, Congress has repeatedly set
the update factor at a level below the MB. In OBRA 1993, the
update was set at:
1. FY 1994--Rural hospitals: MB minus .55 percentage
points. Urban hospitals: MB minus 2.5 percentage
points.
2. FY 1995--Rural hospitals: inflation update
necessary to eliminate the rural/urban differential.
Urban hospitals: MB minus 2.5 percentage points.
3. FY 1996--MB minus 2 percentage points.
4. FY 1997--MB minus 0.5 percentage points.
5. FY 1998 and later years--Equal to the MB with no
reductions.
Reasons for Change
In recent years, hospitals' cost growth has slowed while
operating margins have improved to record levels. According to
the Prospective Payment Assessment Commission (ProPAC), in FY
1995 the average hospital Medicare PPS margin was 10%, and is
anticipated to be about 12% in FY 1996, 14% in FY 1997, and 17%
in FY 1998. The healthy operating margins reflect the
difference between Medicare payments and the increasing
efficiency attributed to the amount and timing of services
furnished during inpatient stays. While margins have continued
to improve, estimates of the proportion of hospitals with
negative Medicare PPS margins has continued to decline.
According to ProPAC, in FY 1995 34% of all hospitals had a
negative Medicare PPS margin, the decline is anticipated to
continue through next year to 19% of all hospitals.
ProPAC recommends a zero update for the FY 1998 PPS update
in order to adjust for increasing efficiencies reflected in
hospitals' declining costs. ProPAC believes a zero update would
allow hospitals to continue furnishing quality care to Medicare
beneficiaries while simultaneously fulfilling Medicare's
responsibility to act as a prudent purchaser.
Hospital payments should be placed on a calendar year cycle
because of the interaction with Regulatory Reform which will
continue to delay the timely implementation of the hospital
updates. Regulatory Reform requires that ``major'' rules have a
60 day waiting period from the date the final rule is issued to
the date of implementation. The Office of Management and Budget
(OMB) determined that the September 1996 interim final rule for
Prospective Payment System (PPS) regulations including all
Medicare hospital payments constituted a ``major rule.'' As a
``major rule'', the fiscal year 1997 PPS regulations could not
be implemented for 60 days which would have caused a 30 day
delay beyond the October 1st date Medicare usually provides
hospitals with their annual payment inflation update. The
Regulatory Reform bill was signed into law in March of 1996,
and the Administration had ample time to notify agencies
regarding compliance. The delay in payments could have been
avoided had HCFA issued final regulations 60 days in advance of
the October 1st date.
Although Congress intervened to permit the regulations to
go into effect in a timely manner, it appears that the Health
Care Financing Administration has not altered the timing of the
development of the PPS regulations which will again lead to a
delay in implementation of the regulations beyond the October
1st implementation date. In order to avert a perennial delay in
the implementation of the PPS regulations, the implementation
date should be moved to a calendar year cycle, which will
correspond to the same timing for annual updates for physicians
and most other Medicare Part B services.
Committee Provision
Establishes a calendar year cycle for all hospital PPS
payments. Hospital payments for fiscal year 1997 are continued
until January 1, 1998, the first calendar year update. The
annual market basket update for hospitals will equal MB minus
2.5 percentage points in CY 1998, and MB minus 1 percentage
point for each calendar year, 1999-2002.
Effective Date
For discharges on or after October 1, 1997.
CAPITAL PAYMENTS FOR PPS HOSPITALS
Present Law
Hospital capital expenses (the costs of building or
acquiring facilities and major equipment) are paid for under
the Prospective Payment System (PPS).
Until fiscal year 1992, Medicare payments for capital costs
were based on each hospital's actual expenses, subject to
statutory percentage reductions. A 10-year transition to fully
prospective payments began in FY 1992, during which capital
payments are paid prospectively based on average capital costs
per case in FY 1989, updated for inflation and other cost
changes.
From FY 1992 through FY 1995, the Health Care Financing
Administration (HCFA) updated base payment rates using a moving
average of capital cost increases in previous years. During
this period, Congress required HCFA to adjust the payment rates
in each year in a budget neutral manner so that anticipated
aggregate capital payments would equal 90 percent of
anticipated aggregate costs. This provision expired on
September 30, 1995, resulting in a 22.6 percent increase in the
Federal capital payment rate for FY 1996.
The Secretary implements the capital provisions by
regulation. Currently, there is no separate payment for
property tax related capital costs. Medicare provides for a
special exceptions process for certain major capital projects.
Reasons for Change
Hospital inpatient capital payments grew 22.6 percent per
discharge in FY 1996 due to expiring statutory provisions.
According to HCFA, overall payments per discharge in FY 1997
are expected to increase to 27.7% above what they would have
been had the budget neutrality provision not expired in FY
1996. In addition, ProPAC has stated that data indicate that
the original base calculation for capital payments was
overstated.
Under current law, payments for transitional capital were
reduced from 85% to 70% as an attempt to contain Medicare
costs. Several hospitals across the country began construction
or renovation projects and raised capital under the old rules
for Medicare capital costs, but under current law are required
to pay off their debts under the new (lower) Medicare capital
reimbursement rates.
Committee Provision
For discharges occurring on or after October 1, 1998 the
Committee provision reinstates the original OBRA 1990 budget
neutrality requirement (extended in OBRA 1993 for fiscal years
1994 and 1995) through fiscal years 1998-2002 so that aggregate
capital payments each year equal 90 percent of what payments
would be under reasonable cost payments.
The provision amends the exceptions process provided in
federal regulation to include as eligible for an exception
hospitals located in an urban area, with over 300 beds, and
without regard to whether a hospital qualifies for additional
disproportionate share hospital (DSH) payment amounts. The
provision amends the project size requirement to require that a
hospital's project costs must be at least 150% of its operating
costs during the first 12-month cost reporting period beginning
on or after October 1, 1991. The provision requires the minimum
payment level for qualifying hospitals be equal to 85%. The
provision requires that a hospital be considered to meet the
requirement that the capital project involved be completed no
later than the end of the hospital's last cost reporting period
beginning before October 1, 2001, if: (1) the hospital had
obtained a certificate of need for the project approved by the
state or local planning authority by September 1, 1995, and (2)
by September 1, 1995, the hospital has expended on the project
at least $750,000 or 10% of the estimated cost of the project.
Theprovision also requires that the additional payment that
would otherwise be payable for the cost reporting period will be
reduced by the amount (if any) by which the hospital's current year
Medicare capital payments (excluding the hospital's capital-related DSH
payments) exceeds the hospital's capital costs for such year.
The provision requires the Secretary to implement the
provision in a budget neutral manner not to exceed $50 million
per year to ensure that the provision will not result in an
increase in the total amount that would have otherwise been
paid. The provision requires the Secretary to publish annually
(beginning in 1999) in the Federal Register a description of
the distributional impact of the application of this capital
exception on hospitals which receive and do not receive a
capital exception payment. The provision also provides a
conforming amendment that requires the provision of capital
exception payments.
Effective Date
Discharges occurring on or after October 1, 1997.
PPS-EXEMPT HOSPITAL PAYMENTS
Present Law
Not all hospitals paid by Medicare are paid by the
Prospective Payment System (PPS). There are a number of special
categories of hospitals that Medicare pays based on the
hospitals' costs. These five types of hospitals are:
1. Rehabilitation hospitals/rehabilitation units of
hospitals treat patients with injuries or conditions
who require extensive hospital-based therapy and who
can withstand at least 3 hours of therapy per day
(i.e., a patient in need of therapy must be healthy
enough to tolerate the minimum therapy required);
2. Psychiatric hospitals/psychiatric units of
hospitals (e.g., patients with severe mental illnesses
that require hospital stays);
3. Long-term care hospitals treat patients who on
average, require, 25 days or more of hospital care;
4. Cancer hospitals limited by law in OBRA 1989 as
determined at that time by the National Cancer
Institute as research-based cancer hospitals; and
5. Pediatric hospitals.
Medicare will reimburse for only two of these types of
facilities as distinct-part units within an acute care
hospital. A PPS hospital can establish psychiatric or
rehabilitation ``distinct units'' or wings, and the host
hospital receives a separate reimbursement for patients
undergoing treatment in those wings. A hospital may not create
a PPS-exempt long-term care unit, it must completely separate
the two forms of care so that the long-term care hospital is a
``hospital within a hospital.''
These types of hospitals are excluded by law from
Medicare's PPS payments (PPS-exempt) and are paid on the basis
of reasonable costs, subject to limits in the Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA) rate of increase
limits. The rate of increase limits are called ``TEFRA
limits''.
TEFRA payments for inpatient operating costs are based on
each provider's current Medicare allowable costs per discharge
or a target amount. A hospital's target amount is based on its
inpatient operating costs per discharge in a base year, trended
to the current year by an annual update factor. While payments
must be for covered services, a new facility seeking to
establish its TEFRA base-year ceiling is exempted from any
limit.
A facility with Medicare-allowable inpatient operating
costs less than its ceiling (its target amount times the number
of discharges) receives its costs plus an additional amount,
known as the ``bonus'' payment, that is equal to half the
difference between its ceiling and costs or 5 percent of its
ceiling, whichever is less.
A facility with Medicare-allowable inpatient operating
costs above its ceiling receives a ``relief'' payment equal to
its ceiling plus either 50 percent of the difference between
its costs and ceiling or 10 percent of its ceiling, whichever
is less.
There are additional payments made for exceptions.
OBRA 93 provided for an update factor to the TEFRA limits
that range from zero to market basket minus 1.0 percentage
point for fiscal years 1994-1997. A hospital with operating
costs in FY 1990 that exceeded its TEFRA target amount by 10
percent or more receives a full MB update, with partial
reductions applied to hospitals near the threshold.
PPS-exempt hospitals are paid for the reasonable costs of
capital.
Reasons for Change
TEFRA payments rely on historical costs to set target
amounts that systematically reward certain facilities and
penalize others.
Newly certified facilities have no incentives under
Medicare to restrain their costs. In fact, they have an
incentive to come into TEFRA with high base year costs per
case, thereby establishing a high target amount. These newly
certified facilities are then essentially guaranteed cost
reimbursement for their high costs, as long as they stay below
their target amounts. According to ProPAC, in 1995, target
amounts for Rehabilitation hospitals and units varied from a
target amount of $8,585 representing the 10th percentile, to
$95,930 maximum target amount paid to a hospital or unit for
essentially the same discharge. For long-term care hospitals,
in 1995, $4,612 represented the 10th percentile target amount,
$84,995 the maximum target amount. The very wide divergence in
payments per discharge can not be justified for either of these
types of hospitals, other than the incentives rooted in a cost-
based reimbursement system.
Fueled by the TEFRA payment incentives, the number of PPS-
exempt providers has grown rapidly since 1990, especially
rehabilitation facilities and long-term care hospitals.
Although the total number of facilities remains small, few
other provider groups can match the growth seen in
rehabilitation facilities and long-term care hospitals.
The number of rehabilitation hospitals and units combined
increased 26% from 1990 to 1995. The number of long-term care
hospitals grew by 105% over that same period.
Committee Provision
(a) The update will vary for hospitals above and below
their target amounts for fiscal years 1998-2002. For hospitals
(1) with costs that exceed their target amounts in fiscal year
1995 by 10 percent or more, the update will equal the market
basket; (2) that exceed their target, but by less than 10%, the
update factor is the market basket minus .25 percentage points
for each percentage point by which costs are less than 10% over
the target, but it shall not be less than zero; (3) that are
either at their target, or below (but not below 2/3 of the
target amount for the hospital) the update factor would be the
market basket minus 1.5 percentage points, but in no case less
than zero; or (4) that do not exceed 2/3 of their target
amount, the update factor would be 0.
(b) Hospital capital payments for PPS-exempt hospitals are
reduced by 15 percent for FY 1998-2002 (cancer and children's
hospitals are exempted).
(c) Bonus payments are reduced to the lesser of:
(1) 10% of (the TARGET amount minus COSTS), or
(2) 1% of COSTS.
(d) Relief payments are altered so that they apply only to
those facilities in greatest need (with costs that are at least
10% above their target).
(e) Target amounts are adjusted for existing rehabilitation
hospitals, long-term care hospitals, and psychiatric hospitals.
Hospitals with low target amounts will be adjusted so that they
will not be less than 50 percent of the national average, and
the maximum amount reimbursed will be limited to the 90th
percentile of each category of hospitals' target amounts.
Establishes new payment criteria for start-up facilities,
so that target amounts do not exceed 130 percent of the
national average. The Secretary shall calculate new provider
base target amounts for each facility type using data from all
providers within each category modified by geographic location,
size, and patient characteristics that are related to resource
use.
(f) Permanently grandfathers long-term care hospitals that
were established within a hospital prior to September 30, 1995.
(g) Establishes a new category of PPS-exempt hospitals.
Non-research cancer hospitals that were qualified as long-term
care hospitals between 1991 and 1995 may qualify under the new
designation. At least 50% of their discharges must be cancer
related.
(h) Makes technical correction for a National Cancer
Institute designated comprehensive cancer center.
Effective Date
Cost reports beginning on or after October 1, 1998.
DISPROPORTIONATE SHARE HOSPITAL PAYMENTS
Present Law
Under Medicare's Prospective Payment System (PPS), an extra
payment is made for certain hospitals that serve a
disproportionate share of low-income patients.
The amount of the extra DSH payment for each hospital is
based on a formula that considers certain hospital and patient
factors. The factors considered in determining whether a
hospital qualifies for a DSH payment adjustment include the
number of beds, the disproportionate patient percentage, and
the hospital's location. A hospital's disproportionate patient
percentage is the sum of (1) the total number of inpatient days
attributable to Federal Supplemental Security Income (SSI)
beneficiaries divided by the total number of Medicare patient
days, and (2) the number of Medicaid patient days divided by
total patient days, expressed as a percentage. A hospital is
classified as a DSH under any of the following circumstances:
(1) If its disproportionate patient percentage equals
or exceeds:
(a) 15 percent for an urban hospital with 100
or more beds, or a rural hospital with 500 or
more beds (the latter is set by regulation);
(b) 30 percent for a rural hospital with more
than 100 beds and fewer than 500 beds or is
classified as a sole community hospital;
(c) 40 percent for an urban hospital with
fewer than 100 beds; or
(d) 45 percent for a rural hospital with 100
or fewer beds, or
(2) if it is located in an urban area, has 100 or
more beds, and can demonstrate that, during its cost
reporting period, more than 30 percent of its net
inpatient care revenues are derived from State and
local government payments for care furnished toindigent
payments. (This provision is intended to help hospitals in States that
fund care for low-income patients through direct grants rather than
expanded Medicaid programs.)
For a hospital qualifying on the basis of (1)(a) above, if
its disproportionate patient percentage is greater than 20.2
percent, the applicable PPS payment adjustment factor is 5.88
percent plus 82.5 percent of the difference between 20.2
percent and the hospital's disproportionate patient percentage.
If the hospital's disproportionate patient percentage is less
than 20.2 percent, the applicable payment adjustment factor is
equal to: 2.5 percent plus 65 percent of the difference between
15 percent and the hospital's disproportionate patient
percentage. If the hospital qualifies as a DSH on the basis of
(1)(b), the payment adjustment factor is determined as follows:
(a) if the hospital is classified as a rural referral
center, the payment adjustment factor is 4 percent plus
60 percent of the difference between the hospital's
disproportionate patient percentage and 30 percent;
(b) if the hospital is a sole community hospital
(SCH) the adjustment factor is 10 percent;
(c) if the hospital is classified as both a rural
referral center and a SCH, the adjustment factor is the
greater of 10 percent or 4 percent plus 60 percent of
the difference between the hospital's disproportionate
patient percentage and 30 percent; and
(d) if the hospital is not classified as either a SCH
or a rural referral center, the payment adjustment
factor is 4 percent.
If the hospital qualifies on the basis of (1)(c), the
adjustment factor is equal to 5 percent. If the hospital
qualifies on the basis of (1)(d), the adjustment factor is 4
percent. If the hospital qualifies on the basis of (2) above,
the payment adjustment factor is 35 percent.
Reasons for Change
It is more difficult for rural hospitals to qualify for
Medicare DSH payments because the threshold is much higher for
rural than urban hospitals, even if they treat the same number
of low-income individuals. The Prospective Payment Assessment
Commission (ProPAC) supports applying a uniform threshold to
all hospitals.
ProPAC also recommends that Medicare DSH payments should
reflect the additional costs of services provided to low-income
groups in both inpatient and outpatient settings, and uninsured
and underinsured patients as reflected by uncompensated and
charity care.
According to ProPAC, DSH payments have grown rapidly since
fiscal year 1989, increasing almost fourfold from $1.1 billion
to $4.3 billion in 1996. This acceleration is largely due to
legislative changes that raised the DSH payment rate for some
hospitals.
Committee Provision
From October 1, 1997 to January 1, 1999, apply current
formula with a 4% reduction in the DSH adjustment. This will
reduce DSH payments to hospitals by 4%.
For Calendar Years 1999-2002, the Secretary will continue
to apply an additional 4% reduction in the DSH payment
adjustment.
On January 1, 1999, the Secretary must establish a new
formula that takes into account Medicaid, Medicare SSI, and
uncompensated/charity care. This new formula will have one
threshold for all hospitals. In each year, the Secretary must
implement the new formula in a budget neutral manner in order
to achieve the same savings that would have been achieved with
the old formula under the provisions above.
Effective Date
Cost reporting periods beginning on or after October 1,
1997.
CAPITAL ASSETS SALE EQUAL TO BOOK VALUE
Present Law
Medicare provides for establishing an appropriate allowance
for depreciation and for interest on capital indebtedness and a
return on equity capital when a hospital or skilled nursing
facility has undergone a change of ownership. The valuation of
the asset is the lesser of the allowable acquisition costs of
the asset to the owner of record, or the acquisition cost of
such asset to the new owner.
Reasons for Change
There is increasing evidence that intangible losses that do
not have any true value associated to them are being included
in the sale of facilities because Medicare will currently
reimburse for these ``paper'' losses.
Committee Provision
Establishes the value of a capital asset at the time of
change of ownership at the book value of the asset. The
Committee provision also applies this valuation to providers of
services other than hospitals and skilled nursing facilities,
and eliminates return on equity.
Effective Date
After the third month beginning after the date of enactment
of this Act.
GRADUATE MEDICAL EDUCATION PAYMENTS
Present Law
Since the inception of the Medicare program in 1965,
Medicare has reimbursed teaching hospitals for certain costs
associated with approved graduate medical education
(GME)programs. GME is a period of clinical education of physicians
after graduation from medical school. Physicians-in-training are called
``interns'' or ``residents.'' Since enactment of the hospital
prospective payment system (PPS) in the early 1980's, Medicare has made
two specific GME payments to teaching hospitals: direct and indirect
medical education payments.
(a) Direct Medical Education (DME) Payments.--DME payments
reimburse a teaching hospital for the costs of a resident's
salary, benefits, and certain overhead associated with
operating a teaching program. The DME payment is calculated as
the product of three factors: (1) The adjusted number of full-
time residents; (2) the Medicare patient load of the hospital
(the fraction of the hospital's total number of inpatient days
the Medicare beneficiaries represent); and an amount per
resident (which reflects each teaching hospital's allowed DME
costs per resident in 1984 adjusted for inflation).
(b) Indirect Medical Education (IME) Payments.--IME
payments reimburse teaching hospitals for certain other costs
associated with physician training, such as the additional
tests or procedures that may be ordered by a resident. For IME,
Medicare pays teaching hospitals an additional percentage of
each Medicare beneficiary's hospital bill by increasing the
diagnosis-related group (DRG) payment by approximately 7.7
percent for each 10 percent increment in a hospital's ratio of
interns and residents to hospital beds.
(c) Direct and Indirect Medical Education Payments for
Managed Care Organizations.--Teaching hospitals do not receive
a direct payment from Medicare for either DME and IME payments
for beneficiaries enrolled in HMOs. Instead, such payments are
included in the monthly amount Medicare pays to HMOs.
Reason for Change
(a) Direct Medical Education (DME) Payments.--The number of
U.S. medical school graduates filling residency positions in
teaching hospitals has remained relatively constant, while the
total number of resident positions have grown sharply in recent
years. Expert testimony has suggested that Medicare's unlimited
reimbursement of additional resident positions has
substantially fueled this growth, and contributed to a
generally acknowledged surplus in the physician workforce.
However, it is also believed rural areas have physician
shortages, in part because residency programs are rarely
located in rural areas which would create ties and attachments
to rural communities.
(b) Indirect Medical Education (IME) Payments.--The
Prospective Payment Assessment Commission (ProPAC) has advised
Congress that Medicare is paying more than Medicare's share of
hospitals' costs for IME, and that this amount should be
reduced. In addition, current law limits ME payments to
hospital departments, which provides a disincentive to train
residents in ambulatory care settings where medical care is
increasingly provided.
(c) Direct and Indirect Medical Education Payments for
Managed Care Organizations.--At present, there is no assurance
that the portion of the monthly Medicare payment to HMOs
attributed to direct and indirect medical education is actually
paid to teaching hospitals. Moreover, payment of graduate
medical education subsidies by Medicare directly to teaching
hospitals for HMO enrollees would permit teaching hospitals to
be more competitive in negotiating rates with HMOs and other
managed care organizations.
Committee Provision
(a) Direct Medical Education (DME) Payments.--The Committee
provision would provide that the number of allopathic and
osteopathic interns and residents reimbursed by Medicare could
not exceed the number of interns and residents reported on a
hospital's cost report for the period ending December 31, 1996.
Subject to this limit, for cost reporting periods beginning on
or after October 1, 1997, the Committee provision provides for
calculating the number of FTEs as the average of the cost
period and the preceding cost period; for each subsequent year,
the cost period and the two preceding cost periods. The
Committee provision also would permit DME payments to Federally
qualified health centers (FQHCs) and rural health clinics
(RHCs) with approved medical residency training programs.
(b) Indirect Medical Education (IME) Payments.--The
Committee provision would reduce the additional payment
adjustment for IME from 7.7 percent for each 10 percent
increment in the ratio of interns and residents to beds to:
1. Fiscal year 1998: 7.0 percent, and
2. Fiscal year 1999: 6.5 percent,
3. Fiscal year 2000: 6.0 percent,
4. Fiscal year 2001: 5.5 percent and after, for each
10 percent increment in the ratio of interns/residents
to beds.
For purposes of computing the intern-and-resident to bed
ratio, the Committee would limit the number of interns and
residents to the total number of residents and interns in a
hospital or non-hospital setting reported on the hospital's
cost report for the period ending December 31, 1996. This
provision would be effective for discharges occurring after
October 1, 1997. Subject to this limit, for hospital's first
cost-reporting period beginning on or after October 1, 1997,
the number of FTE residents and interns for payment purposes
would equal the average of the actual FTE resident and intern
count for the cost reporting period and the preceding year's
cost reporting period. For the cost reporting period beginning
October 1, 1998, and each subsequent cost reporting period,
subject to certain limits, the total number of FTE residents
and interns for payment purposeswould equal the average of the
actual FTE resident count for the cost reporting period and the
preceding two year's cost reporting periods.
The Committee provision would permit that time spent by an
intern or resident in patient care activities under an approved
medical residency training program at a non-hospital setting
shall be counted towards FTEs if the hospitals incurs all or
substantially all the costs for training in that setting.
(c) Direct and Indirect Medical Education Payments for
Medicare Choice Organizations.--The Committee provision would
provide that care provided by teaching hospitals to Medicare
beneficiaries enrolled in managed care organizations would be
recognized in the formulas for direct and indirect graduate
medical education payments in proportion to the annual carve
out of such amounts from payments to Medicare Choice
organizations.
(d) Other Provisions.--The Committee provision would
authorize the Secretary to approve DME and IME payments to
facilities which had not previously had a Medicare approved
graduate medical education program and to annually increase
such payments for a period of no more than 5 years, and to
increase such payments to facilities with programs less than 5
years old for a period of 5 years following establishment of
the program. The Secretary would be limited by the difference
in number of positions reimbursed or counted in the current
calendar year and the previous calendar year. The Secretary
shall give special consideration to facilities that meet rural
underserved needs.
The Committee provision would also authorize the Secretary
to establish consortia demonstration projects which demonstrate
innovative graduate medical education and payment methods. The
purposes of the consortia demonstration projects are varied,
such as encouraging the participation of payers, public and
private, to further supplement Medicare's funding for the extra
costs associated with graduate medical education. The Committee
encourages the Secretary to give special consideration to
applications for consortia demonstration projects that
emphasize rural primary care with training experience in
community-based settings; geriatrics; participation by other
payers that supplements Medicare funding for graduate medical
education, and the use of telehealth and computer technologies
to supervise and support residents in community-based training
settings.
Effective Date
Cost reporting periods beginning on or after October 1,
1997.
ELIMINATE ADD-ONS FOR OUTLIERS (DSH AND GME)
Present Law
Medicare provides outlier payments to hospitals that are
intended to protect them from the risk of large financial
losses associated with cases having exceptionally high costs or
unusually long hospital stays.
Outlier payments are meant to be self-funded as a
percentage of all hospital payments. Every year, the Secretary
of Health and Human Services establishes an outlier payment
funding pool of 5% to 6% of all the anticipated hospital
payments for that year.
Beginning in FY 1998, the length of stay outlier policy
will terminate, and hospitals will receive outlier payments
only for very high cost cases. For each diagnosis related group
(DRG), a specific dollar loss threshold is set, and outlier
payments are calculated based on the amount by which a
hospital's costs exceed this loss threshold. For teaching and
disproportionate share hospitals, however, their estimated cost
for each case is reduced by the amount of the hospital's IME
and DSH payment adjustments. The amount by which the estimated
cost exceeds the outlier threshold thus is less for a case
treated at a teaching or disproportionate share hospital,
resulting in lower outlier payments. The lower outlier payment
amount is then increased by the hospital's IME and DSH
adjustments, but this generally is not enough to offset the
loss in outlier payments resulting from the reduced cost
estimate for the case.
Reasons for Change
Teaching and DSH adjustments are now made on top of the DRG
plus the outlier payment which means the Medicare program is
spending more on IME and DSH for outlier cases than is
warranted.
Committee Provision
Changes the ways that IME and DSH payments are calculated
for cost outlier cases. The IME and DSH adjustments will be
made to the base payment amount, not to the outlier portion of
a hospital's payment. The provision would result in teaching
and disproportionate share hospitals being treated like all
other hospitals in the calculation of outlier payment amounts.
Their estimated costs per case would not be reduced by their
IME and DSH payments, and an additional IME or DSH adjustment
would not be added to these payments.
Effective Date
The provision would apply to discharges occurring after
September 30, 1997.
TREATMENT OF TRANSFER CASES
Present Law
Medicare adjusts its payment to a hospital which has
transferred a patient to another hospital. In these cases, the
diagnosis related group (DRG) payment to the hospital
``sending'' a patient to a second hospital is reduced because
the ``sending'' hospital did not complete the term of care for
the patient.
In a transfer situation, full payment is made for a
patient's stay to the second hospital which completes the
patient's hospital care and then discharges the patient. The
``sending'' hospital is paid a per diem rate for each day of
the stay; total per diem payments are not to exceed the full
DRG payment that would have been made if the patient had
beendischarged without being transferred.
This transfer policy is only applicable when an acute care
hospital transfers a patient to another acute care hospital.
