[Congressional Record Volume 141, Number 176 (Wednesday, November 8, 1995)]
[Senate]
[Pages S16807-S16810]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                             RECONCILIATION

  Mr. GRAHAM. Mr. President, on Friday of last week and again 
yesterday, I began a series of talks on the Medicaid Program. In my 
first discussion, I pointed out to the successes of Medicaid --
successes at reducing infant mortality by 21 percent in this Nation 
between 1984 and 1992.
  Yesterday, I discussed trends that have led to the growth in Medicaid 
spending. These included: demographic changes, including the fact that 
our population is living longer and that this greater longevity means 
more people are relying on Medicaid for longer periods; problematic 
changes that have expanded coverage to combat infant mortality among 
our Nation's children and to provide long-term care for our Nation's 
frail elderly and disabled; and the loss of private-sector health 
insurance, the fact that a shrinking percentage of America's children 
are insured through their parents' employer.
  This last point, Mr. President, was reaffirmed in today's Journal of 
the American Medical Association, which says that 3 million children 
lost private health insurance between 1992 and 1993.
  Mr. President, I ask unanimous consent that today's article in the 
Washington Post, entitled ``Medicaid's Safety Net for Children Could Be 
Imperiled,'' be printed in the Record at the conclusion of my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. GRAHAM. These, Mr. President, are major factors that have 
contributed and will contribute to Medicaid growth.
  Today, I want to talk about the policies of the Senate which have 
been adopted for the future of Medicaid.
  Mr. President, Halloween came early this year. In the dark of night, 
immediately prior to the passage of the Budget Reconciliation Act on 
the Friday before Halloween, the Medicaid formula was written by the 
architects on the reconciliation package.
  Amazingly, the rewritten, revised Senate bill handed out treats--
treats in the form of $10.2 billion mainly to States that were the 
prime abusers of Medicaid disproportionate share hospital funds in 
recent years. The Senate is preparing to reward States that have 
manipulated the Medicaid system by making permanent their past 
misdeeds.
  How did the authors of this amendment pay for these treats dished out 
on the Friday night before Halloween? They imposed trickery on the 
elderly by raiding $12 billion from the Social Security trust fund.
  What are these Medicaid misdeeds that are about to be rewarded and 
made permanent? They are what is referred to in Medicaid as the 
disproportionate share hospital program, known as DSH.
  What is disproportionate share? The intent of the disproportionate 
share hospital payments originally enacted in 1981 is to assist 
hospitals that treat high volumes of Medicaid and low-income uninsured 
patients with special needs. Recognizing that these hospitals would 
have a small private insured patient base with which to recover funding 
for the cost of treating these uninsured, Congress intended that these 
disproportionate share hospitals receive payments to supplement their 
other Medicaid payments.
  In fiscal year 1989, Federal funding for Medicaid DSH payments was 
just $400 million.
  However, in coming up with their share of those funds, some States 
begin to see the huge potential in the use of donations and provider 
tax revenue as the State share of Medicaid expenditures.
  Provider taxes and donations allowed States to draw down Federal 
Medicaid funds while backing out of providing their State matching 
share and sometimes effectively pocketing the Federal share of money 
meant for disproportionate share hospitals.
  The original good intention, to meet the special need of hospitals, 
was creatively abused by States across the Nation.
  Abuse was so great that, between fiscal year 1989 and fiscal year 
1993, Federal spending for Medicaid disproportionate share hospital 
payments grew, if you can believe this, from $400 million in 1989 to 
$14.4 billion in 1993, a 3600-percent increase.
  By 1993, DSH payments amounted to one-of-every-seven Medicaid 
dollars.
  According to the Kaiser Commission on the Future of Medicaid, DSH 
payments were roughly equal to the sum of Medicaid spending for all 
physician, laboratory, x ray, outpatient, and clinic services that 
year.
  In Alabama, Connecticut, Louisiana, Maine, Missouri, New Hampshire, 
and South Carolina, Medicaid disproportionate share hospital payments 
actually exceeded regular Medicaid payments for inpatient hospital 
services.
  This rapid growth, a 3,600-percent increase in just 4 years, was a 
major factor in the overall Medicaid growth from 1989 to 1993.
  I discussed that issue in more detail in my remarks delivered 
yesterday.
  The Urban Institute, in a 1994 publication, estimated that between 
1990 and 1991, DSH payments accounted for 20 percent of all Medicaid 
spending growth. In that 1-year period, DSH payments were 20 percent. 
But, between 1991 and 1992, DSH payments were responsible for 51 
percent of Medicaid spending growth.
  How did this occur? According to the Health and Human Services 
Inspector General Richard Kusserow, who served during the 
administration of President Bush, in a report dated July 25, 1991:

       The growing popularity of provider [tax and donation] 
     programs, in our opinion, is due to States' awareness that a 
     window of opportunity exists for them to alleviate their own 
     budget programs to the expense of the Federal Government.
       States are fully aware that they had better take advantage 
     of this opportunity while it exists.
       One State official went so far to say that ``State 
     officials might be regarded as derelict if they did not take 
     advantage of the Federal law.''

  Incredibly, this occurred in a manner that, although named the 
disproportionate share hospital program, provided some heavily impacted 
Medicaid hospitals with little or no benefit.
  This and other types of scams by States were detailed by the 
Prospective Payment Assessment Commission in a report requested by 
Congress and completed on January 1, 1994.
  As the Commission noted,

       Although State Medicaid programs reported spending $20 
     billion more in fiscal year 1992 than in fiscal year 1990 for 
     inpatient services in short-term hospitals, these hospitals 
     received substantially less than a $20 billion increase in 
     Medicaid revenue. Part of this discrepancy is attributable to 
     situations in which state Medicaid programs allocate DSH 
     payments to hospitals that never actually received or 
     controlled the payment as revenue.

  In an April 1995 report, the General Accounting Office noted that 
States often churned or even laundered Federal Medicaid dollars through 
State hospitals.
  The GAO report said:

       State hospitals received $4.8 billion in DSH payments. 
     However, hospital officials indicated that only a small share 
     of the gains were actually retained and available to pay for 
     health care services, such as uncompensated care. Instead, 
     most of the gains were transferred back to state general 
     revenue accounts.

  In sum, paper transactions without paper money.
  In fact, researchers at the Urban Institute concluded that:

       [A] high share of the funds are being diverted from direct 
     health care to general 

[[Page S 16808]]
     state coffers. It is reasonable to ask if Medicaid is an appropriate 
     vehicle for general revenue sharing between the Federal 
     Government and the States.

