[Congressional Record Volume 140, Number 85 (Wednesday, June 29, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: June 29, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                              HEALTH CARE

  Mr. SPECTER. Madam President, I have sought recognition for a few 
moments this morning to talk about an important report from the General 
Accounting Office on the cost relating to the administration of 
President Clinton's health care program.
  When the President submitted legislation, ranging some 1,342 pages, 
Senator Harkin and I--Senator Harkin being the chairman of the 
Appropriations Subcommittee on Labor, Health, Human Services, and 
Education, and I being the ranking member--submitted a letter, dated 
November 30, 1992, to the Comptroller General, Charles Bowsher, asking 
for a cost estimate on the administration of the Clinton health care 
program. This was requested because of the complexity of the Clinton 
health care program.
  By letter dated June 15, 1994, the General Accounting Office 
responded and, in effect, said that they could not verify the 
administration cost of $5.4 billion over a 5-year period because the 
Office of Management and Budget, which had prepared the cost estimate, 
was doing so out of the range of their ordinary responsibilities. And, 
to quote directly from the conclusion of the Office of Management and 
Budget, they stated the following:

       OMB staff did not provide us complete information about the 
     underlying assumptions they used to estimate the Federal 
     costs for the Health Security Act [HSA] startup and 
     administration. The staff of OMB stated that they did not 
     follow their normal budget estimating process. They made the 
     budget estimates in a short timeframe and based them on 
     proposed legislation that did not have responsibilities for 
     some of the functions clearly defined. OMB staff said they 
     did not document their estimating assumptions and were 
     reluctant to discuss the details of their work.

  Madam President, I suggest to you that this OMB report on estimating 
cost is very important because of the obviously tremendous costs 
associated with administering the Clinton health care plan.
  When I first read the Clinton plan, I was surprised at the number of 
agencies, boards, and commissions which were created, and asked a staff 
member, Sharon Helfant from my office, to prepare a list. Instead of 
preparing the list, Sharon Helfant prepared a chart, which I have 
talked about on the Senate floor before, but it is worth reviewing 
today, because, at a glance, it shows the enormous complexity of 
President Clinton's health care program.
  Every box in red is a new agency, board, or commission. There are 105 
of those red boxes on this chart. Every box in green is an existing 
bureau or agency which is given a new administrative job. There are 47 
existing agencies which are given new tasks.
  This chart appeared in a full-page spread in the Washington Times on 
December 22, 1993. It was also used by Senator Dole in his reply to 
President Clinton's State of the Union speech in late January. As a 
result, the White House issued a release that the chart was inaccurate, 
notwithstanding the fact that in every one of these boxes there is a 
specific page reference to the Clinton health care plan.
  It is obvious, on the face of this kind of a complex administrative 
bureaucracy, that the Clinton health care plan is going to be 
enormously costly to administer.
  That is the reason Senator Harkin, in his position as chairman of the 
Subcommittee on Labor, Health, Human Services, and Education, and I, as 
ranking Republican, asked for this cost estimate.
  The General Accounting Office has the responsibility to provide to 
the Members of Congress information to analyze, corroborate, or dispute 
figures which are released by the administration.
  I must say, Madam President, that it is distressing to note in the 
GAO report that the Office of Management and Budget, which prepared 
these cost estimates, did not have any real basis for its determination 
and would not provide GAO with the available backup material which 
estimated the cost to be $5.4 billion. This estimate, on its face, is 
not worth very much because of the underlying inadequacies of the 
analysis.
  The GAO report shows that the OMB decisions were made, and, as it 
says here:

       The staff was given a very short time frame to develop the 
     estimates. The staff said that they did not document the 
     assumptions they used and, in our discussions with them, they 
     [the OMB staff] would not fully discuss the details of their 
     estimating strategy.

  The GAO report further discloses that:

       OMB did not provide cost estimates for each detailed 
     Federal administrative function.

  And further in the report:

       OMB staff did not determine the Federal full-time-
     equivalent employee requirements for the HSA implementation.