Reasons for Change
Present law does not apply to patients discharged from a
hospital to a skilled nursing facility, home health agency or
to a Prospective Payment System-exempted (PPS-exempt) hospital
or distinct unit. The Committee provision will curb the current
``double dipping'' trend of hospitals moving Medicare patients
early on in their course of treatment to an alternative health
care setting (often a separate wing or floor of the same
facility) while still receiving the full hospital DRG payment.
Committee Provision
Discharges from an acute care hospital to a PPS-exempt
hospital or unit, a skilled nursing facility, (after April,
1998, discharges to home health care), will be considered
``transfers'' for payment purposes.
BAD-DEBT
Present Law
Certain hospital and other provider bad debts are
reimbursed by Medicare on an allowable cost basis. To be
qualified for reimbursement, the debt must be related to
covered services and derived from deductible and coinsurance
amounts left unpaid by Medicare beneficiaries. The provider
must be able to establish that reasonable collection efforts
were made and that sound business judgement established that
there was no likelihood of recovery at any time in the future.
Reasons for Change
The payment of hospitals' Medicare-related bad debt is a
legacy of hospital cost-based reimbursement. Under the current
prospective payment system, bad debts should be considered a
cost of doing business. Providers under Part B of the Medicare
program are not reimbursed for bad debt.
Committee Provision
Reduces bad debt payments to providers by 25 percent for
cost reporting periods beginning during FY 1998; 40 percent for
cost reporting periods beginning in FY 1999; and 50 percent for
subsequent cost reporting periods.
FLOOR ON AREA WAGE INDEX
Present Law
As part of the methodology for determining payments to
hospitals under the Medicare prospective payment system (PPS),
the Secretary is required to adjust a portion of the
standardized amounts for area differences in hospital wage
levels by a factor reflecting the relative hospital wage level
in the geographic area of the hospital compared to the national
average wage level.
Reason for Change
Insures that the wage index in urban areas is at least
equal to that of rural areas in a state.
Committee Provision
For discharges occurring on or after October 1, 1997, the
area wage index applicable for any hospital which is located in
an urban area can not be less than the average of the area wage
indices applicable to hospitals located in rural areas in the
state in which the hospital is located. The Secretary is
required to make any adjustments in the wage index in a budget
neutral manner.
INCREASE BASE PAYMENT RATE TO PUERTO RICO
Present Law
Hospitals in Puerto Rico are paid in a similar manner to
hospitals paid on the United States mainland, however, they are
paid a much lower amount. The lower payments are largely
attributed to the dramatically lower prevailing wage in Puerto
Rico. For hospital capital payments, Puerto Rico receives a
special payment for capital which is lower than what most
hospitals on the US mainland receive.
Puerto Rico hospital payments are based on a different
standardized amount. The Puerto Rican standardized amount is a
blend of 75% of the local average cost of treating a patient in
Puerto Rico and 25% of a national amount (this is not the same
as the national standardized amount).
Reasons for Change
In 1995, Puerto Rico's urban hospitals had an average
inpatient PPS margin of -4%, while mainland United States
hospitals had an average 10.7% margin.
Committee Provision
Increases payments to Puerto Rico's hospitals by altering
the blended formula for the standardized amount from the 75%
local rate, 25% Federal rate to a 50%/50% blend.
PERMANENT EXTENSION OF HEMOPHILIA PASS-THROUGH
Present Law
Medicare made additional payments for the costs of
administering blood clotting factor to Medicare beneficiaries
with hemophilia admitted for hospital stays where the clotting
factor was furnished between June 19, 1990 and September 30,
1994.
Reasons for Change
Due to increases in the cost of clotting factor resulting
from the increase in AIDs prevalence in the blood supply, in
1989, Congress changed the way Medicare paid for inpatient
costs of clotting factor by providing an add-on to the PPS
payment rates. This change was initially limited to 18 months
and then subsequently extended through FY 1994.
Committee Provision
Permanently reinstates Medicare's additional payments for
the costs of administering blood clotting factor to Medicare
beneficiaries with hemophilia admitted forhospital stays where
the clotting factor was furnished. Reaches back to September 30, 1994,
and makes the provision permanent.
PAYMENTS FOR HOSPICE SERVICES
Present Law
Medicare covers hospice care for terminally ill
beneficiaries with a life expectancy of 6 months or less.
Persons electing Medicare's hospice benefit are covered for
four benefit periods: two 90-day periods, a subsequent 30-day
period, and a final period of unlimited duration.
At the beginning of the first 90-day period when a Medicare
beneficiary elects hospice, both the individual's attending
physician and the hospice physician must certify in writing
that the beneficiary is terminally ill not later than 2 days
after hospice is initiated (or, verbally not later than 2 days
after care is initiated and in writing not later than 8 days
after care has begun).
Medicare covers hospice care, in lieu of most other
Medicare benefits. Payment for hospice care is based on one of
four prospectively determined rates, which correspond to four
different levels of care, each day a beneficiary is under the
care of the hospice. The four categories are routine home care,
continuous home care, inpatient respite care, and general
inpatient care. The prospective payment rates are updated
annually by the hospital market basket index (MB).
Hospice services are defined in Medicare statute to include
nursing care; physical and occupational therapy and speech
language pathology services; medical social services; home
health aide services; medical supplies (including drugs and
biologicals) and medical appliances; physician services; short-
term inpatient care (including both respite care and procedures
necessary for pain control and acute and chronic symptom
management); and counseling. Beneficiaries electing hospice
waive coverage to most Medicare services when the services they
need are not related to the terminal illness.
Medicare law requires that hospices routinely provide
directly substantially all of certain specified services, often
referred to as core services. Physician services are among
these core services. HCFA has defined ``directly'' to require
that services be provided by hospice employees.
Hospices generally bill Medicare on the basis of location
of the home office, rather than where service is actually
delivered.
Medicare law provides financial relief to beneficiaries and
providers for certain services for which Medicare payment would
otherwise be denied. Medicare payment under this ``limitation
of liability'' provision is dependent on a finding that the
beneficiary did not know and could not reasonably have been
expected to know that services would not be covered on one of
several bases (but not on the determination that an individual
is not terminally ill).
Reasons for Change
The hospice benefit should be altered to better reflect the
needs of the terminally ill. The current benefit should be
changed to provide hospices greater flexibility to deliver
services, as well as clearer guidelines for patient
certification. Patients who enroll in hospice care, yet who are
not deemed to be terminally ill should not be penalized.
Committee Provision
(a) Hospice benefit periods will be restructured to include
two 90 day periods, followed by an unlimited number of 60 day
periods. The medical director of the hospice will have to
recertify at the beginning of the 60 day periods that the
beneficiary is terminally ill. The provision will also allow
greater flexibility in items and services provided in hospice
care as long as they are part of the patient's plan of care.
Hospices will be allowed to contract with physicians. Certain
staffing requirements will be waived for rural hospices.
Eliminates the specific time frame physicians must complete
certification forms in order to admit a patient to hospice
care.
(b) Requires payment for hospice care furnished in an
individual's home be based on the geographic location of the
home.
(c) Places limitations on hospice care liability for
individuals who are not in fact terminally ill. Provides that
Medicare beneficiaries do not have to pay for hospice care
based on an incorrect diagnosis of terminal illness if the
beneficiary did not know, and could not reasonable have been
expected to know, that the diagnosis was in error. As is the
case under current practice for other situations involving
waiver of liability, a beneficiary has a favorable presumption
of ignorance, while a provider of services does not.
Effective Date
Cost reporting periods beginning on or after October 1,
1997.
RELIGIOUS, NON-MEDICAL SERVICES
Present Law
Since Medicare was first enacted, the program has covered
the services furnished by Christian Science sanatoria under
Part A of the program. In order to be a covered provider, the
institution must be listed and certified by the First Church of
Christ Scientist, of Boston, Massachusetts. A certified
sanatorium qualifies as both a hospital and as a skilled
nursing facility. Under Medicare, two separate types of
benefits are payable: services received in an inpatient
Christian Science sanatorium and extended care services in a
sanatorium. Section 1861(e)(9) of the Social Security Act
includes a Christian Science sanatorium in the definition of a
hospital; 1861(y) defines extended care in a Christian Science
skilled nursing facility. Under the Medicaid program, states
have the option of coveringservices provided by Christian
Scientist sanatoria and extended care facilities.
Reasons for Change
The need for clarification of how the statute treats
religious, non-medical institutions became evident after the
current statutory provisions were successfully challenged in a
Minnesota District Court which held that they violate the
Establishment Clause of the Constitution as an impermissible
sectarian preference. The Court's decision enjoined the
Secretary from further implementation of the law, but the
injunction was stayed until August.
Committee Provision
This provision replaces existing law and provides for
reimbursement of nursing services to individuals who decline to
accept medical care due to sincerely held religious beliefs.
The provision requires the Health Care Financing Administration
(HCFA) to develop conditions of participation for religious,
nonmedical institutions and to require that such conditions are
met. The provision requires that HCFA develop the conditions of
participation in a manner that will not exceed $20 million per
year.
Subtitle G--Provisions Relating to Part B Only
CHAPTER 1--PAYMENTS FOR PHYSICIANS AND OTHER HEALTH CARE PROVIDERS
payments for physician's services
Present Law
(a) Physician Fee Schedule.--Medicare pays for over 7,000
physician services according to a fee schedule. The Medicare
physician fee schedule uses two formulas: (1) one to calculate
the fee for each service; and (2) another to annually revise or
``update'' the fees.
Under the fee schedule, each physician service is assigned
relative value units (RVUs) that reflect three factors:
physician work, practice expenses (i.e., office costs), and
malpractice insurance costs. The RVUs for each service are
adjusted for geographic variations in the costs of practicing
medicine.
To determine the Medicare fee payment for a physician
service, the adjusted RVUs for that service are multiplied by a
dollar amount called a ``conversion factor.'' There are
currently three conversion factors, for (1) surgical services;
(2) primary care services; and (3) other nonsurgical services.
In 1997, the conversion factors were: $40.96 for surgical
services; $35.77 for primary care services; and $33.85 for
other nonsurgical services.
Each year, unless Congress otherwise provides, a default
formula is used to update each conversion factor. The default
update is the sum of the Medicare Economic Index (MEI) (a
measure of inflation) and a volume performance adjustment. If
the volume performance adjustment is less than MEI, the update
is positive; if less than MEI, the update is negative.
The volume performance adjustment is intended to reward
restraint in increases in the quantity of physician services
provided to beneficiaries (so-called volume and intensity of
services), and is a comparison of actual physician spending in
a base period with an expenditure goal known as the Medicare
Volume Performance Standard (MVPS). MVPS is calculated from
changes in volume and intensity of services and certain other
factors, based on data from the second-preceding fiscal year
(e.g., 1995 data would be used to determine the 1997 update).
The MVPS derived from this calculation is subject to a
reduction known as the ``performance standard factor.'' The
MVPS has a lower limit of MEI minus five percentage points.
Anesthesia services are reimbursed according to a separate
fee schedule, although that fee schedule also uses RVUs and a
conversion factor. The anesthesia services conversion factor
was $16.68 in 1997.
(b) Resource-Based Methodology for Practice Expenses.--
Currently, practice expenses (i.e., the costs of running a
doctor's office) are based on charges to the Medicare program
before the enactment of the physician fee schedule in 1989, not
the resources actually used in providing each physician
service. However, a resource-based methodology for practice
expenses was intended by the Omnibus Reconciliation Act of 1989
(OBRA 1989), which established the physician fee schedule. In
the Social Security Act Amendments of 1994, Congress instructed
the Secretary of Health and Human Services to implement a
resource- based methodology for practice expenses, to be
implemented in 1998.
Reasons for Change
(a) Physician Fee Schedule.--The Committee provision
provides for a single conversion factor. A single conversion
factor restores the integrity of the fee schedule. When the fee
schedule was established, it was intended that each RVU should
be worth the same amount across all physicians' services, and
not by the category of physician service (i.e., surgical
services, primary care services, and other non-surgical
services). However, under current law, physician services
assigned the same number of RVUs may be paid differing amounts.
The Committee provision corrects this distortion of the
physician fee schedule. A single conversion factor has been
recommended by the Physician Payment Review Commission.
(b) Resource-Based Methodology for Practice Expenses.--The
resource-based practice expense methodology is expected to
result in enhanced reimbursement for physician services
provided in an office setting with undervalued office costs,
and reduced reimbursement for services provided in a hospital
or other health care facility (such as surgical procedures)
with overvalued costs. To allow this redistribution to proceed
in an orderly fashion, the Committee provision would provide
for an extended transition period for implementation of the
resource-based methodology for practice expenses.
Committee Provision
(a) Physician Fee Schedule.--The Committee bill would
provide for the establishment of a single conversion factor,
rather than three conversion factors, effective January 1,
1998. The provision would set the single conversion factor for
1998 at the 1997 primary care conversion factor, updated to
1998 by the Secretary's estimate of the weighted average of the
three separate updates that would occur in the absence of the
legislation.
The Committee bill would modify the default update formula,
effective for calendar year 1997. The update would equal the
product of MEI and the update adjustment factor. The update
adjustment factor would match spending on physician services to
a cumulative sustainable growth rate. By November of each year,
the Secretary will calculate the update adjustment factor for
the succeeding year on the basis of a comparison between
cumulative target spending (cumulated from annual sustainable
growth rate calculations) and cumulative actual spending from a
base year of July 1996 to June 1997. The annual sustainable
growth rate would be calculated with the same factors as the
current Medicare Volume Performance Standard (MVPS), except the
factor of growth in historical volume and intensity of
physician services is replaced with projected annual growth in
real Gross Domestic Product (GDP) and the performance standard
factor is eliminated.
The update would be subject to upper and lower bounds. The
update could be no greater than approximately MEI plus three
percentage points, or less than MEI minus seven percentage
points.
The Committee provision specify that the conversion factor
for anesthesia services would equal 46 percent of the
conversion factor established for other services for 1998.
(b) Resource-Based Methodology for Practice Expenses.--The
Committee provision would provide a one-year delay in the
implementation of the proposed rule for a resource-based
methodology for practice expenses by the Health Care Financing
Administration (HCFA) and a subsequent phase in of a rule over
a subsequent three-year period, from January 1, 1999 through
January 1, 2001. For 1998, the Committee bill would establish a
special rule by which approximately 10 percent of the amount of
money expected to be redistributed under practice expense
reform would be subtracted from the practice expenses of
physician services where practice RVUs exceed work RVUs by 110
percent and added to the practice expenses of primary care
services provided in a physician's office which have been
determined to have been historically underpaid. Full
implementation of practice expense reform would occur no later
than 2001, with implementation in equal yearly proportions over
this period.
The Committee is aware and concerned that many issues have
been raised about the resource-based practice expense
methodology proposed by HCFA. To provide for an independent and
objective review of these issues, the Committee provision would
provide for a study within 6 months by the General Accounting
Office. The GAO study is intended to be a thorough examination
of the proposed rule on practice expenses. As part of this
examination, the Committee expects that GAO will consult with
organizations representing physicians and to address the issue
of beneficiary access to medical services. The Committee
provision would also direct the Secretary to solicit the
individual views of physicians in the practice of surgical and
non-surgical specialties, physicians in academic practice, and
other appropriate experts. The Committee provision would direct
the Secretary to report to the appropriate committees of
jurisdiction the results of these consultations.
The Committee expects the Secretary to carefully review
both the GAO report and the information provided by the
individual physicians and other experts. The Committee intends
to review these reports carefully as well. If the Secretary
determines that insufficient data exists to support the
proposed rule, or finds other serious problems with the
proposed rule, the Committee expects the Secretary to collect
new data or take such other actions needed to correct any
deficiencies, including a new study, before proceeding to a
final rulemaking. In general, any new data collection or other
action to correct deficiencies shall include the following: (1)
direct and indirect cost accounting according to standard
accounting principles; (2) physician associated costs of non-
physician staff, personnel, equipment and supplies used by a
physician in the delivery of patient related service,
regardless of site; and (3) inclusion of appropriate physician
practices relevant to the provision of services to Medicare
beneficiaries.
Effective Date
Generally January 1, 1998.
increased medicare reimbursement for nurse practitioners, clinical
nurse specialists, and physician assistants
Present Law
(a) Payments for Nurse Practitioners and Clinical Nurse
Specialists.--Separate payments are made for nurse practitioner
(NP) services provided in collaboration with a physician, which
are furnished in a nursing facility. Such payments equal 85
percent of the physician fee schedule amount. Nurse
practitioners and clinical nurse specialists (CNSs) are paid
directly for services provided in collaboration with a
physician in a rural area. Payment equals 75 percent of the
physician fee schedule amount for services furnished in a
hospital and 85 percent of the fee schedule amount for other
services.
(b) Payments for Physician Assistants.--Separate payments
are made for physician assistant (PA) services when provided
under the supervision of a physician: (1) in a hospital,
skilled nursing or nursing facility, (2) as an assistant at
surgery, or (3) in a rural area designated as a health
professional shortage area.
Reasons for Change
Expanded reimbursement of nurse practitioners, clinical
nurse specialists, and physician assistants would enhance the
availability of care in rural areas and of primary care
services to Medicare beneficiaries generally.
Committee Provision
(a) Payments for Nurse Practitioners and Clinical Nurse
Specialists.--The provision would remove the restriction on
settings. It would also provide that payment for NP and CNS
services could only be made if no facility or other provider
charges are paid in connection with the service. Payment would
equal 80 percent of the lesser of either the actual charge or
85 percent of the fee schedule amount for the same service if
provided by a physician. For assistant-at-surgery services,
payment would equal 80 percent of the lesser of either the
actual charge or 85 percent of the amount that would be
recognized for a physician serving as an assistant at surgery.
The provision would authorize direct payment for NP and CNS
services.
The provision would clarify that a clinical nurse
specialist is a registered nurse licensed to practice in the
state and who holds a master's degree in a defined clinical
area of nursing from an accredited educational institution.
(b) Payments for Physician Assistants.--The Committee
provision would remove the restriction on settings. The
Committee provision would also provide that payment for PA
services could only be made if no facility or other provider
charges are paid in connection with the service. Payment would
equal 80 percent of the lesser of either the actual charge or
85 percent of the fee schedule amount for the same service if
provided by a physician. For assistant-at-surgery services,
payment would equal 80 percent of the lesser of either the
actual charge or 85 percent of the amount that would be
recognized for a physician serving as an assistant at surgery.
The provision would further provide that the PA could be in an
independent contractor relationship with the physician.
Employer status would be determined in accordance with state
law.
Effective Date
January 1, 1998.
CHIROPRACTIC SERVICES DEMONSTRATION PROJECT
Present Law
Medicare covers chiropractic services involving manual
manipulation of the spine to correct a subluxation demonstrated
to exist by X-ray. Medicare regulations prohibit payment for
the X-ray either if performed by a chiropractor or ordered by a
chiropractor.
Reason for Change
Current policy on coverage of services provided by
chiropractors was enacted 20 years ago and does not reflect
current subsequent developments in recognition of the value of
chiropractic services. This demonstration will provide
additional information on the cost effectiveness of services
provided by chiropractors.
Committee Provision
The Committee provision would direct the Secretary to
establish a two-year demonstration project, beginning not later
than one year after enactment, to examine methods under which
access to chiropractic services by Medicare beneficiaries might
be expanded on a cost-effective basis.
The Secretary would conduct a demonstration with at least
the following elements: (1) the effect of allowing doctors of
chiropractic to order and be reimbursed for x-rays; (2) the
effect of removing the x-ray requirement; (3) the effect of
allowing chiropractors, within the scope of their licensure, to
provide physicians services to beneficiaries; and (4) the cost
effectiveness of allowing beneficiaries who are enrolled with a
risk-based HMO to have direct access to chiropractors. Direct
access would be defined as the ability of a beneficiary to go
directly to a chiropractor without prior approval from a
physician or other gatekeeper.
The Committee provision would require that each of the
demonstration elements to be examined in three or more rural
areas, in three or more urban areas, and in three or more areas
having a shortage of primary medical care professionals. The
Secretary, in designing and conducting the demonstration, would
be required to consult, on an ongoing basis, with
chiropractors, organizations representing chiropractors, and
representatives of Medicare beneficiary groups. The provision
would require the Secretary to examine the direct access
element described above with at least 10 Medicare HMOs that
have voluntarily elected to participate in the demonstration;
these HMOs would be eligible to receive a small incentive
payment.
The Secretary would be required to evaluate whether
beneficiaries who use chiropractic services use fewer Medicare
services overall, the overall costs effects of increased access
to chiropractors, and beneficiary satisfaction with
chiropractic services. The Secretary would be required to
submit a preliminary report to Congress within two years of
enactment and a final report by January 1, 2001 together with
recommendations on each of the four elements noted above. The
Secretary would be required to include specific legislative
proposals for those items that the Secretary has found to be
cost effective.
As soon as possible after submission of the final report,
the Secretary would begin payment for elements of the
demonstration project proven cost effective for the Medicare
program.
Effective Date
January 1, 1998.
CHAPTER 2--OTHER PAYMENT PROVISIONS
PAYMENTS FOR CLINICAL LABORATORY DIAGNOSTIC SERVICES
Present Law
Since 1984, Medicare payments for clinical laboratory
services have been made on the basis of local fee schedules
established in areas designated by the Secretary. Beginning in
1986, the fee for each laboratory service has been limited by a
national cap amount, which is based on the median of all local
fees established for that laboratory test during a base year.
The Omnibus Budget Reconciliation Act of 1993 (OBRA 93)
mandated a reduction in the national cap amounts in 1996 to 76
percent of the median fee amount paid for each service in a
base year.
Current law provides that fee schedule amounts for
laboratory services are updated each January 1 by the decrease
or increase in the consumer price index for urban consumers
(CPI-U). OBRA 93 eliminated this update for 1994 and 1995.
Reasons for Change
The Committee provision would establish more appropriate
growth in payments.
Committee Provision
The Committee provision would reduce the inflation updates
by two percentage points each year from January 1, 1998,
through December 31, 2002. It would also lower the cap from 76
percent of the median to 74 percent of the median beginning in
1998.
The Committee provision directs the Secretary of Health and
Human Services to request the Institute of Medicine to conduct
a study on Medicare Part B payments for clinical laboratory
services, including the relationship between Medicare payments
for laboratory services and access by beneficiaries to high
quality services and new test procedures.
Effective Date
January 1, 1998.
IMPROVING PROGRAM INTEGRITY AND CONSISTENCY IN THE CLINICAL LABORATORY
DIAGNOSTIC SERVICES BENEFIT
Present Law
Claims for payment for clinical laboratory diagnostic
services, as other claims for payment under Medicare Part B,
are processed by carriers, which are by statute health
insurance companies under contract to the Health Care Financing
Administration to conduct claims processing and certain program
integrity activities. Carriers have a limited authority to
establish coverage and payment rules.
Reasons for Change
The Committee provision would provide for improved program
integrity in the administration of the laboratory services
benefit
Committee Provision
The Committee provision would require the Secretary to
divide the country into no more than 5 regions and designate a
single carrier for each region to process laboratory claims no
later than January 1, 1999. One of the carriers would be
selected as a central statistical resource. The assignment of
claims to a particular carrier would be based on whether the
carrier serves the geographic area where the specimen was
collected or other method selected by the Secretary.
The Committee provision would require the Secretary, by
July 1, 1998, to adopt uniform coverage, administration, and
payment policies for lab tests using a negotiated rule-making
process. The policies would be designed to promote uniformity
and program integrity and reduce administrative burdens with
respect to clinical diagnostic laboratory tests.
The Committee provision would provide that during the
period prior to the implementation of uniform policies,
carriers could implement new local requirements under certain
circumstances.
The provision would permit the use of interim regional
policies where a uniform national policy had not been
established. The Secretary would establish a process under
which designated carriers could collectively develop and
implement interim national standards for up to 2 years.
The Secretary would be required to conduct a review, at
least every 2 years, of uniform national standards. The review
would consider whether to incorporate or supersede interim
regional or national policies.
With regard to the implementation of new requirements in
the period prior to the adoption of uniform policies, and the
development of interim regional and interim national standards,
carriers must provide advance notice to interested parties and
allow a 45 day period for parties to submit comments on
proposed modifications.
The Committee provision would require the inclusion of a
laboratory representative on carrier advisory committees. The
Secretary would be required to consider nominations submitted
by national and local organizations representing independent
clinical labs.
This Committee provision would exempt independent physician
offices until the Secretary could provide that such offices
would not be unduly burdened by billing responsibilities with
more than one carrier.
Effective Date
Generally on enactment.
DURABLE MEDICAL EQUIPMENT
Present Law
The Omnibus Budget Reconciliation Act of 1987 (OBRA 1987)
established six categories of durable medical equipment for
purposes of determining fee schedules and making payments.
Among these categories are home oxygen equipment, which is
reimbursed on a regionally adjusted monthly payment amount. Fee
schedule amounts for durable medical equipment are updated
annually for inflation.
Reasons for Change
Although the Committee bill would reduce the growth in
expenditures on durable medical equipment, spending in this
area is expected to remain among the fastest growing areas in
the Medicare program. In the category of home oxygen equipment,
the General Accounting Office has reported that a Medicare
substantially overpays for home oxygen equipment compared to
the Veteran's Administration, even when differences between the
two programs are considered.
Committee Provision
The Committee provision would reduce the update by two
percentage points for all categories of DME, including
orthotics and prosthetics and parenteral and enteral nutrients,
supplies, and equipment, each year from January 1, 1998,
through January 1, 2002.
The Committee provision would provide for the monthly
payment amount for home oxygen services to be reduced 25
percent in 1998 and an additional 12.5 percent in 1999. The
Committee provision would authorize the Secretary to create
classes of oxygen equipment with differing payments, so long as
there is no net increase in payments for home oxygen equipment.
The Committee provision would also direct the Secretary to
establish service standards and accreditation requirements for
home oxygen providers. The Committee provision would direct the
General Accounting Office to report within six months of
enactment of this Act on access to home oxygen equipment, and
direct the Secretary to arrange with peer review organizations
established under section 1154 of the Social Security Act to
evaluate access and quality of home oxygen equipment following
enactment of this act. In addition, the Committee provision
would require the Secretary to conduct a demonstration project
of competitive bidding for home oxygen equipment.
The Committee provision would permit beneficiaries to
purchase upgraded or enhanced durable medical equipment (DME)
in a simpler fashion. A DME supplier would be permitted to bill
the Medicare program for the basic DME item, and receive an
additional payment from the beneficiary for the amount of the
difference between the Medicare payment and the cost of the
enhanced item. The Committee provision provides for the
promulgation by the Secretary of consumer protection
regulations, at which time this provision becomes effective.
Effective Date
Generally January 1, 1998.
updates for ambulatory surgical services
Present Law
Under current law, payments to ambulatory surgical centers
are made on the basis of prospectively determined rates,
determined by the Secretary for each covered procedure.
Payments are updated annually for inflation.
Committee Provision
The Committee bill would reduce updates for payments to
ambulatory surgical centers by two percentage points each year
for 1998 through 2002.
Effective Date
January 1, 1998.
payments for outpatient prescription drugs
Present Law
Under current law, Medicare provides a very limited
outpatient prescription drug benefit (however, Medicare
generally pays for drugs provided to a beneficiary while in a
hospital). With some exceptions, Medicare pays only for
outpatient drugs that cannot be ``self-administered''--for
example, drugs that must be administered directly by a
physician in his office, such as intravenous drugs for cancer
therapy; or require specialized equipment in the home, such as
infusion therapy.