  In reviewing such scams, analysts at the Health Care Financing 
Administration have estimated that the actual Federal share of Medicaid 
funds in 1993 was 64.5 percent instead of the reported 57.3 percent, 
primarily because of the manipulation of the DSH Program.
  Good news: As a result of these scams, illusory tactics, and raids on 
the Federal treasury, Congress enacted legislation in 1991 and again in 
1993 to create State-specific ceiling limits on each State's spending 
for DSH payment adjustments to 12 percent of the State's total Medicaid 
spending for the year. That is, no State could have more than 12 
percent of its total Medicaid in the category of disproportionate share 
hospitals.
  This limit, combined with other changes to the amount of money a 
single hospital can receive and the definition of what constitutes a 
provider tax, have been effective at controlling these costs.
  In fact, the 20 States that have 12 percent of their overall Medicaid 
spending in DSH payments are capped at the absolute dollars they 
received in 1993.
  For example, New Hampshire, which has over 50 percent of its entire 
Medicaid Program budget included in disproportionate share payments, is 
capped at a Federal disproportionate share payment of $196 million.
  As a result, according to CBO estimates, Federal Medicaid DSH 
payments increased slightly from $9.6 billion in 1993 to $9.8 billion 
in 1994.
  In fiscal year 1995, CBO projects that Federal DSH spending to drop 
to $8.5 billion, then increase by approximately half a billion dollars 
annually over the next 5 years. That is the good news. The Congress saw 
the problem. Congress acted. The actions tended to suture the 
hemorrhage.
  Now the bad news. Incredibly, Congress is prepared to reward and make 
permanent the raids made on the Federal treasury in the past.
  How was this done?
  This was accomplished in the dead of night on the Friday before 
Halloween in an amendment that trimmed the Federal reduction in 
Medicaid from $187 billion to $176 billion.
  Some of the winners and losers are well known by now.
  Approximately $11.2 billion in additional Medicaid dollars will be 
distributed to States with two Republican Senators over the next 7 
years, in the Senate proposal, while States with two Democratic 
Senators will lose an additional $3.6 billion. That has been well 
reported.
  Less well known is the fact that States which have excessive Medicaid 
disproportionate share programs in the past are also the big winners.
  New Hampshire and Louisiana, the most renowned examples of excess, 
have special fixes in the Senate bill which allows those two States to 
not have to fully match the Federal funding they will receive over the 
next few years.
  Meanwhile, nine other States--Texas, Missouri, Connecticut, Kansas, 
Alabama, New Jersey, South Carolina, Tennessee, and Michigan--all which 
have disproportionate share programs that far exceed the national 
average and some that have been well documented as having schemed the 
Federal treasury in the past, those nine States will receive $14.8 
billion in increased Medicaid funding over the next 7 years as a result 
of the late Friday evening deal, that currently would cap these ``high-
DSH'' States' programs.
  The Senate Finance Committee bill would have cut off excessive 
disproportionate share payments above 9 percent of overall Medicaid 
Program costs.
  That was the bill that we had on the floor on that Friday before the 
late night raid which eliminated that constraint on the use of 
disproportionate share, and resulted in $14.8 billion flowing to those 
States that had been the primary abusers of the disproportionate share 
program.
  However, the late evening deal would allow these States to not only 
keep what they had in the past and make it permanent, but would also 
allow them to increase that money annually, based on the larger base 
year funding which the inclusion of their full disproportionate share 
amounts allowed them to have. Thus, the $14.8 billion windfall for nine 
high DSH States.
  The rest of the Nation's States--mostly low-DSH States--will lose 
another $3.6 billion from an amendment that added $10.2 billion to the 
Medicaid Program.
  This is a perverse Washington logic where spending is saving--where 
bad is good--and locking in the past is heralded as reform.
  But rewarding some States that had abused the disproportionate share 
of the hospital program was not enough bad policy for one night. The 
Friday night raid went on. The Senate made it worse by paying for these 
supplemental Medicaid allocations through mandating a 2.6 percent cost-
of-living adjustment for 1996.
  Mr. President, I ask unanimous consent that a Washington Post 
editorial on this subject entitled ``Medipork'' printed on November 6 
be printed in the Record at the conclusion of my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 2.)
  Mr. GRAHAM. Mr. President, under the Roth amendment that we adopted 
on that Friday night before Halloween, the money to fund the additional 
payments, largely to the States which had previously abused the 
Medicaid system, this money was found when the Government declared that 
the cost-of-living adjustment for 1996 would be 2.6 percent, which was 
lower than the 3.1 percent projected when the budget bills began moving 
through Congress last spring.
  The result of the lower cost-of-living factor, said proponents, would 
be lower outlays for programs tied to the Consumer Price Index such as 
Social Security.
  Mr. President, at first glance that sounds reasonable. Upon closer 
inspection, however, the logic fails, and it becomes clear that we have 
two choices. Either the funding is phony, nonexistent and, therefore, 
contributes to an additional deficit by spending funds without an 
equivalent additional source of revenue or--what I am afraid is the 
more likely alternative--a raid on the Social Security trust fund.
  In order to understand this, I want to briefly discuss how the 
Federal budget is scored.
  In March of this year, the Congress established an economic baseline. 
This baseline forecasts the level of Federal revenues and expenditures 
for the next 7 years predicated on current law and current and 
projected economic data. In making these economic projections, the 
Congressional Budget Office makes assumptions regarding a number of 
factors. The factors that are included in the assessment of the 
economic baseline include inflation, interest rates, number of 
qualified beneficiaries for the principal programs such as the number 
of beneficiaries for Social Security, the gross domestic product, 
revenues, and court decisions that might affect Federal policy.
  Those are some of the factors which are included in arriving at the 
economic baseline.
  From that baseline, the Congressional Budget Office can estimate the 
impact that changes in law will have on Federal revenues or 
expenditures.
  Almost 8 months have passed since the economic baseline was 
established. Some of the assumptions turned out to be too high; others 
too low. For example, inflation has been lower than expected. The gross 
domestic product has been slightly higher than expected. Interest rates 
have been higher than projected. Obviously, if the economic baseline 
was updated to reflect actual experience in the last 8 months, we would 
obtain a more accurate picture of our Federal income statement and 
balance sheet for the next 7 years.
  Mr. President, that was not what was done. Instead, we reached in and 
took just one economic factor--the fact that the Consumer Price Index 
increased only 2.6 percent and we require that legislation follow this 
monofactor directive. The Congressional Budget Office says it does not 
update its economic baseline unless it takes into account all economic 
and other factors--not just one.
  The reason? If it could pick and choose, then Congress would cherry 
pick the positive economic changes and ignore the negatives. The result 
would be a budget deficit much greater than anticipated because we had 
predicated 