  That is the implementation of the statute.
  At this juncture, we all know that many committees of the Congress 
are working very hard to try to come forward with legislation, and it 
is obvious that the cost factor is very important in our congressional 
determination. So I call on OMB, the administration, and the President 
to come forward with some realistic estimate as to what the cost will 
be.
  It is my thought, and the thought of many other people, that this 
kind of administrative bureaucratic setup, with 105 new agencies, 
boards, and commissions, and new jobs for 47 existing agencies, is 
going to cost billions of dollars.
  That is why I have introduced alternative legislation, Senate bill 
18, which retains our current health care system--a system that 
provides the best health care in the world to 86.1 percent of the 
American people. My legislation targets the specific problems: Coverage 
for the 37 million Americans now not covered; portability--that is when 
a person changes jobs; coverage for preexisting conditions; and factors 
which will lead to cost reduction by dealing with, for example, low-
birth-weight babies, children who are born weighing a pound, 18 ounces, 
20 ounces, by providing prenatal care. When those children come into 
the world, they are human tragedies carrying scars with them for their 
entire lives. Each child costs an estimated $150,000 by the time he or 
she leaves the hospital. So it involves multibillion dollar costs to a 
health care system. My bill, Senate bill 18, deals with other savings 
on terminal care costs and on managed health care.
  It is my hope we will pass health care legislation this year. As I 
have said on the Senate floor, I agree with the President's objective 
of providing health care insurance for all Americans. But I do not 
agree with the massive, cumbersome bureaucracy which he has proposed. I 
think the administration has a duty--an absolute, positive, mandatory 
duty--to tell us what this proposal is going to cost. That is a 
threshold question.
  There are many questions which we cannot answer as to how the plan is 
going to play out. But as to what the bureaucracy will cost, they ought 
to tell us. When the General Accounting Office makes a report and says 
that OMB has provided an inadequate basis for a cost estimate of $5.4 
billion--not that $5.4 billion is chopped liver; it is a lot of money--
then OMB and GAO should not have the ability to do the estimate. They 
did not outline their assumptions. They did it in a short timeframe. 
They have no basis for the figure which they have come to. Congress, 
therefore, cannot have confidence in their estimates on the cost of the 
Clinton health proposal.
  So I am hopeful we will yet have some realistic appraisal by the 
administration. I think if and when we ever get the true figure, it is 
going to be an enormous cost which will further undercut the viability 
of the President's health care program.
  Madam President, I ask unanimous concept that a copy of the letter 
from Senator Harkin and myself to Mr. Bowsher, dated November 30, 1993, 
and a copy of the GAO report dated June 15, 1994, be printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                      U.S. Senate,


                                  Committee on Appropriations,

                                Washington, DC, November 30, 1993.
     Mr. Charles A. Bowsher,
     Comptroller General, General Accounting Office, General 
         Accounting Office Building, Washington, DC.
       Dear Mr. Bowsher: We are writing concerning the recent 
     introduction of the Health Security Act, the President's 
     comprehensive legislative proposal to extend affordable 
     health care coverage to all Americans and to implement 
     reforms to improve the quality and efficiency of the health 
     care system. While we concur in the broad objectives outlined 
     in the plan and look forward to working with the President 
     and the relevant legislative committees, we believe that a 
     careful analysis of all aspects of the proposal is essential.
       As the Chairman and Ranking Member of the Senate 
     Appropriations Subcommittee which has jurisdiction over 
     funding for discretionary health programs, we are 
     particularly interested in an analysis of the federal costs 
     required to set up, administer and support the programs 
     authorized in the legislation. This analysis is especially 
     important given the action by the Congress to freeze 
     discretionary appropriations over the next 4 years. We, 
     therefore, request that the General Accounting Office conduct 
     an in depth analysis by agency of the federal costs of 
     administering the new health care system, and of fully 
     funding the new and expanded authorizations of discretionary 
     programs outlined in the legislation. The study should also 
     examine the impact of these expenditures on overall health 
     care spending.
       Your prompt attention to this request is appreciated.
           Sincerely,
     Tom Harkin,
                                                         Chairman,
                            Labor, HHS and Education Subcommittee.
     Arlen Specter,
                                                   Ranking Member.
                                  ____