Reasons for Change
Medicare pays ``reasonable charges'' for outpatient drugs,
which in practice is the manufacturers' recommended price. The
Inspector General of the Department of Health and Human
Services has found that Medicare pays substantially more than
most other payers for prescription drugs.
Committee Provision
The Committee provision would specify that in any case
where payment is not made on a cost or prospective payment
basis, the payment could not exceed 95 percent of the average
wholesale price, as specified by the Secretary. In any case,
the amount payable for any drug or biological shall not exceed
the amount paid on May 1, 1997, increased annually by consumer
price index.
The Secretary would be required to conduct such studies or
surveys to determine the average wholesale price or other
appropriate price of outpatient prescription drugs and report
to Congress within six months following the date of enactment.
If the Secretary further adjusts the payment amounts for
outpatient prescription drugs, the Secretary is authorized to
pay a dispensing fee to pharmacies.
Effective Date
On enactment.
CHAPTER 3--PART B PREMIUM AND RELATED PROVISIONS
part b premium
Present Law
Part B of Medicare is a voluntary program for which
beneficiaries pay a monthly premium. When Medicare was
established in 1965, the Part B monthly premium was set at an
amount to cover one-half of the Part B program costs, with the
remainder of funding from general revenues.
Under current law, Part B monthly premiums are required to
cover 25 percent of Part B program costs. However, this
provision expires effective for calendar year 1999. For
subsequent years,increases in the Part B premium are limited to
the cost-of-living adjustment for Social Security beneficiaries.
Reasons for Change
The Committee provision would establish the policy that
Part B premiums permanently cover 25 percent of Part B
spending.
Committee Provision
The Committee provision would establish permanently Part B
monthly premiums in law at 25 percent of Part B program costs.
Effective Date
January 1, 1998.
INCOME-RELATED PART B DEDUCTIBLE
Present Law
Part B of Medicare is a voluntary program. Beneficiaries
enrolled in Part B must pay the first $100 each year of the
costs of Part B covered services. This deductible amount is the
same for all beneficiaries regardless of income. The deductible
amount has been increased only three times since the inception
of the Medicare program: from 1966 to 1972 the deductible was
$50; from 1973 to 1981, $60; and from 1982 to 1990, $75.
Reasons for Change
There are many beneficiaries who can afford to pay more of
Part B program costs, and taxpayers should not be asked to
subsidize these beneficiaries. Moreover, a higher deductible
would make beneficiaries more conscious of the costs of medical
care, and encourage more prudent purchasing by beneficiaries of
medical services. Savings from this provision would be applied
to improving the financial status of the Part A (Hospital
Insurance) Trust Fund.
Committee Provision
The Committee provision would provide for an income-related
Part B deductible for individuals with incomes over $50,000 and
couples with incomes over $75,000. The Committee provision
would increase the amount of the deductible over the current
law amount of $100 by an amount equal to the amount Part B
premiums would be increased if there were a straight line phase
out of the Federal subsidy (currently 75 percent) for the Part
B premium. For individuals, this phase out would occur over the
income range of $50,000 to $100,000; for couples, $75,000 to
$125,000.
The Committee provision would require the Secretary to make
an initial determination of the amount of an individual's
adjusted gross income (AGI) by September 1 for the forthcoming
year, and notify each beneficiary subject to an increased
deductible. The beneficiary would have a 30-day period to
provide information on the beneficiary's anticipated AGI and
the Secretary would adjust the deductible amount. If it is
subsequently determined that a beneficiary's deductible amount
was too high and the beneficiary paid too much for medical
services, the Secretary would provide for repayment of the
difference. If the deductible amount was too low, and the
beneficiary paid too little for medical services, the Secretary
would seek recovery from the beneficiary.
For beneficiaries enrolled in Medicare Choice
organizations, the Secretary would reduce the monthly payment
by an amount the Secretary determines (on the basis of
actuarial value) to be the equivalent amount of the increase in
the deductible for a beneficiary. The Committee provision would
allow Medicare Choice organizations to recoup the amount of any
payment reduction from a beneficiary.
The Committee provision would require the Secretary to
transfer amounts equal to the reduction in payments under this
provision to the Part A (Hospital Insurance) Trust Fund.
Effective Date
January 1, 1998.
Subtitle H--Provisions Relating to Parts A and B
CHAPTER 1--SECONDARY PAYOR PROVISIONS
SECONDARY PAYOR PROVISIONS
Present Law
(a) Secondary Payer Extensions.--Generally, Medicare is the
``primary payer,'' that is, Medicare pays medical claims first,
with an individual's private or other public insurance only
responsible for claims not covered by Medicare. For certain
Medicare beneficiaries, however, the beneficiary's employer's
health insurance plan pays medical bills first (so-called
``primary payer''), with Medicare paying for any gaps in
coverage within Medicare's coverage limits (Medicare is the
``secondary payer''). Medicare is the secondary payer to
certain employer group health plans for: (1) aged beneficiaries
(age 65 and over); (2) disabled beneficiaries, and (3)
beneficiaries with end-stage renal disease (ESRD) during the
first 18 months of a beneficiary's entitlement to Medicare on
the basis of ESRD.
The Medicare secondary payer provision regarding aged
beneficiaries is permanent law. The Omnibus Budget
Reconciliation Act of 1993 (OBRA 93) extended the law making
Medicare the secondary payer for disabled and ESRD
beneficiaries through October 1, 1998.
(b) Data Match Program.--The Omnibus Budget Reconciliation
Act of 1989 (OBRA 89) authorized a ``data match'' program to
identify potential secondary payer situations. Medicare
beneficiaries are matched against data collected by Internal
Revenue Service and the Social Security Administration to
identify cases in which a working beneficiary (or working
spouse) may have employer-based health insurance coverage.
Cases of incorrect Medicare payments are identified and
recoveries of payments are sought. The authority for this
program expires on September 30, 1998.
(c) Recovery of Payments.--In many cases where Medicare
secondary payer recoveries are sought, claims have never been
filed with the primary payer. Identification of potential
recoveries under the data match process typically takes several
years--considerably in excess of the period many health plans
allow for claims filing. A 1994 appeals court decision held
that HCFA could not recover overpayments without regard to an
insurance plan's filing requirements. A 1994 appeals court
decision held that HCFA could not recover from third party
administrators of self-insured plans.
Reasons for Change
The Committee provision would provide for improved
operation of the secondary payer program.
Committee Provision
The Committee provision would:
(a) Make permanent law that Medicare is the secondary payer
for disabled beneficiaries who have employer-provided health
insurance; and make permanent law and extend to 30 months the
period of time employer health insurance is the primary payer
for ESRD beneficiaries;
(b) Make the data match program authority permanent law;
and
(c) Specify that the U.S. could seek to recover payments if
the request for payments was submitted to the entity required
or responsible to pay within three years from the date the item
or service was furnished. This provision would apply
notwithstanding any other claims filing time limits that may
apply under an employer group health plan. The provision would
apply to items and services furnished after 1990. The provision
should not be construed as permitting any waiver of the 3-year
requirement in the case of items and services furnished more
than 3 years before enactment.
The provision would permit recovery from third party
administrators of primary plans. However, recovery would not be
permitted where the third-party administrator would not be able
to recover the amount at issue from the employer or group
health plan for whom it provides administrative services due to
the insolvency or bankruptcy of the employer or plan.
The provision would clarify that the beneficiary is not
liable in Medicare secondary payer recovery cases unless the
benefits were paid directly to the beneficiary.
Effective Date
Generally on enactment.
CHAPTER 2--OTHER PROVISIONS
CONFORMING AGE FOR ELIGIBILITY UNDER MEDICARE
TO RETIREMENT AGE FOR SOCIAL SECURITY BENEFITS
Present Law
In 1983, Congress raised the eligibility age for Social
Security old-age cash benefits from age 65 to age 67, to be
phased in over a transition period from 2003 to 2027. However,
under current law, the age of entitlement for Medicare remains
unchanged at age 65.
Reasons for Change
The Committee provision will establish a consistent
national policy on eligibility for both Social Security old-age
pension benefits and Medicare. Although this provision will not
produce any savings that apply to the Committee's
reconciliation instructions, this provision will improve the
long-term solvency of the Hospital Insurance (Part A) Trust
Fund.
Committee Provision
The Committee provision amends the relevant sections of the
Social Security Act to raise the age of eligibility for
Medicare benefits from age 65 to age 67 over the years 2003 to
2027 in the same increments as for Social Security old-age
pensions as detailed in section 216(l)(1)) of the Social
Security Act.
INCREASE CERTIFICATION PERIOD FOR ORGAN PROCUREMENT ORGANIZATIONS
Present Law
Section 1138(b) of the Social Security Act requires that
the Secretary can make Medicare and Medicaid payments for organ
procurement costs to organ procurement organizations (OPOs)
operating under Section 371 of the Public Health Service Act,
or having been certified or recertified by the Secretary within
the previous 2 years as meeting certain requirements.
Reasons for Change
OPOs compete during recertification periods for service
areas. This competition involves massive data gathering and
contracting for legal services in order to justify service
areas.
Committee Provision
The provision would amend current law to provide OPOs three
years between certifications or recertifications if the
Secretary deems the organizations as having a good record in
meeting standards to be a qualified OPO.
DIVISION 2--MEDICAID AND CHILDREN'S HEALTH INSURANCE INITIATIVES
Subtitle I--Medicaid
CHAPTER 1--MEDICAID SAVINGS
MANAGED CARE REFORMS
Present Law
To control costs and improve the quality of care,states are
increasingly delivering services to their Medicaid populations through
Health Maintenance Organizations (HMOs) and other managed care
arrangements. Medicaid programs use three main types of managed care
arrangements. These vary according to the comprehensiveness of the
services they provide and the degree to which they accept risk, and
include Primary Care Case Management (PCCM), fully capitated Health
Maintenance Organizations (HMOs) and Health Insuring Organizations
(HIOs), and partially capitated Pre-Paid Health Plans (PHPs). Under
PCCM a Medicaid beneficiary selects, or is assigned to a single primary
care provider, which provides or arranges for all covered services and
is reimbursed on a fee-for-service basis in addition to receiving a
small monthly ``management'' fee. Fully capitated plans contract on a
risk basis to provide beneficiaries with a comprehensive set of covered
services in return for a monthly capitation payment. Partially
capitated plans provide a less than comprehensive set of services on a
risk basis; services not included in the contract are reimbursed on a
fee-for-service basis. Under fully and partially capitated managed care
arrangements, beneficiaries have a regular source of coordinated care
and states have predictable, controlled spending per beneficiary. This
is in contrast to the traditional fee-for-service arrangements used by
Medicaid beneficiaries where Medicaid pays for each service used.
The Medicaid statute contains several provisions that limit
a state's ability to use managed care, including the freedom of
choice, statewideness, and comparability requirements. These
require that beneficiaries be free to receive services from the
provider of their choice and that all covered benefits in a
state plan be available throughout the state. States can bypass
these requirements by establishing voluntary fully- or
partially-capitated managed care plans. States are not,
however, authorized to establish voluntary primary care case
management (PCCM) programs. Voluntary managed care plans must
meet other requirements that govern how Medicaid managed care
plans operate. These include rules about solvency, enrollment
practices, procedures for protecting beneficiaries' rights, and
contracting arrangements of managed care plans.
As a proxy for quality, current law requires that plans
limit their enrollment of Medicaid and Medicare beneficiaries
to no more than 75% of total enrollment (known as the ``75/25
rule'). Publicly owned contracting plan, plans with more than
25,000 enrollees that serve a designated ``medically
underserved'' area and that previously participated in an
approved demonstration project, or plans that have had a
Medicaid contract for less than three years may obtain a waiver
of this requirement if they are making continuous and
reasonable efforts to comply with the 75% limit. In addition,
for some HMOs, the 75/25 rule has been bypassed through state
demonstration waivers or through specific federal legislation.
Beneficiaries must be permitted to disenroll from a managed
care plan without cause during the first month of enrollment
and may disenroll at any time for cause. Enrollees may be
locked into the same plan for up to six months if the plan is a
federally qualified (HMO). States may also guarantee
eligibility for up to six months for persons enrolled in
federally qualified HMOs. States may not restrict access to
family planning services under managed care.
To mandate that a beneficiary enroll in a managed care
entity, to operate a PCCM program, or to limit managed care
services to a specific population or geographic area, a state
must first obtain a waiver of the freedom-of-choice provision
of Medicaid law. These renewable waivers, as authorized under
section 1915(b) of Medicaid law, are initially good for two
years. Most states have received waivers of federal law to
implement managed care programs.
Reasons for Change
The Committee provision permits states to mandate
enrollment of individuals in managed care plans without the
need for waivers.
Committee Provision
The provision would give states the option of providing
benefits through a managed care entity, including a PCCM
program, without requiring a 1915(b) waiver of the
statewideness, comparability, and freedom of choice
requirements. States would be allowed to require that
individuals eligible for medical assistance under the state
plan enroll in a capitated managed care plan or with a primary
care case manager. The provision would also eliminate the 75/25
rule effective June 20, 1997. Individuals who are ``dually
eligible'' for Medicare and Medicaid and ``special needs''
children cannot be required to enroll in managed care, but may
do so on a voluntary basis.
Present Law
All state contracts with a managed care organization must
receive prior approval from the Secretary if expenditures are
expected to be over $100,000.
Committee Provision
The provision would raise the threshold for federal review
of managed care contracts from $100,000 to $1,000,000.
Present Law
In order to operate a PCCM system, states must obtain a
waiver of the freedom-of-choice provision of Medicaid law. The
waiver allows states to restrict the provider from whom a
beneficiary can obtain services. Except in the case of an
emergency, the beneficiary may obtain other services, such as
specialty physician and hospital care, only with the
authorization of the primary care provider. The aim of the
program is to reduce the use of unnecessary services and
provide better overall coordination of beneficiaries' care.
Reasons for Change
The Committee provision would establish rules for using
primary care case management.
Committee Provision
The provision establishes a definition of PCCM, sets
contractual requirements for PCCM arrangements, adds PCCM
services to the list of Medicaid covered services, and repeals
waiver authorization for PCCM.
Primary Care Case Manager means a provider that has entered
into a primary case management contract with the state agency
and that is a physician, a physician group practice, or an
entity employing or having other arrangements with physicians
who provide case management services or, at state option, a
nurse practitioner, a certified nurse-midwife, or a physician
assistant.
States would be permitted to mandate enrollment in PCCM or
other managed care arrangements if a Medicaid beneficiary had a
choice of at least two entities or managers and other
conditions were met. States would be permitted to require
beneficiaries to remain in a managed care arrangement for up to
six months; states would also be permitted to guarantee six
months of eligibility for enrollees. Prior to establishing a
mandatory managed care requirement, a state would be required
to provide for public notice and comment.
The payment limit and actuarial soundness standards would
be modified to require that capitated payment amounts be set at
rates that have been determined, by an actuary meeting the
standards of qualification and practice established by the
Actuarial Standards Board, to be sufficient and not excessive
with respect to the estimated costs of services provided.
Present Law
The Medicaid statute includes a number of provisions
intended to improve quality of care in prepaid programs and to
protect beneficiaries. States are required to obtain an
independent assessment of the quality of services furnished by
contracting HMOs and pre-paid health plans (those offering a
non-comprehensive set of services under partial capitation),
using either a utilization and quality control peer review
organization (PRO) under contract to the Secretary or another
independent accrediting body. In addition, states are
prohibited from contracting with an organization which is
managed or controlled by, or has a significant subcontractual
relationship with, individuals or entities potentially
excludable from participating in Medicaid or Medicare. States
are required to collect sufficient data on HMO enrollees''
encounters with physicians to identify the physicians
furnishing services to Medicaid beneficiaries. As a proxy for
quality, federal law requires that less than 75% of a managed
care organization's enrollment must be Medicaid and Medicare
beneficiaries. For some HMOs, the 75/25 rule has been bypassed
through state demonstration waivers or through specific federal
legislation. Some HMOs are federally qualified--determined by
the Secretary to meet standards set forth in title XIII of the
Public Health Service Act that includes quality standards.
Reasons for Change
The Committee provision establishes quality standards
including consumer protections.
Committee Provision
The provision would require the state agency to develop and
implement a quality assessment and improvement strategy
consistent with standards that the Secretary shall monitor.
These shall include standards for access to care so that
covered services are available within reasonable time frames
and in a manner that ensures continuity of care and adequate
primary care and specialized services capacity. Procedures for
monitoring and evaluating the quality and appropriateness of
care and services to beneficiaries shall include requirements
for provision of quality assurance data to the state using the
data and information that the Secretary shall specify with
respect to entities contracting under section 1876 or
alternative data requirements approved by the Secretary;
regular and periodic examination of the scope and content of
the quality improvement strategy; and other aspects of care and
service directly related to the improvement of quality of care
including grievance procedures and marketing and information
standards. Each year the Secretary shall conduct validation
surveys of managed care organizations serving Medicaid
beneficiaries to assure the quality and completeness of data
reporting.
Entities entering into such agreements shall be required to
submit to the state agency information that demonstrates
improvement in the care delivered to members; to maintain an
internal quality assurance program consistent with standards
the Secretary shall establish in regulations; to provide
effective procedures for hearing and resolving grievances
between the entity and its members; and that adequate provision
is made with respect to the solvency, financial reporting, and
avoidance of waste, fraud, and abuse by those entities.
The PCCM contract shall provide for reasonable and adequate
hours of operation including 24-hour availability of
information, referral, and treatment with respect to medical
emergencies; restriction of enrollment to individuals residing
sufficiently near a service delivery site of the entity to be
able to reach that site within a reasonable time using
available and affordable modes of transportation; employment
of, or contracts or other arrangements with sufficient numbers
of physicians and other appropriate health care professionals
to ensure that services under the contract can be furnished to
enrollees promptly and without compromise to quality of care;
prohibition on discrimination on the basis of health status or
requirements for health services in enrollment, disenrollment,
and reenrollment; and the right to terminate enrollment at any
time for cause. In assuring beneficiaries' access to emergency
care, the ``prudent layperson'' standard shall apply.
Managed care plans would be required to pay affiliated
providers in a timely manner for items and services provided to
Medicaid beneficiaries. Payments to federally qualified health
centers and rural health centers must be made on a cost
basiscomparable to what other providers are paid.
If a state uses an enrollment broker, the broker must be
independent of any MCO or PCCM that provides coverage to
Medicaid beneficiaries in that state.
Subchapter B--Management Flexibility Reforms
ELIMINATION OF BOREN AMENDMENT REQUIREMENTS FOR PROVIDER PAYMENT RATES
Present Law
The Boren amendments require states to pay hospitals,
nursing facilities, and intermediate care facilities for the
mentally retarded (ICFs/MR) rates that are ``reasonable and
adequate'' to cover the costs which must be incurred by
``efficiently and economically operated facilities.'' In
several states, providers and provider organizations challenged
state policies in federal courts alleging that the state's
procedures for reimbursement violated requirements of the Boren
amendments. Following a Supreme Court decision that the
amendments created enforceable rights for providers, a number
of courts found that state systems failed to meet the test of
``reasonableness'' and some states had to increase payments to
these providers.
Reasons for Change
The Committee provision would repeal the ``Boren
Amendment'' provisions.
Committee Provision
The provision would repeal the present law provisions for
payments for hospital services, nursing facilities services,
services of intermediate care facilities for the mentally
retarded and home and community-based services. States would
provide for a public notice process for reimbursement
methodology and proposed payment rates for these institutional
providers. Providers, beneficiaries, and their representatives,
and other concerned individuals are to be given an opportunity
to review proposed payment rates and the methodologies
underlying the establishment of such rates. Such notice shall
describe how the rate-setting methods used by the states will
affect access to services, quality of services and safety of
beneficiaries. Final payment rates, the methodologies
underlying the establishments of such rates, and justifications
for such rates that may take into account public comments
received by the state (if any) shall be published in 1 or more
daily newspapers of general circulation in the state or in any
publication used by the state to publish state statutes or
rules.
Not later than four years after enactment of this act, the
Secretary shall study the effect on access to services, the
quality of services, and the safety of beneficiaries and submit
a report to Congress with conclusions from the study, together
with any recommendations.
MEDICAID PAYMENT RATES FOR QUALIFIED MEDICARE BENEFICIARIES
Present Law
State Medicaid programs are required to pay Medicare cost-
sharing charges for individuals who are beneficiaries under
both Medicaid and Medicare (dual eligibles) and for qualified
Medicare beneficiaries (QMBs). QMBs are individuals who have
incomes not over 100% of the poverty level and who meet
specified resources standards. The amount of required payment
has been the subject of some controversy.
State Medicaid programs frequently have lower payment rates
for services than the rates that would be paid under Medicare.
Program guidelines permit states to either (1) pay the full
Medicare deductible and coinsurance amounts or (2) pay cost-
sharing charges only to the extent that the Medicare provider
has not received the full Medicaid rate for an item or service.
Some courts have forced state Medicaid programs to reimburse
Medicare providers to the full Medicare allowable rates for
services provided to QMBs and dually eligible individuals.
Reasons for Change
The Committee provision would clarify that state Medicaid
programs could limit Medicare cost-sharing to amounts that do
not exceed Medicaid payment rates.
Committee Provision
A state is not required to provide any payment for any
expenses incurred relating to payment for a coinsurance or
copayment for Medicare cost-sharing if the amount of the
payment under title XVIII for the service exceeds the payment
amount that otherwise would be made under the state plan. The
amount of payment made under title XVIII plus the amount of
payment (if any) under the state plan shall be considered to be
payment in full for the service, the beneficiary shall not have
any legal liability to make payment to the provider for the
service, and any lawful sanction that may be imposed upon a
provider for excess charges under this title or title XVIII
shall apply to the imposition of any charge on the individual
in such case. This shall not be construed as preventing payment
of any Medicare cost-sharing by a Medicare supplemental policy
on behalf of an individual.
NO WAIVER REQUIRED FOR PROVIDER SELECTIVITY
Present Law
Generally, Medicaid beneficiaries have freedom of choice of
providers; they may obtain services from any person,
institution, or organization that undertakes to provide the
services and is qualified to perform the service. States may,
under specified conditions, purchase laboratory services or
medical devices through special arrangements such as a
competitive bidding process. Otherwise, to restrict the
providers from which a beneficiary may obtain services, a state
must obtain a waiver of the freedom of choice requirement.
Committee Provision
States would be permitted to enter into exclusive contracts
with selected providers at negotiated rates without the need
for a waiver.
Subchapter C--Reduction of Disproportionate Share Hospital Payments
DISPROPORTIONATE SHARE HOSPITAL (DSH) PAYMENTS
Present Law
States are required to make adjustments to the payment
rates of certain hospitals that treat large numbers of low
income and Medicaid patients. The law sets minimum standards by
which a hospital may qualify as a disproportionate share (DSH)
hospital, and minimum payments to be made to those hospitals.
States are generally free to exceed federal minimums in both
designation and payments up to certain ceilings. Each year
states are designated as either ``high'' DSH states or ``low''
DSH states based on the percentage of total medical assistance
payments for DSH adjustments in the prior year. States making
DSH payments in excess of 12% of medical assistance are
designated ``high'' DSH and those paying less than 12% of
medical assistance for DSH are designated as low DSH. Total
disproportionate share payments to each state are limited to a
published allotment amount that can be no more than 12% of
medical assistance payments in states designated as ``low'' DSH
states, and in states designated as ``high'' DSH states the
amount of payments in 1992. Payments to individual hospitals
may be no more than the cost of care provided to Medicaid
recipients and individuals who have no health insurance or
other third-party coverage for services during the year (net of
non-disproportionate share Medicaid payments and other payments
by uninsured individuals). A hospital may not be designated as
a DSH hospital by a state unless it serves a minimum of 1%
Medicaid clients among their caseload.
Reasons for Change
Although the history of the DSH program dates back to 1981
as part of the ``Boren amendment'' reforms, the cost of DSH
payments did not become significant until 1990. Between 1990
and 1995, federal and state DSH payments grew from $960 million
to $19 billion or 1,879 percent. While DSH growth has
moderated, both the HCFA actuaries and CBO analysts believe
that DSH spending will again accelerate.
While other methods of leveraging federal dollars appear to
have been somewhat abated, some states have dramatically
increased federal funding by making claims for services in
mental health facilities.
Committee Provision
This provision would lower the DSH allotments by imposing
freezes, making graduated proportional reductions, and reducing
payments by amounts claimed for mental health services.
States would be restricted in providing DSH payments to
Institutes for Mental Diseases (IMDs).
DSH allotments for each state for years after 2002 would be
equal to the allotment for the previous year multiplied by the
percentage change in the consumer price index for medical
services.
A state must develop and report to the Secretary a
methodology for prioritizing payments to disproportionate share
hospitals, including children's hospitals, on the basis of the
proportion of low-income and Medicaid patients served by such
hospitals. The state shall provide an annual report to the
Secretary describing the disproportionate share payments to
high-volume disproportionate share hospitals.
CHAPTER 2--EXPANSION OF MEDICAID ELIGIBILITY
STATE OPTION TO PERMIT WORKERS WITH DISABILITIES TO BUY INTO MEDICAID
Present Law
States must continue Medicaid coverage for ``qualified
severely impaired individuals under the age of 65.'' These are
disabled and blind individuals whose earnings reach or exceed
the SSI benefit standard. (The current law threshold for
earnings is $1,053 per month.) This special eligibility status
applies as long as the individual (1) continues to be blind or
have a disabling impairment; (2) except for earnings, continues
to meet all the other requirements for SSI eligibility; (3)
would be seriously inhibited from continuing or obtaining
employment if Medicaid eligibility were to end; and (4) has
earnings that are not sufficient to provide a reasonable
equivalent of benefits from SSI, state supplementary payments
(if provided), Medicaid, and publicly funded attendant care
that would have been available in the absence of those
earnings. To implement the fourth criterion, the Social
Security Administration compares the individual's gross
earnings to a ``threshold'' amount that represents average
expenditures for Medicaid benefits for disabled SSI cash
recipients in the individual's state of residence.
Committee Provision
States would have the option of allowing disabled SSI
beneficiaries with incomes up to 250% of poverty to ``buy
into'' Medicaid by paying a premium. Premium levels would be on
a sliding scale, based on the individual's income as determined
by the state.
12 MONTH CONTINUOUS ELIGIBILITY FOR CHILDREN
Committee Provision
At the option of the state, the state may provide that a
child may be eligible for benefits for 12 months' continuous
coverage.
CHAPTER 3--PROGRAMS OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE)
ESTABLISHMENT OF PACE PROGRAM AS MEDICAID STATE OPTION
Present Law
OBRA 86 required the Secretary to grant waivers of certain
Medicare and Medicaid requirements to not more than 10public or
non-profit private community-based organizations to provide health and
long-term care services on a capitated basis to frail elderly persons
at risk of institutionalization. These projects, known as the Programs
of All Inclusive Care for the Elderly, or PACE projects, were intended
to determine whether an earlier demonstration program, ON LOK, could be
replicated across the country. OBRA 90 expanded the number of
organizations eligible for waivers to 15.
Committee Provision
States would be permitted to offer PACE to Medicaid
beneficiaries who were also eligible for Medicaid. The PACE
provision is described in Medicare.
CHAPTER 4--MANAGEMENT AND PROGRAM REFORMS
ELIMINATION OF REQUIREMENT TO PAY FOR PRIVATE INSURANCE
Present Law
States are required to identify cases in which it would be
cost-effective to enroll a Medicaid-eligible individual in a
private insurance plan and, as a condition of eligibility,
require the individual to enroll in the plan.