[[Page S 16809]]
our economic actions on unsound assumptions because the only economic 
changes unclaimed would be those generating higher outlays and lower 
revenues than expected.
  In fact, if on October 27 the Congressional Budget Office had taken 
all economic factors into account--gross domestic product, interest 
rate, court decisions affecting Federal obligations and inflation--the 
deficit in the year 2002 would have been higher than anticipated last 
March. We would not have had a $12 billion false figure to use to 
finance additional Medicaid payments. We would actually have had to 
find additional revenue because, taking into account all of those 
factors, the Congressional Budget Office would have said our deficit 
had grown--not diminished--since March.
  In other words, while the 1996 cost-of-living will be 2.6 percent 
rather than 3.1 percent resulting in $13 billion in lower outlays, this 
will be more than offset by other factors, such as higher interest 
rates, that increase outlays or decrease revenues.
  That is why some would say that the Senate's financing of the 
additional Medicaid funds is phony. That is why I asked Senator 
Domenici on the floor whether these savings were real or not. He 
responded, ``they are real dollars.'' And I assume that the Republicans 
intended that they use real money to finance their changes and to 
finance the additional spending through Medicaid.
  So assuming that these funds are not phony, where does this money 
come from? Let us look at the language of the Roth amendment which was 
adopted on that Friday night.

       Notwithstanding any other provision of law, in the case of 
     any program within the jurisdiction of the Committee on 
     Finance of the United States Senate which is adjusted for any 
     increase in the consumer price index for all urban wage 
     earners and clerical workers (CPI-W) for United States city 
     average for all items, any such adjustment which takes effect 
     during fiscal year 1996 shall be equal to 2.6 percent.

