[Senate Report 106-229]
[From the U.S. Government Publishing Office]





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106th Congress                                            Rept. 106-229
                                  SENATE                   
 2d Session                                                    Volume 1
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                  DEVELOPMENTS IN AGING: 1997 and 1998

                                VOLUME 1

                               __________

                              R E P O R T

                                 of the

                       SPECIAL COMMITTEE ON AGING

                          UNITED STATES SENATE

                              pursuant to

               S. RES. 54, SEC. 19(c), FEBRUARY 13, 1997

  Resolution Authorizing a Study of the Problems of the Aged and Aging




                February 7, 2000.--Ordered to be printed


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

                      U.S. GOVERNMENT PRINTING OFFICE
56-465                        WASHINGTON : 2000





                       SPECIAL COMMITTEE ON AGING


                  CHARLES E. GRASSLEY, Iowa, Chairman
JAMES M. JEFFORDS, Vermont           JOHN B. BREAUX, Louisiana
LARRY CRAIG, Idaho                   HARRY REID, Nevada
CONRAD BURNS, Montana                HERB KOHL, Wisconsin
RICHARD SHELBY, Alabama              RUSSELL D. FEINGOLD, Wisconsin
RICK SANTORUM, Pennsylvania          RON WYDEN, Oregon
CHUCK HAGEL, Nebraska                JACK REED, Rhode Island
SUSAN COLLINS, Maine                 RICHARD H. BRYAN, Nevada
MIKE ENZI, Wyoming                   EVAN BAYH, Indiana
TIM HUTCHINSON, Arkansas             BLANCHE L. LINCOLN, Arkansas
JIM BUNNING, Kentucky
                   Theodore L. Totman, Staff Director
               Michelle Prejean, Minority Staff Director

                                  (ii)
  

                         LETTER OF TRANSMITTAL

                              ----------                              

                                       U.S. Senate,
                                Special Committee on Aging,
                                              Washington, DC, 2000.
Hon. Albert A. Gore, Jr.,
President, U.S. Senate,
Washington, DC.
    Dear Mr. President: Under authority of Senate Resolution 
54, agreed to February 13, 1997, I am submitting to you the 
annual report of the U.S. Senate Special Committee on Aging, 
Developments in Aging: 1997 and 1998, volume 1.
    Senate Resolution: 4, the Committee Systems Reorganization 
Amendments of 1977, authorizes the Special Committee on Aging 
``to conduct a continuing study of any and all matters 
pertaining to problems and opportunities of older people, 
including but not limited to, problems and opportunities of 
maintaining health, of assuring adequate income, of finding 
employment, of engaging in productive and rewarding activity, 
of securing proper housing and, when necessary, of obtaining 
care and assistance.'' Senate Resolution 4 also requires that 
the results of these studies and recommendations be reported to 
the Senate annually.
    This report describes actions taken during 1997 and 1998 by 
the Congress, the administration, and the U.S. Senate Special 
Committee on Aging, which are significant to our Nation's older 
citizens. It also summarizes and analyzes the Federal policies 
and programs that are of the most continuing importance for 
older persons and their families.
    On behalf of the members of the committee and its staff, I 
am pleased to transmit this report to you.
            Sincerely,
                                     Charles E. Grassley, Chairman.

                                 (iii)




                            C O N T E N T S

                                                                   Page
Letter of Transmittal............................................   III
Chapter 1: Social Security--Old Age, Survivors and Disability:
    Overview.....................................................     1
    A. Social Security--Old Age and Survivors Insurance..........     3
        1. Background............................................     3
        2. Financing and Social Security's Relation to the Budget     5
        3. Benefit and Tax Issues and Legislative Response.......    11
    B. Social Security Disability Insurance......................    18
        1. Background............................................    18
        2. Issues and Legislative Response.......................    19
    C. Outlook for the 106th Congress............................    22
Chapter 2: Employee Pensions:
    Background...................................................    23
    A. Private Pensions..........................................    23
        1. Background............................................    23
        2. Issues and Legislative Response.......................    25
    B. State and Local Public Employee Pension Plans.............    31
        1. Background............................................    31
        2. Issues and Legislative Response.......................    32
    C. Federal Civilian Employee Retirement......................    34
        1. Background............................................    34
        2. Issues and Legislative Response.......................    41
    D. Military Retirement.......................................    44
        1. Background............................................    44
        2. Issues and Legislative Response.......................    45
        3. Recent Issues and Legislative Response................    49
    E. Railroad Retirement System................................    50
        1. Background............................................    50
        2. Issues and Legislative Response.......................    50
        3. Prognosis.............................................    54
Chapter 3: Taxes and Savings:
    Overview.....................................................    55
    A. Taxes.....................................................    56
        1. Background............................................    56
    B. Savings...................................................    66
        1. Background............................................    66
        2. Issues................................................    69
Chapter 4: Employment:
    A. Age Discrimination........................................    83
        1. Background............................................    83
        2. The Equal Employment Opportunity Commission...........    84
        3. The Age Discrimination in Employment Act..............    85
    B. Federal Programs..........................................    95
        1. The Adult and Dislocated Worker Program Authorized 
          Under the Workforce Investment Act.....................    95
        2. Title V of the Older Americans Act....................    97
Chapter 5: Supplemental Security Income:
    Overview.....................................................    99
    A. Background................................................   100
    B. Issues....................................................   102
        1. Limitations of SSI Payments to Immigrants.............   102
        2. SSA Disability Redesign Project.......................   102
        3. Employment and Rehabilitation for SSI Recipients......   103
        4. Fraud Prevention and Overpayment Recovery.............   105
Chapter 6: Food Stamps:
    Overview.....................................................   107
    A. Background................................................   108
        1. Food Stamps...........................................   108
        2. The Commodity Supplemental Food Program...............   113
        3. The Child and Adult Care Food Program.................   113
    B. Legislative Developments..................................   114
    C. Food Security Among the Elderly...........................   114
Chapter 7: Health Care:
    A. National Health Care Expenditures.........................   121
        1. Introduction..........................................   121
        2. Medicare and Medicaid Expenditures....................   122
        3. Hospitals.............................................   124
        4. Physicians' Services..................................   125
        5. Nursing Home and Home Health Costs....................   126
        6. Prescription Drugs....................................   127
        7. Health Care for an Aging U.S. Population..............   134
Chapter 8: Medicare:
    A. Background................................................   137
        1. Hospital Insurance Program (Part A)...................   138
        2. Supplementary Medical Insurance (Part B)..............   139
        3. Medicare+Choice (Part C)..............................   143
        4. Supplemental Health Coverage..........................   144
    B. Issues....................................................   146
        1. Medicare Solvency and Cost Containment................   146
        2. Program Modifications.................................   147
        3. Program Restructuring.................................   148
        4. Prescription Drugs....................................   150
Chapter 9: Long-Term Care:
    Overview.....................................................   153
    A. Background................................................   154
        1. What is Long-Term Care?...............................   154
            a. Adult Day Care....................................   154
            b. Home Care.........................................   155
            c. Respite Care......................................   155
            d. Supportive Housing................................   156
            e. Continuing Care Retirement Community..............   156
            f. Nursing Homes.....................................   157
            g. Access Services...................................   157
            h. Nutrition Services................................   157
        2. Who Receives Long-Term Care?..........................   158
        3. Where is Long-Term Care Delivered?....................   159
        4. Who Provides Long-Term Care?..........................   160
        5. Who Pays for Long-Term Care?..........................   160
    B. Federal Programs..........................................   163
        1. Medicaid..............................................   163
            a. Introduction......................................   163
            b. Medicaid Availability and Eligibility.............   165
            c. Qualified Medicare Beneficiary Program............   166
            d. Spousal Impoverishment............................   167
            e. Personal Needs Allowance for Medicaid Nursing Home 
              Residents..........................................   169
            f. 1915(c) Waiver Programs...........................   169
            g. Prescription Drug Coverage Under Medicaid.........   170
        2. Medicare..............................................   174
            a. Introduction......................................   174
            b. The Skilled Nursing Facility Benefit..............   174
            c. The Home Health Benefit...........................   175
            d. The Hospice Benefit...............................   177
        3. Social Services Block Grant...........................   177
    C. Special Issues............................................   178
        1. System Variations and Access Issues...................   178
        2. The Role of Case Management...........................   179
        3. Private Long-Term Care Insurance......................   180
Chapter 10: Health Benefits for Retirees of Private Sector 
  Employers:
    A. Background................................................   183
        1. Who Receives Retiree Health Benefits?.................   184
        2. Design of Benefit Plans...............................   185
        3. Recognition of Corporate Liability....................   186
        4. Pre-Funding...........................................   186
    B. Benefit Protection Under Existing Federal Laws............   188
        1. ERISA.................................................   188
        2. COBRA.................................................   188
        3. HIPAA.................................................   189
    C. Outlook...................................................   190
Chapter 11: Health Research and Training:
    A. Background................................................   193
    B. The National Institutes of Health.........................   194
        1. Mission of NIH........................................   194
        2. The Institutes........................................   194
            a. National Institute on Aging.......................   195
            b. National Cancer Institute.........................   195
            c. National Heart, Lung, and Blood Institute.........   196
            d. National Institute of Dental Research.............   196
            e. National Institute of Diabetes and Digestive and 
              Kidney Diseases....................................   197
            f. National Institute of Neurological Disorders and 
              Stroke.............................................   197
            g. National Institute of Allergy and Infectious 
              Diseases...........................................   197
            h. National Institute of Child Health and Human 
              Development........................................   198
            i. National Eye Institute............................   198
            j. National Institute of Environmental Health 
              Sciences...........................................   198
            k. National Institute of Arthritis and 
              Musculoskeletal and Skin Diseases..................   198
            l. National Institute on Deafness and Other 
              Communication Disorders............................   199
            m. National Institute of Mental Health...............   199
            n. National Institute on Drug Abuse..................   200
            o. National Institute of Alcohol Abuse and Alcoholism   200
            p. National Institute of Nursing Research............   200
            q. National Center for Research Resources............   200
    C. Issues and Congressional Response.........................   201
        1. NIH Appropriations....................................   201
        2. NIH Authorizations....................................   202
        3. Alzheimer's Disease...................................   203
        4. Arthritis and Musculoskeletal Diseases................   206
        5. Geriatric Training and Education......................   207
        6. Social Science Research and the Burdens of Caregiving.   208
    D. Conclusion................................................   209
Chapter 12: Housing Programs:
    Overview.....................................................   211
    A. Rental Assistance Programs................................   213
        1. Introduction..........................................   213
        2. Housing and Supportive Services.......................   214
        3. Public Housing........................................   216
        4. Section 8 Housing Programs............................   218
        5. Vouchers and Certificates.............................   219
        6. Rural Housing Services................................   220
        7. Federal Housing Administration........................   224
        8. Low-Income Housing Tax Credit.........................   225
    B. Preservation of Affordable Rental Housing.................   226
        1. Introduction..........................................   226
        2. Portfolio Re-Engineering Program......................   227
    C. Homeownership.............................................   228
        1. Homeownership Rates...................................   228
        2. Homeownership Tax Provisions..........................   229
        3. Possible Changes to Residential Tax Provisions........   230
        4. Home Equity Conversion................................   231
    D. Innovative Housing Arrangements...........................   236
        1. Continuing Care Retirement Communities................   236
        2. Shared Housing........................................   237
        3. Accessory Apartments..................................   237
        4. Granny Flats or Echo Units............................   238
    E. Fair Housing Act and Elderly Exemption....................   239
    F. HUD Homeless Assistance...................................   239
    G. Housing Cost Burdens of the Elderly.......................   243
Chapter 13: Energy Assistance and Weatherization:
    Overview.....................................................   245
    A. Background................................................   246
        1. The Low-Income Home Energy Assistance Program.........   246
        2. The Department of Energy Weatherization Assistance 
          Program................................................   250
    B. Recent Legislative Activity...............................   252
Chapter 14: Older Americans Act:
    Historical Perspective.......................................   253
    A. The Older Americans Act Titles............................   254
        1. Title I--Objectives and Definitions...................   255
        2. Title II--Administration on Aging.....................   255
        3. Title III--Grants for States and Community Programs on 
          Aging..................................................   255
        4. Title IV--Research, Training, and Demonstration 
          Program................................................   256
        5. Title V--Senior Community Service Employment Program..   256
        6. Title VI--Grants for Native Americans.................   257
        7. Title VII--Vulnerable Elder Rights Protection 
          Activities.............................................   257
    B. Summary of Major Issues in the 105th Congress.............   257
        1. Activity during the 105th Congress....................   258
        2. Issues in Reauthorization.............................   259
    C. Older Americans Act Appropriations........................   266
        1. FY1999 Funding........................................   266
        2. Older Americans Act...................................   267
Chapter 15: Social, Community, and Legal Services:
    Overview.....................................................   271
    A. Block Grants..............................................   271
        1. Background............................................   271
        2. Issues................................................   275
        3. Federal Response......................................   278
    B. Adult Education...........................................   279
        1. Background............................................   279
        2. Program Description...................................   281
        3. Legislation in the 105th Congress.....................   282
    C. Domestic Volunteer Service Act............................   283
        1. Background............................................   283
    D. Transportation............................................   287
        1. Background............................................   287
        2. Federal Response......................................   287
        3. Issues................................................   290
    E. Legal Services............................................   294
        1. Background............................................   294
        2. Issues................................................   298
        3. Federal and Private Sector Response...................   302
Chapter 16: Crime and the Elderly:
    A. Violent Crime.............................................   305
        1. Background............................................   305
        2. Congressional Response................................   306
    B. Elder Abuse...............................................   308
        1. Background............................................   308
        2. Federal Programs......................................   309
    C. Consumer Frauds and Deceptions............................   309
        1. Background............................................   309

                         SUPPLEMENTAL MATERIAL

Supplement 1: Brief Synopsis of Hearings and Workshops Held in 
  1997 and 1998..................................................   313
Supplement 2: Staff of the Senate Special Committee on Aging.....   333
Supplement 3: Committee Publications List from 1961 to 1998......   335
106th Congress                                            Rept. 106-229
                                 SENATE
 2d Session                                                    Volume 1

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




             DEVELOPMENTS IN AGING: 1997 AND 1998--VOLUME 1

                                _______
                                

                February 7, 2000.--Ordered to be printed

                                _______
                                

   Mr. Grassley, from the Special Committee on Aging, submitted the 
                               following

                              R E P O R T

                              ----------                              




                               Chapter 1



           SOCIAL SECURITY--OLD AGE, SURVIVORS AND DISABILITY

                                OVERVIEW

    Social Security continues to be a topic of national debate. 
During the January 1998 State of the Union Address, President 
Clinton urged Congress to ``Save Social Security First.'' The 
President recommended that Social Security's long-range 
financing problems be resolved before legislators commit 
Federal budget surpluses for other purposes. In addition, he 
called for a series of bipartisan forums on Social Security 
reform to be held around the country throughout the year, and a 
White House Conference on Social Security Reform in December 
1998. Finally, the President called for bipartisan Social 
Security reform legislation in early 1999.
    The 1994-1996 Advisory Council on Social Security issued a 
report in January 1997 on ways to solve the program's long-
range financing problems. The Council could not reach a 
consensus on a single approach, so the report contains three 
different proposals that are intended to restore long-range 
solvency to the Social Security system. The first proposal, 
labeled the ``maintain benefits'' plan, keeps the program's 
benefit structure essentially the same by addressing most of 
the long-range deficit through revenue increases, including an 
eventual rise in the payroll tax, and minor benefit cuts. To 
close the remaining gap, it recommends that investing part of 
the Social Security trust funds in the stock market be 
considered. The second, labeled the ``individual account'' 
plan, restores financial solvency mostly with reductions in 
benefits, and in addition imposes mandatory employee 
contributions to individual savings accounts. The third, 
labeled the ``personal security account'' plan, achieves long-
range financial balance through a major redesign of the system 
that gradually replaces a major portion of the Social Security 
retirement benefit with individual private savings accounts.
    Elements of the Council's recommendations were reflected in 
a number of bills introduced in the 105th Congress. More than 
30 financing reform bills were introduced, most of which would 
permit or require the creation of personal savings accounts to 
supplement or replace Social Security benefits for future 
retirees. Some of the bills would allow or require the 
investment of Social Security trust funds in the financial 
markets. Although none of these measures were acted upon during 
the 105th Congress, similar proposals may be considered during 
the 106th Congress.
    Other Social Security measures were taken up by lawmakers 
during the 105th Congress. In April 1998, the House of 
Representatives passed H.R. 3546 (the National Dialogue on 
Social Security Act of 1998). The measure would direct the 
President, the Speaker of the House of Representatives, and the 
Majority Leader of the Senate to convene a national dialogue on 
Social Security through regional conferences and Internet 
exchanges. The dialogue would serve both to educate the public 
regarding the Social Security program and generate comments and 
recommendations for reform. The measure also would establish 
the Bipartisan Panel to Design Long-Range Social Security 
Reform which would be required to report a single set of 
recommendations for restoring long-range solvency to the 
system. The Senate did not act on the measure prior to 
adjournment of the 105th Congress.
    In September 1998, the House of Representatives passed H.R. 
4578 which would create a ``Protect Social Security Account'' 
in the Treasury into which 90 percent of unified budget 
surpluses projected over the next 11 years would be deposited 
until the Social Security system is projected to be in long-
term balance. Subsequently, the House inserted the language in 
H.R. 4578 into H.R. 4579 (the Taxpayer Relief Act of 1998) also 
passed by the House in September 1998. The Senate did not act 
on the measure prior to adjournment of the 105th Congress.
    H.R. 4579 (the Taxpayer Relief Act of 1998) also included a 
provision that would have increased the Social Security 
earnings test exempt amount for recipients at or above the full 
retirement age according to a specified timetable through 2008 
(the earnings test exempt amount is the amount of earnings 
Social Security recipients may earn before their benefits are 
reduced). After 2008, the exempt amount again would be indexed 
to wage growth. The provision was not included in any other 
legislation passed by the 105th Congress.
    As Social Security's long-range financial picture has 
worsened, an increase in the retirement age has been the target 
of renewed interest. Two of the three sets of proposals put 
forth by the 1994-1996 Advisory Council on Social Security 
recommended that the increase in the full retirement age to 67 
in current law be accelerated, so that it would be fully 
effective in 2016 (instead of 2027), and indexed thereafter to 
increases in longevity. One of these two sets of proposals 
further recommended that the early retirement age be raised in 
tandem with the full retirement age until it reached age 65, 
where it would remain, but with increased actuarial reductions 
as the full retirement age continues to increase. A number of 
bills that would raise the early retirement age and the full 
retirement age were introduced during the 105th Congress.
    Legislators also addressed concerns over the small number 
of disability recipients who leave the benefit rolls and return 
to work. In June 1998, the House of Representatives passed H.R. 
3433 (the Ticket to Work and Self-Sufficiency Act of 1998). 
Under the legislation, a disabled beneficiary would be given a 
``ticket'' which could be used to obtain employment, vocational 
rehabilitation, or other support services from approved 
providers. The service provider would be entitled to a share of 
the cash benefit savings that result from the beneficiary's 
return to work. The Senate did not take up the measure prior to 
adjournment of the 105th Congress.

           A. SOCIAL SECURITY OLD AGE AND SURVIVORS INSURANCE


                             1. Background

    Title II of the Social Security Act, the Old Age and 
Survivors Insurance (OASI) and Disability Insurance (DI) 
program together named the OASDI program is designed to replace 
a portion of the income an individual or a family loses when a 
worker in covered employment retires, dies, or becomes 
disabled. Known more generally as Social Security, monthly 
benefits are based on a worker's earnings. In October 1998, 
$31.3 billion in monthly benefits were paid to Social Security 
beneficiaries, with payments to retired workers averaging $768 
and those to disabled workers averaging $723. In 1998, 
administrative expenses were $3.4 billion, representing less 
than 1 percent of total revenues.
    The Social Security program touches the lives of nearly 
every American. In November 1998, there were 44.2 million 
Social Security beneficiaries. Retired workers numbered 27.5 
million, accounting for 62 percent of all beneficiaries. 
Disabled workers and dependent family members numbered 6.3 
million, comprising 14 percent of the total, while surviving 
family members of deceased workers totaled 7.1 million or 16 
percent of all beneficiaries. In 1999, there are an estimated 
149.9 million workers in Social Security-covered employment, 
representing over 95 percent of the total American work force.
    In 1999, Social Security contributions are paid on earnings 
up to $72,600, a wage cap that is annually indexed to keep pace 
with inflation. Workers and employees alike each pay Social 
Security taxes of 6.2 percent on earnings. In addition, workers 
and their employers pay 1.45 percent on all earnings for the 
Hospital Insurance (HI) part of Medicare. For the self-
employed, the payroll tax is doubled, or 15.3 percent of 
earnings, counting Medicare.
    Social Security is accumulating large reserves in its trust 
funds. As a result of increases in Social Security payroll 
taxes mandated by the Social Security Act Amendments of 1983, 
the influx of funds into Social Security is currently exceeding 
the outflow of benefit payments. At the end of 1997, the Social 
Security trust funds held assets totaling $656 billion.

                        (a) history and purpose

    Social Security emerged from the Great Depression as one of 
the most solid achievements of the New Deal. Created by the 
Social Security Act of 1935, the program continues to grow and 
become even more central to larger numbers of Americans. The 
sudden economic devastation of the 1930's awakened Americans to 
their vulnerability to sudden and uncontrollable economic 
forces with the power to generate massive unemployment, hunger, 
and widespread poverty. Quickly, the Roosevelt Administration 
developed and implemented strategies to protect the citizenry 
from hardship, with a deep concern for future Americans. Social 
Security succeeded and endured because of this effort.
    Although Social Security is uniquely American, the 
designers of the program drew heavily from a number of well-
established European social insurance programs. As early as the 
1880's, Germany had begun requiring workers and employers to 
contribute to a fund first solely for disabled workers, and 
then later for retired workers as well. Soon after the turn of 
the century, in 1905, France also established an unemployment 
program based on a similar principle. In 1911, England followed 
by adopting both old age and unemployment insurance plans. 
Borrowing from these programs, the Roosevelt Administration 
developed a social insurance program to protect workers and 
their dependents from the loss of income due to old age or 
death. Roosevelt followed the European model: government-
sponsored, compulsory, and independently financed.
    While Social Security is generally regarded as a program to 
benefit the elderly, the program was designed within a larger 
generational context. According to the program's founders, by 
meeting the financial concerns of the elderly, some of the 
needs of young and middle-aged would simultaneously be 
alleviated. Not only would younger persons be relieved of the 
financial burden of supporting their parents, but they also 
would gain a new measure of income security for themselves and 
their families in the event of their retirement or death.
    In the more than half a century since the program's 
establishment, Social Security has been expanded and changed 
substantially. Disability insurance was pioneered in the 
1950's. Nevertheless, the underlying principle of the program--
a mutually beneficial compact between younger and older 
generations--remains unaltered and accounts for the program's 
lasting popularity.
    Social Security benefits, like those provided separately by 
employers, are related to each worker's own average career 
earnings. Workers with higher career earnings receive greater 
benefits than do workers with lower earnings. Each individual's 
own earnings record is maintained separately for use in 
computing future benefits. The earmarked payroll taxes paid to 
finance the system are often termed ``contributions'' to 
reflect their role in accumulating credit.
    Social Security serves a number of essential social 
functions. First, Social Security protects workers from 
unpredictable expenses in support of their aged parents or 
relatives. By spreading these costs across the working 
population, they become smaller and more predictable.
    Second, Social Security offers income insurance, providing 
workers and their families with a floor of protection against 
sudden loss of their earnings due to retirement, disability, or 
death. By design, Social Security only replaces a portion of 
the income needed to preserve the beneficiary's previous living 
standard and is intended to be supplemented through private 
insurance, pensions, savings, and other arrangements made 
voluntarily by the worker.
    Third, Social Security provides the individual wage earner 
with a basic cash benefit upon retirement. Significantly, 
because Social Security is an earned right, based on 
contributions over the years on the retired or disabled 
worker's earnings, Social Security ensures a financial 
foundation while maintaining beneficiaries' self-respect.
    The Social Security program came of age in the 1980's. In 
this decade, the first generation of lifelong contributors 
retired and drew benefits. Also during this decade, payroll tax 
rates and the relative value of monthly benefits finally 
stabilized at the levels planned for the system. Large reserves 
accumulating in the trust funds leave Social Security on a 
solid footing as it approaches the 21st century.