Committee Provision
Identification and enrollment requirements would be
eliminated. States would continue to have the option of
purchasing private insurance.
ELIMINATION OF OBSTETRICAL AND PEDIATRIC PAYMENT RATE REQUIREMENTS
Present Law
States are required to assure adequate payment levels for
obstetrical and pediatric services. For this purpose, states
must provide annual reports to the Secretary on their payment
rates for these services.
Committee Provision
These reporting requirements would be eliminated.
PHYSICIAN QUALIFICATION REQUIREMENTS
Present Law
Medicaid law establishes special minimum qualifications for
a physician who furnishes services to a child under age 21 or
to a pregnant woman.
Committee Provision
The current law provision would be repealed.
EXPANDED COST-SHARING REQUIREMENTS
Present Law
States are permitted to impose nominal cost-sharing charges
with certain exceptions. No charges may be imposed on services
that are provided to children under age 18; related to
pregnancy; provided to inpatients in hospitals, nursing
facilities, ICFs/MR, or other medical institution if the
patients are required to spend all their income for medical
expenses except for the amount exempted for personal needs; or
on services that are emergency, family planning, or hospice
services. States may not impose cost-sharing charges on
categorically needy enrollees in health maintenance
organizations.
Reasons for Change
Personal responsibility when participating in any public
benefit program is vital and should be encouraged. Cost-sharing
is an important method used to encourage use of primary and
preventive care and discourage unnecessary or less economical
care. Cost-sharing may discourage inappropriate use of services
through inappropriate health care settings.
As Medicaid coverage is extended to families which are not
below the poverty level, cost-sharing can have a positive
affect on participation. The Committee received testimony that
cost-sharing helps overcome the stigma of Medicaid as a welfare
program and increases the use of preventive services.
Committee Provision
States would be permitted to impose limited cost-sharing on
services provided to individuals whom federal law does not
require the state to cover. No additional cost-sharing would be
allowed for individuals who are required to be covered under
federal law except as allowed under current law or any waiver
granted to any state. States would be permitted to impose
nominal copayments on HMO enrollees as allowed in fee-for-
service.
If any charges are imposed under the state plan for cost-
sharing, such cost-sharing shall be pursuant to a public
schedule and reflect economic factors, employment status, and
family size. Total cost-sharing for a family with income less
than 150 percent of the federal poverty level is subject to an
annual limit of 3 percent of gross earnings less child care
expenses. Total cost-sharing for a family with income greater
than 150 percent but less than 200 percent of the poverty level
is subject to an annual limit of 5 percent of gross earnings
less child care expenses. Existing waivers, if any, which have
been approved by the Secretary and may allow for greater cost-
sharing are not subject to this limit.
Cost-sharing includes copayments, deductibles, coinsurance,
enrollment fees, premiums, and other charges for the provision
of health care goods and services.
Cost-sharing charges cannot be counted as state
expenditures for purposes of matching requirements.
PENALTY FOR FRAUDULENT ELIGIBILITY
Present Law
A person who knowingly and willfully disposes of assets,
including transfers to certain trusts, in order to obtain
Medicaid eligibility for nursing home care is liable for
acriminal fine and/or imprisonment, if the disposition of assets
results in a period of ineligibility for such Medicaid benefits.
Committee Provision
The provision would provide that a person who for a fee
assists an individual to dispose of assets in order to obtain
Medicaid eligibility for nursing home care would be subject to
criminal liability if the individual disposes of assets and a
period of ineligibility is imposed against such individual.
ELIMINATION OF WASTE, FRAUD, AND ABUSE
Committee Provision
The Committee provides a number of reforms to eliminate
waste, fraud, and abuse in the Medicaid program including a ban
on spending for nonhealth related items not covered in the
state plan. It requires disclosure of information and surety
bond requirements for suppliers of durable medical equipment
and home health agencies. The intent of the surety bond
requirement is to prevent fraudulent providers and suppliers
from entering the Medicaid program. Surety bonds should not be
used to discriminate against minority providers and suppliers.
STUDY ON EPSDT BENEFITS
Present Law
States are required to provide early and periodic
screening, diagnostic, and treatment services (EPSDT) to
Medicaid beneficiaries under age 21. Such services include
screening, vision, dental, hearing services. A state is
required to provide other necessary health care services to
correct or ameliorate defects and conditions discovered by the
screening services, whether or not the services are covered
under the state's Medicaid plan.
Committee Provision
Not later than one year after enactment, the Secretary, in
consultation with governors, state Medicaid and maternal and
child health director, the Institute of Medicine, beneficiaries
and their representatives, and the American Academy of
Pediatrics, would be required to provide for a study on EPSDT
benefits.
CHAPTER 5--MISCELLANEOUS
INCREASED FMAPS
Present Law
Under Medicaid law, the District of Columbia is treated as
a state. Each state is required to pay 40% of the non-federal
share of Medicaid expenditures. Under this rule, a state can
require local jurisdictions to share in Medicaid costs. Each
state must, however, assure that the lack of adequate funds
from local sources will not result in diminished services in
the state.
The federal government shares in the cost of Medicaid items
and services according to a statutory formula designed to pay a
higher matching percentage to states with lower per capita
incomes relative to the national average per capita income. The
federal share of a state's expenditures for Medicaid items and
services is called the federal medical assistance percentage
(FMAP). The law establishes a minimum FMAP of 50% and a maximum
of 83%. For the District and 11 states, the FMAP is 50%.
Reasons for Change
The Committee will temporarily increase the federal share
of the District's Medicaid program.
Committee Provision
The FMAP for the District would be increased to 60% for
each of the fiscal years 1998-2000.
Present Law
The federal government shares in the cost of Medicaid items
and services according to a statutory formula designed to pay a
higher matching percentage to states with lower per capita
incomes relative to the national average per capita income. The
federal share is called the federal medical assistance
percentage (FMAP). The law establishes a minimum FMAP of 50%
and a maximum of 83% though currently, the highest match rate
is 79%. For Alaska, 10 other states, and the District of
Columbia, the match rate is 50%.
Committee Provision
The FMAP for Alaska would be increased to 59.8% for each of
fiscal years 1998-2000. This increase would be offset by a
decrease in the proposed FMAP increase for the District of
Columbia (to 60%).
Reasons for Change
Alaska has higher costs of living. The national average
FMAP is 59.8%.
INCREASE IN PAYMENT CAPS FOR TERRITORIES
Present Law
For the commonwealths and territories, the federal matching
rate is 50 percent. The total amount which may be made is
capped at annual maximum fixed amounts beginning in FY 1994 as
specified in section 1108 of the Social Security Act. The
limits are increased annually by the percentage increase in the
medical care component of the consumer price index.
Puerto Rico: $116,500,000 in FY 1994, rounded to the
nearest $100,000. Virgin Islands: $3,837,000, rounded to the
nearest $10,000.
Guam: $3,685,000, rounded to the nearest $10,000.
Northern Mariana Islands: $1,100,000, rounded to the
nearest $10,000. American Samoa: $2,140,000, rounded to the
nearest $10,000.
Reasons for Change
The Committee provision will raise the current Medicaid
caps on the territories.
Committee Provision
For FY 1998 and each fiscal year thereafter, the caps are
raised and indexed from the FY 1997 levels for the
commonwealths and territories by the following amounts:
Puerto Rico: $30 million.
Virgin Islands: $750,000.
Guam: $750,000.
Northern Mariana Islands: $500,000.
American Samoa: $500,000.
The 50 percent match rate and indexing under current law
are maintained.
COMMUNITY-BASED MENTAL HEALTH SERVICES
Committee Provision
The Committee provides a definition for outpatient and
intensive community-based mental health services to include
psychiatric rehabilitation, day treatment, intensive in-home
services for children, assertive community treatment,
therapeutic out-of-home placements (excluding room and board),
clinic services, partial hospitalization, and targeted case
management.
OPTIONAL MEDICAID COVERAGE OF CERTAIN CDC-SCREENED BREAST CANCER
PATIENTS
Present Law
Medicaid covers medically necessary services for
beneficiaries who meet the program's categorical and financial
requirements. The Centers for Disease Control and Prevention
screens uninsured women for breast cancer.
Reasons for Change
Uninsured women diagnosed with cancer have difficulty
obtaining appropriate and timely treatment.
Committee Provision
Medicaid eligibility standards would be expanded to include
women who are under age 65, who have been diagnosed with breast
cancer, and who have no health insurance coverage.
TREATMENT OF STATE TAXES IMPOSED ON CERTAIN HOSPITALS THAT PROVIDE FREE
CARE
Present Law
States may not claim for federal matching payments state
spending generated from provider-related donations or health
care taxes that are not broad based. Health care provider-
specific taxes are not considered broad-based and, thus, may
not be used to claim federal matching payments for Medicaid
spending.
Committee Provision
This provision would amend the definition of the term
``broad-based health care related tax'' to specify that taxes
that exclude hospitals which are exempt from taxation under
Section 501(c)(3) of the Internal Revenue code and do not
accept Medicaid or Medicare reimbursement would qualify for
federal matching payments if used as state Medicaid spending.
The provision would also prohibit states from claiming federal
matching payments for state spending generated form health care
taxes applied to these facilities.
TREATMENT OF VETERANS' PENSIONS UNDER MEDICAID
Present Law
Generally, Medicaid beneficiaries in nursing homes
contribute most of their incomes to the cost of care except for
an allowance for a dependent in the community. Medicaid law
requires that at least $30 per month be reserved from an
institutionalized recipient's income as a personal allowance
for items and services not included in the institution's
charges. By law, Veterans'' Administration pension payments to
a Medicaid beneficiary who is in a nursing home are limited to
$90 per month and the full amount of the payment (except for a
dependent allowance) is protected for personal needs. This
statutory provision expires Sept. 30, 1997.
Committee Provision
The amendment would allow State Veterans Homes to collect
from Medicaid eligible veteran residents amounts in excess of
$90.00 per month to defray the cost of care, but excluding
amounts of income attributable to a dependent.
EFFECTIVE DATE
Committee Provision
Except as otherwise specifically provided, the provisions
of and amendments by this subtitle shall apply on and after
October 1, 1997. There is an extension for state law amendment
for a state that has a two-year legislative session.
Subtitle J--Children's Health Insurance Initiatives
ESTABLISHMENT OF CHILDREN'S HEALTH INSURANCE INITIATIVES
Present Law
Medicaid, Title XIX of the Social Security Act, provides
almost 21 million children with health coverage. States
choosing to participate in the Medicaid program are required to
cover children in families who would have qualified to receive
AFDC under the program rules in effect on August 22, 1996;
children under age 6 in families with income below 133% of the
federal poverty level; and children under age 14 in families
with income below 100% of the federal poverty level. Coverage
for children between the ages of 14 and 18 and in families with
income below 100% of the federal poverty level is being phased-
in through 2002. States also have the option to cover other
categories of low-income children under Medicaid and many have
done so. The costs of providing Medicaid coverage are shared
bythe states and the federal government. The federal share is
determined by a formula that takes into account the average per capita
income in the state relative to the national average. States with lower
per capita incomes have higher federal matching rates. These federal
matching rates range from a floor of 50% to almost 80%. All 50 states
currently participate in Medicaid.
The Maternal and Child Health Block Grant is authorized
under Title V of the Social Security Act to improve the health
of all mothers and children consistent with the goals
established under the Public Health Service Act. The program
makes block grants to states to enable them to coordinate
programs, develop systems, and provide a broad range of direct
health services. The major component of the MCH block grant
requires states to contribute $3 for every $4 of federal block
grant funds collected.
Committee Provision
The provision would establish a new title of the Social
Security Act, Title XXI, Child Health Insurance Initiatives.
The new title would provide an entitlement to states for funds
for 1998 through 2007 to expand access to health insurance for
eligible children. Participating states would be required to
extend Medicaid coverage to children under age 19 in families
with income below 100% of the federal poverty level and to
assure that funds provided under this section cover low-income
children before covering higher income children. Total funding
authorized and appropriated under this provision would be $2.5
billion in 1998, $3.2 billion in 1999, $3.2 billion in 2000,
$3.2 billion in 2001, $3.9 billion in 2002, and for each of the
fiscal years 2003 through 2007, $4.58 billion and would be
available without fiscal year limitation. Participating states
would choose whether to receive their allotted funds through
Medicaid or another program meeting the requirement of Title
XXI and would be required to use 1% of their allotted funds for
Medicaid outreach and public awareness campaigns to encourage
employers to provide health insurance for children.
States participating in Title XXI would be required to
submit to the Secretary, no later than March 31 of any fiscal
year (or, in the case of fiscal year 1998, October 1, 1997), an
outline that identifies which option the State intends to use
to provide coverage under this section (Medicaid or other
qualified program), describes how such coverage shall be
provided, and includes other information as the Secretary may
require. The outline would also include: (a) the eligibility
standards for the program, (b) the methodologies to be used to
determine eligibility, (c) the procedures to be used to ensure
only eligible children receive benefits and that the
establishment of a program under this section does not reduce
the number of children who currently have insurance coverage,
and (d) a description of how the state would ensure that
Indians are served by a program under this title.
The funds would be distributed in the following manner.
States would receive 1% of their allotted funds prior to the
beginning of the fiscal year for the purpose of conducting
outreach activities. During the year, the states would receive
quarterly payments in an amount equal to the Federal Medicaid
medical assistance percentage of the cost of providing health
insurance coverage for an eligible low-income child and any
applicable bonuses based on estimates by the states. The
Secretary could increase or reduce payments as necessary to
adjust for any overpayment or underpayment for prior quarters.
The remaining child health allotment funds would be divided
into two pools: a basic allotment pool and a new coverage
incentive pool. In 1998, the basic allotment pool would be
comprised of 85% of funds remaining after subtracting the costs
of the Medicaid expansions for children under age 19, the
Medicaid 12 months continuous eligibility option and the
increase in enrollment as a result of the 1% outreach
requirement from total authorized funds. The remaining funds
would become the new coverage incentive pool. For years
thereafter, the Secretary would make annual adjustments to the
size of the two pools in order to provide sufficient basic
allotments and new coverage incentives.
A set aside of .25% of the basic allotment pool would be
established for the territories. The rest of the basic
allotment pool would be allotted to each state based on the
average percentage of all children in families with income
below 200% of poverty that reside in the state during the three
fiscal years beginning on October 1, 1992 (as reported in the
Current Population Surveys of March 1994, 1995 and 1996).
Amounts allotted to a state would be available the state for a
period of three years beginning with the fiscal year for which
the allotment made.
States would be eligible for bonus payments for the number
of low income children covered under either Medicaid or other
state-run health insurance programs who are not in a required
Medicaid coverage group during 1996 in an amount equal to 5% of
the cost of providing health insurance coverage. This 5% bonus
would come from the state's basic allotment pool. Performance
bonus payments in an amount of 10% of the cost of providing
health insurance coverage for newly covered children in excess
of those covered in 1996 would also be available with funds
coming from the new coverage incentive pool.
States extending coverage for previously uninsured children
could purchase employer-sponsored health insurance on behalf of
eligible children or provide for insurance through other plans.
If a state chooses to provide health insurance under plans
other than employer-sponsored plan, it must provide for health
insurance coverage that is at least the actuarial equivalent of
those provided under the Federal Employees Health Benefits
Program plans as provided in that state and must be certified
by the Secretary as meeting this standard.
Total amounts paid to a state under this title would not be
allowed to exceed 85% of the total cost of a state program
conducted under this title. Funds under the non-Medicaid
optioncould be used to subsidize the payment of employee contributions
for health insurance for a dependent child under an employer sponsored
plan or to provide an FEHBP equivalent plan.
States would not be eligible to receive funds under this
title unless, in fiscal year 1998, state spending on children's
health care is no less than the amounts spent in 1996. For
years thereafter, states spending on children's health care
must be no less than such spending in 1996 increased by a
Medicaid child population growth factor as determined by the
Secretary.
Funds may not be used to cover the costs of abortions
except in cases of rape or incest or when necessary to save the
women's life. No more than 10% of funds under this title would
be allowed for the administrative costs of the program.
Provisions of Title IV of the Personal Responsibility and
Work Opportunity Reconciliation Act of 1996, prohibiting the
receipt of public benefits for certain legal immigrants for a
period of five years, would not be applied to benefits provided
under this section.
Under this program the Secretary would not approve any
amount in excess of a state's allotment and would make
adjustments in the federal share of the costs to ensure the
caps are not exceeded. The title would not establish an
entitlement for individuals to any health insurance or
assistance or services provided by a state program. A state
would be allowed to adjust the applicable eligibility criteria
or other program characteristics if the state determines that
funds allotted are not sufficient to provide health insurance
coverage for all low-income children.
The following sections of Title XI would apply to States'
Child Health Assistance Insurance Programs as they do under
Title XIX: Section 1116 relating to administrative and judicial
review, Section 1124 relating to disclosure of ownership and
related information, Section 1126 relating to disclosure of
information about certain convicted individuals, Section 1128A
relating to criminal penalties for certain additional charges,
Section 1128B(d) relating to criminal penalties, and Section
1132 relating to periods within which claims must be filed,
Section 1902(a)(4)(C) relating to conflict of interest
standards, Section 1903(e) relating to limitations on payment,
Section 1903(w) relating to limitations on provider taxes and
donations, Section 1905(a)(B) relating to exclusion of care or
services for individuals under the age of 65 in IMDs from the
definition of medical assistance, Section 1921 relating to
state licensure, Sections 1902(a)(25), 1912(a)(1)(A), and
1903(o) relating to third party liability.
Participating states would be required to provide an annual
assessment of the operation of the program funded under this
title that includes a description of the progress made in
providing health insurance coverage for low income children.
The Secretary would be required to submit to Congress an annual
report and evaluation of the State programs based on the annual
assessment and would include any conclusions and
recommendations the Secretary considers appropriate.
Effective Date
October 1, 1997.
DIVISION 3--INCOME SECURITY AND OTHER PROVISIONS
Subtitle K--Income Security, Welfare-To-Work Grant Program, and Other
Provisions
CHAPTER 1--INCOME SECURITY
SSI ELIGIBILITY FOR ALIENS RECEIVING SSI ON AUGUST 22, 1996
Present Law
SSI. The Personal Responsibility and Work Opportunity
Reconciliation Act of 1996 (P.L. 104-193) bars most ``qualified
aliens'' from Supplemental Security Income (SSI) for the Aged,
Blind, and Disabled (sec. 402(a)). Current recipients must be
screened for continuing eligibility during a 1-year period
after enactment of the welfare law (i.e., by August 22, 1997).
The pending Fiscal Year 1997 supplemental appropriations bill
would extend this date until September 30, 1997.
Medicaid. States may exclude ``qualified aliens'' who
entered the United States before enactment of the welfare law
(August 22, 1996) from Medicaid beginning January 1, 1997 (sec.
402(b)). Additionally, to the extent that legal immigrants''
receipt of Medicaid is based only on their eligibility for SSI,
some will lose Medicaid because of their ineligibility for SSI.
Definitions and exemptions. ``Qualified aliens'' are
defined by P.L. 104-193 (as amended by P.L. 104-208) as aliens
admitted for legal permanent residence (i.e., immigrants),
refugees, aliens paroled into the United States for at least 1
year, aliens granted asylum or related relief, and certain
abused spouses and children.
Certain ``qualified aliens'' are exempted from the SSI bar
and the State option to deny Medicaid, as well as from certain
other restrictions. These groups include: (1) refugees for 5
years after admission and asylees 5 years after obtaining
asylum; (2) aliens who have worked, or may be credited with, 40
``qualifying quarters.'' As defined by P.L. 104-193, a
``qualifying quarter'' is a 3-month work period with sufficient
income to qualify as a social security quarter and, with
respect to periods beginning after 1996, during which the
worker did not receive Federal means-based assistance (Sec.
435). The ``qualifying quarter'' test takes into account work
performed by the alien, the alien's parent while the alien was
under age 18, and the alien's spouse (provided the alien
remains married to the spouse or the spouse is deceased); and
(3) veterans, active duty members of the armed forces, and
their spouses and unmarried dependent children.
Committee Provision
Legal noncitizens who were receiving SSI benefits on August
22, 1996 (the date of enactment of the welfare reform law)
would remain eligible for SSI, despite underlying restrictions
in the Personal Responsibility and Work Opportunity Act. This
section also specifies that Cuban and Haitian entrants are to
be considered qualified aliens, thereby continuing the SSI and
Medicaid eligibility of those who were receiving SSI benefits
on August 22, 1996.
Effective Date
August 22, 1996.
EXTENSION OF ELIGIBILITY PERIOD FOR REFUGEES AND CERTAIN OTHER
QUALIFIED ALIENS FROM 5 TO 7 YEARS FOR SSI AND MEDICAID
Present Law
Current law provides a 5-year exemption from: (1) the bar
against SSI and Food Stamps; and (2) the provision allowing
States to deny ``qualified aliens'' access to Medicaid, TANF,
and Social Services Block Grant for three groups of aliens
admitted for humanitarian reasons. These groups are: (1)
refugees, for 5 years after entry; (2) asylees, for 5 years
after being granted asylum; and (3) aliens whose deportation is
withheld on the grounds of likely persecution upon return, for
5 years after such withholding.
Reasons for Change
The Committee proposal would extend the 5 year exemption
period to allow sufficient time to assimilate into the country.
Committee Provision
This change would lengthen the period during which welfare
eligibility is guaranteed to refugees, asylees, and aliens
whose deportation has been withheld from 5 years to 7 years.
Cuban and Haitian entrants would also be covered by this
provision.
Effective Date
August 22, 1996.
SSI ELIGIBILITY FOR PERMANENT RESIDENT ALIENS WHO ARE MEMBERS OF AN
INDIAN TRIBE
Committee Provision
Restrictions on SSI eligibility under welfare reform do not
apply to permanent resident aliens who are members of an Indian
tribe.
SSI ELIGIBILITY FOR DISABLED LEGAL ALIENS IN THE UNITED STATES ON
AUGUST 22, 1996
Committee Provision
Disabled legal aliens residing in the United States on
August 22, 1996 will be eligible for SSI benefits if they apply
for such benefits on or before September 30, 1997.
EXEMPTION FROM RESTRICTION ON SSI PROGRAM PARTICIPATION BY CERTAIN
RECIPIENTS ELIGIBLE ON THE BASIS OF VERY OLD APPLICATIONS
Committee Provision
Restrictions on SSI benefits shall not apply to any
individual who is receiving benefits under such program after
July 1996 on the basis of an application filed before January
1, 1979 and with respect to whom the Commissioner of Social
Security lacks clear and convincing evidence that such
individual is an alien ineligible for such benefits.
REINSTATEMENT OF ELIGIBILITY FOR BENEFITS
Committee Provision
This provision reinstates the linkage between SSI benefits
and Medicaid.
EXEMPTION FOR CHILDREN WHO ARE LEGAL ALIENS FROM 5-YEAR BAN ON MEDICAID
ELIGIBILITY
Committee Provision
The limitation on Medicaid eligibility shall not apply to
any alien lawfully residing in any state who has not attained
the age of 19 but only with respect to such alien's eligibility
for medical assistance under a state plan.
EFFECTIVE DATE
Committee Provision
The amendments made by this chapter shall take effect as if
they were included in the enactment of title IV of the Personal
Responsibility and Work Opportunity Act of 1996.
CHAPTER 2--WELFARE-TO-WORK GRANT PROGRAM
ESTABLISH ``WELFARE TO WORK'' GRANTS
Present Law
The law combines recent Federal funding levels for three
repealed programs (AFDC, Emergency Assistance, and JOBS) into a
single block grant ($16.5 billion annually through Fiscal Year
2002). Each State is entitled to the sum it received for these
programs in a recent year, but no part of the TANF grant is
earmarked for any program component, such as benefits or work
programs. The law also provides an average of $2.3 billion
annually in a child care block grant.
Reasons for Change
The Committee proposal will establish a new ``Welfare to
Work'' grant program.
Committee Provision
After reserving 1 percent of each year's appropriation for
Indian tribes and .5 percent for evaluation by the Secretary of
HHS, the remainder of each year's appropriation is divided into
two grant funds. The first fund is used for grants to states
and is allocated by a formula based equally on each state's
share of the national poor population, unemployed workers, and
adults receiving assistance under the Temporary Assistance for
Needy Families block grant. There will be a smallstate minimum
of 0.5 percent. The second fund is used to support proposals submitted
by political subdivisions of states that are determined by the
Secretary of Health and Human Services to hold promise for helping
long-term welfare recipients enter the workforce.
Formula grants from the first fund are to be provided to
States for the purpose of initiating projects that aim to place
long-term welfare recipients in the workforce. Governors must
distribute at least 85 percent of the state allotment to local
jurisdictions within the state in which poverty and
unemployment rates are above the state average. These funds
must be distributed in accord with a formula devised by the
governor that bases at least 50 percent of its allocation
weight on poverty and may also include two additional factors,
welfare recipients who have received benefits for 30 or more
months and unemployment. Any local jurisdiction that, under
this formula, would be allotted less than $100,000 will not
receive any funds; these funds will instead revert to the
governor. Governors may use up to 15 percent of the state
allocation, plus any amounts remitted from local jurisdictions
that would be allotted less than $100,000, to fund projects
designed to help long-term recipients enter the workforce.
Competitive grants are awarded in FY 1998 and FY 2000,
although approved projects can receive funds from the Secretary
every year and have 3 years to spend funds once obligated, on
the basis of the likelihood that program applicants can
successfully make long-term placements of welfare-dependent
individuals into the workforce. The Secretary must select
projects that show promise in: (1) expanding the base of
knowledge about welfare-to-work programs for the least job
ready; (2) moving the least job ready recipients into the labor
force; and (3) moving the least job ready recipients into the
labor force even in labor markets that have a shortage of low-
skill jobs. Other factors the Secretary, at her discretion, may
use to select projects include: history of success in moving
individuals with multiple barriers into work; evidence of
ability to leverage private, State, and local resources; use of
State and local resources that exceed the required match; plans
to coordinate with other organizations at the local and State
level; and use of current or former welfare recipients as
mentors, case managers, or service providers. Any political
subdivision of a state may apply for funds. Not less than 30
percent shall be awarded to rural areas. The Secretary cannot
award grants unless the TANF agency has approved the grant
application. Further, the Secretary must terminate funds for a
project upon a determination that the TANF agency is not
adhering to the agreement. Awards to each project must be based
on the Secretary's determination of the amount needed for the
project to be successful. Allowable activities include job
creation, on-the-job training, contracts with public or private
providers of employment services, job vouchers, and job support
services. The Secretary must include several required outcome
measures in the evaluation study and must report on program
outcomes to Congress in 1999 and 2001.
Funds under both the competitive grants and the formula
grants can be spent only for job creation through public or
private sector employment wage subsidies, on-the-job training,
contracts with public or private providers of readiness,
placement, and post-employment services, job vouchers for
placement, readiness, and post-employment services, and job
support services (not including child care) if such services
are not otherwise available. Any entity receiving funds under
either grant must expend at least 90 percent of the money on
recipients who have received benefits for at least 30 months,
who suffer from multiple barriers to employment, or are within
12 months of a mandatory time limit on benefits. States must
provide a 33 percent match of federal funds and must comply
with the 75 percent maintenance of effort requirements in TANF.
The Secretary shall also reserve $100 million to add to the
``High Performance Bonus'' amount in FY 2003 for states which
are most successful in increasing the earnings of long-term
welfare recipients or of those who are at risk of long-term
welfare dependency.