  Mr. President, this clearly specifies that the money comes from 
programs or outlays. Exactly what outlay programs are we talking about? 
Are we talking about the Pentagon, the Department of Defense outlays? 
No. Those are not under the jurisdiction of the Finance Committee. Are 
we talking about funding for roads and bridges? Are we talking about 
funding for foreign aid? No. Those programs are not under the 
jurisdiction of the Finance Committee. Just what outlays are within the 
jurisdiction of the Finance Committee?
  There happen to be a number of those programs. But I am afraid that I 
must report that the overwhelming majority of dollars in those 
programs--$12 billion of the $13 billion removed--is Social Security.
  So the only conclusion is that the Senate has taken $12 billion from 
the Social Security trust fund to pay for more Medicaid allocations to 
a selected few States--States which in large numbers had been those 
that had abused the Medicaid system in the past.
  How can that be, you ask? How can a half of 1-percent reduction in 
the CPI constitute a raid on the Social Security trust fund? Let us 
look more closely still.
  The Roth amendment takes into account only outlays impacted by the 
lower 2.6 percent cost-of-living adjustment. But there are other 
ramifications of the lower cost of living. For example, many workers' 
salaries are tied to the Consumer Price Index, and if those salaries 
only rise by 2.6 percent rather than the previous estimated 3.1 
percent, then what happens to payroll? What happens to payroll taxes? 
They are both lower, and, therefore, less money will flow into the 
Social Security trust fund than would have flowed had the cost of 
living been at the earlier projected 3.1 percent.
  The correct question is not how will a lower cost of living impact 
Social Security outlays. The proper question is what is the net effect 
of all of the economic changes this year to the Social Security trust 
fund?
  The answer has two components: outlays, expenditures, and revenues.
  The Social Security outlays will be reduced by a total of $18 
billion--$12 billion from the COLA reduction, the 2.6 percent, and $6 
billion from other changes.
  But the economic data accumulated since March also will affect 
revenues going into the Social Security trust fund, and according to 
the Congressional Budget Office updating the economic baseline will 
result in a $62 billion decrease--decrease--in Social Security trust 
fund revenues over the next 7 years.
  Accordingly, the net effect to the Social Security trust fund of 
revising congressional economic estimates is not to increase the size 
of the trust fund but, rather, to decrease it by $44 billion.
  So if we want to face economic reality, the Social Security trust 
fund will have $44 billion less in it than our budget assumes. And 
while the Social Security trust fund is losing $44 billion as a result 
of economic changes since March, the Senate has approved diverting an 
additional $12 billion from the Social Security trust fund.
  It is difficult for me to believe that this Senate actually wants to 
raid the Social Security trust fund to pay for anything. Just 
yesterday, House Republicans were threatening to attach provisions to a 
limited debt ceiling extension that would have had the effect of 
precluding the Secretary of the Treasury from utilizing Social Security 
trust funds for anything other than Social Security obligations.
  I am afraid this sounds like selective enforcement.
  It is ironic that the House Republicans would be so concerned about 
the Social Security trust fund that they would tie Secretary of the 
Treasury Rubin's hands to preclude him from even borrowing from the 
trust fund, but at the same time the Senate Republicans seem quite 
willing to raid the Social Security trust fund to finance additional 
Medicaid allocations.
  We cannot have it both ways. If the reduction in the cost of living 
is not a real cut in spending but merely reflecting reality, then it 
does not represent savings and should not qualify to offset real new 
Medicaid spending. If, however, the reduction in the cost of living is 
real, then it constitutes a diversion of funds from the Social Security 
trust fund.
  Either conclusion justifies jettisoning this midnight amendment that 
changed the Medicaid funding formula, rewarding the States that abused 
the disproportionate share hospital program.
  Mr. President, I conclude by saying we should look instead for an 
alternative allocation solution, and I will present that alternative 
solution tomorrow and urge careful consideration of a better way to 
achieve our goal of fiscal responsibility and fairness.
  Thank you, Mr. President.

                               Exhibit 1

                [From the Washington Post, Nov. 7, 1995]

  Medicaid's Safety Net for Children Could Be Imperiled, Reports Warn


   Changes May Cut Coverage to Some if Parents Lose Private Insurance

                           (By Spencer Rich)

       For years Medicaid has picked up the slack when children 
     lost health insurance based on changes in their parents' 
     employment situation, but that safety net could be weakened 
     substantially by Medicaid changes moving rapidly through 
     Congress, according to today's Journal of the American 
     Medical Association.
       The result could be highly damaging to the health of 
     children and also could eventually increase health costs per 
     child, according to articles in the association journal.
       ``From 1992 to 1993 an estimated 3 million children lost 
     private health insurance'' as people lost jobs or employers 
     stopped providing health insurance, Paul Newacheck of the 
     University of California and five co-authors said in one 
     journal article.
       But until now, increases in Medicaid coverage, resulting 
     from past legislation that broadened eligibility and from 
     more people sinking into poverty and becoming eligible, 
     ``largely offset the changes that occurred in private health 
     insurance coverage,'' the authors said.
       Statistics developed by the Urban Institute for the Kaiser 
     Commission on Medicaid support this assertion. In 1988, 66 
     percent of all children under age 18 had health insurance 
     based on the employment of a family member, and 16 percent 
     were covered by Medicaid. But in 1994, the share with 
     employer-based insurance had dropped to 59 percent and the 
     Medicaid percent had jumped to 26 percent.
       However, now that situation is about to end as Republican-
     sponsored Medicaid changes already approved by both chambers 
     of Congress in different form impose a ``cap'' that would cut 
     the growth of program spending from about 10 percent a year 
     to 4 percent, and give states far more latitude than now in 
     deciding whom to cover, Newacheck and his co-authors said.
       ``If federal spending is capped as proposed,'' they said, 
     ``states, at a minimum, will have to reduce the scope of 
     their existing Medicaid program'' and will be unable to keep 