       2. Financing and Social Security's Relation to the Budget


              (a) financing in the 1970's and early 1980's

    As recently as 1970, OASDI trust funds maintained reserves 
equal to a full year of benefit payments, an amount considered 
adequate to weather any fluctuations in the economy affecting 
the trust funds. When Congress passed the 1972 amendments to 
the Social Security Act, it was assumed that the economy would 
continue to follow the pattern prevalent in the 1960's: 
relatively high rates of growth and low levels of inflation. 
Under these conditions, Social Security revenues would have 
adequately financed benefit expenditures, and trust fund 
reserves would have remained sufficient to weather economic 
downturns.
    The experience of the 1970's was considerably less 
favorable than forecasted. The energy crisis, high levels of 
inflation and slow wage growth increased expenditures in 
relation to income. The Social Security Act Amendments of 1972 
had not only increased benefits by 20 percent across-the-board, 
but also indexed automatic benefit increases to the CPI. 
Inflation fueled large benefit increases, with no corresponding 
increase in payroll tax revenues due to comparatively lower 
real wage growth. Further, the recession of 1974-1975 raised 
unemployment rates dramatically, lowering payroll tax income. 
Finally, a technical error in the initial benefit formula 
created by the 1972 legislation led to ``over-indexing'' 
benefits for certain new retirees, and thereby created an 
additional drain on trust fund reserves.
    In 1977, recognizing the rapidly deteriorating financial 
status of the Social Security trust funds, Congress responded 
with new amendments to the Social Security Act. The Social 
Security Act Amendments of 1977 increased payroll taxes 
beginning in 1979, reallocated a portion of the Medicare (HI) 
payroll tax rate to OASI and DI, and resolved the technical 
problems in the method of computing the initial benefit amount. 
These changes were predicted to produce surpluses in the OASDI 
program beginning in 1980, with reserves accumulating to 7 
months of benefit payments by 1987.
    Again, however, the economy did not perform as well as 
predicted. The long-term deficit, which had not been fully 
reduced, remained. The stagflation occurring after 1979 
resulted in annual CPI increases exceeding 10 percent, a rate 
sufficient to double payouts from the program in just 7 years. 
Real wage changes had been negative or near zero since 1977, 
and in 1980, unemployment rates exceeded 7 percent. As a 
result, annual income to the OASDI program continued to be 
insufficient to cover expenditures. Trust fund balances 
declined from $36 billion in 1977, to $26 billion in 1980. 
Lower trust fund balances, combined with rapidly increasing 
expenditures, brought reserves down to less than 3 months' 
benefit payments by 1980.
    The 96th Congress responded to this crisis by temporarily 
reallocating a portion of the DI tax rate to OASDI for 1980 and 
1981. This measure was intended to postpone an immediate 
financing crisis in order to allow time for the 97th Congress 
to comprehensively address the impending insolvency of the 
OASDI trust funds. In 1981, a number of proposals were 
introduced to restore short- and long-term solvency to Social 
Security. However, the debate over the future of Social 
Security proved to be very heated and controversial. Enormous 
disagreements on policy precluded quick passage of 
comprehensive legislation. At the end of 1981, in an effort to 
break the impasse, the President appointed a 15-member, 
bipartisan, National Commission on Social Security Reform to 
search for a feasible solution to Social Security's financing 
problem. The Commission was given a year to develop a consensus 
approach to financing the system.
    Meanwhile, the condition of the Social Security trust funds 
worsened. By the end of 1981, OASDI reserves had declined to 
$24.5 billion, an amount sufficient to pay benefits for only 
1.5 months. By November 1982, the OASI trust fund had exhausted 
its cashable reserves and in November and December was forced 
to borrow $17.5 billion from DI and HI trust fund reserves to 
finance benefit payments through July 1983.
    The delay in the work of the National Commission deferred 
the legislative solution to Social Security's financing 
problems to the 98th Congress. Nonetheless, the Commission did 
provide clear guidance to the new Congress on the exact 
dimensions of the various financing problems in Social 
Security, and on a viable package of solutions.
    Once the National Commission on Social Security Reform 
reached agreement on its recommendations, Congress moved 
quickly to enact legislation to restore financial solvency to 
the OASDI trust funds. This comprehensive package eliminated a 
major deficit which had been expected to accrue over 75 years.
    The underlying principle of the Commission's bipartisan 
agreement and the 1983 amendments was to share the burden 
restoring solvency to Social Security equitably between 
workers, Social Security beneficiaries, and transfers from 
other Federal budget accounts. The Commission's recommendations 
split the near-term costs roughly into thirds: 32 percent of 
the cost was to come from workers and employers, 38 percent was 
to come from beneficiaries, and 30 percent was to come from 
other budget accounts--including contributions from new Federal 
employees. The long-term proposals, however, shifted almost 80 
percent of the costs to future beneficiaries.
    The major changes in the OASDI Program resulting from the 
1983 Social Security Amendments were in the areas of coverage, 
the tax treatment and annual adjustment of benefits, and 
payroll tax rates. Key provisions included:
          Coverage.--All Federal employees hired after January 
        1, 1984, were covered under Social Security, as were 
        all current and future employees of private, nonprofit, 
        tax-exempt organizations. State and local governments 
        were prohibited from terminating coverage under Social 
        Security.
          Benefits.--COLA increases were shifted to a calendar 
        year basis, with the July 1983 COLA delayed to January 
        1984. A COLA fail-safe was set up so that whenever 
        trust fund reserves do not equal a certain fraction of 
        outgo for the upcoming year--15 percent until December 
        1988, 20 percent thereafter--the COLA will be 
        calculated on the lesser of wage or price index 
        increases.
          Taxation.--One-half of Social Security benefits 
        received by taxpayers whose income exceeds certain 
        limits--$25,000 for an individual and $32,000 for a 
        couple--were made subject to income taxation, with the 
        additional tax revenue being funneled back into the 
        retirement trust fund.
          Payroll Taxes.--The previous schedule of payroll tax 
        increases was accelerated, and self-employment tax 
        rates were increased.
          Retirement Age Increases.--An increase in the 
        retirement age from 65 to 67 was scheduled to be 
        gradually phased in between the years 2000 to 2022.

                       (C) trust fund projections

    In future years, the Social Security trust funds income and 
outgo are tied to a variety of economic and demographic 
factors, including economic growth, inflation, unemployment, 
fertility, and mortality. To predict the future state of the 
OASI and DI trust funds, estimates are prepared using three 
different sets of assumptions. Alternative I is designated as 
the most optimistic, followed by intermediate assumptions (II) 
and finally the more pessimistic alternative III. The 
intermediate II assumption is the most commonly used scenario. 
Actual experience, however, could fall outside the bounds of 
any of these assumptions.
    One indicator of the health of the Social Security trust 
funds is the contingency fund ratio, a number which represents 
the ability of the trust funds to pay benefits in the near 
future. The ratio is determined from the percentage of 1 year's 
payments which can be paid with the reserves available at the 
beginning of the year. Therefore, a contingency ratio of 50 
percent represents 6 months of outgo.
    Trust fund reserve ratios hit a low of 11 percent at the 
beginning of 1983, but increased to approximately 154 percent 
by 1997. Under the Social Security trustees' intermediate 
assumptions, the contingency fund ratio in 1999 is an estimated 
191 percent (188 percent under pessimistic assumptions).

                     (D) oasdi near-term financing

    Combined Social Security trust fund assets are expected to 
increase over the next 5 years. According to the 1998 Trustees 
Report, OASI and DI assets will be sufficient to meet the 
required benefit payments throughout and far beyond the 
upcoming 5-year period.
    The projected expansion in the OASDI reserves is partly a 
result of payroll tax increases--from 6.06 percent in 1989 to 
6.2 percent in 1990. The OASDI reserves are expected to 
steadily build for the next 20 years peaking at $3.8 trillion 
in 2020.

                     (e) oasdi long-term financing

    In the long run, the Social Security trust funds will 
experience two decades of rapid growth, followed by declining 
fund balances thereafter (annual deficits are projected to 
occur starting in 2013). Under intermediate assumptions, the 
program's cost is expected to exceed its income by 16 percent 
on average over the next 75 years.
    It should be emphasized that the OASDI trust fund 
experience in each of the three 25-year periods between 1998 
and 2072 varies considerably. In the first 25-year period (1998 
to 2022) revenues are expected to exceed costs on average by 
1.4 percent. Annual balances are projected to remain positive 
through 2012, with negative balances occurring thereafter. By 
2007, the contingency fund ratio is projected to be 301 
percent. In the second 25-year period (2023 to 2047) the 
financial condition of OASDI deteriorates and the trust funds 
are projected to become insolvent early in the period (2032) 
under intermediate projections. On average, program costs are 
expected to exceed revenues by 35 percent. The third 25-year 
period (2048 to 2072) is expected to be one of continuous 
deficits. As annual deficits persist, program costs are 
expected to exceed revenues on average by 42 percent.

                          (1) Midterm Reserves

    In the years between 1999 and 2012, it is projected that 
Social Security will receive more in income than it must 
distribute in benefits. Under current law, these reserves will 
be invested in interest-bearing Federal securities, and will be 
redeemable by Social Security in the years in which benefit 
expenditures exceed payroll tax revenues (beginning in 2013). 
During the years in which the assets are accumulating, these 
reserves will far exceed the amount needed to buffer the OASDI 
funds from unfavorable economic conditions. As a matter of 
policy, there is considerable controversy over the purpose and 
extent of these reserve funds, and the political and economic 
implications they entail.
    During the period in which Social Security trust fund 
reserves are accumulating, the surplus funds can be used to 
finance other Government expenditures. During the period of 
OASDI shortfalls, the Federal securities previously invested 
will be redeemed, causing income taxes to buttress Social 
Security. In essence, the assets Social Security accrues 
represent internally held Federal debt, which is equivalent to 
an exchange of tax revenues over time.
    Though the net effect on revenues of this exchange is the 
same as if Social Security taxes were lowered and income taxes 
raised in the 1990's, and Social Security taxes raised and 
income taxes lowered in 2020, the two tax methods have vastly 
different distributional consequences. The significance lies 
with the fact that there is incentive to spend reserve revenues 
in the 1990's and cut back on underfunded benefits in the 
future. The growing trust fund reserves enable Congress to 
spend more money on other government activities without raising 
taxes or borrowing from private markets. At some point, 
however, either general revenues will have to be increased or 
spending will have to be drastically cut when the debt to 
Social Security has to be repaid.

                         (2) Long-Term Deficits

    The long-run financial strain on Social Security is 
expected to result from the problems of financing the needs of 
an expanding older population on an eroding tax base. The 
expanding population of older persons is due to longer age 
spans, earlier retirements, and the unusually high birth rates 
after World War II, producing the ``baby-boom'' generation 
which will begin to retire in 2008 (at age 62). The eroding tax 
base in future years is forecast as a result of falling 
fertility rates.
    This relative increase in the number of beneficiaries will 
pose a problem if the Social Security tax base is allowed to 
erode. If current trends continue and nontaxable fringe 
benefits grow, less and less compensation will be subject to 
the Social Security payroll tax. In 1950, fringe benefits 
accounted for only 5 percent of total compensation, and FICA 
taxes were levied on 95 percent of compensation. By 1980, 
fringe benefits had grown to account for 16 percent of 
compensation. Continuation in this rate of growth in fringe 
benefits, as projected by the Social Security actuaries, might 
eventually exempt over one-third of payroll from Social 
Security taxes. This would be a substantial erosion of the 
Social Security tax base and along with the aging of the 
population and the retirement of the baby boom generation, the 
long-term solvency of the system will be threatened.
    While the absolute cost of funding Social Security is 
expected to increase substantially over the next 75 years, the 
cost of the system relative to the economy as a whole will not 
necessarily rise greatly over 1970's levels. Currently, Social 
Security benefits cost approximately 4.6 percent of GDP. Under 
intermediate assumptions, Social Security is expected to rise 
to 6.9 percent of GDP by 2072.

              (F) social security's relation to the budget

    Over the years, Social Security has been entangled in 
debates over the Federal budget. The inclusion of Social 
Security trust fund shortages in the late 1970's initially had 
the effect of inflating the apparent size of the deficit in 
general revenues. More recently, it was argued that growing 
reserves served to mask the true size of the deficit. In fact, 
many Members of Congress contended that the inclusion of the 
surpluses disguised the Nation's fiscal problems. As budget 
shortfalls grew, concern persisted over the temptation to cut 
Social Security benefits to reduce budget deficits.
    An amendment was included in the 1990 Omnibus Budget 
Reconciliation Act (P.L. 101-508), to remove the Social 
Security trust funds from the Gramm Rudman Hollings Act of 1985 
(GRH) deficit reduction calculations. Many noted economists had 
advocated the removal of the trust funds from deficit 
calculations. They argued that the current use of the trust 
funds contributes to the country's growing debt, and that the 
Nation is missing tremendous opportunities for economic growth. 
A January 1989 GAO report stated that if the Federal deficit 
was reduced to zero, and the reserves were no longer used to 
offset the deficit, there would be an increase in national 
savings, and improved productivity and international 
competitiveness. The National Economic Commission, which 
released its report in March 1989, disagreed among its members 
over how to tame the budget deficit. Yet, the one and only 
recommendation upon which they unanimously agreed is that the 
Social Security trust funds should be removed from the GRH 
deficit reduction process.
    Taking Social Security off-budget was partially 
accomplished by the 1983 Social Security Act Amendments and, 
later, by the 1985 GRH Act. The 1983 Amendments required that 
Social Security be removed by the unified Federal budget by 
fiscal year 1993, and the subsequent GRH law accelerated this 
removal to fiscal year 1986. To further protect the Social 
Security trust funds, Social Security was barred from any GRH 
across-the-board cut or sequester.
    In OBRA 90, Social Security was finally removed from the 
budget process itself. It was excluded from being counted with 
the rest of the Federal budget in budget documents, budget 
resolutions, or reconciliation bills. Inclusion of Social 
Security changes as part of a budget resolution or 
reconciliation bill was made subject to a point of order which 
may be waived by either body.
    However, administrative funds for SSA were not placed 
outside of the budget process by the 1990 legislation, 
according to the Bush Administration's interpretation of the 
new law. This interpretation is at odds with the intentions of 
many Members of Congress who were involved with enacting the 
legislation. It leaves SSA's administrative budget, which like 
other Social Security expenditures is financed from the trust 
funds, subject to pressures to offset spending in other areas 
of the Federal budget. Legislation was introduced in 1991 by 
Senators Sasser and Pryor to take the administrative expenses 
off-budget, but was not enacted. The Clinton Administration has 
continued to employ the same interpretation of the 1990 law.

         (g) new rules governing social security and the budget

    Congress created new rules in 1990, as part of OBRA 90 
(P.L. 101-508), known as ``firewall'' procedures designed to 
make it difficult to diminish Social Security reserves. The 
Senate provision prohibits the consideration of a budget 
resolution calling for a reduction in Social Security surpluses 
and bars consideration of legislation causing the aggregate 
level of Social Security spending to be exceeded. The House 
provision creates a point of order to prohibit the 
consideration of legislation that would change the actuarial 
balance of the Social Security trust funds over a 5-year or 7-
year period. These firewall provisions will make it more 
difficult to enact changes in the payroll tax rates or in other 
aspects of the Social Security programs such as benefit 
changes.

           3. Benefit and Tax Issues and Legislative Response

    Social Security has a complex system of determining benefit 
levels for the millions of Americans who currently receive 
them, and for all who will receive them in the future. Over 
time, this benefit structure has evolved, with Congress 
mandating changes when deemed necessary. Given the focus of 
Congress on the paring back of spending, and the hostile 
environment toward expanding entitlement programs, proposals 
for benefit improvements have made little progress.

                        (a) taxation of benefits

    On September 27, 1994, 300 Republican congressional 
candidates presented a ``Contract with America'' that listed 10 
proposals they would pursue if elected. One of the proposals 
was the Senior Citizens Equity Act which included a measure 
that would roll back the 85 percent tax on Social Security 
benefits for beneficiaries with higher incomes.
    In 1993, as part of the budget reconciliation process, a 
provision raised the tax from 50 percent to 85 percent, 
effective January 1, 1994. The tax revenues under this 
provision were expected to raise $25 billion over 5 years. The 
revenues were specified to be transferred to the Medicare 
Hospital Insurance Trust Fund. During action on the budget 
resolution in May 1996, Senator Gramm offered a Sense of the 
Senate amendment that the increase should be repealed. His 
amendment was successfully passed but had no practical impact. 
In addition, the budget package was vetoed by President 
Clinton, nullifying any action in the Senate on the issue.

                   (b) social security earnings test

    One of the most controversial issues in the Social Security 
program is the earnings test, which is a provision in the law 
that reduces OASDI benefits of beneficiaries who earn income 
from work above a certain sum. Under the law, in 1999, the 
earnings test reduces benefits for Social Security 
beneficiaries under age 65 by $1 for every $2 earned above 
$9,600. Beneficiaries age 65 to 69 will have benefits reduced 
$1 for each $3 earned above $15,500. The exempt amounts are 
adjusted each year to rise in proportion to average wages in 
the economy. The test does not apply to beneficiaries who have 
reached age 70.
    The earnings test is among the least popular features of 
the Social Security program. Consequently, proposals to 
liberalize or eliminate the earnings test are perennial. This 
benefit reduction is widely viewed as a disincentive to 
continued work efforts by older workers. Indeed, many believe 
that the earnings test penalizes those age 62 to 69 who wish to 
remain in the work force. Once workers reach age 70, they are 
not subject to the test. Opponents of the earnings test 
consider it an oppressive tax that can add 50 percent to the 
effective tax rate workers pay on earnings above the exempt 
amounts. Opponents also maintain that it discriminates against 
the skilled, and therefore, more highly paid, worker and that 
it can hurt elderly individuals who need to work to supplement 
meager Social Security benefits. They argue that although the 
test reduces Federal budget outlays, it also denies to the 
Nation valuable potential contributions of older, more 
experienced workers. Some point out that no such limit exists 
when the additional income is from pensions, interest, 
dividends, or capital gains, and that it is unfair to single 
out those who wish to continue working. Finally, some object 
because it is very complex and costly to administer.
    Defenders of the earnings test say it reasonably executes 
the purpose of the Social Security program. Because the system 
is a form of social insurance that protects workers from loss 
of income due to the retirement, death, or disability of the 
worker, they consider it appropriate to withhold benefits from 
workers who show by their substantial earnings that they have 
not in fact ``retired.'' They also argue that eliminating or 
liberalizing the test would primarily help relatively better-
off individuals who need the help least. Furthermore, they 
point out that eliminating the earnings test would be extremely 
expensive. Proponents of elimination counter that older 
Americans who remain in the work force persist in making 
contributions to the national economy and continue paying 
Social Security taxes.
    In March 1996, Congress enacted H.R. 3136 (the Contract 
with America Advancement Act, P.L. 104-121), which raised the 
earnings limit according to the following timetable:

1996..........................................................   $12,500
1997..........................................................    13,500
1998..........................................................    14,500
1999..........................................................    15,500
2000..........................................................    17,000
2001..........................................................    25,000
2002..........................................................    30,000

    The cost of the provision (an estimated $5.6 billion) was 
offset by other provisions in the bill. Social Security 
disability benefits to drug addicts and alcoholics were 
eliminated, as were benefits to non-dependent stepchildren. An 
estimated 1 million recipients aged 65-69 are affected by the 
new earnings test. Their incomes could increase by more than 
$5,000 in 2002 depending on the level of annual earnings.
    In September 1998, Congress took up legislation making 
further changes to the Social Security earnings test. The House 
of Representatives approved H.R. 4579 (the Taxpayer Relief Act 
of 1998) which included a provision that would have increased 
the earnings test exempt amount for recipients at or above the 
full retirement age according to the following timetable:

1998..........................................................   $14,500
1999..........................................................    17,000
2000..........................................................    18,500
2001..........................................................    26,000
2002..........................................................    30,000
2003..........................................................    31,300
2004..........................................................    34,000
2005..........................................................    35,400
2006..........................................................    36,800
2007..........................................................    38,350
2008..........................................................    39,750

    After 2008, the exempt amount again would be indexed to 
wage growth. The Senate did not take up the bill, and the 
measure was not included in any legislation passed by the 105th 
Congress.

                   (C) The Social Security ``Notch''

    The Social Security ``notch'' refers to the difference in 
monthly Social Security benefits between some of those born 
before 1916 and those born in the 5- to 10-year period 
thereafter. The controversy surrounding the Social Security 
``notch'' stems from a series of legislative changes made in 
the Social Security benefit formula, beginning in 1972. That 
year, Congress first mandated automatic annual indexing of both 
the formula to compute initial benefits at retirement, and of 
benefit amounts after retirement, known as cost-of-living 
adjustments (or COLAs). The intent was to eliminate the need 
for ad hoc benefit increases and to adjust benefit levels in 
relation to changes in the cost of living. However, the method 
of indexing the formula was flawed in that initial benefit 
levels were being indexed twice, for increases in both prices 
and wages. Consequently, initial benefit levels were rising 
rapidly in relation to the pre-retirement income of 
beneficiaries.
    Prior to the effective date of the 1972 amendments, Social 
Security replaced 38 percent of pre-retirement income for an 
average worker retiring at age 65. The error in the 1972 
amendments, however, caused an escalation of the replacement 
rate to 55 percent for that same worker. Without a change in 
the law, by the turn of the century, benefits would have 
exceeded a recipient's pre-retirement income. Financing this 
increase rather than correcting the overindexing of benefits 
would have entailed doubling the Social Security tax rate. 
Concern over the program's solvency provided a major impetus 
for the 1977 Social Security amendments, which substantially 
changed the benefit computation for those born after 1916. To 
remedy the problem, Congress chose to partially scale back the 
increase in relative benefits for those born from 1917 to 1921 
and to finance the remaining benefit increase with a series of 
scheduled tax increases. Future benefits for the average worker 
under the new formula were set at 42 percent of pre-retirement 
income.
    The intent of the 1977 legislation was to create a 
relatively smooth transition between those retiring under the 
old method and those retiring under the new method. 
Unfortunately, high inflation in the late 1970's and early 
1980's caused an exaggerated difference between the benefit 
levels of many of those born prior to 1917 and those born 
later. The difference has been perceived as a benefit reduction 
by those affected. Those born from 1917 to 1921, the so-called 
notch babies, have been the most vocal supporters of a 
``correction,'' yet these beneficiaries fare as well as those 
born later.
    The Senate adopted an amendment to set up a Notch Study 
Commission. In subsequent conference with the House, an 
agreement was reached to establish a 12-member bipartisan 
commission with the President, the leadership of the Senate and 
the House each appointing 4 members. The measure was signed 
into law when the President signed H.R. 5488 (P.L. 102-393). 
The Commission was required to report to Congress by December 
31, 1993. However, in 1993, Congress extended the due date for 
the final report until December 31, 1994, as part of the 
Treasury Department appropriations legislation (P.L. 103-123).
    The Commission met seven times, including three public 
hearings, between April and December 1994. In late December 
1994, the Notch Commission reported that ``benefits paid to 
those in the ``notch'' years are equitable and no remedial 
legislation is in order.''
    The Commission's report notes that ``when displayed on a 
vertical bar graph, those benefit levels form a kind of v-
shaped notch, dropping sharply from 1917 to 1921, and then 
rising again. * * * To the extent that disparities in benefit 
levels exist, they exist not because those born in the Notch 
years received less than their due; they exist because those 
born before the notch babies receive substantially inflated 
benefits.'' The report of the Commission seems to have put the 
Notch issue to rest as Congress grapples with other financing 
issues.