Funds available under this program are $.75 billion for
fiscal year 1998, $1.15 billion for fiscal year 1999, and $1.0
billion for fiscal year 2000. The Secretary must include
several specific measures, such as success in job placements,
in her evaluation of the program. In addition, the Secretary
must submit a progress report to Congress in 1999 and a final
report in 2001.
Effective Date
Date of enactment (funds are available beginning in fiscal
year 1998).
NONDISPLACEMENT IN WORKER ACTIVITIES
Present Law
A TANF recipient may fill a vacant employment position.
However, no adult in a work activity that is funded in whole or
in part by federal funds shall be employed or assigned when
another person is on layoff from the same or any substantially
equivalent job; or if the employer has ended the employment of
any regular employee or otherwise caused an involuntary
reduction of his workforce in order to fill the vacancy so
created with a TANF recipient. These provisions shall not
preempt or supersede any state or local law that provides
greater protection against displacement.
Committee Provision
A participant in a work activity pursuant to this section
shall not displace (including a partial displacement, such as a
reduction in the hours of nonovertime work, wages, or
employment benefits) any individual who, as of the date of the
participation, is an employee.
A participant in a work activity shall not be employed in a
job when any other individual is on layoff from the same or any
substantially equivalent job; when the employer has
terminatedthe employment of any regular employee or otherwise reduced
the workforce of the employer with the intention of filling the vacancy
so created with the participant; or which is created in a promotional
line that will infringe in any way upon the promotional opportunities
of employed individuals.
ENROLLMENT FLEXIBILITY
Present Law
The Secretary is provided with authority to waive
provisions of law, with authority to approve a variety of
demonstration projects, and with authority to enter into
contracts with entities other than public entities.
Reasons for Change
The Committee provision would encourage innovation in
enrolling individuals for a variety of federal, state, and
local benefit programs for which they may be eligible.
Committee Provision
A state plan to consolidate and automate the administration
of low-income benefit programs, including Medicaid and to
competitively contract for the administration of such programs
that was submitted to the Secretary of Health and Human
Services prior to June 1, 1997 shall be deemed by the Secretary
to be approved.
The state is required to take necessary steps to safeguard
the privacy, confidentiality, and protections of individuals
provided under law. The state is required to take necessary
steps to provide that all protections for individuals seeking
benefits including appeals and grievances as provided by law
are ensured.
CLARIFICATION OF A STATE'S ABILITY TO SANCTION AN INDIVIDUAL RECEIVING
ASSISTANCE UNDER TANF FOR NONCOMPLIANCE
Present Law
The Personal Responsibility and Work Opportunity
Reconciliation Act provides that states may penalize welfare
recipients by reduction of benefits. For example, the PRWO
provides that states shall not be prohibited from sanctioning
welfare recipients who test positive for use of controlled
substances. Further, if a parent fails to cooperate in
establishing paternity or in establishing, modifying, or
enforcing a child support order, and the individual does not
qualify for a good cause exception, the state must reduce the
family's benefit by at least 25 percent and may reduce it to
zero.
Reasons for Change
The Administration has interpreted the Fair Labor Standards
Act as applying to workfare programs under the TANF law. This
interpretation will require that workfare participants receive
a benefit that at least equals the federal minimum wage rate
multiplied by their required hours of work. Reduction in the
benefit of a workfare participant for noncompliance with
program rules might violate the federal minimum wage.
Committee Provision
The amendment provides that, notwithstanding any minimum
wage requirement, states will not be prohibited from
sanctioning a workfare participant for noncompliance even if
that sanction reduces the benefit below the minimum wage
equivalent.
CHAPTER 3--UNEMPLOYMENT COMPENSATION
INCREASE IN FEDERAL UNEMPLOYMENT ACCOUNT CEILING AND SPECIAL
DISTRIBUTION TO STATES FROM THE UNEMPLOYMENT TRUST FUND
Present Law
FUTA taxes are credited to Federal accounts in the
Unemployment Trust Fund in proportions that are set by statute.
Funds are held in reserve in these accounts to provide Federal
spending authority for certain purposes. The Employment
Security Administration Account (ESAA) funds Federal and State
administration of the UI program. The Extended Unemployment
Compensation Account (EUCA) finances the Federal share of
extended UI benefits. The Federal Unemployment Account (FUA)
provides authority for loans to States with insolvent UI
benefit accounts. Each of these accounts has a statutory
ceiling. ESAA's balance after the end of a fiscal year is
reduced to 40% of the prior-year appropriation from ESAA.
Excess funds are transferred to EUCA and/or FUA. The ceilings
on EUCA and FUA are set as a percent of total wages in
employment covered by UI. The current ceilings are 0.5% of
wages for EUCA and 0.25% of wages for FUA. If all three
accounts reach their ceilings, excess funds are distributed
among the 53 State benefit accounts in the Unemployment Trust
Fund, after repayment of any outstanding general revenue
advances to FUA and EUCA. These transfers to the State accounts
are termed ``Reed Act transfers'' after the name of the
legislation that authorized this use of excess FUTA funds. The
Department of Labor projects that Reed Act transfers will be
triggered beginning in Fiscal Year 2000 under present law.
Reasons for Change
The Committee provision would increase the Federal
Unemployment Account ceiling from 0.25 percent to 0.50 percent
of covered wages.
Committee Provision
The provision would double the Federal Unemployment Account
ceiling from 0.25 percent to 0.50 percent of covered wages,
effective at the beginning of fiscal year 2002. In addition,
for each of fiscal years 2000, 2001, and 2002, if Federal
account ceilings are reached, an annual total of no more than
$100 million in Reed Act transfers are to be made from Federal
UI accounts to State accounts for use by States in
administering their UI programs. (Annual amounts in excess of
$100 million are to accrue to the Federal Unemployment Account,
notwithstanding the continued 0.25 percent ceiling). Funds are
to be distributed among the States in the same manner
asadministrative funds from the Federal account are allocated.
Effective Date
The increase in the Federal Unemployment Account ceiling is
to occur on October 1, 2001; special distributions are made
beginning in fiscal year 2000, based on account balances at the
end of the preceding fiscal year.
CLARIFYING PROVISION RELATING TO BASE PERIODS
Present Law
Federal law establishes broad guidelines for the operation
of State unemployment insurance (UI) programs but leaves most
of the details of eligibility and benefits to State
determination. One of these general Federal guidelines calls
for States to use administrative methods that ensure full
payment of UI benefits ``when due.'' All States meet this
requirement with program rules that the U.S. Department of
Labor has found to be in compliance. In complying with the
``when due'' clause, States must decide what ``base period'' to
use in measuring a claimant's wage history for the purpose of
determining individual eligibility and benefit entitlement.
States have generally used a base period consisting of the
first 4 of the last 5 completed calendar quarters. However,
several States that use this base period also use an
``alternative base period,'' usually the last 4 completed
calendar quarters. This alternative base period is used for
claimants who are found to be ineligible because their earnings
were too low in the regular base period. Although current State
base periods have Department of Labor approval, a Federal court
in Illinois, in the case of Pennington v. Doherty, ruled that
the State of Illinois is not in compliance with the ``when
due'' clause because it could use a more recent base period,
which would benefit a significant number of claimants. This
case may be appealed further. If left standing, it will apply
only to three States: Illinois, Indiana, and Wisconsin.
However, similar suits have been filed in other States, and
they could lead to a de facto national rules change based on
judicial action.
Reasons for Change
The Committee provision clarifies that states have full
discretion in setting their own unemployment insurance base
periods for determining eligibility for unemployment insurance
benefits.
Committee Provision
The provision reinforces current policy by affirming that
States have complete authority to set their own base periods
used in determining individuals' eligibility for unemployment
insurance benefits. According to the Congressional Budget
Office, failing to make this change could result in 41 States
being required to adopt alternative base periods at a cost of
$400 million annually in added UI benefits plus increased
administrative costs. CBO assumes that States would increase
their revenue collections (by raising payroll taxes) to cover
any increase in benefit outlays.
Effective Date
This section shall apply for purposes of any period
beginning before, on, or after the date of enactment of this
Act.
TREATMENT OF CERTAIN SERVICES PERFORMED BY INMATES
Present Law
Federal law requires UI coverage for most nongovernmental
employment, and employers have to pay taxes under the Federal
Unemployment Tax Act (FUTA) for their employees. Federal law
also requires state UI programs to cover jobs in state and
local government agencies. Each governmental employer
reimburses the state UI program for the cost of any
unemployment benefits paid to its workers.
Federal law does except certain employment from this
mandatory coverage. One exception permits states to exclude
from coverage services performed for a governmental agency by
inmates of custodial or penal institutions. However, any work
performed by inmates by private employers through work-release
programs or other cooperative arrangements between prison
authorities and private employers does not come under this
exception. Further, there is no exception to FUTA coverage of
private employers for jobs held by inmates of penal
institutions. Thus, it is possible for a prison inmate on work-
release to earn UI coverage that may be used to claim UI
benefits, if the inmate, when released, is unemployed and
available for work.
Reasons for Change
The Committee provision exempts services performed by
inmates who participate in prison work programs from
unemployment taxes and benefits.
Committee Provisions
The Committee provision will prevent the payment of
unemployment compensation benefits to former prisoners who
became ``unemployed'' when they were released and were no
longer participating in a prison work program. Inmates who
provide services directly to the prison are already exempt from
unemployment taxes. This would extend the same treatment to
inmates who participate in other work programs while in prison.
Subtitle M--Welfare Reform Technical Corrections
WELFARE REFORM TECHNICAL CORRECTIONS
Reasons for Change
The Committee provision makes approximately 200 technical
and conforming amendments to the ``Personal Responsibility and
Work Opportunity Act of 1996,'' (P.L. 104-193).
Committee Provision
The Committee adopts H.R. 1048, the ``Welfare Reform
Technical Corrections Act of 1997,'' as amended by deleting all
provisions relating to Title II of the Social Security Act. It
is further amended by the following provision to remove teen
parents attending school from the limit on vocational
education.
REMOVE TEEN PARENTS ATTENDING SCHOOL FROM THE LIMIT ON VOCATIONAL
EDUCATION
Present Law
The law restricts to 20 percent the proportion of persons
in all families and in two-parent families who may be treated
as engaged in work for a month by reason of participating in
vocational educational training, or if single teenage household
heads without a high school diploma, by reason of satisfactory
attendance at secondary school or participation in education
directly related to employment. The law also requires all
unmarried parents under age 18 who did not complete high school
to participate in education as a condition of eligibility for
TANF.
Reason for Change
In some states the number of teen parents who must attend
school in order to receive TANF is so large that the state's
ability to use vocational education training is significantly
reduced. Further, states want the additional flexibility to
promote vocational education for adults as a means of promoting
eventual self-sufficiency.
Committee Provision
Remove single heads of household under age 20 from the
calculation of the limit on the number of persons that are
permitted to meet the work requirement through vocational
educational activity.
DIVISION 4--EARNED INCOME CREDIT AND OTHER PROVISIONS
Subtitle L--Earned Income and Other Provisions
CHAPTER 1--EARNED INCOME CREDIT
DESCRIPTION OF EARNED INCOME CREDIT PROVISIONS
Present Law
In general
Certain eligible low-income workers are entitled to claim a
refundable earned income credit (EIC) (sec. 32 of the Internal
Revenue Code of 1986 (``Code'')). A refundable credit is a
credit that not only reduces an individual's tax liability but
allows refunds to the individual in excess of income tax
liability. The amount of the credit an eligible individual may
claim depends upon whether the individual has one, more than
one, or no qualifying children, and is determined by
multiplying the credit rate by the individual's earned income
up to an earned income amount. (Note: In the case of a married
individual who files a joint return with his or her spouse, the
income for purposes of these tests is the combined income of
the couple.)
The maximum amount of the credit is the product of the
credit rate and the earned income amount. The credit is reduced
by the amount of alternative minimum tax (``AMT'') the taxpayer
owes for the year. The EIC is phased out above certain income
levels. For individuals with earned income or modified adjusted
gross income (``modified AGI'), in excess of the beginning of
the phaseout range, the maximum credit amount is reduced by the
phaseout rate multiplied by the amount of earned income (or
modified AGI, if greater) in excess of the beginning of the
phaseout range.
For individuals with earned income (or modified AGI, if
greater) in excess of the end of the phaseout range, no credit
is allowed. Modified AGI means AGI, but for this purpose does
not include the following amounts: (1) net capital losses (if
greater than zero); (2) net losses from trusts and estates; (3)
net losses from nonbusiness rents and royalties; and (4) 50
percent of the net losses from business, computed separately
with respect to sole proprietorships (other than in farming),
sole proprietorships in farming, and other businesses. Amounts
attributable to a business that consists of the performance of
services by the taxpayer as an employee are not taken into
account for purposes of (4).
The parameters for the EIC for 1997 are given in the
following table:
EARNED INCOME CREDIT PARAMETERS (1997)
------------------------------------------------------------------------
Two or more One No
qualifying qualifying qualifying
children child children
------------------------------------------------------------------------
Credit rate (percent)............ 40.00 34.00 7.65
Earned income amount............. $9,140 $6,500 $4,340
Maximum credit................... $3,656 $2,210 $332
Phaseout begins.................. $11,930 $11,930 $5,430
Phaseout rate (percent).......... 21.06 15.98 7.65
Phaseout ends.................... $29,290 $25,760 $9,770
------------------------------------------------------------------------
Under present law, an individual is not eligible for the
earned income credit if the aggregate amount of ``disqualified
income'' of the taxpayer for the taxable year exceeds $2,250.
Disqualified income is the sum of: (1) interest (taxable and
tax-exempt); (2) dividends; (3) net rent and royalty income (if
greater than zero); (4) capital gain net income; and (5) net
passive income (if greater than zero) that is not self-
employment income. The $2,250 threshold is indexed for
inflation.
The earned income amount and the phaseout amount are
indexed for inflation.
Earned income
Under present law, earned income means the sum of (1)
wages, salaries, tips, and other employee compensation, and (2)
the amount of the taxpayer's net earnings from self employment
for the taxable year, determined without regard to the
deduction for one-half of the taxpayer's self-employment taxes
(Code sec. 164(f)). For purposes of this definition, earned
income is computed without regard to any community property
laws, pension and annuity payments are not treated as earned
income, certain amounts relating to nonresident aliens are
disregarded, and no amount received by inmates for services in
penal institutions is treated as earned income.
Eligible individual
Under present law, an individual is an eligible individual
entitled to claim the EIC for a year if
(1) the individual has a qualifying child for the
taxable year, or
(2) the individual does not have a qualifying child,
but satisfies the following requirements:
(i) the individual's principal place of abode
is in the United States for more than \1/2\ of
the year,
(ii) the individual (or, if the individual is
married, either the individual or the
individual's spouse) has attained age 25, but
has not attained age 65 before the close of the
year, and
(iii) the individual is not a dependent for
whom a dependency exemption is allowed on
another taxpayer's return for a taxable year
beginning in the same calendar year as the
taxable year of the individual.
An individual is not an eligible individual for the year if
the individual (1) is a qualifying child of another taxpayer,
(2) claims any exclusion from income under Code section 911 for
citizens or residents living abroad, (3) is a nonresident alien
individual for any portion of the year unless the individual is
treated as a U.S. resident for the year under Code section
6013, or (4) does not include the individual's taxpayer
identification number (``TIN'') or the individual's spouse's
TIN on the tax return.
Qualifying child
A qualifying child must meet a relationship test, an age
test, an identification test, and a residence test. Under the
relationship and age tests, an individual is eligible for the
EIC with respect to another person only if that other person:
(1) is a son, daughter, or adopted child (or a descendent of a
son, daughter, or adopted child); a stepson or stepdaughter; or
a foster child of the taxpayer (a foster child is defined as a
person whom the individual cares for as the individual's child;
it is not necessary to have a placement through a foster care
agency); and (2) is under the age of 19 at the close of the
taxable year (or is under the age of 24 at the end of the
taxable year and was a full-time student during the taxable
year), or is permanently and totally disabled. Also, if the
qualifying child is married at the close of the year, the
individual may claim the EIC for that child only if the
individual may also claim that child as a dependent.
To satisfy the identification test, an individual must
include on their tax return the name, age, and TIN of each
qualifying child.
The residence test requires that a qualifying child must
have the same principal place of abode as the taxpayer for more
than one-half of the taxable year (for the entire taxable year
in the case of a foster child), and that this principal place
of abode must be located in the United States. For purposes of
determining whether a qualifying child meets the residence
test, the principal place of abode shall be treated as in the
United States for any period during which a member of the Armed
Forces is stationed outside the United States while serving on
extended active duty.
Advance payment
An individual with qualifying children may elect to receive
the credit on an advance basis by furnishing an advance payment
certificate to his or her employer. For such an individual, the
employer makes an advance payment of the credit at the time
wages are paid. The amount of advance payment allowable in a
taxable year is limited to 60 percent of the maximum credit
available to an individual with one qualifying child.
TIN requirement
Under present law, for purposes of determining who is an
eligible individual and who is a qualifying child, a TIN means
a social security number issued to an individual by the Social
Security Administration other than a social security number
issued pursuant to clause (II) (or that portion of clause (III)
that relates to clause (II)) of section 205(c)(2)(B)(i) of the
Social Security Act relating to the issuance of a Social
Security number to an individual applying for or receiving
Federally funded benefits.
Mathematical or clerical errors
The IRS may summarily assess additional tax due as a result
of a mathematical or clerical error without sending the
taxpayer a notice of deficiency and giving the taxpayer an
opportunity to petition the Tax Court. If an individual fails
to provide a correct TIN, such omission is treated as a
mathematical or clerical error. Also, if an individual who
claims the EIC with respect to net earnings from self
employment fails to pay the proper amount of self-employment
tax on such net earnings, the failure is treated as a
mathematical or clerical error for purposes of the amount of
EIC claimed.
Where the IRS uses the summary assessment procedure for
mathematical or clerical errors, the taxpayer must be given an
explanation of the asserted error and a period of 60 days to
request that the IRS abate its assessment. The IRS may not
proceed to collect the amount of the assessment until the
taxpayer has agreed to it or has allowed the 60-day period for
objecting to expire. If the taxpayer files a request for
abatement of the assessment specified in the notice, the IRS
must abate the assessment. Any reassessment of the abated
amount is subject to the ordinary deficiency procedures.
The request for abatement of the assessment is the only
procedure a taxpayer may use prior to paying the assessed
amount in order to contest an assessment arising out of a
mathematical or clerical error. Once the assessment is
satisfied, however, the taxpayer may file a claim for refund if
he or she believes the assessment was made in error.
Committee Provisions
A. Deny EIC Eligibility for Prior Acts of Recklessness or Fraud
Present Law
The accuracy-related penalty, which is imposed at a rate of
20 percent, applies to the portion of any underpayment that is
attributable to (1) negligence, (2) any substantial
understatement of income tax, (3) any substantial valuation
overstatement, (4) any substantial overstatement of pension
liabilities, or (5) any substantial estate or gift tax
valuation understatement (sec. 6662). Negligence includes any
careless, reckless, or intentional disregard of rules or
regulations, as well as any failure to make a reasonable
attempt to comply with the provisions of the Code.
The fraud penalty, which is imposed at a rate of 75
percent, applies to the portion of any underpayment that is
attributable to fraud (sec. 6663).
Neither the accuracy-related penalty nor the fraud penalty
is imposed with respect to any portion of an underpayment if it
is shown that there was a reasonable cause for that portion and
that the taxpayer acted in good faith with respect to that
portion.
Reasons for Change
The Committee believes that taxpayers who fraudulently
claim the EIC or recklessly or intentionally disregard EIC
rules or regulations should be penalized for doing so.
Committee Proposal
A taxpayer who fraudulently claims the EIC would be
ineligible to claim the EIC for a subsequent period of 10
years. In addition, a taxpayer who erroneously claims the EIC
due to reckless or intentional disregard of rules or
regulations would be ineligible to claim the EIC for a
subsequent period of two years. These sanctions would be in
addition to any other penalty imposed under present law. The
determination of fraud or of reckless or intentional disregard
of rules or regulations would be made in a deficiency
proceeding (which would provide for judicial review).
Effective Date
The proposal would be effective for taxable years beginning
after December 31, 1996.
B. Recertification Required When Taxpayer Found to be Ineligible for
EIC in Past
Present Law
If an individual fails to provide a correct TIN and claims
the EIC, such omission is treated as a mathematical or clerical
error. Also, if an individual who claims the EIC with respect
to net earnings from self employment fails to pay the proper
amount of self-employment tax on such net earnings, the failure
is treated as a mathematical or clerical error for purposes of
the amount of EIC claimed. Generally, taxpayers have 60 days in
which they can either provide a correct TIN or request that the
IRS follow the current-law deficiency procedures. If a taxpayer
fails to respond within this period, he or she must file an
amended return with a correct TIN or clarify that any self-
employment tax has been paid in order to obtain the EIC
originally claimed.
The IRS must follow deficiency procedures when
investigating other types of questionable EIC claims. Under
these procedures, contact letters are first sent to the
taxpayer. If the necessary information is not provided by the
taxpayer, a statutory notice of deficiency is sent by certified
mail, notifying the taxpayer that the adjustment will be
assessed unless the taxpayer files a petition in Tax Court
within 90 days. If a petition is not filed within that time and
there is no other response to the statutory notice, the
assessment is made and the EIC is denied.
Reasons for Change
The Committee believes that the requirement of additional
information to determine EIC eligibility is prudent for
taxpayers who have incorrectly claimed the EIC in the past.
Committee Proposal
A taxpayer who has been denied the EIC as a result of
deficiency procedures would be ineligible to claim the EIC in
subsequent years unless evidence of eligibility for the credit
is provided by the taxpayer. To demonstrate current
eligibility, the taxpayer would be required to meet evidentiary
requirements established by the Secretary of the Treasury.
Failure to provide this information when claiming the EIC would
be treated as a mathematical or clerical error. If a taxpayer
is recertified as eligible for the credit, the taxpayer would
not be required to provide this information in the future
unless the IRS again denies the EIC as a result of a deficiency
procedure. Ineligibility for the EIC under the proposal would
be subject to review by the courts.
Effective Date
The proposal would be effective for taxable years beginning
after December 31, 1996.
C. Due Diligence Requirements for Paid Preparers
Present Law
There are several penalties that apply in the case of an
understatement of tax that is caused by an income tax return
preparer. First, if any part of an understatement of tax on a
return or claim for refund is attributable to a position for
which there was not a realistic possibility of being sustained
on its merits and if any person who is an income tax return
preparer with respect to such return or claim for refund knew
(or reasonably should have known) of such position and such
position was not disclosed or was frivolous, then that return
preparer is subject to a penalty of $250 with respect to that
return or claim (sec. 6694(a)). The penalty is not imposed if
there is reasonable cause for the understatement and the return
preparer acted in good faith.
In addition, if any part of an understatement of tax on a
return or claim for refund is attributable to a willful attempt
by an income tax return preparer to understate the tax
liability of another person or to any reckless or intentional
disregard of rules or regulations by an income tax return
preparer, then the income tax return preparer is subject to a
penalty of $1,000 with respect to that return or claim (sec.
6694(b)).
Also, a penalty for aiding and abetting the understatement
of tax liability is imposed in cases where any person aids,
assists in, procures, or advises with respect to the
preparation or presentation of any portion of a return or other
document if (1) the person knows or has reason to believe that
the return orother document will be used in connection with any
material matter arising under the tax laws, and (2) the person knows
that if the portion of the return or other document were so used, an
understatement of the tax liability of another person would result
(sec. 6701).
Additional penalties are imposed on return preparers with
respect to each failure to (1) furnish a copy of a return or
claim for refund to the taxpayer, (2) sign the return or claim
for refund, (3) furnish his or her identifying number, (4)
retain a copy or list of the returns prepared, and (5) file a
correct information return (sec. 6695). The penalty is $50 for
each failure and the total penalties imposed for any single
type of failure for any calendar year are limited to $25,000.
Reasons for Change
The Committee believes that more thorough efforts by return
preparers are important to improving EIC compliance.
Committee Proposal
Return preparers would be required to fulfill certain due
diligence requirements with respect to returns they prepare
claiming the EIC. The penalty for failure to meet these
requirements is $100. This penalty would be in addition to any
other penalty imposed under present law.
Effective Date
The proposal would be effective for taxable years beginning
after December 31, 1996.
CHAPTER 2--INCREASE IN THE PUBLIC DEBT
STATUTORY DEBT LIMIT INCREASE
In addition to the spending and revenue reconciliation
bills, the Senate Finance Committee has been reconciled with
increasing the statutory limit on the public debt to $5.950
trillion. The current debt ceiling of $5.5 trillion is expected
to be reached in early 1998. The Chairman's mark includes the
required increase to $5.950 trillion.
It is assumed that the $5.950 trillion limit will be
sufficient to allow the government to operate until sometime in
late 1999. The debt limit bill has been included in the
spending reconciliation instructions to the Finance Committee.
CHAPTER 3--MISCELLANEOUS
REGARDING THE ACCURACY OF THE CONSUMER PRICE INDEX (CPI)
Inclusion of S. Res. 50 into the Chairman's mark. S. Res.
50 expresses the Sense of the Senate that the current CPI does
not accurately reflect true changes in the cost of living. It
refers to the Boskin Commission report which concluded that the
Consumer Price Index overstates the cost of living in the U.S.
by 1.1 percentage points.
Resolved, That it is the sense of the Senate that all
cost- of-living adjustments required by statute should
accurately reflect the best available estimate of
changes in the cost of living.
congressional budget office cost estimate
Reconciliation recommendations of the Senate Committee on Governmental
Affairs (Title VI)
Summary: Title VI would make a number of changes affecting
the retirement and health insurance programs for federal
employees and annuitants. It would also end a payment currently
required from the Treasury to the United States Postal Service,
as well as require the sale of two government properties. In
total, these provisions would reduce on-budget direct spending
by $3.0 billion, increase off-budget outlays by $44 million,
realize asset sale receipts of $540 million, and increase
federal revenues by $1.8 billion over the 1998-2002 period.
Part of these savings would result from increasing the amount
of retirement costs charged to agency appropriations by a total
of $2.9 billion over the 1998-2002 period.
This title contains no intergovernmental mandates as
defined in the Unfunded Mandates Reform Act of 1995 (UMRA) and
would impose no costs on state, local, and tribal governments.
By increasing contributions required of federal employees to
the civilian retirement system, the legislation would impose a
private-sector mandate with a cost exceeding the statutory
threshold.
Estimated cost to the Federal Government: The estimated
impact of the reconciliation recommendations of the Senate
Committee on Governmental Affairs on direct spending and
revenues through 2002 is shown in the following table. Tables
in the basis of estimate provide more detail on the various
subtitles, and the appendix table displays the budgetary
effects through 2007.
The outlay impacts of changes proposed in Title VI fall in
budget functions 370 (commerce and housing credit), 550
(health), and 950 (undistributed offsetting receipts).