                               U.S. General Accounting Office,

                                    Washington, DC, June 15, 1994.
      Hon. Arlen Specter,
     Ranking Minority Member, Subcommittee on Labor, Health and 
         Human Services, Education, and Related Agencies, 
         Committee on Appropriations, U.S. Senate.
       Dear Senator Specter: In November 1993, the President 
     released his detailed legislative proposal for national 
     health care reform. The proposed Health Security Act (HSA) is 
     a comprehensive plan to provide universal health insurance 
     for a broad range of services. The President's 1995 budget 
     request to the Congress includes a $5.4 billion estimate of 
     the federal expense to start up and administer the proposed 
     new health care system over 6 years.
       Concerned about how the administrative costs of 
     implementing the proposed new health care system would be 
     funded, given the limit Congress placed on discretionary 
     appropriations,\1\ you asked that we determine what 
     justifications the administration used to support the federal 
     administrative cost estimates that appear in the President's 
     1995 budget. Specifically, you asked that we identify the 
     federal administrative functions that were considered and 
     determine the underlying assumptions used to derive the 
     estimated costs. On April 29, 1994, we briefed your staff on 
     the results of our work.
---------------------------------------------------------------------------
     Footnotes at end of article.
---------------------------------------------------------------------------
       In summary, the Office of Management and Budget (OMB) 
     identified the federal functions required to implement the 
     proposed HSA and estimated the federal administrative costs 
     of starting up and supporting these functions over 6 years. 
     OMB staff said that pricing out the proposed HSA was 
     difficult. The staff attributed the difficulty in estimating 
     the federal administrative costs to primarily two factors: 
     (1) decisions had not been made about what entity would carry 
     out some of the functions and (2) the staff was given a very 
     short time frame to develop the estimates. The staff said 
     that they did not document the assumptions they used and, in 
     our discussions with them, they would not fully discuss the 
     details of their estimating strategy. As a result, we could 
     not reconstruct the information for you.


             federal administrative costs to implement hsa

       OMB was responsible for identifying the federal 
     administrative functions to implement the proposed HSA and 
     for developing the administrative cost estimates that appear 
     in the President's fiscal year 1995 budget. Normally, OMB 
     does not independently prepare cost estimates for proposed 
     legislation.\2\ In this instance, however, OMB's budget 
     examiners, not the executive branch departments or agencies, 
     estimated the federal administrative costs for the 
     administration. Moreover, while these estimates of federal 
     costs appeared in the President's fiscal year 1995 budget, 
     preparing them was conducted outside OMB's normal budget 
     estimating processes.\3\ OMB staff stated that they were 
     asked to estimate the cost of the proposed bill in a very 
     short time frame. Also, there was some uncertainty about 
     whether some of the functions under the proposed new 
     health care system would be carried out by the federal 
     government, the states, or the proposed alliances. OMB 
     staff stressed that these factors made estimating the 
     federal administrative costs very difficult.


      functions identified and annual costs estimated for 6 years

       OMB staff identified the specific detailed federal 
     administrative functions required under HSA and estimated the 
     implementation cost of these functions rather than by a 
     department or other entity such as the National Health Board 
     (NHB) that would be responsible for the function. OMB did not 
     provide cost estimates for each detailed federal 
     administrative function. Instead, OMB grouped the detailed 
     administrative functions and provided us annual federal cost 
     estimates by four functional categories: (1) Information 
     Systems and Quality Assurance, (2) Monitoring of States and 
     Alliances, (3) Program Oversight and Financial Management, 
     and (4) Transition to the New System. The estimates are of 
     new or add-on costs. Table 1 shows, by these four functional 
     categories, OMB's estimates of the federal administrative 
     costs for implementing HSA over 6 years. Estimates of federal 
     administrative costs for 1995 through the year 2000 totaled 
     $5.4 billion. OMB staff did not determine federal full-time-
     equivalent employee requirements for HSA implementation.

                            TABLE 1.--PROPOSED HEALTH SECURITY ACT--OMB'S ADMINISTRATIVE COST ESTIMATES FOR FEDERAL FUNCTIONS                           
                                                                  [Dollars in millions]                                                                 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Fiscal year                                                          
          Functional categories          ------------------------------------------------------------------------------------------------    1995-2000  
                                               1995            1996            1997            1998            1999            2000                     
--------------------------------------------------------------------------------------------------------------------------------------------------------
Information Systems and Quality                                                                                                                         
 Assurance\1\...........................            $915             $95             $94             $81             $81             $81          $1,347
Monitoring of States and Alliances\2\...              40              92             174             241             272             279           1,098
Program Oversight and Financial                                                                                                                         
 Management\3\..........................              77             178             194             226             226             230           1,131
Transition to the New System\4\.........             247             527             726             353               7               8           1,868
Total, HSA start-up and administration..           1,279             892           1,188             901             586             598           5,444
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\HSA specifies that the Federal Government would help develop and maintain a health information network; establish a National Quality Management      
  Program; provide technical assistance to alliances, states, and health plans; and set standards to implement privacy protections, malpractice reforms,
  and administrative simplification measures.                                                                                                           
\2\Under HSA, the Federal Government would oversee key state and alliance functions. The Federal Government would monitor alliance financial operations 
  (including audits of alliances); ensure that plans and alliances conform to applicable regulatory requirements; make certain that employers make      
  premium contributions and provide insurance through qualified plans; oversee the administration of premium targets; monitor and audit employer        
  subsidies; and back up state guarantee funds.                                                                                                         
\3\Federal responsibility under HSA would include development of rules and standards for the overall financial oversight of the new system. The pricing 
  reflects several oversight functions, including update of the comprehensive benefits package, examination of new drug prices, development of rules for
  health plans, monitoring of alliance grievance procedures, development of a risk adjustment system, monitoring health care prices and expenditures,   
  and supporting antitrust reform and fraud and abuse preventive activities.                                                                            
\4\The Federal Government would help states make the transition to the new system. The Federal Government would administer planning and start-up grants,
  issue standards for health plans during the transition, process state waivers, and administer a national risk pool for the uninsured during the period
  prior to phase-in of universal coverage.                                                                                                              
                                                                                                                                                        