              (D) Financing of Social Security Trust Funds

    Focus on the long-term solvency of the Social Security 
trust funds has nullified proposals to increase benefits or cut 
payroll taxes. Despite the emergence of Federal budget 
surpluses for the first time in three decades, concern persists 
over expected future growth in expenditures for entitlement 
programs, including Social Security. Recent congressional 
proposals to shore up the financing of the Social Security 
trust funds range from relatively conservative adjustments 
within the current program to wholesale restructuring of the 
system.

                     (1) Raising the Retirement Age

    To help solve Social Security's long-range financing 
problems, proposals have been made to increase the retirement 
age. Bills introduced in the 105th Congress would accelerate 
the phase-in of the increase to age 67, raise the early 
retirement age to 65 or 67, and raise the full retirement age 
to 70.
    Originally, the minimum age of retirement for Social 
Security was 65. In 1956, Congress lowered the minimum age to 
age 62 for women, but also provided that benefits taken before 
age 65 would be permanently reduced to account for the longer 
period over which benefits would be paid. In 1983, Congress 
enacted legislation to address the financing problems of Social 
Security. Under that legislation, the full retirement age will 
increase by 2 months each year after 1999 until it reaches 66 
for those who attain age 62 in 2005. It will increase again by 
2 months for each year after 2016 that a person reaches age 62, 
until it reaches age 67 for those who attain age 62 in 2022 or 
later.
    Since the Social Security financial picture has worsened, 
this solution has been the target of renewed interest. In 
January 1997, the 1994-1996 Advisory Council on Social Security 
issued a report on recommendations to solve Social Security's 
long-range financial problems. Although it split into three 
factions because it could not agree on a single set of 
proposals, two of the factions recommended that the increase in 
the full retirement age to 67 in current law be accelerated, so 
that it would be fully effective in 2016 (instead of 2027), and 
indexed thereafter to increases in longevity. One of these two 
factions also recommended that the early retirement age be 
raised in tandem with the full retirement age until it reached 
age 65, where it would remain, but with increased actuarial 
reductions as the full retirement age continues to increase. 
During the 105th Congress, a number of proposals to raise the 
retirement age were introduced.
    Senator Gregg introduced a bill (S. 321) that would raise 
the full retirement age and the early retirement age to 70 and 
65, respectively, by 2037, and by \1/2\ month per year 
thereafter.
    Representative Sanford introduced a bill (H.R. 2768) that 
would gradually increase the age for full retirement, aged 
spouses and widow(er)s benefits to 70. The full retirement age 
would increase by 2 months for each year that a person was born 
after 1937 (i.e., who attain age 62 after 1999), until it 
reached age 70 for those born in 1967 (i.e., who attain age 62 
in 2029) or later. Retirement and aged spouse benefits would 
still be available at age 62, but their actuarial reduction 
would increase (e.g., the reduction for retirement at age 62 
would be 40 percent). Similarly, H.R. 2929 introduced by 
Representative Porter would raise the full retirement age to 70 
by 2037 in the same manner as H.R. 2768.
    Another bill introduced by Representative Sanford (H.R. 
2782) would raise the full retirement age to age 70 by 2037 and 
by one-half month per year thereafter. The early retirement age 
would be raised to 65 by 2020, and by one-half month per year 
beginning in 2033.
    Representative Nick Smith introduced a bill (H.R. 3082) 
that would raise the full retirement and early retirement ages 
by raising the full retirement age by 3 months per year that a 
person is born after 1937 (who attains age 62 after 1999) until 
it reaches age 69 for those born in 1953 (age 62 in 2015). The 
early retirement age would also rise by 3 months per year , 
until it reaches age 65 for those born in 1949 (age 62 in 
2011). The earliest age for eligibility for widow and widower 
benefits likewise would rise, to age 63 for those born in 1949. 
After 2015, the full retirement age would be adjusted so as to 
maintain a constant ratio of projected life expectancy at the 
full retirement age to potential working years, defined as the 
full retirement age minus 20, and the early retirement age 
would be adjusted to be 4 years (6 years for widows and 
widowers) lower than the full retirement age.
    Senator Moynihan introduced a bill (S. 1972) that would 
raise the full retirement age to 68 by 2017, and would raise it 
thereafter by 1 month every 2 years until it reaches age 70.
    Senator Gregg and Representative Kolbe introduced 
legislation (S. 2313 and H.R. 4256, respectively) that would 
raise the full retirement age to 70 by 2037 in the same manner 
as S. 321 described above, but would increase it thereafter by 
about 1 month every 3 years.
    None of these bills were enacted in the 105th Congress.

             (2) ``Means Testing'' Social Security Benefits

    Social Security benefits are paid regardless of the 
recipient's economic status. Since the financing of Social 
Security has relied on the use of a mandatory tax on a worker's 
earnings and the amount of those earnings are used to determine 
the amount of the eventual benefit, a tie has been established 
between the taxes paid and benefits received. This link has 
promoted the perception that benefits are an earned right, and 
not a transfer payment. With the crisis in the financing of 
Social Security, interest in the issue of whether high-income 
beneficiaries should receive a full benefit surfaced. As a 
result, the 1983 reforms included a tax of 50 percent on 
benefits for higher income beneficiaries (an indirect means 
test).
    Some policymakers have recommended that the growth of 
entitlements be slowed. Some entitlement programs are means 
tested--eligibility is dependent on a person's income and 
assets. Means testing Social Security, the largest entitlement 
program, could reap substantial savings. The proposal that 
received the most attention in 1994 was offered by the Concord 
Coalition, a non-profit organization created with the backing 
of former Senators Rudman and Tsongas. Their proposal would 
have reduced benefits by up to 85 percent on a graduated scale 
for families with incomes above $40,000 (the 85 percent rate 
would apply to families with incomes above $120,000).
    Supporters of a means test for Social Security argue that 
all spending must be examined for ways to cut costs. Although 
the program is perceived as an annuity program, that is not the 
case. Beneficiaries receive substantially more in benefits than 
the value of the Social Security taxes paid. Means testing 
benefits for high income recipients is a fair way to impose 
sacrifice. They point to data from the Congressional Budget 
Office which show that the number of Social Security recipients 
with annual incomes over $50,000 is estimated to be 6.6 million 
(estimate for 1997). These individuals could afford a cut in 
benefits.
    Opponents of means testing believe that such a move would 
be the ultimate breach of the principle of Social Security. 
They believe that a means test would align the program with 
other welfare programs, a move that would weaken public support 
for the program. Opponents also believe that means testing is 
wrong on other grounds. They argue that Social Security is not 
contributing to deficits, it is currently creating a surplus. 
It would discourage people from saving because additional 
resources could disqualify them from receiving full benefits. 
Also, from a retiree's view, individuals should be able to 
maintain a certain level of income.
    As Congress addresses Social Security's long-range 
financing problems, means testing Social Security benefits may 
once again be raised as a cost-saving option.

    (3) Bipartisan Panel to Design Long-Range Social Security Reform

    In April 1998, the House of Representatives passed H.R. 
3546 (the National Dialogue on Social Security Act of 1998). 
The measure would direct the President, the Speaker of the 
House of Representatives, and the Majority Leader of the Senate 
to convene a national dialog on Social Security through 
regional conferences and Internet exchanges. The dialog would 
serve both to educate the public regarding the Social Security 
program and generate comments and recommendations for reform. 
The measure also would establish the Bipartisan Panel to Design 
Long-Range Social Security Reform which would be required to 
report a single set of recommendations for restoring long-range 
solvency to the system. The Senate did not act on the measure 
prior to adjournment of the 105th Congress.

             (4) Use of Projected Federal Budget Surpluses

    In September 1998, the House of Representatives passed H.R. 
4578 which would create a ``Protect Social Security Account'' 
in the Treasury into which 90 percent of unified budget 
surpluses projected over the next 11 years would be deposited 
until the Social Security system is projected to be in long-
term balance. Subsequently, the House inserted the language in 
H.R. 4578 into H.R. 4579 (the Taxpayer Relief Act of 1998) also 
passed by the House in September 1998. The Senate did not act 
on the measure prior to adjournment of the 105th Congress.

                           (5) Privatization

    The 1994-1996 Advisory Council on Social Security issued a 
report in January 1997 on ways to solve the program's long-
range financing problems. The Council could not reach a 
consensus on a single approach, so the report contains three 
different proposals that are intended to restore long-range 
solvency to the Social Security system. The first proposal, 
labeled the ``maintain benefits'' plan, keeps the program's 
benefit structure essentially the same by addressing most of 
the long-range deficit through revenue increases, including an 
eventual rise in the payroll tax, and minor benefit cuts. To 
close the remaining gap, it recommends that investing part of 
the Social Security trust funds in the stock market be 
considered. The second, labeled the ``individual account'' 
plan, restores financial solvency mostly with reductions in 
benefits, and in addition imposes mandatory employee 
contributions to individual savings accounts. The third, 
labeled the ``personal security account'' plan, achieves long-
range financial balance through a major redesign of the system 
that gradually replaces a major portion of the Social Security 
retirement benefit with individual private savings accounts.
    Elements of the Council's recommendations were reflected in 
a number of bills introduced in the 105th Congress. More than 
30 financing reform bills were introduced, most of which would 
permit or require the creation of personal savings accounts to 
supplement or replace Social Security benefits for future 
retirees. Some of the bills would allow or require the 
investment of Social Security trust funds in the financial 
markets. Although none of these measures were acted upon during 
the 105th Congress, similar proposals may be considered during 
the 106th Congress.

                B. SOCIAL SECURITY--DISABILITY INSURANCE


                             1. Background

    In recent years, Congress has raised concern over SSA's 
administration of the largest national disability program, 
Social Security Disability Insurance (SSDI). In particular, 
there was concern that some SSDI beneficiaries were using the 
benefit to purchase drugs and alcohol. As a result of extensive 
investigation, Congress responded to these concerns by placing 
a 3-year time limit on program benefits to drug addicts and 
alcoholics, extending requirements for treatment to SSDI 
recipients, and requiring SSDI recipients to have a 
representative payee.
    Action was also taken to shore up the financing of the DI 
trust fund. The Social Security trustees, in the annual report 
to Congress, uttered an explicit warning that the DI trust fund 
would be depleted in 1995. Congress acted in late 1994 to take 
steps that would keep the DI trust fund solvent. The latest 
projections by the Social Security trustees show that the DI 
trust fund will remain solvent until 2019.
    More recently, Congress has addressed concerns over the 
small number of disability recipients who leave the benefit 
rolls because they return to work. In June 1998, the House of 
Representatives passed H.R. 3433 (the Ticket to Work and Self-
Sufficiency Act of 1998). Under the legislation, a disabled 
beneficiary would be given a ``ticket'' which could be used to 
obtain employment, vocational rehabilitation, or other support 
services from approved providers. The service provider, in 
turn, would be entitled to a share of the cash benefit savings 
that result from the beneficiary's return to work. The Senate 
did not take up the legislation prior to the adjournment of the 
105th Congress.

                           (A) Recent History

    Since the inception of SSDI, SSA has determined the 
eligibility of beneficiaries. In response to the concern that 
SSA was not adequately monitoring continued eligibility, 
Congress included a requirement in the 1980 Social Security 
amendments that SSA review the eligibility of nonpermanently 
disabled beneficiaries at least once every 3 years. The purpose 
of the continuing disability reviews (CDRs) was to terminate 
benefits to recipients who were no longer disabled.
    SSA had drastically cut back on CDRs partly due to budget 
shortfalls that left it unable to meet the mandated 
requirements for the number of CDRs it must perform. In 
addition, Congress continued to encounter evidence of a 
deterioration in the quality and timeliness of disability 
determinations being conducted by SSA, even as the agency was 
undertaking a system-wide disability redesign, intended to 
address backlogs and improve decisionmaking.

                   2. Issues and Legislative Response


        (A) Financial Status of Disability Insurance Trust Fund

    The Social Security trustees warned in 1993 that the SSDI 
program was in financial trouble and that its trust fund may be 
depleted in 1995 or sooner. The trustees' 1993 report projected 
depletion by 1995. Their forecast reflected rapid enrollment 
increases over the past few years and tax revenues constrained 
by a stagnant economy.
    The SSDI trust fund's looming insolvency prompted proposals 
to reallocate taxes to it from Social Security's retirement 
program. Because the trustees projected that the Old Age and 
Survivors trust fund would be solvent until 2044, many proposed 
to allocate a greater portion to SSDI. Projections issued in 
1993 indicated that the two programs could still be kept 
solvent until 2036. Such a reallocation would eventually shift 
about 3 percent of the retirement programs' taxes to SSDI.
    Most advocates of reallocation favored quick action to 
allay fears that the program was in danger and to provide time 
to assess whether an improving economy would alter the outlook. 
Others favored only a temporary reallocation to force a careful 
assessment of the factors driving up enrollment and whether 
there were feasible ways to constrain it.
    In 1993, the House of Representatives approved a provision 
to deal with this issue, but it was dropped from the final 
version of the Omnibus Budget Reconciliation Act of 1993 along 
with other Social Security provisions for procedural reasons. 
Specifically, 0.275 percent of the employer and employee Social 
Security payroll tax rate, each, and 0.55 percent of the self-
employment tax would have been reallocated from the OASI trust 
fund to the DI trust fund. The total OASDI tax rate of 6.2 
percent for employers and employees and 12.4 percent for the 
self-employed would remain unchanged.
    Although the House provision was dropped, this was done for 
procedural reasons, not policy reasons. Widespread agreement 
existed in the House and the Senate to address this issue again 
as soon as possible. Congress acted in late 1994 by enacting a 
reallocation as part of P.L. 103-387. According to the 1998 
trustees' report, the DI trust fund is projected to remain 
solvent until 2019 and the OASI fund is projected to remain 
solvent until 2034 (on a combined basis, the trust funds are 
projected to remain solvent until 2032).

                 (B) New Rules for Disability Benefits

    Concern over DI recipients who are drug addicts and 
alcoholics (DA&As) and how their benefits are sometimes used 
resulted in swift action in 1994 to curb abuse. Since the 
inception of Supplemental Security Income (or SSI, a program 
financed with general fund revenues and administered by SSA), 
the law has required that the SSI payments to individuals who 
have been diagnosed and classified as drug addicts or 
alcoholics must be made to another individual, or an 
appropriate public or private organization. The representative 
payee is responsible for managing the recipient's finances. 
Federal law did not require the use of representative payees 
for drug addicts and alcoholics enrolled in the DI program.
    Criticism was also targeted at SSA's failure to monitor 
DA&A recipients in the SSI program who were required to undergo 
treatment. A report issued by the General Accounting Office 
revealed that SSA had established monitoring agencies in only 
18 states even though the monitoring requirement had been in 
effect since the inception of the program.
    The Social Security Independence and Program Improvements 
Act (P.L. 103-296) addressed these issues. The new law required 
that DI recipients whose drug addiction or alcoholism was a 
contributing factor material to their disability receive DI 
payments through a representative payee. The representative 
payee requirements were strengthened by creating a preference 
list for payees. SSA now selects the payee, with preference 
given to nonprofit social services agencies. Qualified 
organizations may charge DA&As a monthly fee equal to 10 
percent of the monthly payment or $50, whichever is less.
    Prior to the enactment of P.L. 103-296, only the SSI 
recipients were required to undergo appropriate treatment. 
There were no parallel requirements for DI recipients. With the 
new legislation, DI recipients were required to undergo 
substance abuse treatment. Benefits could be suspended for 
those recipients who failed to undergo or comply with required 
treatment for drug addiction or alcoholism.
    Before enactment of P.L. 103-296, DA&As in both the SSI and 
DI programs received program benefits as long as they remained 
disabled. The new law required that recipients whose drug 
addiction or alcoholism was a contributing factor material to 
SSA's determination that they were disabled be dropped from the 
rolls after receiving 36 months of benefits. The 36-month limit 
applies to DI substance abusers only for months when 
appropriate treatment was available.
    With the Republican party gaining a majority in the 1994 
elections, the issue of drug addicts and alcoholics in the 
Federal disability programs received renewed attention. The 
Personal Responsibility Act (part of the House Republican 
Contract With America) contained a provision which would wipe 
out benefits for DA&As in the SSI program. As the welfare 
reform debate evolved, proposals to raise the earnings limit 
for receipt of Social Security benefits were rejected because 
there were no offsets to ``pay for'' the desired increase in 
the earnings limit. Senator McCain and Representative Bunning 
sponsored legislation to increase the earnings limit and 
included specific offsets to finance the change. H.R. 3136, 
signed by President Clinton, increased the earnings limit to 
$30,000 by 2002. One of the offsets included in the bill was 
the elimination of drug addiction and alcoholism as a basis for 
disability in both the SSDI program and the SSI program.
    This change in policy was enacted despite warnings that 
approximately 75 percent of the people in the DA&A program 
could requalify for benefits based on another disabling 
condition, such as a mental illness. Opponents warned that such 
a move would result in fewer people in treatment and increased 
abuse of benefits because of the relaxation of the 
representative payee requirements enacted in 1994. Early 
reports of the implementation of the law seem to bear out these 
predictions; however, more information will be needed as the 
provision's requirements are fully implemented.

                  (C) Disability Determination Process

    In 1994, SSA began to respond to congressional concern over 
problems in the administration of its disability determination 
system. The problems were first identified at hearings in 1990. 
Congressional investigations found growing backlogs, delays, 
and mistakes. The issues raised in those investigations 
continued to worsen thereafter largely because SSA lacked 
adequate resources to process its workload.
    Acknowledging that the problem must be addressed with or 
without additional staff, SSA set up a ``Disability Process 
Reengineering Project'' in 1993. A series of committees were 
established to review the entire process, beginning with the 
initial claim and continuing through the disability allowance 
or the final administrative appeal. The effort targeted the 
SSDI program and the disability component of SSI.
    The project began in October 1993, when a special team 
composed of 18 Federal and State Disability Determination 
Services (DDS) employees was assembled at SSA headquarters in 
Baltimore, MD. The SSA effort does not attempt to change the 
statutory definition of disability, or affect in any way the 
amount of disability benefits for which individuals are 
eligible, or to make it more difficult for individuals to file 
for and receive benefits. Rather, SSA plans to reengineer the 
process in a way that makes it easier for individuals to file 
for and, if eligible, to receive disability benefits promptly 
and efficiently, and that minimizes the need for multiple 
appeals.
    In September 1994, SSA released a report describing the new 
process. Under the new proposal, claimants will be offered a 
range of options for filing a claim. Claimants who are able to 
do so will play a more active role in developing their claims. 
In addition, claimants will have the opportunity to have a 
personal interview with decisionmakers at each level of the 
process.
    The redesigned process will include two basic steps, 
instead of a four-level process. The success of the new process 
will depend on SSA's ability to implement the simplified 
decision method and provide consistent direction and training 
to all adjudicators. It is also dependent on better collection 
of medical evidence, and the development of an automated claims 
processing system.
    At the close of 1998, SSA continued to implement the 
disability process redesign. SSA's Accountability Report for 
Fiscal Year 1998 states:

          The initial DI claims workload continues to present 
        challenges for SSA as it remains one of the largest 
        workload categories in SSA. Its demands on our 
        resources are considerable as we progress with our 
        disability process redesign * * * The Agency is 
        diligently working to fully transform the disability 
        process redesign from a vision into a reality.

                   (D) Continuing Disability Reviews

    As concern over program growth has mounted, the need to 
protect the integrity of the program has moved to the 
forefront. This movement has been demonstrated by the inquiries 
into the payment of disability benefits to drug addicts and 
alcoholics, as well as concerns over the small number of people 
who are rehabilitated through the efforts of SSA. Another 
important duty of SSA which has been target of congressional 
interest is the continuing disability review (CDR) process.
    In recent years, SSA has had difficulty ensuring that 
people receiving disability benefits under DI program are still 
eligible for benefits. By law, SSA is required to conduct CDRs 
to determine whether beneficiaries have medically improved to 
the extent that the person is no longer disabled. A GAO study 
was commissioned to report on the CDR backlog, analyze whether 
there are sufficient resources to conduct CDRs, and how to 
improve the CDR process.
    GAO released its findings in October 1996. The study found 
that about 4.3 million DI and SSI beneficiaries were due or 
overdue for CDRs in fiscal year 1996. GAO found that SSA had 
already embarked on reforms that would improve the CDR process, 
although the agency found that the proposal would not address 
all of the problems.
    In March 1996, Congress enacted H.R. 3136 (the Contract 
with America Advancement Act, P.L. 104-121) which provided a 
substantial increase in the funding for CDRs--more than $4 
billion over 7 years. With this new funding, SSA developed a 
plan to conduct 8.2 million CDRs during fiscal years 1996 
through 2002.
    In September 1998, GAO released its findings that SSA is 
making progress in conducting CDRs, with 1.2 million processed 
during the first 2 years of the initiative. In its 
Accountability Report for Fiscal Year 1998, SSA reports that it 
expects to process a total of 9.4 million CDRs over 7 years 
(1.2 million more than originally estimated). The number of 
CDRs conducted in fiscal year 1998 exceeded the number 
conducted in fiscal year 1997 by 101 percent, and an estimated 
1.6 million CDRs will be conducted in fiscal year 1999. 
According to SSA's estimates, the DI backlog will be eliminated 
in 2000, and the SSI backlog will be eliminated in 2002.

                   C. OUTLOOK FOR THE 106TH CONGRESS

    The 106th Congress promises to be an important year on the 
legislative front. Hearings on Social Security reform will be 
held, and a variety of options, ranging from adjustments within 
the current program to a major restructuring of the system, 
likely will be considered to resolve Social Security's long-
range financing problems.


                               Chapter 2



                           EMPLOYEE PENSIONS

                               BACKGROUND

    Many employees receive retirement income from sources other 
than Social Security. Numerous pension plans are available to 
employees from a variety of employers, including companies, 
unions, Federal, State, and local governments, the U.S. 
military, National Guard, and Reserve forces. The importance of 
the income these plans provide to retirees accounts for the 
notable level of recent congressional interest.
    In 1997, Congress took steps to strengthen protections for 
participants in Sec. 401(k) salary deferral plans. Several 
measures relaxed Federal restrictions on government employer 
plans. An excise tax on large pension distributions was 
repealed. The Federal Thrift Savings Plan was authorized to 
establish three new investment options, and Federal employees 
under the closed Civil Service Retirement System (CSRS) were 
granted an ``open season'' to switch to the Federal Employees 
Retirement System (FERS).