ESTIMATED EFFECTS OF THE RECONCILIATION RECOMMENDATIONS OF THE SENATE COMMITTEE ON GOVERNMENTAL AFFAIRS ON
DIRECT SPENDING AND REVENUES
----------------------------------------------------------------------------------------------------------------
By fiscal years, in millions of dollars--
-----------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
DIRECT SPENDING
Repeal of Transitional Appropriation for the U.S. Postal
Service:
On-Budget............................................. 0 -35 -34 -33 -32 -31
Off-Budget............................................ 0 35 9 0 0 0
-----------------------------------------------------
Total Budget........................................ 0 0 -25 -33 -32 -31
=====================================================
Increase Agency Contributions to CSRS and FSRDS........... 0 -597 -580 -563 -548 -565
Modify Government Contributions under FEHB................ 0 0 -5 -7 -7 -8
=====================================================
Total, Direct Spending:
On-Budget............................................. 0 -632 -619 -603 -587 -604
Off-Budget............................................ 0 35 9 0 0 0
-----------------------------------------------------
Total Budget........................................ 0 -597 -610 -603 -587 -604
=====================================================
ASSET SALES \1\
Governors Island, New York................................ 0 0 0 0 0 -500
Union Station Air Rights.................................. 0 0 0 0 0 -40
-----------------------------------------------------
Total, Asset Sales.................................. 0 0 0 0 0 -540
=====================================================
REVENUES
Increase Employee Contributions to CSRS, FERS, FSRDS, and
FSPS..................................................... 0 0 208 413 551 598
----------------------------------------------------------------------------------------------------------------
\1\ Based on criteria established in the 1998 budget resolution, CBO has determined that proceeds from the asset
sales in this bill should be counted in the budget totals for purposes of Congressional scoring. Under the
Balanced Budget Act, however, proceeds from asset sales are not counted in determining compliance with the
discretionary spending limits or pay-as-you-go requirements.
Note.--Components may not add to totals because of rounding.
Basis of estimate
Subtitle A, Civil Service
The committee recommends changes in law affecting civilian
employees of the federal government as well as enrollees in the
Federal Employees Health Benefits (FEHB) program. The changes
would affect the contributions made by both the employee and
the employing agency for retirement and health benefits.
Employing Agency Contributions for Civilian Retirement.
Subtitle A would increase the contribution rates paid by
federal agencies on behalf of their employees. CBO estimates
that offsetting receipts (collections by the civilian
retirement trust funds) would increase by $597 million in 1998
and $2.9 billion over the five-year period.
Under the Civil Service Retirement System (CSRS) and the
Foreign Service Retirement and Disability System (FSRDS), each
federal agency matches the employee contribution of 7.0, 7.5,
or 8.0 percent, depending on the type of employee. Under the
Federal Employees Retirement System (FERS) and the Foreign
Service Pension System (FSPS), the agency contributes an amount
equal to a percentage of basic pay which, when added to the
employee contribution, equals the normal cost of FERS. The
normal cost is the percentage of an employee's salary required
to be contributed each year over the employee's working career
to fully finance, with interest, all retirement benefits. The
current normal cost for FERS used to determine most agency
contributions is 12.2 percent and is scheduled to decline to
11.4 percent for most agencies in fiscal year 1998. Because
employee contributions cover 0.8 percent of the normal cost,
most agencies now contribute 11.4 percent of each employee's
salary to FERS; the contribution will fall to 10.6 percent in
1998. Agencies that employ those workers with special
retirement provisions, like Congressional employees, Members of
Congress, firefighters, and law enforcement personnel, are
required to pay a higher percentage of salary to the retirement
system, because these personnel have more costly retirement
benefits and a greater normal cost.
This legislation would increase matching contributions for
CSRS and FSRDS by non-postal agencies by raising the
contribution rate by 1.51 percentage points (to 8.51 percent
for most employees) in October 1997, and an additional 0.09
percentage points in October 2001. In October 2002, the rate
would return to its current level. Agency contributions are
recorded as offsetting receipts of the retirement trust fund.
Since CSRS and FSRDS are closed systems (federal employees
hired after January 1, 1984, are covered under FERS and FSPS),
CBO expects the increase in contributions to decline each year
after 1998. The legislation would maintain agency contributions
for FERS and FSPS at current levels, despite the fact that
employee contributions are being increased.
ESTIMATED BUDGETARY EFFECTS OF SUBTITLE A, CIVIL SERVICE
----------------------------------------------------------------------------------------------------------------
By fiscal years, in millions of dollars--
-----------------------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
DIRECT SPENDING
Spending Under Current Law:
Receipts of Employer Contributions to
Civilian Retirement...................... -16,366 -16,913 -17,160 -17,886 -18,520 -19,368
Federal Employees Health Benefits......... 3,920 4,165 4,474 4,907 5,256 5,655
Postal Service: ......... ......... ......... ......... ......... .........
On-Budget............................. 36 35 34 33 32 31
Off-Budget............................ 1,380 2,654 -964 -1,262 -532 224
-----------------------------------------------------------------
Total Budget........................ 1,416 2,689 -930 -1,229 -500 255
Proposed Changes:
Increase Agency Contributions to CSRS and
FSRDS by 1.51 percent in October 1997 and
an additional 0.09 percent in October
2001..................................... 0 -597 -580 -563 -548 -565
Government Contributions under FEHB....... 0 0 -5 -7 -7 -8
Repeal of Transitional Appropriation for
the U.S. Postal Service: ......... ......... ......... ......... ......... .........
On-Budget............................. 0 -35 -34 -33 -32 -31
Off-Budget............................ 0 35 9 0 0 0
-----------------------------------------------------------------
Total Budget........................ 0 0 -25 -33 -32 -31
-----------------------------------------------------------------
Total Proposed Changes.............. 0 -597 -610 -603 -587 -604
Spending Under Title VI:
Receipts of Employer Contributions to
Civilian Retirement...................... -16,366 -17,510 -17,740 -18,449 -19,068 -19,933
Federal Employees Health Benefits......... 3,920 4,165 4,469 4,900 5,249 5,647
Post Service: ......... ......... ......... ......... ......... .........
On-Budget............................. 36 0 0 0 0 0
Off-Budget............................ 1,380 2,689 -955 -1,262 -532 -224
-----------------------------------------------------------------
Total Budget........................ 1,416 2,689 -955 -1,262 -532 224
REVENUES
Increase Employee Contributions to CSRS,FERS,
FSRDS, and FSPS by 0.25 percent in January
1999, an additional 0.15 percent in January
2000, and another 0.1 percent in January 2001 ......... ......... 208 413 551 598
----------------------------------------------------------------------------------------------------------------
Employee Contributions for Civilian Retirement. This
legislation would also increase contributions by federal
employees to the civilian retirement systems. CBO estimates
that revenue from additional employee contributions would total
$208 million in 1999 and $1.8 billion over the 1999-2002
period.
Under current law, most workers covered by CSRS and FSRDS
contribute 7 percent of their basis pay to the retirement trust
fund but pay no Social Security taxes. Employees covered by
FERS and FSPS pay 6.2 percent in Social Security taxes (up to
the ceiling on Social Security taxable wages) and 0.8 percent
to the retirement trust fund. Certain groups of employees
contribute slightly more for federal retirement coverage and in
turn receive more generous benefits. Law enforcement personnel,
firefighters, air traffic controllers, and Congressional
employees contribute 7.5 percent of salary to CSRS. Members of
Congress and certain judicial officials contribute 8 percent.
Employees with special retirement provisions pay an extra 0.5
percent of pay if enrolled in FERS or FSPS.
The legislation would set the contribution rate at 7.5
percent for all CSRS and FSRDS employees (except Congressional
staff, firefighters, and law enforcement personnel, whose
contribution rates would rise to 8 percent, and Members of
Congress and certain judges and magistrates, whose rates would
rise to 8.5 percent). FERS employees would also fact the 0.5
percent contribution hike. These increases in contribution
rates would be phased in over three years: 0.25 percentage
points in January 1999, another 0.15 percentage points in 2000,
and 0.1 percentage points in 2001. The contribution rates would
remain 0.5 percentage points higher than under current law
until the end of calendar year 2002, at which time the rates
would return to their current level.
Based on data from the Office of Personnel Management
(OPM), CBO estimates that the fiscal year 1997 payroll base
covered by CSRS and FERS is $80 billion for non-postal
employees and about $25 billion for postal employees. This
estimates uses CBO's baseline projection of General Schedule
pay raises--which run about 3.0 percent annually--to project
the payroll base after 1997. CSRS and FERS each currently cover
about one-half of federal payroll. CBS estimates that the
percentage of total payroll covered by CSRS will decline by 2
to 3 percentage points each year, while the FERS payroll will
grow at the same rate.
Government Contributions to Federal Employees Health
Benefits. This portion of the bill modifies the procedures for
determining the share of health insurance premiums that the
federal government pays on behalf of its employees and
retirees. The FEHB program provides health insurance coverage
for 4 million workers and annuitants, as well as their 4.6
million dependents and survivors. The payments on behalf of
annuitants are considered direct spending and payments for
employees are funded out of annul appropriations for the
agencies that employ them. In 1997, the FEHB costs for
annuitants are estimated to be $3.9 billion.
The current formula used to calculate the federal share of
premiums is based on the costs of five plans currently in the
FEHB package and a ``phantom'' plan that acts as a placeholder
for a former plan. The dollar amount of the maximum federal
contribution is computed as 60 percent of the average costs of
these six plans. However, in no plan can the federal
contribution exceed 75 percent of the premium. The law
establishing the current formula expires in 1999.
The committee's recommendations would change the dollar
limit on the federal contribution to 72 percent of the weighted
average of the premiums of all plans to which federal workers
and annuitants subscribe. CBO estimates the new formula would
establish a maximum contribution that would be very slightly
lower than under the current formula. CBO estimates that the
direct spending savings from the provisions would amount to
less than $10 million annually through 2002.
Postal Service Transitional Payments. Under current law,
the United States Postal Service (USPS) receives a mandatory
appropriation for compensation to individuals who sustained
injuries while employed by the former Post Office Department.
This legislation would terminate this annual payment, effective
October 1, 1997.
CBO estimates that enacting this legislation would reduce
on-budget direct spending by $35 million in fiscal year 1998,
and that annual savings would decline to $31 million by fiscal
year 2002. The USPS would have to continue to pay the costs
that have been covered by the appropriation out of its own
revenues. Thus, this legislation would cost the USPS, and off-
budget agency, $35 million in fiscal year 1998. Consistent with
CBO's projections, we expect that the USPS would recover the
additional cost of the transitional expenses by raising postal
rates, which we assume will occur January 1, 1999. The net
budgetary impact, combining on-budget and off-budget effects,
would be zero for fiscal year 1998, savings of $25 million in
1999, and savings averaging $32 million annually for fiscal
years 2000 through 2002.
Subtitle B--GSA Property Sales
Sale of Governors Island, New York. Section 6011 would
direct the General Services Administration (GSA) to sell at
fair market value all federal land and property located on
Governors Island in New York Harbor. The bill would grant new
York City and New York State a right of first offer to purchase
all or part of the island. Proceeds from the sale would be
deposited in the general fund of the U.S. Treasury as
miscellaneous receipts. Based on information obtained from
local agencies, GSA, and others, CBO estimates that selling the
172-acre island would generate offsetting receipts of about
$500 million. Because the bill would prohibit the sale of this
property before fiscal year 2002, we estimate that the $500
million would be deposited into the Treasury in that year. We
estimate that until thenthe federal government would spend
about $10 million annually to maintain the island, assuming
appropriation of the necessary amounts. Such costs would be incurred
under current law in 1998, but the costs for continued maintenance
after 1998 are not likely to occur in the absence of this legislation.
Until recently, Governors Island was used by the U.S. Coast
Guard as a major command center. That agency is in the process
of closing the facility. Current plans call for relocation and
certain restoration activities to be completed by the end of
1998. Disposition of the site under existing law is uncertain
and could include transfers to other federal agencies,
conveyances at no cost to nonfederal agencies for public
benefit uses, donations to nonprofit groups for homeless
shelters, or sale. (Disposal of the island may not be possible
without Congressional approval). In any event, CBO believes
that the federal government would realize little or no money
from disposal of the island in the absence of legislation.
Enacting section 6011 would ensure that the island would be
sold rather than given away or retained by the federal
government.
The value of Governors Island cannot be determined
precisely in the absence of formal appraisals, which have not
yet been conducted. Based on available information, we estimate
that sale of this asset would generate about $500 million. The
proceeds would depend on whether disposal would occur in one
transaction or as a combination of partial sales and on a
variety of other factors, including future economic conditions
and local zoning decisions. Thus, the government could receive
considerably less than $500 million or as such as $1 billion.
Moreover, conditions that might be imposed on the sale by
federal agencies could delay or prevent any sale from taking
place, as could expectations of restrictive zoning
requirements.
Finally, until the island is sold, GSA and the Coast Guard
would have to maintain the property and provide for security,
transportation,and utilities. Based on information provided by
the affected agencies and assuming appropriation of the
necessary amounts, we estimate that costs for these purposes
would total about $10 million annually, beginning in 1999.
Union Station Air Rights. Section 6012 would compel Amtrak
to convey the air rights that it owns behind the District of
Columbia's Union Station to the Administrator of the General
Services administration. The Administrator would then be
required to sell these air rights and other air rights that the
federal government owns behind Union Station.
CBO estimates that selling the 16.5 acres of rights would
yield $40 million in asset sale receipts in fiscal year 2002.
This estimate assumes that Amtrak would convey its air rights
to the federal government so they can be sold. If Amtrak does
not convey the air rights on or before December 31, 1997, the
bill would prohibit Amtrak from obligating any of its federal
grant money after March 1, 1998.
Estimated impact on State, local, and tribal governments:
Title VI contains no intergovernmental mandates as defined in
UMRA and would impose no costs on state, local, or tribal
governments.
The bill provides the city and state of New York the right
of first refusal in the purchase of Governors Island. Should
either entity, or the two in partnership, choose to acquire the
property in whole, CBO estimates that it would cost them
approximately $500 million.
Estimated impact on the private sector: Title VI would
impose a new private-sector mandate as defined in UMRA by
increasing the contributions required of federal employees to
the civilian retirement systems. Contributions to the civilian
retirement systems, which are compulsory withholdings made by
the government, are equivalent to a tax on the wages of federal
employees and are classified as a revenue in the federal
budget. Therefore, the increase in required contributions
constitutes a new enforceable duty and represents a private-
sector mandate under UMRA. CBO estimates that the direct costs
of the new private-sector mandate in Subtitle A would be $1.9
billion form January 1999 until January 2003, at which time
contribution rates would return to their current level. The
following table shows the direct costs of increasing mandatory
retirement contributions by federal employees.
[By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 Total
----------------------------------------------------------------------------------------------------------------
Direct costs of increasing employee contributions
to CSRS, FERS, FSRDS and FSPS................... 0 208 413 551 598 153 1,923
----------------------------------------------------------------------------------------------------------------
Estimate prepared by--Federal Cost: Civilian Retirement--
Paul Cullinan; Federal Employees Health Benefits--Jeffrey
Lemieux; Governors Island--Deborah Reis; Union Station Air
Rights--Clare Doherty. Impact on State, Local, and Tribal
Government: Theresa Gullo, Impact on the Private Sector:
Matthew Eyles.
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
ESTIMATED BUDGETARY EFFECTS OF RECOMMENDATIONS OF SENATE COMMITTEE ON GOVERNMENTAL AFFAIRS, 1998-2007
[By fiscal year in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2002 1998-2007
--------------------------------------------------------------------------------------------------------------------------------------------------------
DIRECT SPENDING
Increase Agency Contributions
to CSRS and FSRDS by 1.51
percent in October 1997 and
an additional 0.09 percent in
October 2002 \1\............. -597 -580 -563 -548 -565 0 0 0 0 0 -2853 -2853
Government Contributions under
FEHB......................... 0 -5 -7 -7 -8 -9 -9 -10 -11 -12 -28 -78
=========================================================================================================================
Repeal of Transitional
Appropriation for the U.S.
Postal Service:
On-budget................. -35 -34 -33 -32 -31 -30 -29 -28 -27 -26 -165 -305
Off-budget................ 35 9 0 0 0 0 0 0 0 0 44 44
-------------------------------------------------------------------------------------------------------------------------
Total budget............ 0 -25 -33 -32 -31 -30 -29 -28 -27 -26 -121 -261
=========================================================================================================================
Direct Spending Total:
On-budget................. -632 -619 -603 -587 -604 -39 -38 -38 -38 -38 -3045 -3236
Off-budget................ 35 9 0 0 0 0 0 0 0 0 44 44
-------------------------------------------------------------------------------------------------------------------------
Total budget............ -597 -610 -603 -587 -604 -39 -38 -38 -38 -38 -3001 -3192
=========================================================================================================================
ASSET SALES \2\
Sale of Governors Island...... 0 0 0 0 -500 0 0 0 0 0 -500 -500
Sale of Air Rights at Union
Station...................... 0 0 0 0 -40 0 0 0 0 0 -40 -40
REVENUES
Increase Employee
Contributions to CSRS and
FERS by 0.25 percent in
January 1999, an additional
0.15 percent in January 2000,
another 0.1 percent in
January 2001 \3\............. ........ 208 413 551 598 153 0 0 0 0 1770 1923
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimates for this policy in the Bipartisan Budget Agreement were CBO's reestimates of the 1.51 percent increase under the President's FY98 Budget
assumptions for pay raises, and totalled $2.933 billion over five years. The savings were $597 million in 1998, $591 million in 1999, $586 million in
2000, $582 million in 2001, and $577 million in 2002.
\2\ Based on criteria established in the 1998 budget resolution, CBO has determined that proceeds from the asset sales in this title should be counted
in the budget totals for the purposes of Congressional scoring. Under the Balanced Budget Act, however, proceeds from asset sales are not counted in
determining compliance with the discretionary spending limits or the pay-as-you-go requirement.
\3\ Estinates for this policy in the Bipartisan Budget Agreement were those presented in the President's 1998 Budget. Those estimates indicated
additional revenues of $1,829 billion over the five-year period, with $214 million in 1999, $423 million in 2000, $571 million in 2001, and $621
million in 2002.
Note. Components may not add to totals because of rounding.
COMMITTEE ON GOVERNMENTAL AFFAIRS
Reconciliation--Title VI
purpose and summary
To comply with the instructions of the conference agreement
on the concurrent budget resolution (H. Con. Res. 84), which
instructs the Committee on Governmental Affairs to report
changes in law within its jurisdiction that provide savings in
direct spending and revenues totaling $5.456 billion over the
five-year period, FY 1998 to FY 2002, the committee makes the
following legislative recommendations:
(1) Increase Civil Service Retirement System (CSRS)
Agency Contributions by 1.51 percent beginning October
1997 through September 2001, and 1.6 percent in FY
2002.
(2) Increase Employee Contributions to CSRS and the
Federal Employees Retirement System (FERS) by 0.25
percent in January 1999, and additional 0.15 percent in
January 2000, and another 0.10 percent in January 2001,
with the cumulative .5 percent retained for 2002.
(3) Reform the formula for computation of the
government's share of Federal Employees Health Benefit
Program (FEHBP).
(4) Repeal of Transitional Appropriation for the U.S.
Postal Service for workers compensation.
(5) Asset Sales to include: (a) Governors Island, New
York, and (b) Air Rights at Union Station, Washington,
D.C.
section-by-section summary
Subtitle A--Civil Service and Postal Provisions
Section 6001. Increased contributions to Federal civilian retirement
systems
(1) All Federal agencies, except for the United States
Postal Service, would be required to increase their payment to
the Civil Service Retirement and Disability Fund for each
individual employee enrolled in the Civil Service Retirement
System (CSRS). For the first four fiscal years, 1998 through
2001, contributions are increased by 1.51 percent each year
above the percentage an agency is now contributing. For the
fiscal year 2002, the contribution is increased to 1.6 percent
in order to meet the specific direct spending target for the
year 2002. However, if it is determined that the CBO scoring
for this policy change will be based on the assumption of the
President's pay raises in future years, the committee
recommends that the contribution rate remain at 1.51 percent
for 2002.
The 1.51 percent increase in employer contributions does
not apply to the United States Postal Service which currently
contributes the full actuarial cost of each employee's
retirement under CSRS.
There is no increase in the agency contribution for the
Federal Employees Retirement System (FERS) because that plan is
actuarially fully funded.
(2) The legislation further requires increased individual
employee contributions. The increase in employee contributions
to CSRS will apply to all employees participating in that
system including Members of Congress, congressional employees,
law enforcement officers, firefighters, Capital Police,
bankruptcy judges, judges for the U.S. Court of Appeals for the
Armed Forces, U.S. magistrates, Claims Courts judges, and
employees of the United States Postal Service. The increased
contribution shall also apply to individuals participating in
the Central Intelligence Agency or Foreign Service retirement
systems.
The amount deducted from basic pay for an individual
participating in CSRS will be increased above the level in
effect on the date of enactment by .25 percent in 1999, by an
additional .15 percent in 2000, and by an additional .10
percent in 2001. The increase will then remain constant at .5
percent through 2002.
The repayment for any military service between January 1,
1999, and December 31, 2002, for which an employee or a Member
of Congress would like to receive retirement credit under CSRS,
would be at the contribution rate in effect for employees
during the period for which such credit is provided.
Likewise, the legislation provides that repayment for any
covered volunteer service between January 1, 1999, and December
31, 2002, for which an employee or Member of Congress would
like to receive retirement credit under CSRS would be at the
contribution rate in effect for employees during the period for
which such credit is provided.
The legislation also requires increased employee
contributions from all employees participating in the Federal
Employees Retirement System (FERS), including members of
Congress, congressional employees, law enforcement officers,
firefighters, Capital Police, bankruptcy judges, judges for the
U.S. Court of Appeals for the Armed Forces, U.S. magistrates,
Claims Court judges, and employees of the United States Postal
Service. The increased contribution shall also apply to
individuals participating in the Central Intelligence Agency or
Foreign Service retirement systems. These employees are
required to increase their contributions to FERS by .25 percent
in 1999, an additional .15 percent in 2000, and by an
additional .10 percent in 2001. The increase in the
contribution over the percentage an employee currently pays
into the system will then remain at .5 percent through 2002.
This subsection provides that repayment for any military
service between January 1, 1999, and December 31, 2002, for
which an employee or Member of Congress would like to receive
retirement credit under FERS would reflect the increased
employee contributions resulting in the following repayment
percentages: calender year 1999, 3.25 percent; calender year
2000, 3.4 percent; calender years 2001-2002, 3.5 percent.
In addition, this subsection provides that the repayment
for any covered volunteer service between January 1, 1999 and
December 31, 2002 for which an employee or Member of Congress
would like to receive retirement credit under FERS would
reflect the increased employee contributions resulting in the
following repayment percentages: calender year 1999, 3.25
percent; calender year 2000, 3.4 percent; calender years 2001-
2002, 3.5 percent.
This subsection also prohibits agencies from reducing their
contribution to FERS for each individual employee by a
percentage equal to any percentage increase in individual
employee contributions. Under current law, agency contributions
would automatically decrease with any increase in employee
contributions. The section prohibits the Postal Service and all
other Federal agencies from reducing their contributions to
FERS.
The effective date for the increased contributions for
employees and agencies is the first day of the first pay period
beginning on or after January 1, 1999.
Section 6002. Government contributions under the Federal Employees
Health Benefits Program
The Federal Employee Health Benefit Program (FEHBP) ``Fair
Share'' formula language contained in the Committee's
reconciliation language serves as a replacement for the
outdated ``Big Six'' Phantom formula, set to expire in 1999.
Rather than extending the Phantom formula for a third time, the
Committee, assisted by the Office of Personnel and Management
(OPM), devised a new weighted average formula that maintains
the current government share of approximately 72 percent of the
premium (with the enrollee paying the remainder).
The Fair Share formula is based upon a determination of the
average of the subscription charges in effect on the beginning
date of each contract year with respect to Self Only and Family
enrollments (including Postal Service enrollees). This is done
by weighting the premiums of each currently participating and
continuing plan by the actual distribution of enrollees by plan
and option as reflected in the most recent semi-annual
enrollment report that has been produced by OPM.
After the average Self Only and Family premiums have been
determined, each is multiplied by 72 percent to set the maximum
dollar government contribution. The formulation continues the
75 percent limitation on the actual government contribution to
any specific plan. That limit preserves the cost sharing
principle that has existed in the program since 1974, promoting
cost-conscious plan selection by assuring that enrollees always
pay some amount toward the cost of their insurance. The 72
percent maximum government contribution in combination with the
75 percent cap results in an average government contribution of
roughly 71 percent, and is intended to mirror the distribution
under current law.
The Fair Share formulation is tied to the reality of the
FEHBP, not to an artificial index. Because it takes actual
premiums and enrollee choice into complete account, it will
always be an accurate reflection of what is occurring within
the FEHBP. It will not be affected by plan mergers,
withdrawals, enrollment gains or losses, or the experience of a
single plan, any of which can significantly affect a
contribution formula based on a small number of plans. The
effective date is the first day of the contract year that
begins in 1999. Use of the Fair Share formula results in a
budget savings of $28 million, as scored by the Congressional
Budget Office (CBO).
Background and Need for Legislation
Under current law, the government's share of FEHBP premiums
is determined independently for Family and Self Only coverage.
By law, the federal contribution is based on a two-part
formula, generally referred to as the ``Big Six'' formula. The
first part of the formula limits the government's contribution
to a flat dollar amount equal to 60 percent of the simple
average of the premiums for the high-option benefits offered by
six plans: two government-wide plans, the two largest Health
Maintenance Organizations (HMOs), and the two largest
government organization plans. The second part of the formula
further limits the government's contribution to 75 percent of
the premium for the plan selected by the enrollee. Thus,
enrollees pay at least 25 percent of the total premium of the
plan in which they enroll.
Until 1990, the two government-wide high-option plans were
Blue Cross/Blue Shield and Aetna. However, in 1990, Aetna
dropped out of the FEHBP altogether. In order to prevent
Aetna's withdrawal from causing premiums to be based on 60
percent of the simple average of the premiums in the remaining
five plans (which would have decreased the government's share
and increased the enrollees'' share), Congress enacted
legislation establishing a ``proxy'' plan (sometimes referred
to as the ``phantom'' plan) with a premium calculated as if the
Aetna high-option plan were still part of the program. This
phantom plan was originally authorized through 1993, but in
that year Congress extended it through 1998, with a one percent
reduction in the proxy plan premium in 1997 and 1998.
If current law is allowed to expire and a Big Five, simple
average formula becomes the ``default'' formula in 1999, the
government's costs would decrease and enrollee costs would
increase. That is, costs would be shifted from the federal
government to employees and retirees. The Office of Management
and Budget (OMB) estimates that the reduction in the
government's costs would be roughly $1 billion in calendar year
1999. Currently, on average, the government pays 71 percent of
total premium costs. Under a Big Five simple average formula,
the government's share would be about 67 percent, on average.
The Committee believes it is necessary to establish in law
a new formula--specifically, the Fair Share formula--designed
not only to modernize the current formula, but to avoid the
large reduction in the government contribution, and the
attendant increase in cost to the enrollee, which will occur in
1999 if current law is allowed to expire.
Section 6003. Repeal of authorization of transitional appropriations
for the United States Postal Service
This section of the legislation repeals the permanent
authorization of transitional appropriations for the United
States Postal Service workers'' compensation. Under the 1970
Postal Reorganization Act, Post Office Department employees who
were already receiving workers compensation payments remained
the responsibility of the federal government. The United States
Postal Service would instead be required to assume payment
without federal reimbursement. The five-year cost savings is
$165 million.
Subtitle B--GSA Property Sales
Section 6011. Sale of Governors Island, New York
This section requires the Administrator of the General
Services Administration to sell Governors Island, New York, at
fair market value. The sale is scheduled to occur in the year
2002. The State of New York and the City of New York are given
the right of first offer to purchase all or part of the
property. The proceeds of the sale will be deposited in the
general fund of the U.S. Treasury and credited as miscellaneous
receipts.