Source: Analytic Perspectives, Budget of the United States Government, fiscal year 1995; and OMB staff.                                                 

       In discussions with us, OMB staff added the following 
     qualifiers to the federal cost estimates they developed for 
     HSA start-up and administration:
       Administrative costs associated with providing health 
     security cards are not included in the estimates because OMB 
     staff assumed this would be an alliance function rather than 
     federal function.
       Start-up costs are reflected in the first 2 years (1995 and 
     1996).
       The $1.279 billion estimate for 1995 costs was designated 
     PAYGO.\4\ OMB staff told us that this was done because the 
     estimated costs would exceed the discretionary spending cap 
     for that year. The administration suggested that revenue from 
     a tobacco tax would be used to fund these costs.


                  no record of estimating assumptions

       OMB staff told us that they did not document the 
     assumptions they used to estimate federal costs for HSA 
     start-up and administration, and they would not reconstruct 
     the information for us. In discussions with us, OMB staff 
     provided sketchy information about the assumptions used to 
     cost-out the detailed federal administrative functions they 
     identified in the proposed HSA. In some cases, they 
     extrapolated from existing functions. Where they extrapolated 
     or used proxy measures, however, they did not disclose any 
     dollar values associated with their analyses. Furthermore, 
     they did not provide any information on analyses they 
     conducted that showed the difference in magnitude, if any, 
     between the proxies they used and the proposed federal 
     administrative functions. OMB staff provided some information 
     about their estimating assumptions and the rationale they 
     used in costing out the federal administrative functions for 
     implementing the proposed HSA (see enclosure).
       In conclusion, OMB staff did not provide us complete 
     information about the underlying assumptions they used to 
     estimate the federal costs for HSA start-up and 
     administration. The staff stated that they did not follow 
     their normal budget estimating process. They made the budget 
     estimates in a short time frame and based them on proposed 
     legislation that did not have responsibilities for some of 
     the functions clearly defined. OMB staff said they did not 
     document their estimating assumptions and were reluctant to 
     discuss the details of their work.
       To identify the federal functions and determine the 
     estimating assumptions the administration used, we met with 
     staff from OMB and the Department of Health and Human 
     Services (HHS).\5\ HHS officials told us they had no 
     involvement in estimating the federal costs and did not know 
     what estimating assumptions OMB used. As agreed with your 
     staff, we did not attempt independently to estimate the 
     federal costs of administering the proposed new system or 
     measure the impact of the expenditures on overall health care 
     spending. Also, we did not evaluate the appropriateness of 
     the estimating assumptions used. We conducted our work from 
     February to May 1994 in accordance with generally accepted 
     government auditing standards.
       OMB officials reviewed a draft of this correspondence and 
     offered some technical changes. We made the technical changes 
     as appropriate.
       We are sending copies of this correspondence to the 
     Chairman of the Subcommittee on Labor, Health and Human 
     Services, Education and Related Agencies, Senate Committee on 
     Appropriations, and the director of the Office of Management 
     and Budget. We will also make copies available to others on 
     request.
       Please contact James O. McClyde, Assistant Director, at 
     (202) 512-7119, if you have any questions about this letter.
           Sincerely yours,
                                                  Sarah F. Jaggar,
         (For Mark V. Nadel, Associate Director, National and 
           Public Health Issues).
       Enclosure.