                          A. PRIVATE PENSIONS

                             1. Background

    Employer-sponsored pension plans provide many retirees with 
a needed supplement to their Social Security income. Most of 
these plans are sponsored by a single employer and provide 
employees credit only for service performed for the sponsoring 
employer. Other private plan participants are covered by 
``multi-employer'' plans which provide members of a union with 
continued benefit accrual while working for any number of 
employers within the same industry and/or region. About two out 
of every three private-sector workers who have attained age 21, 
work at least 1,000 hours per year, and have worked for at 
least 1 year are covered by a pension plan. Assets totaled $2.7 
trillion at the end of 1995. Employees of larger firms are far 
more likely to be covered by an employer-sponsored pension plan 
than are employees of small firms.
    Nearly half of private plan participants are covered under 
a defined-benefit pension plan. Defined-benefit plans generally 
base the benefit paid in retirement either on the employee's 
length of service or on a combination of his or her pay and 
length of service. Large private defined-benefit plans are 
typically funded entirely by the employer.
    Defined-contribution plans, on the other hand, specify a 
rate at which annual or periodic contributions are made to an 
account. Benefits are not specified but are a function of the 
account balance, including interest, at the time of retirement.
    Many large employers supplement their defined-benefit plan 
with one or more defined-contribution plans. When supplemental 
plans are offered, the defined-benefit plan is usually funded 
entirely by the employer, and the supplemental defined-
contribution plans are jointly funded by employer and employee 
contributions. Defined-benefit plans occasionally accept 
voluntary employee contributions or require employee 
contributions. However, fewer than 3 percent of defined-benefit 
plans require contributions from employees.
    Private pensions are provided voluntarily by employers. 
Nonetheless, the Congress has always required that pension 
trusts receiving favorable tax treatment benefit all 
participants without discriminating in favor of the highly 
paid. Pension trusts receive favorable tax treatment in three 
ways: (1) Employers can deduct their current contributions even 
though they do not provide immediate compensation for 
employees; (2) income earned by the trust fund is tax-exempt; 
and (3) employer contributions and trust earnings are not 
taxable to the employee until received as a benefit. The major 
tax advantages, however, are the tax-free accumulation of trust 
interest (inside buildup) and the likelihood that benefits may 
be taxed at a lower rate in retirement.
    For decades, the Congress has used special tax treatment to 
encourage private pension coverage. In the Employee Retirement 
Income Security Act (ERISA) of 1974, Congress first established 
minimum standards for pension plans to ensure a broad 
distribution of benefits and to limit pension benefits for the 
highly paid. ERISA also established standards for funding and 
administering pension trusts and added an employer-financed 
program of Federal guarantees for pension benefits promised by 
private employers.
    Title XI of the Tax Reform Act of 1986 made major changes 
in pension and deferred compensation plans in four general 
areas.
    The Act:
          (1) limited an employer's ability to ``integrate'' or 
        reduce pension benefits to account for Social Security 
        contributions;
          (2) reformed coverage, vesting, and nondiscrimination 
        rules;
          (3) changed the rules governing distribution of 
        benefits; and
          (4) modified limits on the maximum amount of benefits 
        and contributions in tax-favored plans.
    In 1987, Congress strengthened pension plan funding rules. 
These rules were tightened further by the Retirement Protection 
Act of 1994, and insurance premiums were increased for under-
funded plans.
    The increased oversight of pension administration and 
funding was revisited in 1996 with the passage of the Small 
Business Job Protection Act. Legislative and regulatory actions 
over the last 20 years had improved pensions, but the resulting 
complexity of the rules were blamed for the stagnation in the 
number of plans being offered. For example, these rules 
resulted in higher administrative costs to the plans which 
reduced the assets available to fund benefits. In addition, a 
plan administrator who failed to accurately apply the rules 
could be penalized by the failure to comply with legal 
requirements.
    The Small Business Job Protection Act of 1996 was intended 
to begin rectifying some of the perceived over-regulation of 
pension plans. While commentators seem to agree that the Act 
will not result in an increase in defined benefit plans, it may 
increase the number of defined contribution plans offered, 
particularly by small businesses.

                  2. Issues and Legislative Responses

                              (a) Coverage

    Employers who offer pension plans do not have to cover 
every employee. The law governing pensions--ERISA--permits 
employers to exclude part-time, newly hired, and very young 
workers from the pension plan.
    The ability to exclude certain workers from participation 
in the pension plan led to the enactment of safeguards to 
prevent an employer from tailoring a plan to only the highly 
compensated employees. In 1986, the Tax Reform Act increased 
the proportion of an employer's work force that must be covered 
under a company pension plan. Employers who were unwilling to 
meet the straightforward percentage test found substantial 
latitude under the classification test to exclude a large 
percentage of lower paid workers from participating in the 
pension plan. Under the percentage test, the plan(s) had to 
benefit 70 percent of the workers meeting minimum age and 
service requirements (56 percent of the workers if the plan 
made participation contingent upon employee contributions). A 
plan could avoid this test if it could show that it benefited a 
classification of employees that did not discriminate in favor 
of highly compensated employees. The classifications actually 
approved by the Internal Revenue Service, however, permitted 
employers to structure plans benefiting almost exclusively 
highly compensated employees.
    While Congress and the IRS have sought to restrict the 
abuse that can stem from allowing certain employees to defer 
taxation on ``benefits'' in a pension plan, these tests have 
become confusing and difficult to administer. Many pension fund 
managers have claimed that this confusion has led to the 
tapering off in the growth of pension plan coverage--
particularly in smaller companies. The Small Business Job 
Protection Act of 1996 was enacted to combat some of these 
problems.
    Beginning in 1999, salary deferral plans will be exempt 
from these coverage rules if the plan adopts a ``safe-harbor'' 
design authorized under the new law. In addition, the coverage 
rules will apply only to DB plans. Another important change is 
the repeal of the family aggregation rules. Under current law, 
related employees are required to be treated as a single 
employee. Congress also addressed another complaint of pension 
plan administrators in the Act by changing the definition of 
``highly compensated employee'' (HCE).
    Simply because a worker may be covered by a pension plan 
does not insure that he or she will receive retirement 
benefits. To receive retirement benefits, a worker must vest 
under the company plan. Vesting entails remaining with a firm 
for a requisite number of years and thereby earning the right 
to receive a pension.
    To enable more employees to vest either partially or fully 
in a pension plan, the 1986 Tax Reform Act required more rapid 
vesting. The new provision, which applied to all employees 
working as of January 1, 1989, requires that, if no part of the 
benefit is vested prior to 5 years of service, then benefits 
fully vest at the end of 5 years. If a plan provides for 
partial vesting before 5 years of service, then full vesting is 
required at the end of 7 years of service.

                               (1) Access

    Most noncovered workers work for employers who do not 
sponsor a pension plan. Nearly three-quarters of the noncovered 
employees work for small employers. Small firms often do not 
provide pensions because pension plans can be administratively 
complex and costly. Often these firms have low profit margins 
and uncertain futures, and the tax benefits of a pension plan 
for the company are not as great for small firms.
    Projected trends in future pension coverage have been hotly 
debated. The expansion of pension coverage has slowed over the 
last decade. The most rapid growth in coverage occurred in the 
1940's and 1950's when the largest employers adopted pension 
plans. One of the goals of the Small Business Job Protection 
Act was to increase the number of employers who offer defined 
contribution plans to their employees. This reflects the 
preference for defined contribution plans by small employers 
because of their low cost and flexibility. This preference is 
demonstrated by the growth in the number of DC plans. The 1993 
Current Population Survey (CPS) shows that the percentage of 
private-sector workers reporting that they were offered a 
401(k) plan increased from 7 percent in 1983 to 35 percent in 
1993.
    The Act will increase access to DC plans by restoring to 
nonprofit organizations the right to sponsor 401(k) plans. (The 
Tax Reform Act of 1986 had ended the ability of nonprofits to 
offer these plans.) State and local government entities will 
still be prohibited from offering 401(k) plans, however.
    The new law also authorized a ``savings incentive match 
plan for employees'' or SIMPLE. This authority replaced the 
salary reduction simplified employee pension (SARSEP) plans. 
The SIMPLE plan can be adopted by firms with 100 or fewer 
employees that have no other pension plan in place. An employer 
offering SIMPLE can choose to use a SIMPLE retirement account 
or a 401(k) plan. These plans will not be subject to 
nondiscrimination rules for tax-qualified plans. In a SIMPLE 
plan, an employee can contribute up to $6,000 a year, indexed 
yearly for inflation in $500 increments. (The 1999 limit 
remains at $6,000 because of low inflation since authorization 
of SIMPLE.) The employer must meet a matching requirement and 
vest all contributions at once.

                 (2) Benefit Distribution and Deferrals

    Vested workers who leave an employer before retirement age 
generally have the right to receive vested deferred benefits 
from the plan when they reach retirement age. Benefits that can 
only be paid this way are not ``portable'' because the 
departing worker may not transfer the benefits to his or her 
next plan or to a savings account.
    Many pension plans, however, allow a departing worker to 
take a lump-sum cash distribution of his or her accrued 
benefits. Federal policy regarding lump-sum distributions has 
been inconsistent. On the one hand, Congress formerly 
encouraged the consumption of lump-sum distributions by 
permitting employers to make distributions without the consent 
of the employee on amounts of $5,000 or less, and by providing 
favorable tax treatment through the use of the unique ``10-year 
forward averaging'' rule. On the other hand, Congress has tried 
to encourage departing workers to save their distributions by 
deferring taxes if the amount is rolled into an individual 
retirement account (IRA) within 60 days. IRA rollovers, 
however, have attracted only a minority of lump-sum 
distributions.
    Some workers that receive lump-sum distributions spend them 
rather than save them. Thus, distributions appear to reduce 
retirement income rather than increase it. Survey data for 1996 
indicate that only 46 percent of recipients put at least part 
of their lump-sum distributions into retirement accounts.
    The Small Business Job Protection Act eliminated the 5-year 
averaging of lump-sum pension distributions. The 10-year 
averaging for the ``grandfathered'' class was maintained, 
however.

                             (b) Tax Equity

    Private pensions are encouraged through tax benefits, 
projected by the Treasury to be $77.4 billion for fiscal year 
2000. In return, Congress regulates private plans to prevent 
over-accumulation of benefits by the highly paid. Congressional 
efforts to prevent the discriminatory provision of benefits 
have focused on voluntary savings plans and on the 
effectiveness of current coverage and discrimination rules.

            (1) Limitations on Tax-Favored Voluntary Savings

    The Tax Reform Act of 1986 tightened the limits on 
voluntary tax-favored savings plans by repealing the 
deductibility of contributions to an IRA for participants in 
pension plans with adjusted gross incomes (AGIs) in excess of 
$35,000 (individuals) or $50,000 (joint), with a phased-out 
reduction in the amount deductible for those with AGIs above 
$25,000 or $40,000, respectively. These limits were relaxed 
somewhat by the Taxpayer Relief Act of 1997 (P.L. 105-34). The 
$35,000 limit will rise gradually, reaching $60,000 in 2005. 
The $50,000 limit will reach $100,000 in 2007. Furthermore, the 
Roth IRA, which was authorized by The Taxpayer Relief Act of 
1997, allows individuals to save after-tax income and make tax-
free withdrawals if certain conditions are met. Roth IRAs are 
allowed for taxpayers with AGI no greater than $110,000 
($160,000 for joint filers).
    The Small Business Job Protection Act included a major 
expansion of IRAs. The Act allows a non-working spouse of an 
employed person to contribute up to the $2,000 annual limit on 
IRA contributions. Prior law applied a combined limit of $2,250 
to the annual contribution of a worker and non-working spouse.
    The Tax Reform Act of 1986 reduced the dollar limit on the 
amount employees can elect to contribute through salary 
reduction to an employer plan from $30,000 to $7,000 per year 
for private-sector 401(k) plans and to $9,500 per year for 
public sector and nonprofit 403(b) plans. In 1999, the limit on 
contributions to 401(k) and 403(b) plans is $10,000. These 
limits are subject to annual inflation adjustments rounded down 
to the next lowest multiple of $500.

                          (c) Pension Funding

    The contributions that plan sponsors set aside in pension 
trusts are invested to build sufficient assets to pay benefits 
to workers throughout their retirement. The Federal Government, 
through the Employee Retirement Income Security Act of 1974 
(ERISA), regulates the level of funding and the management and 
investment of pension trusts. Under ERISA, plans that promise a 
specified level of benefits (defined-benefit plans) must either 
have assets adequate to meet benefit obligations earned to date 
under the plan or must make additional annual contributions to 
reach full funding in the future. Under ERISA, all pension 
plans are required to diversify their assets, are prohibited 
from buying, selling, exchanging, or leasing property with a 
``party-in-interest,'' and are prohibited from using the assets 
or income of the trust for any purpose other than the payment 
of benefits or reasonable administrative costs.
    Prior to ERISA, participants in underfunded pension plans 
lost some or all of their benefits when employers went out of 
business. To correct this problem, ERISA established a program 
of termination insurance to guarantee the vested benefits of 
participants in single-employer defined-benefit plans. This 
program guaranteed benefits up to $34,568 a year in 1998 
(adjusted annually). The single-employer program is funded 
through annual premiums paid by employers to the Pension 
Benefit Guaranty Corporation (PBGC)--a Federal Government 
agency established in 1974 by title IV of ERISA to protect the 
retirement income of participants and beneficiaries covered by 
private sector, defined-benefit pension plans. When an employer 
terminates an underfunded plan, the employer is liable to the 
PBGC for up to 30 percent of the employer's net worth. A 
similar termination insurance program was enacted in 1980 for 
multi-employer defined-benefit plans, using a lower annual 
premium, but guaranteeing only a portion of the participant's 
benefits.
    Over time, concern grew that the single-employer 
termination insurance program was inadequately funded. A major 
cause of the PBGC's problem was the ease with which 
economically viable companies could terminate underfunded plans 
and unload their pension liabilities on the termination 
insurance program. Employers unable to make required 
contributions to the pension plan requested funding waivers 
from the IRS, permitting them to withhold their contributions, 
and thus increase their unfunded liabilities. As the 
underfunding grew, the company terminated the plan and 
transferred the liability to the PBGC. The PBGC was helpless to 
prevent the termination and was also limited in the amount of 
assets that it could collect from the company to help pay for 
underfunding to 30 percent of the company's net worth. PBGC was 
unable to collect much from the financially troubled companies 
because they were likely to have little or no net worth.
    During 1986, several important changes were enacted to 
improve PBGC's financial position. First, the premium paid to 
the PBGC by employers was increased per participant. In 
addition, the circumstances under which employers could 
terminate underfunded pension plans and dump them on the PBGC 
were tightened considerably. A distinction is now made between 
``standard'' and ``distress'' terminations. In a standard 
termination, the employer has adequate assets to meet plan 
obligations and must pay all benefit commitments under the 
plan, including benefits in excess of the amounts guaranteed by 
the PBGC that were vested prior to termination of the plan. A 
``distress'' termination allows a sponsor that is in serious 
financial trouble to terminate a plan that may be less than 
fully funded.
    While significant accomplishments were made in 1986, these 
changes did not solve the PBGC's financing problems. As a 
remedy, a provision in the Omnibus Budget Reconciliation Act of 
1987 (OBRA 87) (P.L. 100-203) called for a PBGC premium 
increase in 1989 and an additional ``variable-rate premium'' 
based on the amount that the plan is underfunded.
    In OBRA 90, Congress increased the flat premium rate to $19 
a participant. Additionally, it increased the variable rate to 
$9 per $1,000 of unfunded vested benefits. Also, the Act 
increased the per participant cap on the additional premium to 
$53.
    The financial viability of the PBGC continued to be an 
issue in 1991. This concern was demonstrated in the Senate's 
refusal to pass the Pension Restoration Act of 1991, a bill 
that would have extended PBGC's pension guarantee protection to 
individuals who had lost their pension benefits before the 
enactment of ERISA in 1974.
    The Retirement Protection Act of 1994 (RPA) was implemented 
in response to PBGC's growing accumulated deficit of $2.9 
billion and because pension underfunding continued to grow 
despite previous legislative changes. While private sector 
pension plans are generally well funded, the gap between assets 
and benefit liabilities in underfunded plans had grown steadily 
until 1994, when PBGC estimated a shortfall of about $71 
billion in assets, concentrated in the steel, airline, tire, 
and automobile industries. While three-quarters of the 
underfunding was in plans sponsored by financially healthy 
firms and did not necessarily pose a risk to PBGC or plan 
participants, the remaining plans were sponsored by financially 
troubled companies covering an estimated 1.2 million 
participants. In 1995, PBGC estimated a reduction in the asset 
shortfall to $64 billion, and the agency believes that further 
reductions have occurred since 1995.
    The RPA was expected to improve funding of underfunded 
single-employer pension plans, with the fastest funding by 
those plans that were less than 60 percent funded for vested 
benefits to more than 85 percent. The agency also expected its 
accumulated deficit to be erased within 10 years.

                   (d) Issues for the 106th Congress

    It is clear that private pension plan coverage rates did 
not increase significantly in the period 1990-1996. The high 
concentration of small firms in the expanding service industry 
and the low coverage rates among service industry workers 
account largely for this stagnation in the private pension 
coverage rate. Congressional action in 1996 to authorize SIMPLE 
plans for small firms may have some impact on coverage, and the 
106th Congress is likely to consider further measures to extend 
coverage in the small-business sector.
    Another trend in pension coverage of concern to some is the 
shift away from traditional defined benefit plans toward 
discretionary employee retirement savings arrangements, which 
may lessen retirement income security for some workers. Some 
analysts think that the decline in defined benefit plans 
reflects the highly regulated nature of the voluntary pension 
system. Others feel that it reflects changes in the economy and 
worker preferences.
    Pressure during the 1980's and 1990's to reduce Federal 
budget deficits led to a number of belt-tightening measures 
aimed at tax advantages for employer pensions, which account 
for the largest single Federal tax expenditure. Now that budget 
surpluses are projected, and there is a strong continuing 
interest in improving private retirement saving, the 106th 
Congress may revisit these issues and consider relaxing certain 
plan limits.
    The issue of pension portability also promises to receive 
some attention. Pension benefit portability involves the 
ability to preserve the value of an employee's benefits upon a 
change in employment. Proponents argue that the mobility of 
today's work force demands greater benefit portability than 
current law permits.
    Sweeping demographic changes have led many experts to 
question whether our Nation can provide retirement income and 
medical benefits to the future elderly at levels comparable to 
those of today. There is concern that the baby boom is not 
saving adequately for retirement, yet it is unlikely that 
Social Security benefits will be increased. To the contrary, 
the age for unreduced benefits will rise to 67 early in the 
21st century, amounting to a benefit reduction, and further 
cuts are being contemplated. Thus, lawmakers, economists, 
consultants, and others concerned about retirement income 
security will likely continue to seek reforms in the private 
pension system.
    Finally, the role that pension funds can play in improving 
the economy and public infrastructure is often debated because 
of the huge amount of money accumulated in pension funds and 
the budgetary constraints that limit the ability of Federal and 
State governments to address their economic problems. Proposals 
to attract public and private pension fund investment in 
financing the rebuilding of roads, bridges, highways and other 
public infrastructure have aroused concerns that the Nation's 
$4 trillion in pension funds may be placed at risk by those who 
advocate that pension managers engage in ``economically 
targeted investing'' (ETI). The Clinton Administration has 
backed away from active advocation of ETIs because of 
opposition in Congress, however.

            B. STATE AND LOCAL PUBLIC EMPLOYEE PENSION PLANS

                             1. Background

    Pension funds covering 13.3 million State and local 
government workers and retirees held assets that were worth 
$1.4 trillion at the end of 1995. Although some public plans 
are not adequately funded, most State plans and large municipal 
plans have substantial assets to back up their benefit 
obligations. At the same time, State and local governments face 
other fiscal demands and sometimes seek relief by reducing or 
deferring contributions to their pension plans in order to free 
up cash for other purposes. Those who are concerned that these 
actions may jeopardize future pension benefits suggest that the 
Federal Government should regulate State and local government 
pension fund operations to ensure adequate funding.
    State and local pension plans intentionally were left 
outside the scope of Federal regulation under ERISA in 1974, 
even though there was concern at the time about large unfunded 
liabilities and the need for greater protection for 
participants. Although unions representing State and municipal 
employees have supported the application of ERISA-like 
standards to these plans, opposition from local officials and 
interest groups thus far have successfully counteracted these 
efforts, arguing that the extension of such standards would be 
unwarranted and unconstitutional interference with the right of 
State and local governments to set the terms and conditions of 
employment for their workers. In the Taxpayer Relief Act of 
1997 (P.L. 105-34), Congress permanently exempted public plans 
from Federal tax code rules regarding nondiscrimination among 
participants and minimum participation standards.

                       (a) Tax Reform Act of 1986

    Public employee retirement plans were affected directly by 
several provisions of the Tax Reform Act of 1986. The Act made 
two changes that apply specifically to public plans: (1) The 
maximum employee elective contributions to voluntary savings 
plans (401(k), 403(b), and 457 plans) were substantially 
reduced, and (2) an especially favorable tax treatment of 
distributions from contributory pension plans was eliminated.

                         (b) Elective Deferrals

    The Tax Reform Act set lower limits for employee elective 
deferrals to savings vehicles, coordinated the limits for 
contributions to multiple plans, and prevented State and local 
governments from establishing new 401(k) plans. The maximum 
contribution permitted to an existing 401(k) plan was reduced 
from $30,000 to $7,000 a year and the nondiscrimination rule 
that limits the average contribution of highly compensated 
employees to a ratio of the average contribution of employees 
who do not earn as much was tightened. With inflation 
adjustments, this has since increased to $10,000 (in 1999). The 
maximum contribution to a 403(b) plan (tax-sheltered annuity 
for public school employees) was reduced to $9,500 a year (now 
also $10,000), and employer contributions for the first time 
were made subject to nondiscrimination rules. In addition, pre-
retirement withdrawals were restricted unless due to hardship. 
The maximum contribution to a 457 plan (unfunded deferred 
compensation plan for a State or local government) remained at 
$7,500, but is coordinated with contributions to a 401(k) or 
403(b) plan. (It has since been indexed for inflation and is 
$8,000 in 1999.) In addition, 457 plans are required to 
commence distributions under uniform rules that apply to all 
pension plans. The lower limits were effective for deferrals 
made on or after January 1, 1987, while the other changes 
generally were effective January 1, 1989.

                     (c) Taxation of Distributions

    The tax treatment of distributions from public employee 
pension plans also was modified by the Tax Reform Act of 1986 
to develop consistent treatment for employees in contributory 
and noncontributory pension plans. Before 1986, public 
employees who had made after-tax contributions to their pension 
plans could receive their own contributions first (tax-free) 
after the annuity starting date if the entire contribution 
could be recovered within 3 years, and then pay taxes on the 
full amount of the annuity. Alternately, employees could 
receive annuities in which the portions of nontaxable 
contributions and taxable pensions were fixed over time. The 
Tax Reform Act repealed the 3-year basis recovery rule that 
permitted tax-free portions of the retirement annuity to be 
paid first. Under the new law, retirees from public plans must 
receive annuities that are a combination of taxable and 
nontaxable amounts.
    The tax treatment of pre-retirement distributions was 
changed for all retirement plans in an effort to discourage the 
use of retirement money for purposes other than retirement. A 
10 percent penalty tax applies to any distribution before age 
59.5 other than distributions in the form of a life annuity at 
early retirement at or after age 55, in the event of the death 
of the employee, or in the event of medical hardship. In 
addition, refunds of after-tax employee contributions and 
payments from 457 plans are not subject to the 10 percent 
penalty tax. The Tax Reform Act of 1986 also repealed the use 
of the advantageous 10-year forward-averaging tax treatment for 
lump-sum distributions received prior to age 59.5, and provided 
for a one-time use of 5-year forward-averaging after age 59.5. 
However, 5-year averaging was later repealed, effective in 
2000.