Governors Island is located in New York City harbor, south
of Manhattan and west of Brooklyn. It houses the largest Coast
Guard facility in the world, Support Center New York, which
provides support for commands stationed on the island. The 172-
acre island is surrounded by a seawall and is reached by ferry
from Manhattan.
Section 6012. Sale of air rights
The Administrator of General Services is authorized and
directed to sell, before the end of fiscal year 2002, at fair
market value, the air rights north of Union Station,
Washington, DC. There are approximately 16.3 acres of air
rights, or air space above train tracks that could be developed
into commercial property, with parking. In 1992 these air
rights were valued by an appraisal performed for GSA at
$50,000,000. This figure is net of any cost to build a
platform, or lid, which is necessary to support the development
of a building.
These air rights are bounded on the south by Union Station,
on the east by the CSX property and Second St. NE., on the
north by K St. NE. and on the west by 1st St. NE. The H St. NE.
overpass cuts through the air rights, running east-west. These
air rights are currently owned by the Department of
Transportation, and AMTRAK. AMTRAK is required to transfer, at
no cost, its air rights, estimated to be approximately 10.6
acres, to the Department of Transportation. The Administrator
of General Services would then sell the air rights in a manner
to be determined.
ADDITIONAL VIEWS
The Democratic members of the State Labor and Human
Resources Committee unanimously opposed that part of Section
7103 of the Chairman's mark that mandates the payment of an
Administrative Cost Allowance to guaranty agencies. The
majority's proposal changes current law by transforming a
discretionary payment of an Administrative Cost Allowance (ACA)
to guarantly agencies into a coporate entitlement. This issue
was specifically discussed during the negotiations that
resulted in the budget agreement, and was rejected.
The Democratic members view the inclusion of this section
as an unnecessary corporate entitlement and as contrary to the
budget deal. Money for an Administrative Cost Allowance has
been appropriated and has been paid to guaranty agencies by the
Department of Education, rendering this language unnecessary.
Senator Dodd proposed an amendment to strike that section of
the majority's proposal, which was defeated by a vote of 10 to
8, along party lines.
The majority's discussion of guaranty agency budgets should
not be understood as reflecting Congress's rationale for the
payments. The payments have not been based on a thorough
analysis by the Committee of guaranty agencies' needs,
functions, past use of funds, future use of funds, or other
sources of funds.
The majority's determination to create a corporate
entitlement contrasted with the Democrats' desire to reduce
costs for student. Senator Kennedy introduced an amendment that
would have reduce the origination fees on student loans by 2%.
This amendment was fully paid for by reducing the federal
insurance rates paid on defaults and by reducing the retention
allowance for guaranty agencies. Proposals to reduce certain
insurance rates and retention allowances were included in the
Republicans' reconciliation proposal of 1995. Senator Kennedy's
amendment was defeated along party lines, by a vote of 10 to 8.
To accommodate the majority's desire to mandate the payment of
the ACA, Senator Kennedy then proposed to modify his amendment
by including the payment of the ACA while still providing these
immediate benefits for students. This was also defeated along
party lines, by a vote of 10 to 8.
The majority opposed these changes by stating that the
structure of the guaranty agencies would be reconsidered during
the upcoming reauthorization of the Higher Education Act. The
Chairman also stated that payment of the ACA would be
reconsidered during the reauthorization process. Even so,
amendment offered by Senator Harkin that would have limited the
provision regarding ACA to one year--the expected time for the
reauthorization--was defeated, again along strict party lines.
The Committee did unanimously accept Senator Harkin's amendment
to restrict the use of interest on the restricted accounts from
the guaranty agency reserves to activities to prevent student
defaults.
The Democratic members were reassured by the Chairman's
statement that all payments to guaranty agencies would be
reviewed during the reauthorization of the Higher Education
Act. In light of this assurance and in the spirit of the
bapartisan budget agreement, the majority of the Democrats
voted for final passage of the Chairman's mark, by a margin of
7-1.
congressional budget office cost estimate
Reconciliation Recommendations of the Senate Committee on Labor and
Human Resources (Title VII)
Summary: Title VII of the reconciliation bill would make
three changes in the federal administrative costs and federal
cash management of the student loan programs, which under
current law are expected to guarantee or issue about 40 million
new loans totaling $160 billion over the next five years. The
revisions to the program would leave program eligibility and
loan capital financing unchanged. In combination, the proposed
changes would lower program costs by $239 million in 1998 and
$1.8 billion over the 1998-2002 period.
This title contains no intergovernmental mandates as
defined in the Unfunded Mandates Reform Act of 1995 (UMRA).
Public institutions of higher education could lose federal
subsidies totaling up to $20 million in fiscal year 1998 and
$155 million over the 1998-2002 period. This title contains no
private-sector mandates as defined in UMRA.
Estimated cost to the Federal Government: CBO estimates the
committee's proposals would reduce federal outlays by $239
million in 1998, $1.1 billion in 2002, and $1.8 billion over
the 1998-2002 period. The estimated budgetary impact of these
proposals over the 1998-2002 period is shown in the following
table. The appendix table shows the budgetary effects through
2007.
The budgetary impact of Title VII falls within budget
function 500 (education, training, employment, and social
services).
ESTIMATED BUDGETARY IMPACT OF THE RECONCILIATION RECOMMENDATIONS OF THE SENATE COMMITTEE ON LABOR AND HUMAN
RESOURCES
[By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
Spending current law:
Budget authority..................................... 1,009 3,911 3,567 3,367 3,418 3,533
Estimated outlays.................................... 578 3,378 3,325 3,162 3,138 3,223
Proposed changes: Section 7001--guaranty agency reserves:
Budget authority..................................... ....... ....... ....... ....... ....... -1,028
Estimated outlays.................................... ....... ....... ....... ....... ....... -1,028
Section 7002--direct loan processing fee:
Budget authority..................................... ....... -35 -35 -40 -40 -45
Estimated outlays.................................... ....... -20 -30 -35 -35 -40
Section 7003--section 458 funds:
Budget authority..................................... ....... -421 -140 -45 0 0
Estimated outlays.................................... ....... -219 -203 -120 -50 -12
Subtotal, proposed changes:
Budget authority..................................... ....... -456 -175 -85 -40 -1,073
Estimated outlays.................................... ....... -239 -233 -155 -85 -1,080
Spending under reconciliation recommendations:
Budget authority..................................... 1,009 3,455 3,392 3,282 3,378 2,460
Estimated outlays.................................... 578 3,139 3,092 3,007 3,053 2,143
----------------------------------------------------------------------------------------------------------------
Basis of estimate: Management and Recovery of Reserves.
Section 7001 of this bill would require that the 36 guaranty
agencies currently participating in the guaranteed student loan
program return $1.028 billion of their cash reserve funds to
the federal government in 2002. The net cash reserves held by
guaranty agencies have been growing in recent years due to
recent changes in law that expanded borrowing levels and
resulted in increased premium collections and lower default
claims. As of September 1996, these agencies had combined net
cash reserves of just over $2 billion. The amount to be
recalled exceeds the amount needed by these agencies to operate
over the next five years. The bill would recall more of the
funds from agencies with proportionately larger cash reserves.
The CBO estimate assumes that the agencies would continue to
receive insurance premiums, reinsurance payments, and federal
administrative cost allowances, which are all provided for
under current law. If these revenues were to be diminished, CBO
would reassess the likelihood that the recall target could be
attained.
Repeal of Direct Loan Origination Fees to Institutions of
Higher Education. Section 7002 would eliminate the separate per
loan federal subsidy to schools or alternate originators to
process applications for direct student loans. Direct payments
to schools have been prohibited in the last two appropriations
bills, allowing payment only to alternate originators.
Eliminating these mandated payments would save $20 million in
1998 and $160 million over the 1998-2002 period. The proposal
would not prevent the Secretary of Education from using funds
available under the capped administrative entitlement fund
(Section 458 moneys) to pay either schools or alternate
originators to process the applications for direct student
loans.
Funds for Administrative Expenses. The Department of
Education's Section 458 capped administrative entitlement fund
would be reduced by $604 million over the five-year period to a
new five-hear total of $3.1 billion. Section 7003 would set new
annual limits for this fund at $532 million in 1998, $610
million in 1999, $705 million in 2000, and $750 million in 2001
and 2002. The current five-year cumulative ceiling would be
eliminated, and funds would be available for obligation until
expended.
Estimated impact on State, local, and tribal governments:
This title contains no intergovernmental mandates as defined in
UMRA. Enactment of this title would eliminate the requirement
that the federal government help cover the cost of originating
direct student loans. CBO estimates that public institutions of
higher education could lose federal subsidies totaling up to
$20 million in fiscal year 1998 and $115 million over the 1998-
2002 period.
Estimated impact on the private sector: Enactment of Title
VII would impose no private-sector mandates as defined under
UMRA.
Estimate prepared by: Federal Cost: Deborah Kalcevic,
Impact on State, Local, and Tribal Governments: Marc Nicole,
Impact on Private Sector: Bruce Vavrichek.
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
APPENDIX TABLE: ESTIMATED BUDGETARY EFFECTS OF TITLE VII; RECONCILIATION RECOMMENDATIONS OF THE SENATE COMMITTEE ON LABOR AND HUMAN RESOURCES
[In millions of dollars, by fiscal year]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1998-2007
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN DIRECT SPENDING
Student loans:
Estimated budget authority.......................... -456 -175 -85 -40 -1,073 -45 -50 -50 -55 -55 -2,084
Estimated outlays................................... -239 -233 -155 -85 -1,080 -42 -45 -45 -50 -50 -2,024
--------------------------------------------------------------------------------------------------------------------------------------------------------
Budget Reconciliation Bill Provisions Affecting Federal Student Loan
Programs as Passed by the Committee on Labor and Human Resources--June
11, 1997
(Assumes Enactment Prior to October 1, 1997 and Assumes All Changes
Effective Upon Enactment)
SAVINGS OVER 5 YEARS (1998-2002)=$1.792 BILLION
The budget agreement approved by the Senate reflects the
strong bipartisan support for education. The agreement provides
for $35 billion in education related tax provisions, and
assumes increased Federal support for Special Education, Head
Start, and funding for literacy programs. The budget agreement
supports providing an additional $7.6 billion for Pell Grants
allowing the maximum grant to grow from $2,700 to $3,000.
In addition, the subsidy for student loans is assumed to
grow from $3.9 billion in 1998 to $4.1 billion in 2002. This
will support growth in Federal student loan volume from $28.8
billion in 1998 to $35.8 billion in 2002.
Summary of submission
The Senate Budget Resolution requires $1.792 billion in
savings over five years from mandatory spending under the
jurisdiction of the Committee on Labor and Human Resources. The
savings required by the agreement and submitted by the
Committee will not increase costs, reduce benefits, or limit
access to loans for students and their families. In accordance
with the budget agreement, this proposal attempts to maintain
an equitable balance in the savings that are taken from the
Federal Family Education Loan Program (FFEL) and the federal
direct lending program (FDLP).
The budget submission approved by the Committee on Labor
and Human Resources was approved by a vote of 17-1. It achieves
the required savings by recalling $1.028 billion in excess
guaranty agency reserves, eliminating the $10 direct loan
origination fee and reducing the Department of Education's
entitlement for the administration of the federal student loan
programs by $604 million.
Section-By-Section Analysis of Labor Committee Reconciliation
Submission
Section 7001: Management and recovery of guaranty agency reserves
Equitable shares
The Committee's proposal requires that the guaranty
agencies return $1.028 billion of their current excess cash
reserves to the Federal Treasury in Fiscal Year 2002. The
Secretary shall require each guaranty agency to return excess
reserve funds based on each agency's equitable share. This
share will be calculated based upon the excess reserve funds
held by the agency as of September 30, 1996. For the purposes
of determining each agency's equitable share, the calculation
of the reserve ratio will include transfers of the liabilities
to each agency of the outstanding loans from the merged
agencies as well as transfers of the reserves from the merged
agencies. The Secretary will then calculate the equitable
shares by requiring each agency with a reserve ratio in excess
of 1.12% to return reserves above 1.12%. In addition, each
agency will also return an equal percentage of their remaining
reserves until the total reserve return of $1.028 billion is
achieved.
The formula used to determine an agency's equitable share
is designed to avoid jeopardizing the viability of those
agencies with fewer excess cash reserves. The failure to
maintain a well functioning program would result in students'
experiencing disruption or difficulty in obtaining federal
student loans.
Restricted accounts
Each agency shall establish a restricted account of its own
choosing with approval from the Secretary. Each agency shall,
consistent with current law, invest the reserves placed within
the restricted accounts in obligations issued or guaranteed by
the United States or in other similarly low-risk securities.
An amendment offered by Senator Harkin and adopted by the
Committee during markup limits guaranty agency use of interest
earnings from these accounts to activities to reduce student
loan defaults.
Orderly recall
This section establishes a timetable for the orderly recall
of the $1.028 billion in excess guaranty agency reserves over
the next five years. In each of the five years covered under
this agreement, 20% of the total amount recalled shall be
placed in the restricted accounts. In FY 1998, each agency with
cash reserves in excess of 2% will contribute the amount in
excess of 2% to its restricted account. The Secretary of
Education will, in addition, require each agency to contribute
an equal proportion of its equitable share to the restricted
accounts until 20% of the $1.028 billion to be recalled under
this section has been transferred into the restricted accounts.
In each of fiscal years1999-2002, each agency shall transfer
one-fourth of the total amount remaining of its equitable share into
its restricted account. If, on September 1, 2002, the total amount
contained within the restricted accounts is less than $1.028 billion,
the Secretary shall require the return of the amount of the shortage
from other reserve funds held by guaranty agencies.
The formula provided in the Committee's budget submission
upholds the Committee's commitment to require guaranty agencies
to annually deposit into a restricted account 20% of the $1.028
billion in excess cash reserves. However, the formula is
designed to specifically address the concern that a uniform
annual recall of 20% of the excess reserves from each
individual agency may be too drastic a reduction for certain
agencies to withstand. An across-the-board recall of 20% of
excess reserves could risk placing certain agencies in
questionable financial standing which could disrupt student
access to federal loans through the FFEL program.
Limitations on recall authority
In order to ensure that sufficient reserve funds will be
available to fulfill the purposes of this section, restrictions
have been placed on the Secretary's recall authority during the
five year period covered by the budget agreement. The Secretary
may not recall additional excess reserves under 422 (g)(1)(A)
of the Higher Education Act and any other reserve funds
returned under other authorities within subsection (g)(1) shall
be transferred to the restricted accounts and applied toward
the amount recalled in the Section 7001.
Minimum reserve ratio
From 1994-1996 the minimum reserve level which each
guaranty agency was required to maintain increased from .5% to
1.1%. The minimum reserve level that must be maintained by each
guaranty agency is returned to .5%.
Section 7002: Elimination of the direct lending loan origination
payment
The authority to make the Federal payment of $10 per loan
to schools and/or alternative originators that make direct
loans is repealed. This repeal extends for five years a
provision currently contained within the FY 1997 Labor, HHS,
Education and Related Agencies Appropriations Bill and will
provide savings of $160 million over five years.
Section 7003. Reductions in section 458 expenditures
The bipartisan budget agreement preserves a commitment to
maintaining two viable student loan programs and calls upon the
Committee on Labor and Human Resources to ``achieve an
equitable balance of savings between the direct student loan
program and the guaranteed student loan program.'' In order to
preserve this balance, $604 million in savings are required
from the Department of Education's entitlement account to
administer the federal direct lending program. The Department
will continue to receive $3.2 billion in this account over the
next five years.
Section 458 of the Higher Education Act provides funds to
the Secretary of Education for the administration of the direct
lending and FFEL programs as well as the administrative cost
allowance paid to guaranty agencies. Amendments to the Higher
Education Act enacted in 1993 provided mandatory spending
authority of $750 million for this account in FY 1998. The
current funding baseline for this account provides over $3.9
billion over the next five years. This level of funding is not
needed in view of the current and projected volume for the
direct lending program, which is lower than initially
estimated. Accordingly, the Labor and Human Resources Committee
proposal reduces authority for direct lending administration
expenditures in Section 458.
In accordance with current law, the payment of
administrative costs allowances to guaranty agencies are to be
provided by the Department of Education from funds available in
Section 458. In order to ensure that the savings required under
Section 7003 are not redirected by the Department of Education
to the FFEL program, and to ensure that the ``equitable balance
in savings'' is maintained between the two programs, the
Committee has included a provision limiting ACA payments to .85
basis points and capping these expenditures to ensure the
timely continued payment of the administrative cost allowance
to guaranty agencies.
The allegation has been raised by the Administration that
the ACA payments constitute a new and unnecessary corporate
entitlement. This allegation is not true. Section 428(f) of the
Higher Education Act provided for the payment of ACA for any
fiscal year prior to 1994 on the basis of 1% of every new loan
insured by a guaranty agency during the fiscal year. In the
1993 Budget Reconciliation Act, the payment of ACA was
incorporated into section 458 of the Higher Education Act.
Conference report language accompanying the reconciliation act
(P.L. 103-66) directed the Department to pay ``on a timely
basis . . . an amount equivalent to that . . . received under
the administrative cost allowance provision . . . And that the
payment will come from the administrative funds provided under
section 458''. In 1994 and 1995 the Department of Education
paid the guaranty agencies an annual fee equal to 1% of the new
loans insured by the agencies in that year. P.L. 104-134,
providing FY 1996 appropriations, and P.L. 104-208, providing
FY 1997 appropriations, reduced the ACA payment to .85% and
capped these expenditures at $170 million in FY96 and $150
million in FY97. The CBO cost estimate which accompanies this
report assumes that guaranty agencies will continue to receive
``insurance premiums, reinsurance payments, and federal
administrative cost allowances, which are all provided for
under current law. If these revenues were to be diminished, CBO
would reassess the likelihood that the recall target could be
attained.''
Consistent with current appropriations law, the
administrative cost allowance paid to the guaranty agencies out
of this account will be reduced to .85% of every new loan. In
order to preserve the balance between the savings drawn from
the direct lending program and the savings drawn from the FFEL
program these payments will be capped at $170 million in each
of Fiscal Years 1998 and 1999. ACA payments will be capped
atthe current CBO baseline of $150 million in each of Fiscal Years
2000, 2001, and 2002.
In the absence of changes to the structure of guaranty
agencies, the Committee believes current law and procedure for
the payment of administrative cost allowances to guaranty
agencies are necessary.
The guaranteed student loan program (FFEL) serves 80% of
the institutions of higher education in this country and
provides over 60% of total student loan volume. In light of the
importance of this program to students, and the fact that
nearly one-half of the guaranty agency reserves are being
recalled, the Committee believes that these ACA payments must
be stabilized. Failure to stabilize these payments could
jeopardize the viability of smaller agencies and jeopardize the
reserve fund recall that is authorized under section 7001.
Section 7004. Extension of student aid programs
This section provides for a simple extension of three
provisions of the Higher Education Act dealing with loan
programs. These extensions are required for Congressional
Budget Office scoring purposes.
congressional budget office cost estimate
Reconciliation Recommendations of the Senate Committee on Veterans'
Affairs (Title VIII)
Summary: Title VIII would extend through 2002 provisions of
the Omnibus Reconciliation Act of 1990 (OBRA) that affect
programs for veterans, make the authority of the Department of
Veterans Affairs to spend certain receipts subject to
appropriations, and round down cost-of-living adjustments
(COLAs) for veterans' disability compensation. CBO estimates
the recommendations would reduce direct spending by $247
million in 1998 and about $3.8 billion over the 1998-2002
period; they would raise spending subject to appropriations by
$543 million in 1998 and $3.1 billion over the five-year
period. The recommendations contain no intergovernmental or
private-sector mandates as defined in the Unfunded Mandates
Reform Act of 1995 (UMRA), but they would increase Medicaid
costs for state governments beginning in fiscal year 1999.
Estimated cost to the Federal Government: The estimated
budgetary impact of the committee's recommendations over the
fiscal years 1998 through 2002 is shown in Table 1. The
projected impact over 10 years is shown in Table 6, which
appears at the end of this estimate.
Receipts for Medical Care
The committee's recommendations contain provisions that
would extend the authority of the Department of Veterans
Affairs (VA) to collect certain receipts and would replace
current permanent authority to spend certain receipts with
authority to spend receipts subject to annual appropriation.
The combined budgetary effects are shown in Table 2. In total,
these provisions would reduce direct spending by $1.7 billion
over the 1998-2002 period, and they would raise spending
subject to appropriation by $3.1 billion over the five-year
period.
Hospital Per Diems and Medical Care Copayments. Section
8021 would extend through September 30, 2002, VA's authority to
collect per diem payments for inpatient hospitalizations and
nursing home care and other copayments for medical services
provided to certain veterans. Under current law, veterans are
subject to these copayments if they have no service-connected
disability or a disability rated as less than 10 percent
disabling, have high enough income, and are treated for a
nonservice-connected ailment. Extending these provisions of
law, which expire on September 30, 1998, would result in
collections of about $2 million in 1999 and $11 million over
the 1999-2002 period.
TABLE 1.--ESTIMATED BUDGETARY IMPACT OF TITLE VIII, FISCAL YEARS 1998-2002
(By fiscal year, in millions of dollars)
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
VETERANS PROGRAMS
Spending under current law for veterans
programs\1\:
Estimated budget authority................ 39,126 41,323 43,484 44,649 45,826 47,043
Estimated outlays......................... 39,445 41,793 43,378 46,287 43,920 46,971
Proposed changes in direct spending:
Estimated budget authority................ 0 -159 -1,111 -1,156 -1,206 -1,259
Estimated outlays......................... 0 -247 -1,072 -1,198 -1,160 -1,256
Proposed changes in spending, subject to
appropriations:
Estimated authorization level............. 0 604 615 639 666 694
Estimated outlays......................... 0 543 608 636 663 691
Spending under Title VIII for veterans
programs:
Estimated budget authority................ 39,126 41,768 42,988 44,132 45,286 46,478
Estimated outlays......................... 39,445 42,089 42,914 45,725 43,423 46,406
MEDICAID
Spending under current law for Medicaid:
Estimated budget authority................ 98,599 105,308 113,619 122,861 132,792 143,783
Estimated outlays......................... 98,599 105,308 113,619 122,861 132,792 143,783
Proposed changes:
Estimated budget authority................ 0 0 282 280 283 292
Estimated outlays......................... 0 0 282 280 283 292
Spending under Title VIII for Medicaid:
Estimated budget authority................ 98,599 105,308 113,901 123,141 133,075 144,075
Estimated outlays......................... 98,599 105,308 113,901 123,141 133,075 144,075
TOTAL PROPOSED CHANGES IN DIRECT SPENDING
Estimated budget authority................ 0 -159 -829 -876 -923 -967
Estimated outlays......................... 0 -247 -790 -918 -877 -964
----------------------------------------------------------------------------------------------------------------
Note: The budgetary impact of the recommendations would fall under budget function 700 (Veterans' affairs) and
550 (health).
\1\ CBO's baseline for budget function 7000 with adjustments for anticipated inflation.
In addition, this section would extend through September
30, 2002, VA's authority to collect copayments for outpatient
medications that are prescribed for nonservice-connected
conditions. The copayment would apply to all veterans, except
those who have service-connected disability rated at 50 percent
or more or whose income falls below a certain threshold. CBO
estimates that these collections would amount to about $36
million in 1999 and $152 million over the 1999-2002 period.
Medical Care Cost Recovery. Section 8022 would extend
through September 30, 2002, VA's authority to collect from
third-party insurers the cost of treating veterans with a
service-connected disability for nonservice-connected ailments.
CBO estimates that collectionswould amount to about $195
million in 1999 and $829 million over five years, based on VA's recent
experience and adjustments for anticipated inflation.
Medical Care Collections Fund. Action 8023 would replace
VA's permanent authority to spend some of the medical care
collections with the authority to spend all medical care
collections subject to annual appropriation. Eliminating VA's
authority under current law would save about $641 million in
direct spending over the 1998-2002 period. Authorizing the
appropriation of all amounts that VA would collect over that
period would cost about $3.1 billion.
Income Verification. Section 8014 would allow VA to use
data from the IRS to verify the incomes of veterans receiving
benefits from VA, including medical care. Under current law,
veterans whose income falls below a certain level qualify for
free medical treatment. Veterans who receive free treatment,
but are later found to be ineligible through income
verification, could be charged the standard Medicare deductible
($760) for the first 90 days of care, and a $10 daily
copayment. These payments revert to the Treasury as mandatory
receipts. CBO estimates that VA would collect about $17 million
in 1999 and $71 million over the 1999-2002 period as a result
of this extension of its authority to verify incomes.
TABLE 2.--BUDGETARY IMPACT OF PROPOSED CHANGES AFFECTING VETERANS MEDICAL CARE
[By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
DIRECT SPENDING
Net receipts under current law from medical
care:
Estimated budget authority................ -466 -485 -242 -252 -262 -273
Estimated outlays......................... -466 -485 -242 -252 -262 -273
Proposed changes:
Estimated budget authority................ 0 -118 -373 -387 -404 -422
Estimated outlays......................... 0 -118 -373 -387 -404 -422
Net receipts under title VIII from medical
care:
Estimated budget authority................ -466 -603 -615 -639 -666 -695
Estimated outlays......................... -466 -603 -615 -639 -666 -695
SPENDING SUBJECT TO APPROPRIATION
Spending under current law for medical care:
Estimated authorization level \1\......... 17,013 17,622 18,228 18,856 19,511 20,194
Estimated outlays......................... 17,005 17,934 18,033 18,618 19,264 19,938
Proposed changes:
Estimated authorization level............. 0 604 615 639 666 694
Estimated outlays......................... 0 543 608 636 663 691
Spending under title VIII for medical care:
Estimated authorization level............. 17,013 18,226 18,843 19,495 20,177 20,888
Estimated outlays......................... 17,005 18,477 18,641 19,254 19,927 20,629
----------------------------------------------------------------------------------------------------------------
\1\ CBO's baseline with adjustments for anticipated infation.
Housing
Veterans housing would be affected by four provisions. As
shown in Table 3, these provisions would reduce direct spending
by $1.0 billion over the 1998-2002 period.
Home Loan Fees. Section 8032 would raise the origination
fee on direct loans and section 8012 would extend through 2002
two provisions of law pertaining to the veterans home loan
program that expire on September 30, 1998. VA often acquires
property when a guaranteed loan goes into foreclosure and
issues a new direct loan (called a vendee loan) when the
property is sold. Section 8032 would raise the fee on vendee
loans, from 1 percent to 2.25 percent of the loan amount, to
match the premium charged by the Federal Housing
Administration. CBO estimates that collections would rise by
about $13 million a year.
Under one provision that would be extended, VA would charge
certain veterans a fee of 0.75 percent of the total loan
amount. CBO estimates this provision would affect about
$209,000 loans each year and raise collections by about $150
million a year. Under current law, veterans can reuse their
home loan guarantee benefit if their previous debt has been
paid in full. The second provision of this section would
require VA to collect a fee of 3 percent ofthe total loan
amount from veterans who reuse this benefit. CBO estimates this fee
would apply to about 30,000 loans each year and raise collections by
about $57 million a year.