Proposed Health Security Act--Information OMB Provided About Estimating 
   Assumptions They Used to Cost Out Federal Administrative Functions

                        (By functional category)

       Information Systems and Quality Assurance:
       About 60 percent of 1995 costs is for start-up of this 
     function.
       Standard-setting would be a major part of this function.
       The federal government would not build new data systems 
     because existing systems can be expanded.
       Private sector data systems that could be used include Blue 
     Cross and Blue Shield's electronic claims system.
       Analogues considered in pricing this function were 
     resources of the Health Care Financing Administration 
     (information systems) and the Social Security Administration 
     (system resources), and data from the Agency for Health Care 
     Policy and Research (quality management data) and the Aid to 
     Families With Dependent Children program (quality control 
     data).
       NHB will probably contract out any additional work it is 
     responsible for under this function.
       DOL's responsibilities would be very small.
       Monitoring of States and Alliances.
       About 50 to 75 percent of 1995 costs would be for standard-
     setting.
       Most of the total cost would be for federal staff to 
     monitor alliances and employers.
       It is not very likely that DOL would have to take over 
     corporate alliances, so a very small cost was included for 
     readiness.
       Program Oversight and Financial Management:
       About 10 percent or less of 1995 costs would be for start-
     up.
       Many main NHB functions would be included.\6\
       Some standard-setting would be included along with ongoing 
     activities such as updating the benefits package.
       Most of the costs would be for federal staff, including a 
     small HHS staff to monitor health care prices and 
     expenditures\7\ and the HHS Inspector General's office to 
     conduct fraud and abuse reviews.
       It is not very likely that HHS would have to take over 
     alliances, so a small cost was included for readiness.
       Transition to the New System:
       About 90 percent of the costs would be associated with 
     setting up and administering a national risk pool and for 
     grant administration.


                               footnotes

     \1\The Budget Enforcement Act of 1990 (BEA) contains 
     procedures designed to enforce the deficit reduction 
     agreement. The act divides the budget into two mutually 
     exclusive categories: (1) discretionary programs and (2) 
     direct spending. The act also provides pay-as-you-go (PAYGO) 
     procedures for legislation affecting direct spending or 
     receipts. For 1991 through 1995, among other provisions, the 
     act limits discretionary spending. The Omnibus Budget 
     Reconciliation Act of 1993 extended the discretionary 
     spending limits through 1998.
     \2\OMB is responsible for cost estimates used in the 
     President's budget and for enacted legislation to meet the 
     requirements of BEA. OMB is also responsible for pricing 
     legislative proposals on behalf of the administration. 
     However, in fulfilling these responsibilities, OMB generally 
     relies on executive branch agencies to prepare initial cost 
     estimates. OMB budget examiners then review and modify these 
     estimates as needed.
     \3\Under the normal executive budget formulation process, 
     beginning in the fall, OMB works closely with agencies to 
     prepare cost estimates of agency activities to be 
     incorporated in the President's budget. As agencies prepare 
     their budgets for submission to OMB, they maintain continuing 
     contact with OMB budget examiners. OMB also provides agencies 
     detailed instructions for preparing submissions through 
     Circular A-11. This process is more fully described in 
     appendix I of A Glossary of Terms Used in the Federal Budget 
     Process (GAO/AFMD-2.1.1).
     \4\Under BEA, PAYGO requirements stipulate that any new 
     legislation that increases direct (mandatory) spending or 
     decreases receipts be deficit neutral (that is, not increase 
     the deficit). For discretionary programs, the act establishes 
     discretionary spending caps or limits. These measures are 
     designed to reduce or limit the growth in the federal budget 
     deficit. BEA rules require that new accounts or activities be 
     categorized in consultation with the House and Senate 
     Committees on Appropriations and the Budget.
     \5\We interviewed officials from HHS' Offices of the 
     Assistant Secretary for Program Evaluation and Assistant 
     Secretary for Management and Budget.
     \6\OMB did not use analogues/proxies for estimating NHB 
     costs. They assumed a staff of about 30 people and one 
     auditor per alliance for financial monitoring. OMB officials 
     talked about the Federal Reserve Board and the Securities 
     Exchange Commission as possible models for costing-out the 
     NHB financial management responsibilities.
     \7\The Health Care Financing Administration already publishes 
     some health care price data.

  Mr. SPECTER. I thank the Chair, and again I thank my colleague from 
Washington.
  I yield the floor.

                          ____________________