                   2. Issues and Legislative Response

    Issues surrounding Federal regulation of public pension 
plans have changed little in the past 25 years. A 1978 report 
to Congress by the Pension Task Force on Public Employee 
Retirement Systems concluded that State and local plans often 
were deficient in funding, disclosure, and benefit adequacy. 
The Task Force reported many deficiencies that still exist 
today.
    Government retirement plans, particularly smaller plans, 
frequently were operated without regard to generally accepted 
financial and accounting procedures applicable to private plans 
and other financial enterprises. There was a general lack of 
consistent standards of conduct.
    Open opportunities existed for conflict-of-interest 
transactions, and poor plan investment performance was often a 
problem. Many plans were not funded on the basis of sound 
actuarial principles and assumptions, resulting in funding 
levels that could place future beneficiaries at risk of losing 
benefits altogether. There was a lack of standardized and 
effective disclosure, creating a significant potential for 
abuse due to the lack of independent and external reviews of 
plan operations.
    Although most plans effectively met ERISA minimum 
participation and benefit accrual standards, two of every three 
plans, covering 20 percent of plan participants, did not meet 
ERISA's minimum vesting standard. There has been considerable 
variation and uncertainty in the interpretation and application 
of provisions pertaining to State and local retirement plans, 
including the nondiscrimination and tax qualification 
requirements of the Internal Revenue Code. While most 
administrators seem to follow the broad outlines of ERISA 
benefit standards, they are not required to do so. Congress 
acted in 1996 to exempt public employee plans from the 
nondiscrimination and minimum participation rules of the 
Federal tax code.
    The issue of Federal standards has been tested partially in 
the courts. In National League of Cities v. Usery, the U.S. 
Supreme Court held that extension of Federal wage and maximum 
hour standards to State and local employees was an 
unconstitutional interference with State sovereignty reserved 
under the 10th Amendment. State and local governments have 
argued that any extension of ERISA standards would be subject 
to court challenge on similar grounds. However, the Supreme 
Court's decision in 1985 in Garcia v. San Antonio Metropolitan 
Transit Authority overruling National League of Cities largely 
resolved this issue in favor of Federal regulation.
    Perhaps in part because of the lingering question of 
constitutionality, the focus of Congress has been fixed on 
regulation of public pensions with respect to financial 
disclosure only. Some experts have testified that much of what 
is wrong with State and local pension plans could be improved 
by greater disclosure.
    A definitive statement on financial disclosure standards 
for public plans was issued in 1986 by the Government 
Accounting Standards Board (GASB). Statement No. 5 on 
``Disclosure of Pension Information by Public Employee 
Retirement Systems and State and Local Governmental Employers'' 
established standards for disclosure of pension information by 
public employers and public employee retirement systems (PERS) 
in notes in financial statements and in required supplementary 
information. The disclosures are intended to provide 
information needed to assess the funding status of PERS, the 
progress made in accumulating sufficient assets to pay 
benefits, and the extent to which the employer is making 
actuarially determined contributions. In addition, the 
statement requires the computation and disclosure of a 
standardized measure of the pension benefit obligation. The 
statement further suggests that 10-year trends on assets, 
unfunded obligations, and revenues be presented as 
supplementary information.
    Some observers have suggested that the sheer size of the 
public fund asset pool will lead to its inevitable regulation. 
There is also concern about cash-strapped governments 
``raiding'' pension plan assets and tinkering with the 
assumptions used in determining plan contributions. Critics of 
this position generally believe that the diversity of plan 
design and regulation is necessary to meet divergent priorities 
of different localities and is the strength, not weakness, of 
what is collectively referred to as the State and local pension 
system. While State and local governments consistently opposed 
Federal action, increased pressures to improve investment 
performance, coupled with the call for investing in public 
infrastructure and economically targeted investments (ETIs), 
may lessen some of the opposition of State and local plan 
administrators to some degree of Federal regulation.

                C. FEDERAL CIVILIAN EMPLOYEE RETIREMENT

                             1. Background

    From 1920 until 1984 the Civil Service Retirement System 
(CSRS) was the retirement plan covering most civilian Federal 
employees. In 1935 Congress enacted the Social Security system 
for private sector workers. Congress extended the opportunity 
for state and local governments to opt into Social Security 
coverage in the early to mid-1950's, and in 1983, when the 
Social Security system was faced with insolvency, the National 
Commission on Social Security Reform recommended, among other 
things, that the Federal civil service be brought into the 
Social Security system in order to raise revenues by imposing 
the Social Security payroll tax on Federal wages. Following the 
National Commission's recommendation, Congress enacted the 
Social Security amendments of 1983 (P.L. 98-21) which mandated 
that all workers hired into permanent Federal positions on or 
after January 1, 1984, be covered by Social Security.
    Because Social Security duplicated some existing CSRS 
benefits, and because the combined employee contribution rates 
for Social Security and CSRS were scheduled to reach more than 
13 percent of pay, it was necessary to design an entirely new 
retirement system using Social Security as the base. (See 
Chapter 1 for a description of Social Security eligibility and 
benefit rules.) The new system was crafted over a period of 2 
years, during which time Congress studied the design elements 
of good pension plans maintained by medium and large private 
sector employers. An important objective was to model the new 
Federal system after prevailing practice in the private sector. 
In Public Law 99-335, enacted June 6, 1986, Congress created 
the Federal Employees' Retirement System (FERS). FERS now 
covers all Federal employees hired on or after January 1, 1984, 
and those who voluntarily switched from CSRS to FERS during 
``open seasons'' in 1987 and 1998. The CSRS will cease to exist 
when the last employee or survivor in the system dies.
    CSRS and the pension component of FERS are ``defined 
benefit'' pension plans; that is, retirement benefits are 
determined by a formula established in law that bases benefits 
on years of service and salary. Although employees are required 
to pay into the system, the amounts workers pay are not 
directly related to the size of their retirement benefits.
    Civil service retirement is classified in the Federal 
budget as an entitlement, and, in terms of budget outlays, 
represents the fourth largest Federal entitlement program.

                      (a) Financing CSRS and FERS

    The Federal retirement systems are employer-provided 
pension plans similar to plans provided by private employers 
for their employees. Like other employer-provided defined 
benefit plans, the Federal civil service plans are financed 
mostly by the employer. The employer of Federal Government 
workers is the American taxpayer. Thus, tax revenues finance 
most of the cost of Federal pensions.
    The Government maintains an accounting system for keeping 
track of ongoing retirement benefit obligations, revenues 
earmarked for the retirement system, benefit payments, and 
other expenditures. This system operates through the Civil 
Service Retirement and Disability Fund, which is a Federal 
trust fund. However, this trust fund system is different from 
private trust funds in that no cash is deposited in the fund 
for investment outside the Federal Government. The trust fund 
consists of special nonmarketable interest-bearing securities 
of the U.S. Government. These special securities are sometimes 
characterized as ``IOUs'' the Government writes to itself. The 
cash to pay benefits to current retirees and other costs come 
from general revenues and mandatory contributions paid by 
employees enrolled in the retirement systems. Executive branch 
employee contributions are 7 percent of pay for CSRS enrollees 
and 0.8 percent of pay for FERS enrollees.\1\ These 
contributions covered 10 percent of the annual cost of benefits 
to current annuitants in fiscal year 1998.
---------------------------------------------------------------------------
    \1\ These contribution rates were increased temporarily by a 1997 
budget deficit reduction bill. The CSRS rates are 7.25 percent in 1999, 
7.4 percent in 2000, and 7.5 percent in 2001. The FERS rates are 1.05 
percent in 1999, 1.2 percent in 2000, and 1.3 percent in 2001. The 
permanent rates will again apply beginning on Oct. 1. 2001.
---------------------------------------------------------------------------
    The trust fund provides automatic budget authority for the 
payment of benefits to retirees and survivors without the 
Congress having to enact annual appropriations. So long as the 
``balance'' of the securities in the fund exceeds the annual 
cost of benefit payments, the Treasury has the authority to 
write annuity checks without congressional action. At the end 
of fiscal year 1998, the value of trust fund holdings was $451 
billion. Because interest and other payments are credited to 
the fund annually, the fund continues to grow, and the system 
faces no shortfall of authority to pay benefits well into the 
future.
    Nevertheless, the balance in the fund does not cover every 
dollar of future pension benefits to which everyone who is, or 
ever was, a vested Federal worker will have a right from now 
until they die. That full amount was estimated to be about $768 
billion at the end of fiscal year 1997. This amount exceeded 
the balance in the fund at that time by about $341 billion, 
which represents the unfunded liability of the retirement 
systems.
    Critics of the Federal pension plans sometimes cite the 
unfunded liability of the plans as a threat to future benefits 
or the viability of the systems; they note that Federal law 
requires private employers to pre-fund their pension 
liabilities. However, there is an important difference between 
private plans and Federal plans. Private employers may become 
insolvent or go out of business; therefore, they must have on 
hand the resources to pay, at one time, the present value of 
all future benefits to retirees and vested employees. In 
contrast, the Federal Government is not likely to go out of 
business. The estimated Federal pension plan liabilities 
represent a long-term, rolling commitment that never comes due 
at any one time. The Government's obligation to pay Federal 
pensions is spread over the retired lifetimes of past and 
current Federal workers, including very elderly retirees who 
retired many years ago and younger workers who only recently 
began their Federal service and who will not be eligible for 
benefits for another 30 years or so.
    The trust fund has no effect on the annual Federal budget 
surplus or deficit. The only costs of the Federal retirement 
system that show up as outlays in the budget, and which 
therefore contribute to a deficit or reduce a surplus, are 
payments to retirees, survivors, separating employees who 
withdraw their contributions, plus certain administrative 
expenses. Any future increase in the cost of the retirement 
program will result from: (a) a net increase in the number of 
retirees (new and existing retirees and survivors minus 
decedents); (b) increases in Federal pay, which affect the 
final pay on which pensions for new retirees are determined; 
and (c) cost-of-living adjustments to retirement benefits. 
Also, as the number of workers covered under CSRS declines, a 
growing portion of the Federal workforce will be covered under 
FERS, and, because FERS employee contributions are 
substantially lower than those from CSRS enrollees, employee 
contributions will, over time, offset less of the annual costs.
    Nevertheless, the special securities held in the fund 
represent money the Government owes for current and future 
benefits. The securities represent an indebtedness of the U.S. 
Government and constitute part of the national debt. However, 
this is a debt the Government owes itself. Thus, it will never 
have to be paid off by the Treasury, as must other U.S. 
Government securities such as bonds or Treasury bills, which 
must be paid, with interest, to the private individuals who 
purchased them.
    In summary, the trust fund is an accounting ledger used to 
keep track of revenues earmarked for the retirement programs, 
benefits paid under those programs, and money that is owed by 
the Government for estimated future benefit costs. The concept 
of unfunded liability, while indicative of future costs that 
must be financed by government over a long time period, is not 
particularly relevant as a measure of a sum that might have to 
be paid at a point in time.

                  (b) Civil Service Retirement System

    CSRS Retirement Eligibility and Benefit Criteria.--Workers 
enrolled in CSRS may retire and receive an immediate, unreduced 
annuity at the following minimum ages: age 55 with 30 years of 
service; age 60 with 20 years of service; age 62 with 5 years 
of service. Workers who separate from service before reaching 
these age and service thresholds may leave their contributions 
in the system and draw a ``deferred annuity'' at age 62.
    CSRS benefits are determined according to a formula that 
pays retirees a certain percentage of their preretirement 
Federal salary. The preretirement salary benchmark is a 
worker's annual pay averaged over the highest-paid 3 
consecutive years, the ``high-3''. Under the CSRS formula, a 
worker retiring with 30 years of service receives an initial 
annuity of 56.25 percent of high-3; at 20 years the annuity is 
36.25 percent; at 10 years it is 16.25 percent. The maximum 
initial benefit of 80 percent of high-3 is reached after 42 
years of service.
    Employee Contributions.--All executive branch CSRS 
enrollees pay into the system 7 percent of their gross Federal 
pay. (As mentioned above, contribution rates are temporarily 
higher.) This amount is automatically withheld from workers' 
paychecks but is included in an employee's taxable income. 
Employees who separate before retirement may withdraw their 
contributions (no interest is paid if the worker completed more 
than 1 year of service), but by doing so the individual 
relinquishes all rights to retirement benefits. If the 
individual returns to Federal service, the withdrawn sums may 
be redeposited with interest, and retirement credit is restored 
for service preceding the separation. Alternatively, workers 
may accept a reduced annuity in lieu of repayment of withdrawn 
amounts.
    Survivor Benefits.--Surviving spouses (and certain former 
spouses) of Federal employees who die while still working in a 
Federal job may receive an annuity of 55 percent of the annuity 
the worker would have received had he or she retired rather 
than died, with a minimum survivor benefit of 22 percent of the 
worker's high-3 pay. This monthly annuity is paid for life 
unless the survivor remarries before age 55.
    Spouse survivors of deceased retirees receive a benefit of 
55 percent of the retiree's annuity at the time of death, 
unless the couple waives this coverage at the time of 
retirement or elects a lesser amount; it is paid as a monthly 
annuity unless the survivor remarries before age 55. (Certain 
former spouses may be eligible for survivor benefits if the 
couple's divorce decree so specifies.) To partially pay for the 
cost of a survivor annuity, a retiree's annuity is reduced by 
2.5 percent of the first $3,600 of his or her annual annuity 
plus 10 percent of the annuity in excess of that amount.
    Unmarried children under the age of 18 (age 22 if a full-
time student) of a deceased worker or retiree receive an 
annuity of no more than $4,128 per year in 1998 ($4,944 if 
there is no surviving parent). Certain unmarried, incapacitated 
children may receive a survivor annuity for life.
    CSRS Disability Retirement.--The only long-term disability 
program for Federal workers is disability retirement. 
Eligibility for CSRS disability retirement requires that the 
individual be (a) a Federal employee for at least 5 years, and 
(b) unable, because of disease or injury, to render useful and 
efficient service in the employee's position and not qualified 
for reassignment to a vacant position in the agency at the same 
grade or pay level and in the same commuting area. Thus, the 
worker need not be totally disabled for any employment. This 
determination is made by the Office of Personnel Management 
(OPM).
    Unless OPM determines that the disability is permanent, a 
disability annuitant must undergo periodic medical reevaluation 
until reaching age 60. A disability retiree is considered 
restored to earning capacity and benefits cease if, in any 
calender year, the income of the annuitant from wages or self-
employment, or both, equal at least 80 percent of the current 
rate of pay of the position occupied immediately before 
retirement.
    A disabled worker is eligible for the greater of: (1) the 
accrued annuity under the regular retirement formula, or (2) a 
``minimum benefit.'' The minimum benefit is the lesser of: (a) 
40 percent of the high-3, or (b) the annuity that would be paid 
if the worker continued working until age 60 at the same high-3 
pay, thereby including in the annuity computation formula the 
number of years between the onset of disability and the date on 
which the individual will reach age 60.
    Cost-of-Living Adjustments.--Permanent law provides annual 
retiree cost-of-living adjustments (COLAs) payable in the month 
of January. COLAs are based on the Consumer Price Index for 
Urban Wage Earners and Clerical Workers (CPI-W). The adjustment 
is made by computing the average monthly CPI-W for the third 
quarter of the current calender year (July, August, and 
September) and comparing it with that of the previous year. The 
Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66) 
temporarily delayed the payment date for COLAs for all 
annuitants (including disability and survivor annuitants) to 
April 1 in 1994, 1995, and 1996. In 1997 the payment date 
returned to January 1.

                (c) federal employees' retirement system

    FERS has three components: Social Security, a defined-
benefit plan, and a Thrift Savings Plan. Congress designed FERS 
to replicate retirement systems typically available to 
employees of medium and large private firms.

          (1) FERS Retirement Eligibility and Benefit Criteria

    Workers enrolled in FERS may retire with an immediate, 
unreduced annuity under the same rules that apply under CSRS: 
that is, age 55 with 30 years of service; age 60 with 20 years 
of service; age 62 with 5 years of service. In addition, FERS 
enrollees may retire and receive an immediate reduced annuity 
at age 55 with 10 through 29 years of service. The annuity is 
reduced by 5 percent for each year the worker is under age 62 
at the time of separation. The ``minimum retirement age'' of 55 
will gradually increase to 57 for workers born in 1970 and 
later. Like the CSRS, a deferred benefit is payable at age 62 
for workers who voluntarily separate before eligibility for an 
immediate benefit, provided they leave their contributions in 
the system. An employee separating from service under FERS may 
withdraw his or her FERS contributions, but such a withdrawal 
permanently cancels all retirement credit for the years 
preceding the separation with no option for repayment.
    FERS retirees under age 62 who are eligible for unreduced 
benefits are paid a pension supplement approximately equal to 
the amount of the Social Security benefit to which they will 
become entitled at age 62 as a result of Federal employment. 
This supplement is also paid to involuntarily retired workers 
between ages 55 and 62. The supplement is subject to the Social 
Security earnings test.
    Benefits from the pension component of FERS are based on 
high-3 pay, as are CSRS benefits. A FERS annuity is 1 percent 
of high-3 pay for each year of service if the worker retires 
before age 62 and 1.1 percent of high-3 for workers retiring at 
age 62 or over with at least 20 years of service. Thus, for 
example, the benefit for a worker retiring at age 62 with 30 
years of service would be 33 percent of the worker's high-3 
pay; for a worker retiring at age 60 with 20 years of service 
the benefit would be 20 percent of high-3 pay plus the 
supplement until age 62.

                       (2) Employee Contributions

    Unlike CSRS participants, employees participating in FERS 
are required to contribute to Social Security. The tax rate for 
Social Security is 6.2 percent of gross pay up to the taxable 
wage base of $72,600 (in 1999). The wage base is indexed to the 
annual growth of wages in the national economy. Under permanent 
law, executive branch employees enrolled in FERS contribute the 
difference between 7 percent of gross pay and the Social 
Security tax rate. Thus, in 1998, FERS participants contribute 
0.8 percent of wages up to $68,400 and 7 percent on wages over 
$68,400. (The FERS contribution rate will rise temporarily to 
1.05 percent in 1999, 1.2 percent in 2000, and 1.3 percent for 
the first 9 months of 2001.)

                         (3) Survivor Benefits

    If an employee participating in FERS dies while still 
working in a Federal job and after completing at least 18 
months of service but fewer than 10 years, spouse survivor 
benefits are payable in two lump sums: $21,783 (in 1998, 
indexed annually by inflation) plus one-half of the employee's 
annual pay at the time of death. This benefit can be paid in a 
single lump sum or in equal installments (with interest) over 
36 months, at the option of the survivor. However, if the 
employee had at least 10 years of service, an annuity is paid 
in addition to the lump sums. The spouse survivor annuity is 
equal to 50 percent of the employee's earned annuity.
    Spouse survivors of deceased FERS annuitants are not 
eligible for the lump-sum payments but are eligible for an 
annuity of 50 percent of the deceased retiree's annuity at the 
time of death unless, at the time of retirement, the couple 
jointly waives the survivor benefit or elects a lesser amount. 
FERS retiree annuities are reduced by 10 percent to pay 
partially for the cost of the survivor benefit.
    Dependent children (defined the same as under the CSRS) of 
deceased FERS employees or retirees may receive Social Security 
child survivor benefits, or, if greater, the children's 
benefits payable under the CSRS.

                     (4) FERS Disability Retirement

    FERS disability benefits are substantially different from 
CSRS disability benefits because FERS is integrated with Social 
Security. Eligibility for Social Security disability benefits 
requires that the worker be determined by the Social Security 
Administration to have an impairment that is so severe he or 
she is unable to perform any job in the national economy. Thus, 
a FERS enrollee who is disabled for purposes of carrying out 
his or her Federal job but who is capable of other employment 
would receive a FERS disability annuity alone. A disabled 
worker who meets Social Security's definition of disability 
might receive both a FERS annuity and Social Security 
disability benefits subject to the rules integrating the two 
benefits.
    For workers under age 62, the disability retirement benefit 
payable from FERS in the first year of disability is 60 percent 
of the worker's high-3 pay, minus 100 percent of Social 
Security benefits received, if any. In the second year and 
thereafter, FERS benefits are 40 percent of high-3 pay, minus 
60 percent of Social Security disability payments, if any. FERS 
benefits remain at that level (increased by COLAs) until age 
62.
    At age 62, the FERS disability benefit is recalculated to 
be the amount the individual would have received as a regular 
FERS retirement annuity had the individual not become disabled 
but continued to work until age 62. The annuity is 1 percent of 
high-3 pay (increased by COLAs) for each year of service before 
the onset of the disability, plus the years during which 
disability was received. The 1 percent rate applies only if 
there are fewer than 20 years of creditable service. If the 
total years of creditable service equal 20 or more, the annuity 
is 1.1 percent of high-3 for each year of service. At age 62 
and thereafter, there is no offset of Social Security benefits. 
If a worker becomes disabled at age 62 or later, only regular 
retirement benefits apply.

                  (5) FERS Cost-of-Living Adjustments

    COLAs for FERS annuities are calculated according to the 
CSRS formula, with this exception: the FERS COLA is reduced by 
1 percentage point if the CSRS COLA is 3 percent or more; it is 
limited to 2 percent if the CSRS COLA falls between 2 and 3 
percent. FERS COLAs are payable only to regular retirees age 62 
or over, to disabled retirees of any age (after the first year 
of disability), and to survivors of any age. Thus, unlike CSRS, 
FERS nondisability retirees are ineligible for a COLA so long 
as they are under age 62.

                     (6) Thrift Savings Plan (TSP)

    FERS supplements the defined benefits plan and Social 
Security with a defined contribution plan that is similar to 
the 401(k) plans used by private employers. Employees 
accumulate assets in the TSP in the form of a savings account 
that either can be withdrawn in a lump sum, received through 
several periodic payments, or converted to an annuity when the 
employee retires. One percent of pay is automatically 
contributed to the TSP by the employing agency. Employees can 
contribute up to 10 percent of their salaries to the TSP, not 
to exceed $10,000 in 1999. The employing agency matches the 
first 3 percent of pay contributed on a dollar-for-dollar basis 
and the next 2 percent of pay contributed at the rate of 50 
cents per dollar. The maximum matching contribution to the TSP 
by the Federal agency equals 4 percent of pay plus the 1 
percent automatic contribution. Therefore, employees 
contributing 5 percent or more of pay will receive the maximum 
employer match. An open season is held every 6 months to permit 
employees to change levels of contributions and direction of 
investments. Employees are allowed to borrow from their TSP 
accounts. Originally, loans were restricted to those for the 
purchase of a primary residence, educational or medical 
expenses, or financial hardship. However, P.L. 104-208 removed 
this restriction effective October 1, 1996.
    The TSP allows investment in one or more of three funds: a 
stock index fund, an index fund that tracks fixed-income 
securities such as corporate bonds, and a fund that pays 
interest based on the yields on certain Treasury securities. In 
1996, Congress authorized the TSP to initiate two additional 
funds: an international fund, and a fund that invests in small-
capitalization stocks. These new funds are not expected to be 
in operation until 2000.

                   2. Issues and Legislative Response

                     (a) cost-of-living adjustments

    The full and automatic COLAs generally payable to CSRS 
retirees has long been the target of criticisms by those who 
contend that, because private pension plan benefits are 
generally not fully and automatically indexed to inflation, 
Federal pension benefits should follow that precedent. Indeed, 
Congress limited COLAs for FERS pensions in order to achieve 
comparability with private plans. Nevertheless, Social Security 
benefits are fully and automatically indexed and are a basic 
component of private pension plans and FERS. CSRS retirees do 
not receive Social Security for their Federal service. In 1995, 
Congress directed the Bureau of Labor Statistics to improve its 
measurement of inflation. These improvements are expected to 
result in slightly lower retirement benefit COLAs each year 
than would otherwise have occurred.