[[Page S 16810]]
     picking up children who have lost employer-based coverage.
       Passage of the Medicaid proposals, said physician Stephen 
     Berman in an editorial, would ``reduce the capacity of the 
     public sector to absorb the increasing number of children 
     losing private insurance [and] would swell the number of 
     uninsured children.'' The impact of gaps in health insurance 
     for children was sketched out in a third journal article, 
     written by Michael D. Kogan of the Centers for Disease 
     Control and Prevention and six others.
       The article did not address the current legislative 
     proposals but reported on a nationally representative sample 
     of 8,129 children whose mothers were interviewed in 1991 when 
     the children were about 3 years old.
       Based on the survey, the article said, ``About one-quarter 
     of U.S. children (22.6 percent) were without health insurance 
     for at least one month during their first three years of 
     life. Over half of these children had a health insurance gap 
     of more than six months.''
       About 40 percent of the children, estimated conservatively, 
     did not receive care continuously at a single site--for 
     example, the office of a family doctor--and breaks in 
     insurance coverage are often the cause of sporadic medical 
     care at this critical stage of physical development.
       ``Children are in particular need of primary care providers 
     who can track developmental milestones, assure the 
     maintenance of immunization and other health maintenance 
     schedules, monitor abnormal conditions and serve as the first 
     contact of care,'' wrote Kogan and his co-authors, especially 
     in finding and treating ``emerging disabilities, chronic 
     illnesses or birth defects'' and in providing preventive 
     care.
       ``A schedule of routine primary care is much easier and 
     usually more cost-effective when these activities are carried 
     out in an organized manner over time with successive office 
     visits at the same site,'' they said.
       Berman said, ``Having a regular source of care has been 
     shown to reduce child expenditures by 21.7 percent compared 
     with not having a regular source of care.''

                               Exhibit 2

                [From the Washington Post, Nov. 6, 1995]

                                Medipork

       When the current Congress set out on the path of turning 
     the major programs for the poor into block grants, Sen. 
     Daniel P. Moynihan (D-N.Y.) issued an interesting warning. 
     Once Washington gives up on making policy and instead just 
     ships off billions and billions to state governments, he 
     said, politics will turn away from substance and instead 
     become one big formula fight as states and regions battle 
     over who will get the biggest pots of cash.
       His prediction has become fact, as a report in The Post by 
     Judith Havermann and Helen Dewar documented last week. In the 
     scramble to pass their budget, Republican leaders in the 
     Senate found they had to pass around billions of extra 
     dollars in Medicaid payments to states to buy the votes of--
     pardon us, we mean secure the support of--Republican 
     senators. It seems that many senators are worried about the 
     impact of the Medicaid proposal on their state budgets.
       They should be. The pressure this budget puts on the 
     program that serves the poor and many among the elderly and 
     the disabled is simply too much. Facing potential rebellion, 
     the leadership kept rejiggering the formula to please 
     wavering senators. And given that the leadership knew it 
     would have to find votes for its budget from Republican 
     senators, guess what? The increases largely went to states 
     represented by Republicans. The cuts were mostly reallocated 
     to states with Democratic senators whose votes the leadership 
     knew it couldn't win anyway.
       Thus, an analysis by Sen. Bob Graham (D-Fla.) found that 
     states with two Democratic senators lost a net of $3.6 
     billion in the Medicaid reshuffling; states with two 
     Republican senators gained $11.2 billion. Texas alone (with 
     two Republican senators) gained about $5 billion; California 
     (represented by two Democrats) lost $4 billion.
       Ginny Koops, a Senate Finance Committee aide, had it about 
     right when she said: ``This formula will be redone again in 
     conference and again and again. It is just incredibly 
     difficult to come up with something that makes 5 states 
     happy; somebody always complains.''
       Ms. Koops' comment goes to the heart of what's wrong with 
     his whole Medicaid approach: Of course many will keep 
     complaining about the formulas of a so-called reform that 
     dumps upon the states the responsibilities of running 
     Medicaid and then asks them do do that job with huge cuts in 
     the rate of expected growth in the program.
       Medicaid costs do need to be contained; the Republicans are 
     right about that part. But this budget's approach to Medicaid 
     will not only keep producing comical mathematical games; it 
     will also cause real harm to the states and to the medical 
     care of many among the most vulnerable Americans.

                          ____________________