Withholding of Payments and Benefits. Section 8033 would
permit VA to collect certain loan guarantee debts by reducing
any federal salary or federal income tax return refund due to a
veteran or surviving spouse. Under current law, before VA could
use these means, either it would have to obtain the written
consent of the debtor or the debt would have to be due to a
court determination. Based on information from VA, CBO
estimates this provision would raise collections by $90 million
in 1998 from a stock of loans that originated several years
ago. There would be no effect after 1998 because this provision
does not apply to debts from the home loan program as it
currently operates.
Liquidation Sales. Section 8013 would extend from 1998
through 2002 a provision of law that requires VA to consider
the losses it might incur when selling a property acquired
through foreclosure. Under current law, VA follows a formula
defined in statute to decide whether to acquire the property or
pay off the loan guarantee instead. The formula requires
appraisals that may be valid at the time they are made, but do
not account for changes in market conditions that may occur
while VA prepares to dispose of the property. This provision
would require VA to take account of losses from changes in
housing prices that the appraisal does not capture. Losses of
this type might be prevalent when housing prices are
particularly volatile or if appraisals were biased for other
reasons. Since 1978, VA has suffered a resale loss every year
except 1993 and 1994. Recent losses average about $2,500 per
home. Assuming this provision applies to approximately 2,000
homes each year, CBO estimates it would save $5 million a year.
Enhanced Loan Asset Sales. Section 8011 would extend from
December 31, 1997, through December 31, 2002, VA's authority to
guarantee the real estate mortgage conduits (REMICs) that are
used to market vendee loans. Vendee loans are issued to the
buyers of properties that VA acquires through foreclosures. VA
then sells these loans on the secondary mortgage market by
using REMICs. By guaranteeing the certificates issued on a pool
of loans, VA obtains a better price but also assumes some risk.
Because recent history indicates that receipts would
increase by about 0.3 percent of sales, CBO estimates that this
provision would save about $5 million a year based on sales of
$1.6 billion. If this provision were not enacted, VA could
market vendee loans under other provisions of law.
Nevertheless, this provision would permit VA to realize a
better price for a package of vendee loans than if it used a
REMIC program of the Government National Mortgage Association.
TABLE 3.--BUDGETARY IMPACT OF PROPOSED CHANGES TO THE VETERANS HOME LOAN PROGRAM
[By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
Spending under current law for veterans
housing programs:
Estimated budget authority................ -627 145 296 310 311 308
Estimated outlays......................... -695 71 229 252 256 261
Proposed changes:
Estimated budget authority................ 0 -16 -233 -232 -229 -224
Estimated outlays......................... 0 -106 -233 -232 -229 -224
Spending under title VIII for veterans housing
programs
Estimated budget authority................ -627 129 63 78 82 84
Estimated outlays......................... -695 -35 -4 20 27 37
----------------------------------------------------------------------------------------------------------------
Pensions
Veterans pensions would be affected by two provisions. As
shown in Table 4, these provisions would reduce direct spending
for veterans' pensions and increase spending for Medicaid,
resulting in a net spending reduction of $0.7 billion over the
1999-2002 period.
Pension Limitation for Medicaid-Eligible Veterans in
Nursing Homes. Section 8015 would extend from September 30,
1998, to September 30, 2002, the expiration date on a provision
of law that sets a $90 per month limit on pensions for any
veteran without a spouse or child, or for any survivor of a
veteran, who is receiving Medicaid coverage in a Medicaid-
approved nursing home. It also allows the beneficiary to retain
the pension instead of having to use it to defray nursing home
costs.
Based on VA's experience under current law, this estimate
assumes that the extension of the expiration date would affect
approximately 16,000 veterans and 27,000 survivors. According
to VA, average savings were about $12,000 for veterans and
$8,000 for survivors in 1996. Higher Medicaid payments to
nursing homes would offset some of the savings credited to VA.
New savings would increase from $129 million in 1999 to $174
million in 2002.
Income Verification. Current law authorizes VA to acquire
information on income reported to the Internal Revenue Service
(IRS) to verify income reported by recipients of VA
pensionbenefits. This authorization expires on September 30, 1998.
Section 8014 would extend the expiration date to September 30, 2002.
This estimate is based on VA's recent experience, which has shown that
about $4 million in new savings is achieved annually through this
income match. Savings would grow from $4 million in 1999 to $16 million
in 2002 as a new cohort of veterans becomes subject to income
verification each year.
TABLE 4.--BUDGETARY IMPACT OF PROPOSED CHANGES TO VETERANS PENSIONS
[By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
VETERANS PENSIONS
Spending under current law, for veterans pensions:
Estimated budget authority...................... 2,975 2,975 3,427 3,454 3,513 3,608
Estimated outlays............................... 2,975 2,989 3,399 3,751 3,203 3,604
Proposed changes:
Estimated budget authority...................... 0 0 -452 -454 -463 -483
Estimated outlays............................... 0 0 -415 -491 -426 -482
Spending under title VIII for veterans pensions:
Estimated budget authority...................... 2,975 2,975 2,975 3,000 3,050 3,125
Estimated outlays............................... 2,975 2,989 2,984 3,049 2,777 3,122
MEDICAID
Spending under current law for Medicaid:
Estimated budget authority...................... 98,599 105,308 113,619 122,861 132,792 143,783
Estimated outlays............................... 98,599 105,308 113,619 122,861 132,792 143,783
Proposed changes:
Estimated budget authority...................... 0 0 282 280 283 292
Estimated outlays............................... 0 0 282 280 283 292
Spending under title VIII for Medicaid:
Estimated budget authority...................... 98,599 105,308 113,901 123,141 133,075 144,075
Estimated outlays............................... 98,599 105,308 113,901 123,141 133,075 144,075
TOTAL PROPOSED CHANGES IN DIRECT SPENDING
Estimated budget authority...................... 0 0 -170 -174 -180 -191
Estimated outlays............................... 0 0 -133 -211 -143 -190
----------------------------------------------------------------------------------------------------------------
Compensation
The budget resolution baseline assumes that monthly
payments of disability compensation to veterans and monthly
payments of dependency and indemnity compensation (DIC) to
their survivors are increased by the same cost-of-living
adjustment (COLA) payable to Social Security recipients. The
results of the adjustments are rounded to the nearest dollar.
Section 8031 would require VA to round down, to the next lower
dollar, adjustments to disability compensation and DIC through
2002. CBO estimated the savings from this provision using the
current table of monthly benefits and the number of
beneficiaries assumed in the baseline. As shown in Table 5,
savings from this section would be about $23 million in 1998,
growing to $128 million in 2002.
Estimated impact on State, local, and tribal governments:
This title contains no intergovernmental mandates as defined in
UMRA. It would, however, increase Medicaid costs for state
governments. CBO estimates that states would spend an
additional $213 million for the Medicaid program in fiscal year
1999 and an additional $857 million between 1999 and 2002.
Under UMRA, these costs would not be considered costs of a
mandate because states have the flexibility to offset them by
reducing their programmatic or financial responsibilities
elsewhere in the Medicaid program.
TABLE 5.--BUDGETARY IMPACT OF PROPOSED CHANGES TO VETERANS COMPENSATION
[By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
DIRECT SPENDING
Spending under current law for veterans
compensation:
Estimated budget authority................ 16,082 16,742 17,366 17,809 18,243 18,680
Estimated outlays......................... 15,942 16,687 17,314 19,257 16,723 18,643
Proposed changes:
Estimated budget authority................ 0 -25 -53 -83 -110 -130
Estimated outlays......................... 0 -23 -51 -88 -101 -128
Spending under title VIII for veterans
compensation:
Estimated budget authority................ 16,082 16,717 17,313 17,726 18,133 18,550
Estimated outlays......................... 15,942 16,664 17,263 19,169 16,622 18,515
----------------------------------------------------------------------------------------------------------------
The proposal would extend until September 30, 2002, the
limitation on the monthly pension that certain veterans in
nursing homes could receive. Under current law, this limitation
will expire on September 30, 1998. The effect of the extension
would be to require the Medicaid program to continue covering
100 percent of the nursing home expenses of certain veterans
after fiscal year 1998. Under current law, the Department of
Veterans Affairs and the veterans themselves would have paid
these costs.
Estimated impact on the private sector: This bill would
impose no new private-sector mandates as defined in UMRA.
Estimate prepared by: Federal Cost: Shawn Bishop (medical
care), Sunita D'Monte (housing), and Mary Helen Petrus
(compensation and pension). Impact on State, local, and tribal
governments: Marc Nicole. Impact on the private sector: Rachel
Schmidt.
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
TABLE 6.-ESTIMATED BUDGETARY EFFECTS OF TITLE VIII, FISCAL YEARS 1998-2007; RECONCILIATION RECOMMENDATIONS OF THE SENATE COMMITTEE ON VETERANS' AFFAIRS
[In millions of dollars, by fiscal year]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1998-2007
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN VETERANS PROGRAMS
Medical care receipts:
Estimated budget authority... -118 -373 -387 -404 -422 -145 -151 -157 -163 -170 -2,490
Estimated outlays............ -118 -373 -387 -404 -422 -145 -151 -157 -163 -170 -2,490
Housing:
Estimated budget authority... -16 -233 -232 -229 -224 0 0 0 0 0 -934
Estimated outlays............ -106 -233 -232 -229 -224 0 0 0 0 0 -1,024
Pensions:
Estimated budget authority... 0 -452 -454 -463 -483 0 0 0 0 0 -1,852
Estimated outlays............ 0 -415 -491 -426 -482 0 0 0 0 0 -1,814
Compensation:
Estimated budget authority... -25 -53 -83 -110 -130 0 0 0 0 0 -401
Estimated outlays............ -23 -51 -88 -101 -128 0 0 0 0 0 -391
Total veterans programs:
Estimated budget
authority............... -159 -1,111 -1,156 -1,206 -1,259 -145 -151 -157 -163 -170 -5,677
Estimated outlays........ -247 -1,072 -1,198 -1,160 -1,256 -145 -151 -157 -163 -170 -5,719
CHANGES IN MEDICAID
Estimated budget authority....... 0 282 280 283 292 0 0 0 0 0 1,137
Estimated outlays................ 0 282 280 283 292 0 0 0 0 0 1,137
TOTAL CHANGE IN DIRECT SPENDING
Estimated budget authority....... -159 -829 -876 -923 -967 -145 -151 -157 -163 -170 -4,640
Estimated outlays................ -247 -790 -918 -877 -964 -145 -151 -157 -163 -170 -4,582
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Veterans' medical care:
Estimated budget authority... 604 615 639 666 694 429 446 465 483 503 5,544
Estimated outlays............ 543 608 636 663 691 456 447 463 481 501 5,488
--------------------------------------------------------------------------------------------------------------------------------------------------------
Title VIII--Veterans' Programs
introduction
Section 104 of the Concurrent Resolution on the Budget for
Fiscal Year 1998, H. Con. Res. 84, requires that the Senate
Committee on Veterans' Affairs report changes in laws within
its jurisdiction that would reduce outlays by $681,000,000 in
fiscal year 2002 and by $2,733,000,000 in fiscal years 1998
through 2002.
On June 12, 1997, the Committee met in open session and, by
a recorded vote of 11-0, agreed to recommend legislation that
would reduce the deficit by $2,733,000,000 in fiscal years 1998
through 2002, and by $681,000,000 in fiscal year 2002.
On June 19, 1997, the Director of the Congressional Budget
Office (CBO) transmitted to the Chairman of the Committee on
Veterans' Affairs, Senator Arlen Specter, a letter estimating
the outlay savings which would be achieved by enactment of each
of the measures outlined in this report. Those estimates are
specified below.
subtitle a--extension of current authorities
1. Extension of Enhanced Loan Asset Sale Authority. Section
8011 of the Committee legislation would amend section
3720(h)(2) of title 38, United States Code, to extend the
current authorization period of that provision to December 31,
2002.
Section 3720(h) authorizes VA to guarantee the timely
payment of principal and interest to purchasers of real estate
mortgage investment conduits (REMICs). REMICs are used to
``bundle'' and market to investors a number of vendee loan
notes--that is, notes on loans financing the purchase of real
estate acquired by VA due to veterans' defaults on VA-
guaranteed home loans (see discussion below)--so that they may
be sold for cash under favorable terms. Under this authority,
VA guarantees to REMIC purchasers that principal and interest
will be paid timely. That assurance facilitates the marketing
of REMIC securities and enhances their value in the
marketplace. It thus increases the return to the Treasury when
such securities are sold.
VA's authority to guarantee the timely payment of principal
and interest under section 3720(h) expires on December 31,
1997. Section 8011 would extend the expiration date of that
authority to December 31, 2002.
Savings/Revenue
According to CBO, enactment of section 8011 would reduce
the deficit by $25 million in outlays in fiscal years 1998--
2002, and by $5 million in outlays in fiscal year 2002.
2. Extension of Home Loan Fees. Section 8012 of the
Committee legislation would amend section 3729(a)(4) of title
38, United States Code, to extend the current authorization
period of that provision to October 1, 2002.
Section 3729 of title 38, United States Code, specifies
fees that will be paid by borrowers who obtain home purchase
loans guaranteed, insured, or made by VA.
For borrowers obtaining the first such loan, fees generally
range from 0.50% to 2.0% of the loan amount, depending on the
amount of down payment to be paid by the borrower and the type
of military or naval service (active duty vs. selected reserve)
upon which eligibility for home loan benefits is based.
Pursuant to subsection (a)(4) of section 3729, an additional
fee of 0.75% is added to the fees set forth in section 3729,
except as otherwise specified, for ``first use'' loans closed
between September 30, 1993, and October 1, 1998.
With respect to borrowers obtaining subsequent housing
assistance loans, section 3729 specifies that the fee to be
charged shall be 3.0% of the total loan amount. This provision
applies to loans which close between September 30, 1993 and
October 1, 1998.
As noted, the above-summarized fee schedules apply to home
loans closed between September 30, 1993, and October 1, 1998.
Section 8012 would extend the expiration date of those fee
schedules to October 1, 2002.
Savings/Revenue
According to CBO, enactment of section 8012 would reduce
the deficit by $822 million in outlays over fiscal years 1998--
2002, and by $199 million in outlays in fiscal year 2002.
3. Extension of Procedures Applicable to Liquidation Sales
on Defaulted Home Loans Guaranteed by VA. Section 8013 of the
Committee legislation would amend section 3732(c)(11) of title
38, United States Code, to extend the current authorization
period of that provision to October 1, 2002.
Section 3732 specifies that VA has two options when a
property, the financing of which is guaranteed under the VA
Home Loan Guaranty Program, goes into foreclosure. VA may
simply pay off the guaranty. Alternatively, VA may elect to
purchase the property securing the loan in default and resell
it if VA concludes that a resale of the property would be less
costly to VA than a simple payment of the guaranty and would
be, therefore, more advantageous to the Government.
The provisions of law authorizing VA to elect to exercise
the latter option of acquiring and reselling the property when
it is to VA's advantage are set out in subsection (c) of
section3732. Subsection (c), however, applies only with respect
to properties financed with VA-guaranteed home loans which close before
October 1, 1998. Section 8013 would extend the authorization period of
subsection (c) to loans closed before October 1, 2002.
Savings/Revenue
According to CBO, enactment of section 8013 would reduce
the deficit by $20 million in outlays in fiscal years 1998-
2002, and by $5 million in outlays in fiscal year 2002.
4. Extension of Income Verification Authorities. Section
8014 of the Committee legislation would amend section 5317(g)
of title 38, United States Code, to extend the current
expiration date of that provision to September 30, 2002.
Eligibility for certain benefits and medical services
provided by VA is means tested--that is, eligibility for those
benefits and medical services is governed by, among other
variables, the potential beneficiary's annual income. Under
section 5317(g) of title 38, United States Code, VA is
authorized to verify income data furnished to VA by the
applicant for benefits or medical services by accessing income-
relevant records of the Department of Health and Human
Services/Social Security Administration and the Department of
the Treasury/Internal Revenue Service.
As is noted above, VA's income verification authority, as
specified in titles 26 and 38 of U.S. Code, expires on
September 30, 1998. Section 8014 would extend that expiration
date to September 30, 2002.
Savings/Revenue
According to CBO, enactment of section 8014 would reduce
the deficit by $40 million in outlays with respect to benefits,
and $71 million in outlays with respect to medical services,
over fiscal years 1998-2002, and by $16 million in outlays with
respect to benefits, and $19 million in outlays with respect to
medical services, in fiscal year 2002.
5. Extension of Limitation on Pension for Certain
Recipients of Medicaid-Covered Nursing Home Care. Section 8015
of the Committee legislation would amend section 5503(f)(7) of
title 38, United States Code, to extend the current expiration
date of that provision to September 30, 2002.
Section 5503(f) of title 38, United States Code, specifies
that VA beneficiaries receiving Medicaid-financed nursing home
care shall not be entitled to receive VA pension payments in
excess of $90 per month if the beneficiary has no spouse or
dependent child. In the absence of such a limit, pension
beneficiaries without dependents would not ultimately receive a
higher monthly benefit even though their initial pension
payment would exceed $90. Rather, their pension payments,
beyond a small monthly personal allowance (approximately $45 in
most States), would be forfeited to pay for their nursing home
care. Thus, VA pension payments would effectively fund Medicaid
obligations in the absence of section 5503(f).
Under the terms of section 5503(f), VA pension payments,
under the circumstances outlined above, are reduced to $90 per
month. However, the $90 payment is ``protected.'' That is, VA
pension may not be tapped to pay for Medicaid-provided care. In
effect, while VA beneficiaries receive a reduced pension
payment under section 5503(f), they are allowed to retain all
of that payment notwithstanding State-imposed personal
allowance limits. Thus, their position is better, from a
monthly cash flow standpoint, than it would have been absent
section 5503(f).
Section 5503(f) is currently scheduled to expire on
September 30, 1998. Section 8015 would extend that expiration
date to September 30, 2002.
Savings/Revenue
According to CBO, enactment of section 8015 would reduce
the deficit by $637 million in outlays over fiscal years 1998-
2002, and by $174 million in outlays in fiscal year 2002.
SUBTITLE B--COPAYMENT AND MEDICAL CARE COST RECOVERY
1. Extension of Authority To Require That Certain Veterans
to Make Copayments in Exchange for Receiving Hospital and
Medical Care. Section 8021(a) of the Committee legislation
would amend an existing provision of law in section 8013(e) of
the Omnibus Budget Reconciliation Act of 1990, Public Law 101-
508, 38 U.S.C. Sec. 1710 note (``OBRA '90''), to extend the
current expiration date of that provision to September 30,
2002.
Current law provides that veterans who are not eligible for
VA care on a priority basis under subsections (a)(1) and (a)(2)
of section 1710 of title 38, United States Code, may receive
care from VA to the extent resources and facilities are
available if they agree to make copayments for such care. In
OBRA '90, Congress added to the already existing Medicare
deductible-based copayment requirements a requirement that
veterans pay an additional per diem charge of $5 for nursing
home care and $10 for hospital care. Prior to enactment of OBRA
'90, veterans not eligible for priority care from VA paid only
full or partial Medicare deductibles as specified in subsection
(f). OBRA '90 also eliminated distinctions among non-service-
connected veterans with incomes above the ``means-test'' basis
for priority eligibility for hospital care and medical services
under subsection (a)(2) of section 1710, thereby requiring that
allsuch veterans make copayments.
The OBRA '90 requirements that VA charge per diems and
collect copayments from all non-service-connected veterans with
income above the ``means-test'' limit are currently scheduled
to expire on September 30, 1998. Section 8021(a) would extend
that expiration date to September 30, 2002.
Savings/Revenue
According to CBO, enactment of section 8021(a) would result
in collections of $11 million in fiscal years 1999-2002.
2. Extension of Authority To Require That Certain Veterans
to Make Copayments in Exchange for Receiving Outpatient
Medications. Section 8021(b) of the Committee legislation would
amend section 1722A of title 38, United States Code, to extend
the current expiration date of that provision to September 30,
2002.
Section 1722A of title 38, United States Code, specifies
that, except as itemized below, veterans who receive outpatient
medical care from the Department of Veterans Affairs (VA) for
the treatment of non-service-connected disabilities or medical
conditions are required to pay $2.00 for each 30-day supply of
medications furnished by VA in connection with that treatment.
Two classes of veteran-patient are exempted from this copayment
requirement: veterans having a service-connected disability
rated at 50% or higher; and veterans having an annual income
which equals, or is less than, the maximum amount they would be
eligible to receive under VA's pension program, 38 U.S.C.
Sec. 1521, were they eligible for benefits under that program.
The $2 copayment requirement, which was originally enacted
as part of OBRA '90, is currently scheduled to expire on
September 30, 1998. Section 8021(b) would extend that
expiration date to September 30, 2002.
Savings/Revenue
According to CBO, enactment of section 8021(b) would result
in collections of $152 million in fiscal years 1999-2002.
3. Extension of Authority for Medical Care Cost Recovery.
Section 8022 of the Committee legislation would amend section
1729(a)(2)(E) of title 38, United States Code, to extend the
current authorization date of that provision to October 1,
2002.
Section 1729 of title 38, United States Code, authorizes
VA, when it furnishes medical services to certain veteran-
patients for non-service-connected disabilities and medical
conditions, to collect the reasonable cost of providing such
services from third party payers, generally, the veteran-
patient's health plan or health insurance carrier, if any. This
provision applies to, among other categories of care, care for
non-service-connected disabilities and medical conditions
sustained by veteran-patients who have service-connected
disabilities, but only with respect to treatment provided
before October 1, 1998.
As is noted, VA authority to recover costs from the third
party payers, if any, of service-connected veterans applies
only with respect to treatment provided before October 1, 1998.
Section 8022 would extend that authorization period until
October 1, 2002.
Savings/Revenue
According to CBO, enactment of section 8022 would result in
collections of $829 million in fiscal years 1999-2002.
4. Retention by VA of Medical Care Receipts. Section 8023
of the Committee legislation would authorize VA to retain funds
collected under the authorities specified in sections 8021 and
8022, and to spend such monies on VA medical care.
Under current law, copayments and receipts from health care
plans and insurance carriers are remitted to the United States
Treasury. Section 8023 would authorize VA, for the first time,
to retain such funds. The provision would provide for maximum
incentives for collecting such funds by mandating that all such
monies be remitted to the Veterans Integrated Service Network
(``VISN'') which had collected them.
It is the Committee's judgment that such receipts will be
maximized if the collecting VISN has a full incentive to pursue
such funds aggressively. Consistent with this judgment, it is
the Committee's expectation that VA headquarters will remit
funds to the VISNs promptly. It is the Committee's expectation,
further, that VA headquarters will not reduce the allocation of
other funds made available to the VISNs to account for a VISNs
relative success in collecting medical care cost recovery
receipts. If funds are not retained by the VISN--and reductions
in other funding streams to offset medical care cost recovery
receipts would be the functional equivalent of nonretention of
such receipts--the VISNs will not perform their collection
mission as required.
Savings/Revenue
According to CBO, enactment of section 8023 would result in
savings of $641 in direct spending outlays in fiscal years
1998-2002, and $139 million in direct spending outlays in
fiscal year 2002.
SUBTITLE C--OTHER MATTERS
1. Rounding Down of Cost-of-Living Adjustments in
Compensation and DIC Rates. Section 8031 of the
Committeelegislation would require that cost-of-living adjustments made
to VA disability compensation, and dependency and indemnity
compensation (DIC), payments under chapters 11 and 13 of title 38,
United States Code, for fiscal years 1998 through 2002 would be rounded
down.
Monthly payments made by VA under chapters 11 and 13 of
title 38, United States Code, are in whole dollar amounts.
While such monthly payments are not ``automatically'' adjusted,
or indexed, to reflect increases (or decreases) in the cost-of-
living, typically they are adjusted annually to reflect such
increases. The budget baseline assumes that when monthly
amounts paid to VA beneficiaries are so recomputed (by
multiplying the prior year's payment amount by a percentage
amount supplied by the United States Department of Labor to
reflect its estimate of the prior year's increase in the cost
of living), the products of those mathematical computations
will be rounded ``normally'' when they are adjusted to whole
dollar amounts. That is, the baseline assumes that if the
recomputed monthly payment amount is a fractional dollar amount
of $0.50 or more, it will be rounded up to the next higher
dollar amount, and if it is a fractional dollar amount of $0.49
or less, it will be rounded down to the next lower dollar
amount.
Section 8031 requires that such recalculations of
compensation and DIC payments made for fiscal years 1998
through 2002 will be rounded down to the next lower whole
dollar amount irrespective of the fractional dollar amount
which is yielded when the prior year's payment amount is
multiplied by the cost-of-living index increase. Thus, some
beneficiaries would receive $1 per month less in benefits than
they might have otherwise received under the budget baseline
assumption of ``normal'' rounding. Section 8031 also specifies
that, for fiscal years 1996 through 2002, the fractional
increase in monthly benefit amounts will not be more than the
percentage increase granted to recipients of benefits under
title II of the Social Security Act, 42 U.S.C. Sec. 401 et seq.
Savings/Revenue
According to CBO, enactment of section 8031 would reduce
the deficit by $391 million in outlays in fiscal years 1998-
2002, and by $128 million in outlays in fiscal year 2002.
2. Increase in Home Loan Fees for the Purchase of
Repossessed Homes from VA. Section 8032 of the Committee
legislation would amend section 3729 of title 38, United States
Code, to increase fees charged by VA for VA financing to
purchasers of properties acquired by VA due to default. This
section would increase that fee from 1.0 to 2.25 percent of the
total loan amount.
Fees charged by VA in connection with the Home Loan
Guarantee program are specified in section 3729 of title 38,
United States Code. Under current law, the fee charged for VA
financing of sales of VA-acquired properties is 1.0% of the
total loan amount.
Section 8032 would increase the fee charged by VA for
financing of sales of VA-acquired properties to 2.25%.
Savings/Revenue
According to CBO, enactment of section 8032 would reduce
the deficit by $67 million in outlays in fiscal years 1998-
2002, and by $15 million in outlays in fiscal year 2002.
3. Withholding of Payments and Benefits. Section 8033 of
the Committee legislation would amend section 3726 of title 38,
United States Code, to authorize VA to refer certain loan
guaranty debts to the Internal Revenue Service for offset of
income tax refunds, and in cases where the debtor is a Federal
employee, to the debtor's employing agency for salary offset.
Under current law, Federal agencies other than VA are
restricted from assisting VA in collecting one type of debt to
VA--loan guaranty debts. Other agencies may not withhold or
offset payments to veterans to satisfy that type of debt to VA
unless the debtor consents in writing or a court has determined
the debtor is liable to VA for the debt. By contrast, other
debts to VA may be offset by other Federal agencies.
Section 8033 would authorize VA, with appropriate notice to
the debtor and after affording an opportunity for the debtor to
request forbearance or a waiver of the debt, to refer loan
guaranty debts, like other debts, to the IRS and, where
applicable, to the debtor's employing Federal agency for
offset.
Savings/Revenue
According to CBO, enactment of section 8033 would reduce
the deficit by $90 million in outlays in fiscal years 1998-
2002.
F. Rollcall Vote in the Budget Committee
Rollcall vote on the Domenici motion to report the
reconciliation measure to the Senate was as follows:
Yeas: 19 Nays: 3
Domenici Hollings
Grassley Sarbanes
Nickles1 Durbin1
Gramm
Bond
Gorton
Gregg1
Snowe1
Abraham
Frist1
Grams
Smith
Lautenberg
Conrad1
Boxer1
Murray1
Wyden
Feingold
Johnson
1Indicates the Senator voted by proxy.