                           (b) retirement age

    The age at which an employer permits workers to retire 
voluntarily with an immediate pension is generally established 
to achieve workforce management objectives. There are many 
factors to consider in establishing a retirement age. An 
employer's major concern is to encourage retirement at the 
point where the employer would benefit by retiring an older 
worker and replacing him or her with a younger one. For 
example, if the job is one for which initial training is 
minimal but physical stamina is required, an early retirement 
age would be appropriate. Such a design would result in a 
younger, lower-paid workforce. If the job requires substantial 
training and experience but not physical stamina, the employer 
would want to retain employees to a later age, thereby 
minimizing training costs and turnover and maintaining 
expertise.
    The Federal Government employs individuals over an 
extremely wide range of occupations and skills, from janitors 
to brain surgeons. Therefore, when Congress carried out a 
thorough review of Federal retirement while designing FERS, it 
concluded that a flexible pension system would best suit this 
diverse workforce. As a result, the FERS system allows workers 
to leave with an immediate (but reduced) annuity as early as 
age 55 with 10 years of service, but it also provides higher 
benefits to those who remain in Federal careers until age 62. 
Allowing workers to retire at younger ages with immediate, but 
reduced benefits is common in private pension plan design. By 
including such a provision in FERS, Congress addressed the 
problem of the CSRS, sometimes called the ``golden handcuffs,'' 
created by requiring CSRS workers to stay in their Federal jobs 
until age 60 unless they have a full 30 years of Federal 
service before that age. Nevertheless, recognizing the 
increasing longevity of the population, the FERS system raised 
the minimum retirement age from 55 to 57, gradually phasing-in 
the higher age; workers born in 1970 and later will have a 
minimum FERS retirement age of 57. In addition, the age of full 
Social Security benefits is scheduled to rise gradually from 65 
to 67, with the higher age for full benefits effective for 
workers born in 1955 and later.
    In general, although retirement ages and benefit designs 
applicable under non-Federal plans are important reference 
points in designing a Federal plan, the unusual nature of the 
Federal workforce and appropriate management of turnover and 
retention are equally important considerations.

                            (c) tsp matching

    The Federal matching rate for TSP deposits by FERS 
participants was established to achieve a number of objectives, 
including allowing higher paid workers enrolled in FERS to 
achieve replacement rates comparable to those of CSRS 
participants and to replicate employer matching under similar 
private sector plans. The matching rates have been criticized 
by some as overly generous. However, others advocate higher TSP 
contribution limits, with the goal of reducing or eliminating 
the FERS defined benefit pension.

          (d) social security government pension offset (gpo)

    Social Security benefits payable to spouses of retired, 
disabled, or deceased workers generally are reduced to take 
into account any public pension the spouse receives from 
government work not covered by Social Security. The amount of 
the reduction equals two-thirds of the government pension. In 
other words, $2 of the Social Security benefit is reduced for 
every $3 of pension income received. Workers with at least 5 
years of FERS coverage are not subject to the offset.
    According to a 1988 General Accounting Office report 
entitled: ``Federal Workforce--Effects of Public Pension Offset 
on Social Security Benefits of Federal Retirees,'' 95 percent 
of Federal retirees had their Social Security spousal or 
survivor benefits totally eliminated by the offset.
    The GPO is intended to place retirees whose government 
employment was not covered by Social Security and who are 
eligible for a Social Security spousal benefit in approximately 
the same position as other retirees whose jobs were covered by 
Social Security. Social Security retirees are subject to an 
offset of spousal benefits according to that program's ``dual 
entitlement'' rule. That rule requires that a Social Security 
retirement benefit earned by a worker be subtracted from his or 
her Social Security spousal benefit, and the resulting 
difference, if any, is the amount of the spousal benefit paid. 
Thus, workers retired under Social Security may not collect 
their own Social Security retirement benefit as well as a full 
spousal benefit.
    The GPO replicates the Social Security dual entitlement 
rule by assuming that two-thirds of the government pension is 
approximately equivalent to the Social Security retirement 
benefit a worker would receive if his or her job had been 
covered by Social Security.

           (e) social security windfall elimination provision

    Workers who have less than 30 years of Social Security 
coverage and a pension from non-Social Security covered 
employment are subject to the windfall penalty formula when 
their Social Security benefit is computed. The windfall penalty 
was enacted as part of the Social Security Amendments of 1983 
in order to reduce the disproportionately high benefit 
``windfall'' that such workers would otherwise receive from 
Social Security. Because the Social Security benefits formula 
is weighted, low-income workers and workers with fewer years of 
covered service receive a higher rate of return on their 
contributions than high-income workers who are more likely also 
to have private pension or other retirement income. However, 
the formula did not distinguish between workers with low-income 
earnings and workers with fewer years of covered service, which 
resulted in a windfall to the latter group. To eliminate this 
windfall, Congress adopted the windfall benefit formula but 
modified the formula before it was phased in completely.
    Under the regular Social Security benefit formula, the 
basic benefit is determined by applying three factors (90 
percent, 32 percent, and 15 percent) to three different 
brackets of a person's average indexed monthly earnings (AIME). 
These dollar amounts increase each year to reflect rising wage 
levels. The formula for a worker who turns age 62 in 1999 is 90 
percent of the first $505 in average monthly earnings, plus 32 
percent of the amount between $505 and $3,043, and 15 percent 
of the amount over $3,043.
    Under the original 1983 windfall benefit formula, the first 
factor in the formula was 40 percent rather than 90 percent, 
with the 32 percent and 15 percent factors remaining the same. 
With the passage of the Technical Corrections and Miscellaneous 
Revenue Act of 1988, Congress modified the windfall reduction 
formula and created the following schedule:

    Years of Social Security coverage:
                                                                 Percent
    20 or fewer...............................................        40
    21........................................................        45
    22........................................................        50
    23........................................................        55
    24........................................................        60
    25........................................................        65
    26........................................................        70
    27........................................................        75
    28........................................................        80
    29........................................................        85
    30 or more................................................        90

    Under the windfall benefit provision, the windfall formula 
will reduce the Social Security benefit by no more than 50 
percent of the pension resulting from noncovered service.

                         D. MILITARY RETIREMENT


                             1. Background

    For more than four decades following the establishment of 
the military retirement system at the end of World War II, the 
retirement system for servicemen remained virtually unchanged. 
How-ever, the enactment of the Military Retirement Reform Act 
of 1986 (P.L. 99-348) brought major reforms to the system. The 
Act affected the future benefits of service members first 
entering the military on or after August 1, 1986. Because a 
participant only becomes entitled to military retired and 
retainer pay after 20 years of service, the first nondisability 
retirees affected by the new law will be those with 20 years of 
service retiring on August 1, 2006.
    In fiscal year 1998, 1.9 million retirees and survivors 
received military retirement benefits. For fiscal year 1998, 
total Federal military retirement outlays have been estimated 
at $31.5 billion. Three types of benefits are provided under 
the system: Nondisability retirement benefits (retirement for 
length of service after a career), disability retirement 
benefits, and survivor benefits under the Survivor Benefit Plan 
(SBP). With the exception of the SBP, all benefits are paid by 
contributions from the employing branch of the armed service, 
without contributions by the participants.
    Servicemembers who retire from active duty receive monthly 
payments based on a percentage of their retired pay computation 
base. For persons who entered military service before September 
8, 1980, the computation base is the final monthly base pay 
being received at the time of retirement. For those who entered 
service on or after September 8, 1980, the retired pay 
computation base is the average of the highest 3 years of base 
pay. Base pay comprises approximately 65-70 percent of total 
pay and allowances.
    Retirement benefits are computed using a percentage of the 
retired pay computation base. The retirement benefit for 
someone entering military service prior to August 1, 1986, is 
determined by multiplying the years of service by a multiple of 
2.5 Under this formula, the minimum amount of retired pay to 
which a retiree is entitled after a minimum of 20 years of 
service is 50 percent of base pay. A 25-year retiree receives 
62.5 percent of base pay, with a 30-year retiree receiving the 
maximum--75 percent of base pay.
    The Military Retirement Reform Act of 1986 (P.L. 99-348) 
changed the computation formula for military personnel who 
enter military service on or after August 1, 1986. For retirees 
under age 62, retired pay will be computed at the rate of 2 
percent of the retired pay computation base for each year of 
service through 20, and 3.5 percent for each year of service 
from 21 through 30. Under the new formula, a 20-year retiree 
under age 62 will receive 40 percent of his or her basic pay, 
57.5 percent after 25 years, and 75 percent after 30 years. 
Upon reaching 62, however, all retirees have their benefits 
recomputed using the old formula. The changed formula, 
therefore, favors the longer serving military careerist to a 
greater extent than the previous formula, providing an 
incentive to remain on active duty longer before retiring. 
Since most military personnel retire after 20 years, the cut 
from 2.5 percent to 2 percent will cut program costs. These 
changes in the retired pay computation formula apply only to 
active duty nondisability retirees. Disability retirees and 
Reserve retirees are not affected.
    Benefits are payable immediately upon retirement from 
military service (with the exception of reserve retirees), 
regardless of age, and without taking into account other 
sources of income, including Social Security. By statute, all 
benefits are fully indexed for changes in the CPI. Under the 
Military Retirement Reform Act of 1986, however, COLAs will be 
held at 1 percentage point below the CPI for military personnel 
beginning their service after August 1, 1986.

                   2. Issues and Legislative Response


                          (A) Long-Term Costs

    Prior to 1986, the military retirement system was 
repeatedly criticized for providing overly generous benefits 
that cost too much. The Military Retirement Reform Act of 1986 
was enacted in response to these criticisms. The Act's purpose 
was to contain the costs of the military retirement system and 
provide incentives for experienced military personnel to remain 
on active duty.
    Approximately 1.9 million retired officers, enlisted 
personnel, and their survivors received nearly $31.5 billion in 
annuity payments in fiscal year 1998. At the current rate of 
growth, this expenditure will reach an estimated $33.7 billion 
annually by the year 2000. Cost growth projections have been 
dropping, due to the post-Cold War downsizing of the military. 
In fiscal year 1998, military retirees and survivors received 
an average of $16,400 in annuities.
    Four features of the military retirement system contribute 
to its cost:
          (1) Full benefits begin immediately upon retirement; 
        the average retiring enlisted member begins drawing 
        benefits at 43, the average officer at 46. Benefits 
        continue until the death of the participant.
          (2) Military retirement benefits are generally 
        indexed for inflation.
          (3) The system is basically noncontributory, although 
        the participant must make some contribution if electing 
        to provide survivor protection.
          (4) Military retirement benefits are not integrated 
        with Social Security benefits. (They may, however, be 
        integrated with other benefits earned as a result of 
        military service, i.e., Veterans benefits, or may be 
        subject to reductions under dual compensation laws.)
    Supporters of the current military retirement scheme have 
identified several characteristics unique to military life that 
justify relatively more liberal benefits to military retirees 
than other Federal retirees:
          (1) All retired personnel are subject to involuntary 
        recall in the event of a national emergency; retirement 
        pay is considered part compensation for this exigency. 
        Several thousand military retirees were recalled to 
        active duty involuntarily for the Persian Gulf War in 
        1990-1991.
          (2) Military service places different demands on 
        military personnel than civilian employment, including 
        higher levels of stress and danger and more frequent 
        separation from family.
          (3) The benefit structure has provided a significant 
        incentive for older personnel to leave the service and 
        maintain ``youth and vigor'' in the armed services. In 
        this respect, it has been largely successful. Almost 90 
        percent of military retirees are under age 65, 50 
        percent under the age of 50.
    Military personnel do not contribute to their retirement 
benefits, though they do pay Social Security taxes and offset a 
certain amount of their pay to participate in the Survivor 
Benefit Program. Very few of the studies conducted in the past 
decade have recommended contributions by individuals. As a 
result, no refunds of contributions are available to those 
leaving the military before the end of 20 years. The full cost 
of the program appears as an agency expense in the budget, 
unlike the civilian retirement system where four-fifths of the 
retirement plan costs appear in the agency budgets.
    Since the beginning of full Social Security coverage for 
military personnel in 1957, military retirement benefits have 
been paid without any offset for Social Security. Taking into 
account the frequency with which military personnel in their 
mid-forties retire after 20 years of service, it is not unusual 
to find them retiring from a second career with a pension from 
their private employment along with their military retirement 
and a full Social Security benefit. Lack of integration of 
military retirement and Social Security benefits may add to the 
perception that military retirement benefits are overly 
generous.
    Military retirement is fully indexed for inflation, as are 
Social Security and the Civil Service Retirement System, a 
feature that retirees traditionally have considered central to 
the adequacy of retirement benefits.

                 (B) CURRENT MILITARY RETIREMENT ISSUES

       (1) Should the 1986 military retirement cuts be repealed?

    The cost and benefit reductions in military retirement 
enacted in the Military Retirement Reform Act of 1986 were 
adopted with the stated purpose of bringing military retirement 
more in line with civilian systems; saving money; creating an 
incentive for longer military careers, thereby creating a more 
experienced and capable career force; and enabling the military 
to manage their career force better. However, concern is 
growing that their prospective effective date (the 1986 Act's 
reductions will first be effective for those retiring 20 years 
later, in mid-2006) is contributing to the departure of too 
many career people, by reducing the incentive to remain on 
active duty until retirement, and thereby hampering the ability 
of retirees to compensate for reduced civilian salaries in 
their second careers.
    The services are experiencing considerable problems in 
recruiting and retaining sufficient career personnel, due to 
competition from a booming civilian economy where skilled labor 
shortages are widespread; frequent moves for which the 
reimbursements are never complete; a military health care 
system adjusting to managed-care problems; and a high frequency 
of family separation. Dissatisfaction with the 1986 Act is 
frequently cited by active duty military personnel in press 
accounts of military retention problems. Although some economic 
analysts have suggested that there are better ways to inject 
more money into the compensation package (such as those 
proposed by the Rand Corporation, well-known for its extensive 
experience in application of economic analysis to military 
personnel and compensation programs), the very negative 
psychological effect of the 1986 Act's cuts among ``the 
troops''--and the presumed positive effect of their repeal--may 
well carry the day in 1999. Secretary of Defense Cohen and 
Joint Chiefs of Staff Chairman General Hugh Shelton have 
recommended restoration of the cuts made by the 1986 Act, and 
the individual members of the JCS have recommended its complete 
repeal. A proposal to restore the cuts in the benefit formula 
made by the 1986 Act (but not its reductions in the COLA 
formula) were on the table during discussions on the FY1999 
supplemental appropriations bill, but were rejected before 
actually being introduced. It seems certain that attempts will 
be made again when the 106th Congress convenes.

      (2) Should a military Thrift Savings Plan (TSP) be created?

    There has been considerable discussion about whether a 
Thrift Savings Plan for military personnel, analogous to the 
TSP for the Federal civil service, or to so-called ``401k'' 
programs in the private sector, should be established. Under 
such a plan, a portion of an active duty military member's pay 
would be deposited into a tax-deferred individual account where 
the funds are held in trust and invested, to be withdrawn in 
retirement. Adopting such a plan would give military personnel 
a retirement benefit now widely available to civilians, and 
would enable military personnel to share in the long-term rise 
in equity markets (especially because frequent moves usually 
make it difficult for military families to obtain long-term 
investment growth through home ownership over a long period of 
time). Some suggest that adopting a thrift savings plan would 
provide an excuse for DOD and/or the Congress to cut other 
aspects of military retirement, and would have enormous 
problems of design and administration; the unofficial Retired 
Officers Association is perhaps the best-known skeptic. 
However, partisans of current active duty personnel and future 
retirees, rather than advocates for those already retired, 
appear to be much more supportive.

                 (C) THE MILITARY SURVIVOR BENEFIT PLAN

    The Military Survivor Benefit Plan (SBP) was created in 
1972 by Public Law 92-425. Under the plan, a military retiree 
can have a portion of his or her retired pay withheld to 
provide a survivor benefit to a spouse, spouse and child(ren), 
child(ren) only, a former spouse, or a former spouse and 
child(ren). Under the SBP, a military retiree can provide a 
benefit of up to 55 percent of his or her own military retired 
pay at the time of death to a designated beneficiary. A retiree 
is automatically enrolled in the SBP at the maximum rate unless 
he or she (with spousal or former spousal written consent) opts 
to participate or to participate at a reduced rate. SBP 
benefits are protected by inflation under the same formula used 
to determine cost-of-living adjustments for military retired 
pay.
    The benefit payable to a spouse or a former spouse may be 
modified when a respective survivor reaches age 62 under one of 
two circumstances.

                  (1) Survivor Social Security Offset

    Coverage of military service under Social Security entitles 
the surviving spouse of a military retiree to receive Social 
Security survivor benefits based on contributions made to 
Social Security during the member's/retiree's military service. 
For certain surviving spouses, military SBP is integrated with 
Social Security. For those survivors subject to those 
provisions, military SBP benefits are offset by the amount of 
Social Security survivor benefits earned as a result of the 
retiree's military service. This offset occurs when the 
survivor reaches age 62 and is limited to 40 percent of the 
military survivor benefit. Taken together, the post-62 SBP 
benefit and the offsetting Social Security benefit must be no 
less than 55 percent of base military retired pay. In essence, 
this offset recognizes the Government's/taxpayer's 
contributions to both Social Security and the military SBP and 
thereby prevents duplication of benefits based on the same 
period of military service.

                         (2) The Two-Tiered SBP

    For retirees who decide to participate in the SBP, the 
amount of Social Security at the time of death (i.e., the 
amount available for offset purposes) is unknown. Thus, 
retirees must decide to provide a benefit at a certain level 
subject to an unknown offset level. For this reason (and the 
fact that the offset formula is terribly complicated) Congress 
modified SBP provisions. Under these modified provisions, known 
as the ``two-tier'' SBP, a surviving spouse is eligible to 
receive 55 percent of base retired pay. When this survivor 
reaches age 62, the benefit is reduced to 35 percent of base 
retired pay. This reduction occurs regardless of any benefits 
received under Social Security and thereby eliminates the 
integration of Social Security and any subsequent offset. With 
the elimination of the Social Security offset, a military 
retiree will know the exact amount of SBP benefits he/she is 
purchasing at the time of retirement.
    Under the rules established by Congress, three selected 
groups will have their SBP payments calculated under either the 
pre-two-tier plan (including the Social Security offset) or the 
two-tier plan, depending upon which is more financially 
advantageous to the survivor. The first group includes those 
beneficiaries (widows or widowers) who were receiving SBP 
benefits on October 1, 1985. The second group includes the 
spouse or former spouse of military personnel who were 
qualified for or were already receiving military retired pay on 
October 1, 1985. The third group includes reservists who were 
eligible for retired pay except for the fact that they had not 
yet reached 60 years of age. The spouses or former spouses of 
military personnel who were not qualified to receive military 
retired pay on October 1, 1985 (i.e., those who had not been on 
active duty with 20 or more years of creditable service) will 
have their SBP benefits calculated using the two-tier method. 
Levels of participation in the SBP have increased since the 
introduction of the two-tier method.

                 (3) Survivor Benefit Plan High Option

    Beneficiary dissatisfaction with both the Social Security 
offset and the two-tier method has prompted Congress once again 
to consider modifying the military SBP. Under this option, 
certain retirees and retirement-eligible members of the armed 
services can opt to increase withholdings from military retired 
pay to reduce or eliminate any reduction occurring when the 
survivor reaches age 62. (Retirees must be under the two-tier 
plan to participate in the High Option.) The costs of these 
additional benefits are actuarially neutral--participants will 
pay the full cost of this option. Thus, under the high option, 
certain personnel and retirees can insure that limited or no 
reductions to SBP benefits occur when the survivor reaches age 
62.

                     (4) Cost-of-Living Adjustment

    Military retirees and survivor benefit recipients, along 
with Social Security and other Federal retirees, received a 2.1 
percent COLA effective January 1, 1998. The next COLA will 
first be paid on January 1, 1999, as a 1.3 percent increase.

               3. Recent Issues and Legislative Response

    In 1997, Congress enacted legislation that would provide a 
monthly annuity of $165 to so-called ``forgotten widows.'' Two 
groups were deemed eligible for this annuity. The first 
consists of survivors of retired service members who died 
before March 21, 1974 and who were drawing military retired pay 
at the time of death. The second group consists of survivors of 
a Reserve member who had 20 years of qualified service at the 
time of death (but less than 20 years of active duty) and who 
died between September 21, 1972 and October 1, 1978. Survivors 
who are receiving Dependency and Indemnity Compensation from 
the VA are ineligible. Subsequent remarriage by the survivor 
may also affect eligibility. This amount is subject to cost-of-
living adjustments.
    Starting on May 17, 1998, participating retirees who 
retired on or before May 17, 1996 were given an opportunity to 
drop their coverage. These retirees will have 1 year to make 
this decision. In addition, those who have retired since May 
17, 1996, including future retirees, will be provided with a 1-
year open season to terminate their participation in SBP, 
beginning on the second anniversary of their retirement date.
    In 1998, Congress created the so-called ``paid up'' 
provision that would retain coverage but discontinue retired 
pay withholdings for retirees who paid for this coverage for 
thirty years or reached age 70, whichever came later. These 
provisions are not scheduled to become effective until 2008.

                         E. RAILROAD RETIREMENT


                             1. Background

    The Railroad Retirement program is a federally managed 
retirement system covering employees in the rail industry, with 
benefits and financing coordinated with Social Security. The 
system was first established during the period 1934-37, 
independent of the creation of Social Security, and remains the 
only federal pension program for a private industry. It covers 
all railroad firms and distributes retirement and disability 
benefits to employees, their spouses, and survivors. Benefits 
are financed through a combination of employee and employer 
payments to a trust fund, with the exception of vested so-
called ``dual'' or ``windfall'' benefits, which are paid with 
annually appropriated federal general revenue funds through a 
special account.
    In FY1998, $8.3 billion in retirement, disability, and 
survivor benefits were paid to 720,000 beneficiaries of the 
rail industry program. As of January 1999, the Railroad 
Retirement equivalent of Social Security (Tier I) is increased 
by 1.3 percent as a result of the Cost-of-Living Adjustment 
(COLA) applied to those benefits. The industry pension 
component (Tier II) is increased by 0.4 percent because of an 
automatic adjustment (32.5 percent of the Tier I COLA) to that 
benefit. As of January 1999, the regular Railroad Retirement 
annuities average $1,297 per month, and combined benefits for 
an employee and spouse average $1,887. Aged survivors average 
$777 per month.

                   2. Issues and Legislative Response


                (a) the evolution of railroad retirement

    In the final quarter of the 19th century, railroad 
companies were among the largest commercial enterprises in the 
nation and were marked by a high degree of centralization and 
integration. As outlined by the 1937 legislation, the Railroad 
Retirement system was designed to provide annuities to retirees 
based on all rail earnings and length of service in the 
railroads. The present Railroad Retirement program dates to the 
Railroad Retirement Act of 1974 (the 1974 Act), which 
fundamentally reorganized the program. Most significantly, the 
Act created a two-tier benefit structure in which Tier I was 
intended to serve as an equivalent to Social Security and Tier 
II as a private pension.
    Under current law, workers are eligible for benefits from 
Railroad Retirement, only if they have completed 10 years of 
railroad service. Tier I benefits of the Railroad Retirement 
System are computed on credits earned in both rail and nonrail 
work, while Tier II is based solely on railroad employment. The 
1974 Act continued the previous practice of a separate system 
for railroad employees, but eliminated the opportunity to 
qualify for separate Railroad Retirement and Social Security 
benefits, based on mixed careers with periods of nonrail and 
rail employment.
    In its initial report, the National Performance Review 
(NPR), a special study group created in the early days of the 
Clinton Administration, proposed to disperse the Railroad 
Retirement Board (RRB) functions to other agencies. The NPR 
proposal was not new. Similar proposals had been advanced by 
several previous Administrations, but none had success in 
persuading Congress to consider them.
    Aside from heavy political opposition engendered by efforts 
to end the board system, there are other impediments to 
enactment of such a proposal. First, the problems are complex, 
and substantial investments of legislative time and resources 
would be required by several committees in order to complete 
congressional action. Second, the rail industry portion of the 
benefits would become insecure, given that the benefits are 
primarily funded from current revenues. Third, the unemployment 
program described below is designed as a daily benefit, 
consistent with the industry's intermittent employment 
practices evolving over the past century (state programs are 
based on unemployment measured by weeks instead of days). 
Fourth, costs of the programs' benefits and administration are 
borne by the industry through payroll taxes, and dismantling 
the federal administration would not save taxpayers money. 
Finally, in the face of these obstacles, there is no clear 
constituency exhibiting a consistent and persistent interest in 
ending federal administration of Railroad Retirement.

   (b) financing railroad retirement, and the railroad unemployment/
                      sickness insurance benefits

    The railroad industry is responsible for the financing of 
(1) all Tier II benefits, (2) any Tier I benefits paid under 
different criteria from those of Social Security (unrecompensed 
benefits), (3) supplemental annuities paid to long-service 
workers, and (4) benefits payable under the Unemployment/
Sickness Insurance program.
    The federal government finances windfall benefits under an 
arrangement established by the 1974 Act, the legislation by 
which the current structure of Railroad Retirement was created. 
The principle of federal financing of the windfall through the 
attrition of the closed group of eligible persons has been 
reaffirmed by Congress on several occasions since that date.
    With the exception of the dual benefit windfalls, the 
principle guiding Railroad Retirement and Railroad 
Unemployment/Sickness Insurance benefits financing is that the 
rail industry is responsible for a level of taxation upon 
industry payroll sufficient to pay all benefits earned in 
industry employment. Rail industry management and labor 
officials participate in shaping legislation that establishes 
the system's benefits and taxes. In this process, Congress 
weighs the relative interests of railroads, their current and 
former employees, and federal taxpayers. Then it guides, 
reviews, and to some extent instructs a collective bargaining 
activity, the results of which are reflected in new law. Thus, 
Railroad Retirement benefits are earned in and paid by the 
railroad industry, established and modified by Congress, and 
administered by the federal government.

                        (1) Retirement Benefits

    Tier I benefits are financed by a combination of payroll 
taxes and financial payments from the Social Security Trust 
Funds, a balance established through congressional legislation. 
The payroll tax for Tier I is exactly the same as collected for 
the Old Age, Survivors, and Disability Insurance (OASDI) Social 
Security program. In 1999, the tax is 6.2 percent of pay for 
both employers and employees up to a maximum taxable wage of 
$72,600.
    Tier II benefits are also financed by a payroll tax. In 
1999, the payroll tax is 16.10 percent for employers and 4.90 
percent for employees on the first $53,700 of a worker's 
covered railroad wages. The relative share of employer and 
employee financing of Tier II benefits is collectively 
bargained.
    Financial ``interchange'' with Social Security.--A common 
cause of confusion about the federal government's involvement 
in the financing of Railroad Retirement benefits is the 
system's complex relationship with Social Security. Each year 
since 1951, the two programs--Railroad Retirement and Social 
Security--have determined what taxes and benefits would have 
been collected and paid by Social Security had railroad 
employees been covered by Social Security rather than Railroad 
Retirement. When the calculations have been performed and 
verified after the end of a fiscal year, transfers are made 
between the two accounts, called the ``financial interchange.'' 
The principle of the financial interchange is that Social 
Security should be in the same financial position it would have 
occupied had railroad employment been covered at the beginning 
of Social Security. The net interchange has been in the 
direction of Railroad Retirement in every year since 1957, 
primarily because of a steady decline in the number of rail 
industry jobs.
    When Congress, with rail labor and management support, 
eliminated future opportunities to qualify for windfall 
benefits in 1974, it also agreed to use general revenues to 
finance the cost of phasing out the dual entitlement values 
already held by a specific and limited group of workers. The 
historical record suggests that the Congress accepted a federal 
obligation for the costs of phasing out windfalls because no 
alternative was satisfactory. Congress apparently accepted that 
railroad employers should not be required to pay for phasing 
out dual entitlements, because those benefit rights were earned 
by employees who had left the rail industry, and rail employees 
should not be expected to pick up the costs of a benefit to 
which they could not become entitled. For FY1999, Congress has 
appropriated $191 million (down from $314 million in FY1992).
    Supplemental annuities are financed on a current-cost 
basis, by a cents-per-hour tax on employers, adjusted quarterly 
to reflect payment experience. Some railroad employers (mostly 
railroads owned by steel companies) have a negotiated 
supplemental benefit paid directly from a company pension. In 
such cases, the company is exempt from the cents-per-hour tax 
for such amounts as it pays to the private pension, and the 
retiree's supplemental annuity is reduced for private pension 
payments paid for by those employer contributions to the 
private pension fund.

                (2) Unemployment and Sickness Benefits.

    The benefits for eligible railroad workers when they are 
sick or unemployed are paid through the Railroad Unemployment 
Insurance Account (RUIA). The RUIA is financed by taxes on 
railroad employers. Employers pay a tax rate based on their 
employees' use of the program funds, up to a maximum.

             (c) taxation of railroad retirement benefits.

    Tier I benefits are subject to the same federal income tax 
treatment as Social Security. Under those rules, up to 85 
percent of the Tier I benefit is subject to income taxes if the 
adjusted gross income (AGI) of an individual exceeds $34,000 
($44,000 for a married couple). Proceeds from this tax are 
transferred from the general revenue fund to the Social 
Security Trust Funds to help finance Social Security and 
railroad retirement Tier I benefits.
    Unrecompensed Tier I benefits (Tier I benefits paid in 
circumstances not paid under Social Security) and Tier II 
benefits are taxed as ordinary income, on the same basis as all 
other private pensions. Under legislation to reinforce Railroad 
Retirement financing in 1983, the proceeds from this tax are 
transferred to the railroad retirement Tier II account to help 
defray its costs. This transfer is a direct general fund 
subsidy to the Tier II account, a unique taxpayer subsidy for a 
private industry pension. Yet, the importance of the rail 
industry to the national heritage and economy is widely 
recognized in Congress, as is the probability that some costs 
of the rail industry may well have to be ``socialized across 
the rest of the economy'' (in the words of former OMB Director 
David Stockman) if the rail industry is to remain viable in the 
future.
    Furthermore, because the financial outlook for the Tier II 
account is optimistic for the next decade at least, these 
transferred taxes on Tier II benefits do not actually result in 
immediate federal budget outlays; they remain on the account 
balances as unspent budget authority. As such, there is no 
immediate impact of this transfer on federal taxpayers or on 
the federal budget.

             (d) the outlook for financing future benefits.

    The Omnibus Budget Reconciliation Act of 1987 (P.L. 100-
203) created the Commission on Railroad Retirement Reform to 
examine and review perceived problems in the railroad benefit 
programs. The Commission reported its findings in September 
1990. In addition to several technical recommendations, the 
Commission concluded that railroad retirement financing is 
sound for the intermediate term and probably sound for the 75 
years of the actuarial valuation.
    The combinations of RUIA and retirement taxes projected by 
the RRB, the federal agency responsible for administering the 
Railroad Retirement and Unemployment/Sickness Insurance 
programs, exceed the industry's obligations for total payments 
from these programs over the next decade. If the Board's 
assumptions are a reasonably dependable yardstick of the future 
economic position of the rail industry, then it would follow 
that the current benefit/tax relationship of the two programs 
considered together is adequate.
    Because revenue to support industry benefits is raised 
through taxes on industry payroll, there is a direct link 
between Railroad Retirement financing and the actual number of 
railroad employees. Thus, when the number of industry employees 
falls, retirement program revenue drops as well. It should be 
kept in mind, however, that a decline in employment may result 
from improvements in efficiency as well as diminished demands 
for railroad services. Thus, the industry's capacity to 
generate adequate revenues to the program cannot be determined 
solely by reference to industry employment levels.
    The program, in spite of the direct relationship between 
benefit payments and money raised through a tax on worker 
payroll, is not a transfer between generations, at least not in 
the same sense that current Social Security benefits are 
financed by taxes on today's workers. Since the burden for 
generating sufficient revenue to support rail industry benefits 
is upon the industry as a whole, the payroll tax is primarily a 
method for distributing through the industry the operating 
expense of retirement benefits incurred by individual rail 
carriers. The industry could adopt some other method for 
distributing the costs among its components and, indeed, from 
time-to-time alternatives are proposed. Yet, inevitably there 
exists an ongoing bargaining tension over the amount of 
industry revenue to be claimed by competing labor sectors--the 
active, unemployed, and retired workers--and the amount to be 
claimed by the railroad companies themselves.

                              3. Prognosis

    The Railroad Retirement and Unemployment Insurance programs 
will likely remain in their present form for the foreseeable 
future. There are no immediate threats to their financial 
stability, and no proposals are under consideration that would 
substantially alter their respective revenue or benefit 
structures.


                               Chapter 3



                           TAXES AND SAVINGS

                                OVERVIEW

    The Federal tax code recognizes the special needs of older 
Americans. The code, through special tax provisions designed 
for use by elderly American taxpayers, helps to preserve a 
standard of living threatened by reduced income and increased 
nondiscretionary expenditures such as those for health.
    Until 1984, both Social Security and Railroad Retirement 
benefits, like veterans' pensions, were fully exempt from 
Federal taxation. To help restore financial stability to Social 
Security, up to one-half of Social Security and Railroad 
Retirement Tier I benefits of higher income taxpayers became 
taxable under a formula contained in the Social Security Act 
Amendments of 1983 (P.L. 98-21). Under a provision included in 
the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66) up 
to 85 percent of Social Security benefits are taxable in the 
case of higher income elderly. Those Federal taxes collected on 
Social Security income from higher income recipients are 
returned to the Social Security trust funds.
    The Tax Reform Act of 1986 (TRA86) (P.L. 99-514) resulted 
in a number of changes to tax laws affecting older men and 
women. For example, the TRA86 repealed the extra personal 
exemption for the aged but replaced it with an extra standard 
deduction amount. This additional standard deduction amount is 
combined with an increased standard deduction available to all 
taxpayers and is indexed for inflation. Thus, the Congress 
wishes to target the tax benefits to lower and moderate income 
elderly taxpayers through the substitution.
    The Omnibus Budget Reconciliation Act of 1990 (OBRA90) 
(P.L. 101-508) made changes to individual, corporate, excise, 
and employment provisions of the tax laws. In general, the 
individual income tax changes that were made affected the tax 
burden of the general population at large but did not include 
provisions specifically targeting the elderly. This Act did 
provide a tax credit to small businesses for expenditures made 
to remove architectural, communication, physical, or 
transportation barriers that prevented a business from being 
accessible to, or usable by, those either elderly or with 
disabilities.
    The Congress passed the Taxpayer Relief Act of 1997 (TRA97) 
(P.L. 105-34) to provide a modest size tax cut that in the 
aggregate consists of a variety of measures applying to 
particular types of taxpayers, income, and activities. Included 
among its most prominent features and of interest to many older 
Americans are a cut in the tax rates that apply to capital 
gains, reduction of estate taxes, and expansion of Individual 
Retirement Accounts.

                                A. TAXES

                             1. Background

    A number of longstanding provisions in the tax code are of 
special significance to older men and women. Examples include 
the exclusion of Social Security and Railroad Retirement Tier I 
benefits for low and moderate income beneficiaries, the tax 
credit for the elderly and permanently and totally disabled, 
and the tax treatment of below-market interest loans to 
continuing care facilities.
    The Tax Reform Act of 1986 altered many provisions of the 
Internal Revenue Code including tax provisions of importance to 
older persons. As an example, the extra personal exemption for 
the aged was repealed. However the personal exemption amount 
for taxpayers in general was substantially increased under the 
act and is now annually adjusted for inflation. In addition, 
the Act provides elderly and/or blind taxpayers who do not 
itemize an additional standard deduction amount. Like the 
personal exemption amount, this provision is also adjusted 
annually for inflation.

    (a) taxation of social security and railroad retirement benefits

    For more than four decades following the establishment of 
Social Security, benefits were exempt from Federal income tax. 
Congress did not explicitly exclude those benefits from 
taxation. Rather, their tax-free status arose from a series of 
rulings in 1938 and 1941 from what was then called the Bureau 
of Internal Revenue. These rulings were based on the 
determination that Congress did not intend for Social Security 
benefits to be taxed, as implied by the lack of an explicit 
provision to tax them, and that the benefits were intended to 
be in the form of ``gifts'' and gratuities, not annuities which 
replace earnings, and therefore were not to be considered as 
income for tax purposes.
    In 1983, the National Commission on Social Security Reform 
recommended that up to one-half of the Social Security benefits 
of higher income beneficiaries be taxed, with the revenues 
returned to the Social Security trust funds. This proposal was 
one part of a larger set of recommendations entailing financial 
concessions by employees, employers, and retirees alike to 
rescue Social Security from insolvency.
    Congress acted on this recommendation with the passage of 
the Social Security Act Amendments of 1983. As a result of that 
Act, up to one-half of Social Security and Tier 1 Railroad 
Retirement benefits for beneficiaries whose other income plus 
one-half their Social Security benefits exceed $25,000 ($32,000 
for joint filers) became subject to taxation. (Tier 1 Railroad 
Retirement benefits are those provided by the railroad 
retirement system that are equivalent to the Social Security 
benefit that would be received by the railroad worker were he 
or she covered by Social Security.)
    The limited application of the tax on Social Security and 
Tier 1 Railroad Retirement benefits reflects the congressional 
concern that lower and moderate income taxpayers not be subject 
to tax when their income falls below the thresholds. Because 
the tax thresholds are not indexed, however, with time, 
beneficiaries of more modest means will also be affected.
    In computing the amount of Social Security income subject 
to tax, otherwise tax-exempt interest (such as from municipal 
bonds) is included in determining by how much the combination 
of one-half of benefits plus other income exceeds the income 
thresholds. Thus, while the tax-exempt interest itself remains 
free from taxation, it can have the effect of making more of 
the Social Security benefit subject to taxation.
    In the Omnibus Budget Reconciliation Act of 1993, Congress 
subjected up to 85 percent of Social Security benefits to tax. 
Starting January 1, 1995, up to 85 percent of benefits are 
taxable for recipients whose other income plus one-half their 
Social Security benefits exceed $34,000 ($44,000 for joint 
filers). Benefits of recipients with combined incomes over 
$25,000 ($32,000 for joint filers) but not over $34,000 
($44,000 for joint filers) continue to be taxable at the 50 
percent rate.
    Revenues from the taxation of Social Security benefits have 
continued to increase. In 1984, approximately $3 billion in 
taxes were paid into the Social Security trust funds. In 1997, 
that figure rose to $7.9 billion. By the year 2000, they will 
reach an estimated $9.3 billion.

(b) the tax credit for the elderly and permanently and totally disabled

    This credit was formerly called the retirement income 
credit and the tax credit for the elderly. Congress established 
the credit to correct inequities in the taxation of different 
types of retirement income. Prior to 1954, retirement income 
generally was taxable, while Social Security and Railroad 
Retirement (Tier I) benefits were tax-free. The congressional 
rationale for this credit is to provide similar treatment to 
all forms of retirement income.
    The credit has changed over the years with the current 
version enacted as part of the Social Security Amendments of 
1983. Individuals who are age 65 or older are provided a tax 
credit of 15 percent of their taxable income up to the initial 
amount, described below. Individuals under age 65 are eligible 
only if they are retired because of a permanent or total 
disability and have disability income from either a public or 
private employer based upon that disability. The 15-percent 
credit for the disabled is limited only to disability income up 
to the initial amount.
    For those persons age 65 or older and retired, all types of 
taxable income are eligible for the credit, including not only 
retirement income but all investment income. The initial amount 
for computing the credit is $5,000 for a single taxpayer age 65 
or older, $5,000 for a married couple filing a joint return 
where only one spouse is age 65 or older filing separate 
return. In the case of a married couple filing a joint return 
where both spouses are qualified individuals the initial amount 
is $7,500. A married individual filing a separate return has an 
initial amount of $3,750. The initial amount must be reduced by 
tax-exempt retirement income, such as Social Security. The 
initial amount must also be reduced by $1 for each $2 if the 
taxpayer's adjusted gross income exceeds the following levels: 
$7,500 for single taxpayers, $10,000 for married couples filing 
a joint return, and $5,000 for a married individual filing a 
separate return.
    Although the tax credit for the elderly does afford some 
elderly taxpayers receiving taxable retirement income some 
measure of comparability with those receiving tax-exempt (or 
partially tax-exempt) Social Security benefits, because of the 
adjusted gross income phaseout feature, it does so only at low 
income levels. Social Security recipients with higher levels of 
income always continue to receive at least a portion of their 
Social Security income tax free. Such is not the case for those 
who must use the tax credit for the elderly and permanently and 
totally disabled. In addition, since the initial amounts have 
not been adjusted for inflation since enactment, the levels of 
tax free benefits are no longer similar when Social Security 
and other forms of taxable retirement benefits are compared.

     (c) below market interest loans to continuing care facilities

    Special rules exempt loans made by elderly taxpayers to 
continuing care facilities from the imputed interest provisions 
of the Code. Thus, the special exemption is relevant to elderly 
persons who loan their assets to facilities and receive care 
and other services in return instead of cash interest payments. 
The imputed interest rules require taxpayers to report interest 
income on loans even if interest is not explicitly stated or is 
received in noncash benefits. In order to qualify for this 
exception to the rules, either the taxpayer or the taxpayer's 
spouse must be 65 years of age or older. The loan must be made 
to a qualified continuing care facility. The law provides that 
substantially all of the facilities used to provide care must 
be either owned or operated by the continuing care facility and 
that substantially all of the residents must have entered into 
continuing care contracts. Thus, a qualified facility holds the 
proceeds of the loan and in turn provides care under a 
continuing care contract.
    Under a continuing care contract the individual and/or 
spouse must be entitled to use the facility for the remainder 
of their life/lives. Initially, the taxpayer must be capable of 
independent living with the facility obligated to provide 
personal care services. Long-term nursing care services must be 
provided if the resident(s) is no longer able to live 
independently. Further, the facility must provide personal care 
services and long-term nursing care services without 
substantial additions in cost.
    The amount that may be loaned to a continuing care facility 
is inflation adjusted. In 1999 a taxpayer may lend up to 
$137,000 before being subject to the imputed interest rules.

                       (d) tax reform act of 1986

    The Tax Reform Act of 1986 made such sweeping changes to 
the Internal Revenue Code that the Congress chose to issue the 
Code as a completely new edition, the first recodification 
since 1954. As a result of the 1986 Act, the elderly like other 
taxpayers saw many changes in their taxes. The following is a 
brief summary of some of the tax changes which had particular 
significance to aged taxpayers.

              (1) Extra Personal Exemption for the Elderly

    The extra personal exemption for elderly persons was 
enacted in 1948. The Senate Finance Committee report stated the 
reason for the additional exemption was that ``The heavy 
concentration of small incomes among such persons reflects the 
fact that, as a group, they are handicapped at least in an 
economic sense. They have suffered unusually as a result of the 
rise in cost-of-living and the changes in the tax system which 
occurred since the beginning of the war. Unlike younger 
persons, they have been unable to compensate for these changes 
by accepting full-time jobs at prevailing high wages. 
Furthermore, this general extension appears to be a better 
method of bringing relief than a piecemeal extension of the 
system of exclusions for the benefit of particular types of 
income received primarily by aged persons.'' At that time, this 
provision removed an estimated 1.4 million elderly taxpayers 
and others (blind persons also were provided the extra personal 
exemption) from the tax rolls, and reduced the tax burden for 
another 3.7 million.
    With the passage of the 1986 Act, the extra personal 
exemption was eliminated due to a dramatic increase in the 
personal exemption amount available to all taxpayers, the 
provision of future inflation adjustments, and the addition to 
the Internal Revenue Code of an extra standard deduction amount 
for those elderly taxpayers who do not itemize deductions.

              (2) Deduction of Medical and Dental Expenses

    The Medicare program has grown from 19 million to 39 
million today. Older Americans now enjoy better health, longer 
lives, and improved quality of life, in part because of 
Medicare. Over the last 3 decades, life expectancy at age 65 
has increased by nearly 3 years for both men and women. The 
elderly over age 80 also have a longer life expectancy in the 
U.S. than in other industrialized countries. Medicare's per 
enrollee rate of spending growth compares favorably to the 
private sector. From 1970 to 1996 Medicare's average annual per 
enrollee spending growth was similar to that of the private 
sector (10.8 Medicare versus 11.3 for the private sector). 
Furthermore, Medicare's administrative expenses are very low--2 
percent--compared to private sector administrative expenses of 
10 percent or more.
    The elderly spend a greater proportion of their total 
household after-tax income on health than do the non-elderly. 
As a group, the non-elderly spend 5 percent of income on health 
whereas the elderly spend 18 percent. In 1994 it was found that 
elderly households with less than $11,000 in after-tax income 
spent 24 percent for health expenditures; those whose incomes 
ranged between $11,000 to $21,000 spent 19 percent on health 
expenditures; those whose income fell between $21,000 and 
$34,000 spent 12 percent; those whose incomes were between 
$34,000 and $54,000 spent 8 percent; while elderly households 
with after-tax incomes greater than $54,000 spend just 4 
percent for health expenditures.
    Under prior law, medical and dental expenses, including 
insurance premiums, co-payments, and other direct out-of-pocket 
costs were deductible to the extent that they exceeded 5 
percent of a taxpayer's adjusted gross income. The 1986 Act 
raised the threshold to 7.5 percent. The determination of what 
constitutes medical care for purposes of the medical expense 
deduction is of special importance to the elderly. Two special 
categories are enumerated below.

             (a) residence in a sanitarium or nursing home

    If an individual is in a sanitarium or nursing home because 
of physical or mental disability, and the availability of 
medical care is a principal reason for him being there, the 
entire cost of maintenance (including meals and lodging) may be 
included in medical expenses for purposes of the medical 
expense deduction.

                        (b) capital expenditures

    Capital expenditures incurred by an aged individual for 
structural changes to his personal residence (made to 
accommodate a handicapping condition) are fully deductible as a 
medical expense. The General Explanation of the Tax Reform Act 
of 1986 prepared by the Joint Committee on Taxation states that 
examples of qualifying expenditures are construction of 
entrance and exit ramps, enlarging doorways or hallways to 
accommodate wheelchairs, installment of railings and support 
bars, the modification of kitchen cabinets and bathroom 
fixtures, and the adjustments of electric switches or outlets.

                     (3) Contributory Pension Plans

    Prior to 1986, retirees from contributory pension plans 
(meaning plans requiring that participants make after-tax 
contributions to the plan during their working years) generally 
had the benefit of the so-called 3-year rule. The Federal Civil 
Service Retirement System and most State and local retirement 
plans are contributory plans. The effect of this rule was to 
exempt, up to a maximum of 3 years, pension payments from 
taxation until the amount of previously taxed employee 
contributions made during the working years was recouped. Once 
the employee's share was recouped, the entire pension became 
taxable.
    Under the 1986 Act, the employer's contribution and 
previously untaxed investment earnings of the payment are 
calculated each month on the basis of the worker's life 
expectancy, and taxes are paid on the annual total of that 
portion. Retirees who live beyond their estimated lifetime then 
must begin paying taxes on the entire annuity. The rationale is 
that the retiree's contribution has been recouped and the 
remaining payments represent only the employer's contribution. 
For those who die before this point is reached, the law allows 
the last tax return filed on behalf of the estate of the 
deceased to treat the unrecouped portion of the pension as a 
deduction.
    As a result of repeal of the 3-year rule, workers retiring 
from contributory pension plans are in higher tax brackets in 
the first years after retirement. However, any initial tax 
increases are likely to be offset over the long run because 
they have lower taxable incomes in the later years.

 (4) Personal Exemptions, Standard Deductions, and Additional Standard 
                           Deduction Amounts

    The Treasury Department annually adjusts personal 
exemptions, standard deductions, and additional standard 
deduction amounts for inflation. The personal exemption a 
taxpayer may claim on a return for 1998 is $2,700. The personal 
exemption amount will rise to $2,750 for tax year 1999. The 
standard deduction is $4,250 for a single person, $6,250 for a 
head of household, $7,100 for a married couple filing jointly, 
and $3,550 for a married person filing separately. For tax year 
1999, the standard deduction amounts rise to $4,300 for a 
single person, $6,350 for a head of household, $7,200 for a 
married couple filing jointly, and $3,600 for a married person 
filing separately. The additional standard deduction amount for 
an elderly single taxpayer is $1,050 while married individuals 
(whether filing jointly or separately) may each receive an 
additional standard deduction amount of $850. These amounts 
will remain stable for tax year 1999.

                 (5) Filing Requirements and Exemptions

    The 1986 Act and indexation of various tax provisions has 
raised the levels below which persons are exempted from filing 
Federal income tax forms. For tax year 1998, single persons age 
65 or older do not have to file a return if their income is 
below $8,000. For married couples filing jointly, the limit is 
$13,350 if one spouse is age 65 or older and $14,200 if both 
are 65 or older. Single persons who are age 65 or older or 
blind and who are claimed as dependents on another individual's 
tax return do not have to file a tax return unless their 
unearned income exceeds $1,750 ($2,800 if 65 or older and 
blind), or their gross income exceeds the larger of $700 or the 
filer's earned income (up to $4,000) plus $250, plus $1,050 
($2,100 in the case of being 65 or older and blind). Married 
persons who are age 65 or older or blind and who are claimed as 
dependents on another individual's tax return must file a 
return if their earned income exceeds $4,400 ($5,250 if 65 or 
older and blind), their unearned income exceeds $1,550 ($2,400 
if 65 or older and blind), or their gross income was more than 
the larger of $700 or their earned income (up to $3,300) plus 
$250, plus $850 ($1,700 if 65 or older and blind). All these 
amount's rise for tax year 1999.

                  (6) The Impact of Tax Reform of 1986

    Jane G. Gravelle, a Senior Specialist in Economic Policy at 
CRS wrote in the Journal of Economic Perspectives an article 
entitled the ``Equity Effects of the Tax Reform Act of 1986'' 
(Vol. 6, No. 1, Winter 1992). In discussing life cycle incomes 
and intergenerational equity she found that little change was 
made in the intergenerational tax distribution from passage of 
this act. Her findings suggest that the Tax Reform Act reduced 
taxes on wage incomes which tends to benefit younger workers 
relative to older individuals. Thus, younger workers ``gained 
slightly more than the average'' since older individuals income 
involves a smaller share of earned income. However, older 
individuals also were found to have ``gained slightly more than 
average because of the gains in the value of existing 
capital.'' The implications of these findings were that the Act 
results in ``a long-run revenue loss'' and how this ``revenue 
loss is recouped will also affect the distribution among 
generations.''

           (e) The Omnibus Budget Reconciliation Act of 1990

    The Omnibus Budget Reconciliation Act of 1990 (OBRA90) made 
a number of substantial changes to the Internal Revenue Code. 
It replaced the previous two rates with a 3-tiered statutory 
rate structure: 15 percent, 28 percent, and 31 percent. In 
1999, the 31 percent rate applies to single individuals with 
taxable income (not gross income) between $64,450 and $130,250. 
It applies to joint filers with taxable income between $104,050 
and $158,550, and to heads of households with taxable income 
between $89,150 and $144,400. The Act set a maximum tax rate of 
28 percent (which has since been reduced to 20 percent) on the 
sale of capital assets held for more than 1 year.
    The Act also repealed the so-called ``bubble'' from the Tax 
Reform Act of 1986 whereby middle income taxpayers paid higher 
marginal tax rates on certain income as personal exemptions and 
the lower 15 percent rate were phased out. However, in place of 
the ``bubble,'' OBRA90 provided for the phasing out of personal 
exemptions and limiting itemized deductions for high income 
taxpayers. The phase out of personal exemptions for 1999 begins 
at $126,600 for single filers, $189,950 for joint filers, 
$158,300 for heads of households, OBRA90 also provided a 
limitation on itemized deductions. Allowable deductions were 
reduced by 3 percent of the amount by which a taxpayer's 
adjusted gross income exceeds $126,600. Deductions for medical 
expenses, casualty and theft losses, and investment interest 
are not subject to this limitation.
    Additionally, the Act raised excise taxes on alcoholic 
beverages, tobacco products, gasoline, and imposed new excise 
taxes on luxury items such as expensive airplanes, yachts, 
cars, furs, and jewelry. With the exception of the tax on 
luxury cars, all of the other luxury taxes have since been 
repealed.
    The Act provided a tax credit to help small businesses 
attempting to comply with the Americans With Disabilities Act 
of 1990. The provision, sponsored by Senators Pryor, Kohl, and 
Hatch, allows small businesses a nonrefundable 50-percent 
credit for expenditures of between $250 and $10,250 in a year 
to make their businesses more accessible to disabled persons. 
Such expenditures can include amounts spent to remove physical 
barriers and to provide interpreters, readers, or equipment 
that make materials more available to the hearing or visually 
impaired. To be eligible, a small business must have grossed 
less than $1 million in the preceding year or have no more than 
30 full-time employees. Full-time employees are those that work 
at least 30 hours per week for 20 or more calendar weeks during 
the tax year.
    At the time of passage, estimates made by the Congressional 
Budget Office, found that most elderly persons should be for 
the most part untouched by the changes made by the OBRA90. 
However, as might be expected, some high-income elderly will 
pay higher Federal taxes. Some of the excise taxes were found 
to have a negative effect on the elderly, in particular the 5 
cents a gallon increase on gasoline. Like all changes of the 
tax laws, certain individuals may be negatively affected, but 
as a class, the elderly will probably pay the same in Federal 
income taxes as a result of the passage of OBRA90.

            (f) Unemployment Compensation Amendments of 1992

    While the main purpose of this Act was to extend the 
emergency unemployment compensation program it contained a 
number of tax related provisions. The Act extended the 
temporary phaseout of the personal exemption deduction for high 
income taxpayers as well as revised the estimated tax payment 
rules for large corporations. This Act changed rules on pension 
benefit distributions and included the requirement that 
qualified plans must include optional trustee-to-trustee 
transfers of eligible rollover distributions.

           (g) The Omnibus Budget Reconciliation Act of 1993

    The Omnibus Budget Reconciliation Act of 1993, added a new 
36-percent tax rate applicable in 1997 to single individuals 
with taxable incomes between $124,650 and $271,050 ($151,750/
$271,050 for joint filers), and an additional 10-percent surtax 
for a top rate of 39.6 percent applicable to individuals or 
joint filers with taxable incomes in excess of $271,050. It 
also made permanent the 3-percent limitation on itemized 
deductions and the phaseout of personal exemptions for higher 
income taxpayers. This Act also increased the alternative 
minimum tax rate for individuals and repealed the Medicare 
health insurance tax wage cap. As mentioned earlier in this 
print, an increase was provided in the taxation of Social 
Security benefits for higher income taxpayers. Changes were 
also enacted to energy taxes, including adding 4.3 cents per 
gallon on most transportation fuel and the temporary extension 
of a 2.5 cents per gallon motor fuels tax enacted under OBRA90.

       (h) Social Security Domestic Employment Reform Act of 1994

    Changes were made in this Act (P.L. 103-387) to the Social 
Security program. The Act simplified and increased the 
threshold above which domestic workers are liable for Social 
Security taxes from $50 per quarter to $1,000 per year. Also, a 
reallocation of a portion of the Social Security tax was 
provided to the Disability Insurance Trust Fund. Finally, the 
Act extended a limitation for payments of Social Security 
benefits to felons and the criminally insane who are confined 
to institutions by court order.

            (i) State Taxation of Pension Income Act of 1995

    This Act (P.L. 104-95) amended Federal law to prohibit a 
State from levying its income tax on retirement income 
previously earned in the State but now received by people who 
are retired in other States. For purposes of the Act, ``State'' 
includes the District of Columbia, U.S. possessions, and any 
political subdivision of a State. Thus, the prohibition against 
taxing nonresident pension income also applies to income taxes 
levied by cities or counties. The new law protects most forms 
of retirement income and covers both private and public sector 
employees. The law does not restrict a State's ability to tax 
its own residents on their retirement income.

    (j) Health Insurance Portability and Accountability Act of 1996

    There were several provisions included in this Act (P.L. 
104-191) of interest to older Americans. In general, the Act 
provides for the same tax treatment for long-term care 
contracts as for accident and health insurance contracts. The 
Act also provides that employer-provided long-term care 
insurance be treated as a tax free fringe benefit. However, 
long-term care coverage cannot be provided through a flexible 
spending arrangement and to the extent such coverage is 
provided under a cafeteria plan the amounts are included in the 
employee's income. Payments from long-term care plans which pay 
or reimburse actual expense are tax free. The law provides for 
a $175 per day tax-free benefits payment with inflation 
adjustments in future years. Amounts above the $175 per day 
amount may also be received tax free to the extent of actual 
costs. Premiums qualify as medical expenses for those that 
itemized deductions (although this amount is limited depending 
on the insured age). In addition to this provision, the Act 
provides that accelerated life insurance benefits can be tax-
free. Accelerated death benefits are exempt from income tax in 
the case of a terminally or chronically ill individual. Also 
excluded from taxation are amounts received from viatical 
settlement companies for amounts received on the sale of a 
life-insurance contract. In the case of chronically ill 
individuals, the maximum exclusion is $175 per day in the case 
of per diem policies. Indemnity policies are not included under 
this provision.

                  (k) The Taxpayer Relief Act of 1997

    The Taxpayer Relief Act (P.L. 105-34) provides a modest 
aggregate tax reduction consisting of several major tax cut 
measures aimed at particular categories of taxpayers, income, 
and activities (e.g., capital gains, saving and investment) 
along with a host of smaller, more narrow provisions. In 
targeting the tax reductions to certain activities and types of 
income, the bill was also intended to stimulate and encourage 
activities that were argued to be economically or socially 
beneficial. The tax cut for capital gains and liberalized IRA 
rules, for example, were supported on the grounds they would 
stimulate saving and investment.

                      (1) Capital Gains Provisions

    The Act contains several provisions that reduce taxes on 
capital gains. The Act applies two reduced maximum rates: a 
maximum 10 percent rate to gains that would be taxed at 15 
percent if ordinary income rates applied; and a maximum 20 
percent rate to gains that would be subject to rates higher 
than 15 percent if they were ordinary income. Beginning in 
2001, the Act reduces its 20 percent and 10 percent maximum 
rates to 18 percent and 8 percent for assets held more than 5 
years. The Act also replaces prior law's benefits for gains 
from the sale of homes. The Act provides, instead, a $250,000 
exclusion from gain from the sale of a principal residence 
($500,000 for joint returns) that is not contingent on 
rollovers and is not restricted to those over 55.

                   (2) Individual Retirement Accounts

    Prior law provided that participants and/or their spouses 
who were in retirement plans had contributions phased out 
beginning at AGIs of $25,000 ($40,000 for couples). Under the 
Act the phase-out thresholds for deductions is increased. The 
Act also created two new types of IRAs. A ``back loaded'' or 
Roth IRA provides that the contributions are not deductible but 
neither are the earnings on those accounts taxable. The Act 
also created education IRAs which allow contributions of up to 
$500 per student for secondary education expenses. Greater 
detail on the IRA provisions is provided later in this chapter.

                          (3) Estate and Gift

    The Act reduces the estate and gift tax in a number of 
ways, but by far the largest reduction is a phased-in increase 
of the unified credit, which provides an effective tax 
exemption for transfers below a certain level. The 1997 Act 
gradually increases the exemption to $1,000,000, as follows: 
$625,000 in 1998; $650,000 in 1999; $675,000 in 2000 and 2001; 
$700,000 in 2002 and 2003; $850,000 in 2004; $950,000 in 2005; 
and $1,000,000 in 2006 and thereafter. The Act provides an 
additional benefit for estates comprised of family-owned 
businesses. Under its terms, up to $1,000,000 of a qualified 
estate can be excluded from tax. Among the other estate tax 
reductions are: indexation of several existing provisions that 
have the effect of reducing estate and gift taxes (e.g., the 
limit on ``special use'' valuation); reduction of estate tax 
for land subject to a conservation easement; and reduction of 
the interest rate applicable to installment payments of estate 
tax. Other provisions of interest to elderly taxpayers include 
technical corrections to medical savings accounts.

           (4) The Impact of the Taxpayer Relief Act of 1997

    To assess the Taxpayer Relief Act it helps to put it in 
perspective by comparing its policy direction to two landmark 
tax acts of the 1980s--the Economic Recovery Tax Act of 1981 
and the Tax Reform Act of 1986. The 1981 and 1986 Acts are 
generally recognized to have been guided by opposing views of 
the appropriate role of tax policy in the economy. The 1981 Act 
was, in part, based on a belief in the economic efficacy of 
targeted tax incentives--that judiciously selected and aimed 
tax reductions could enhance economic performance. For example, 
one of ERTA's most prominent measures was expansion of 
Individual Retirement Accounts, which were designed to 
stimulate savings. Only 5 years later, however, the Tax Reform 
Act of 1986 was designed to promote economic efficiency, 
equity, and simplicity. It was based, in part, on the notion 
that the economy functions best when tax-induced distortions of 
behavior are minimized; both this idea and the Act's goal of 
horizontal equity led to an emphasis in its provisions on 
reducing differences in how different activities and types of 
income were taxed.
    While a full assessment of the Taxpayer Relief Act is, of 
course, premature at this point, it is clear that the measure 
is closer to ERTA's guiding principles than those of the Tax 
Reform Act of 1986. For example, the 1997 Act's liberalized 
IRAs build on the IRA concept that was expanded with ERTA. And 
both the Taxpayer Relief Act's IRA provisions and its cut for 
capital gains are based on the same belief in the efficacy of 
tax incentives for saving and investment that underlay much of 
the 1981 Act.
    In contrast to the 1986 Tax Reform Act, there is little 
doubt that the 1997 Act added complications to the tax system 
as well as likely reducing horizontal equity. An important 
difference, however, between the 1997 Act and both ERTA and The 
Tax Reform Act is that the 1997 Act is substantially smaller 
than ERTA; and while the net revenue impact of the 1986 Act was 
quite small, it was substantially broader in scope than the 
Taxpayer Relief Act.

                    (l) Balanced Budget Act of 1997

    The Balanced Budget Act of 1997 (BBA97, P.L. 105-33) made 
several major changes to underlying Medicare law dealing with 
private health plans. It replaces the risk program (and other 
Medicare managed-care options, such as plans with cost 
contracts) with a program called Medicare+Choice (new Part C of 
Medicare). In doing so, it creates a new set of private plan 
options for Medicare beneficiaries. Every individual entitled 
to Medicare Part A and enrolled in Part B will be able to elect 
the existing package of Medicare benefits through either the 
existing Medicare fee-for-service program (traditional 
Medicare) or Medicare+Choice plan.
    Distributions from Medicare+Choice MSAs used to pay 
qualified medical expenses are excludable from taxable income. 
Excludable amounts cannot be taken into account for purposes of 
the itemized deduction for medical expenses. Distributions for 
other than qualified medical expenses are includible in taxable 
income and a special tax applies to such amounts. This 
additional tax does not apply to distributions because of the 
disability or death of the account holder. Special provisions 
apply upon the death of the account holder.

                               B. SAVINGS

                             1. Background

    There has been considerable emphasis on increasing the 
amount of resources available for investment. By definition, 
increased investment must be accompanied by an increase in 
saving and foreign inflows. Total national saving comes from 
three sources: individuals saving their personal income, 
businesses capital consumption allowances and retained profits, 
and Government saving when revenues exceed expenditures. As 
part of the trend to increase investment generally, new or 
expanded incentives for personal saving and capital 
accumulation have been enacted in recent years.
    Retirement income experts have suggested that incentives 
for personal saving be increased to encourage the accumulation 
of greater amounts of retirement income. Many retirees are 
dependent primarily on Social Security for their income. Thus, 
some analysts favor a better balance between Social Security, 
pensions, and personal savings as sources of income for 
retirees. The growing financial crisis that faced Social 
Security in the early 1980's reinforced the sense that 
individuals should be encouraged to increase their pre-
retirement saving efforts.
    The life-cycle theory of saving has helped support the 
sense that personal saving is primarily saving for retirement. 
This theory postulates that individuals save little as young 
adults, increase their saving in middle age, then consume those 
savings in retirement. Survey data suggests that saving habits 
are largely dependent on available income versus current 
consumption needs, an equation that changes over the course of 
most individuals' lifetimes.
    The consequences of the life-cycle saving theory raises 
questions for Federal savings policy. Tax incentives may have 
their greatest appeal to those who are already saving at above-
average incomes, and subject to relatively high marginal tax 
rates. Whether this group presently is responding to these 
incentives by saving at higher rates or simply shifting after-
tax savings into tax-deferred vehicles is a continuing subject 
of disagreement among many policy analysts.
    For taxpayers who are young or have lower incomes, tax 
incentives may be of little value. Raising the saving rate in 
this group necessitates a trade-off of increased saving for 
current consumption, a behavior which they are not under most 
circumstances inclined to pursue. As a result, some observers 
have concluded that tax incentives will contribute little to 
the adequacy of retirement income for most individuals, 
especially for those at the lower end of the income spectrum.
    The dual interest of increased capital accumulation and 
improved retirement income adequacy has sparked an expansion of 
tax incentives for personal retirement saving over the last 
decade. However, in recent years, many economists have begun to 
question the importance and efficiency of expanded tax 
incentives for personal saving as a means to raise capital for 
national investment goals, and as a way to create significant 
new retirement savings. These issues received attention in 1986 
as part of the effort to improve the fairness, simplicity, and 
efficiency of Federal tax incentives.
    The role of savings in providing for retirement income for 
the elderly population is substantial. In 1997, about two-
thirds of those aged 65 and over had property income while only 
about one-third received income from pensions. Nearly 20 
percent of all elderly income was accounted for by interest, 
dividends, or other forms of property income.
    Some differences emerge when the elderly population is 
broken down by race. Property income accounted for about 21 
percent of the total income of white households. Property 
income accounted for 7 percent and 5 percent of black and 
Hispanic household income, respectively.
    The median net worth of all families in 1995 was $56,400. 
The median net worth for white families was $73,900, while the 
median net worth for other families was $16,500. The wealthiest 
age group included those families headed by someone between the 
age of 55 and 64, whose median net worth was $110,800.
    The effort to increase national investment springs from a 
perception that governmental, institutional, and personal 
saving rates are lower than the level necessary to support a 
more rapidly growing economy. Except for a period during World 
War II when personal saving approached 25 percent of income, 
the personal saving rate in the United States through the early 
1990s ranged between 4 percent and 9.5 percent of disposable 
income but, recently it has fallen below that range. Many 
potential causes for these variations have been suggested, 
including demographic shifts in the age and composition of 
families and work forces, and efforts to maintain levels of 
consumption in the face of inflation. Personal saving rates in 
the United States historically have been substantially lower 
than in other industrialized countries. In some cases, it is 
only one-half to one-third of the saving rates in European 
countries.
    For 1998, Commerce Department figures indicate that the 
personal savings rate was 0.5 percent, compared to 2.1 percent 
for 1997. For the 1970's and 1980's, the rates averaged 8.3 
percent and 7.0 percent respectively.
    Even assuming present tax policy creates new personal 
savings, critics suggest this may not guarantee an increase in 
total national savings available for investment. Federal budget 
surpluses constitute saving as well; the loss of Federal tax 
revenues resulting from tax incentives may offset the new 
personal saving being generated. Under this analysis, net 
national saving would be increased only when net new personal 
saving exceeded the Federal tax revenue foregone as a result of 
tax-favored treatment.
    Recent studies of national retirement policy have 
recommended strengthening individual saving for retirement. 
Because historical rates of after-tax saving have been low, 
emphasis has frequently been placed on tax incentives to 
encourage saving in the form of voluntary tax-deferred capital 
accumulation mechanisms.
    The final report of the President's Commission on Pension 
Policy issued in 1981 recommended several steps to improve the 
adequacy of retirement saving, including the creation of a 
refundable tax credit for employee contributions to pension 
plans and individual retirement savings. Similarly, the final 
report of the National Commission on Social Security 
recommended increased contribution limits for IRAs. In that 
same year, the Committee for Economic Development, an 
independent, nonprofit research and educational organization, 
issued a report which recommended a strategy to increase 
personal retirement savings that included tax-favored 
contributions by employees covered by pension plans to IRAs, 
Keogh plans, or the pension plan itself.
    These recommendations reflected ongoing interest in 
increased saving opportunities. In each Congress since the 
passage of the Employee Retirement Income Security Act (ERISA) 
in 1974, there have been expansions in tax-preferred saving 
devices. This continued with the passage of the Economic Tax 
Recovery Act of 1981 (ERTA). From the perspective of 
retirement-specific savings, the most important provisions were 
those expanding the availability of IRAs, simplified employee 
pensions, Keogh accounts, and employee stock ownership plans 
(ESOP's). ERTA was followed by additional expansion of Keogh 
accounts in the Tax Equity and Fiscal Responsibility Act of 
1982 (TEFRA), which sought to equalize the treatment of 
contributions to Keogh accounts with the treatment of 
contributions to employer-sponsored defined contribution plans.
    The evaluation of Congress' attitude toward expanded use of 
tax incentives to achieve socially desirable goals holds 
important implications for tax-favored retirement saving. When 
there is increasing competition among Federal tax expenditures, 
the continued existence of tax incentives depends in part on 
whether they can stand scrutiny on the basis of equity, 
efficiency in delivering retirement benefits, and their value 
to the investment market economy.

                               2. Issues

               (A) Individual Retirement Accounts (IRAs)

                           (1) Brief History

    ``Deductible'' IRAs began with the Employee Retirement 
Income Security Act of 1974 to offer tax-advantaged retirement 
saving for workers not covered by employer retirement plans. 
Tax-deferred contributions could be made up to the lesser of 15 
percent of pay or $1,500 a year. The Economic Recovery Tax Act 
of 1981 hiked this limit to the lesser of 100 percent of pay or 
$2,000 and opened deductible contributions to all workers. 
However, the Tax Reform Act of 1986 limited deductibility of 
contributions by persons with employer coverage (or whose 
spouses have such coverage to those with income below certain 
limits. Filers ineligible to make deductible contributions can 
still make after-tax contributions to ``nondeductible'' IRAs, 
which defer income tax on investment earnings. If IRA funds 
that are taxable when withdrawn are withdrawn before age 59\1/
2\, they are also subject to a 10 percent excise tax unless the 
withdrawal is: because of death or disability; in the form of a 
lifetime annuity; to pay medical expenses in excess of 7.5 
percent of adjusted gross income (AGI); or to pay health 
insurance premiums while unemployed. Withdrawals must begin by 
April 1 of the year following the year in which age 70\1/2\ is 
attained in amounts that will consume the IRA over the expected 
lifetimes(s) of account holder and beneficiary.
    The Taxpayer Relief Act of 1997 changed IRAs in numerous 
ways by: expanding the number of tax filers eligible for tax-
deductible contributions; allowing penalty-free early 
withdrawals for higher education and qualified home purchase 
expenses; and authorizing Roth IRAs (back-loaded . . . i.e, the 
contributions are not deductible from income and earnings are 
nontaxable upon distribution from the account) and education 
IRAs funded by after-tax contributions that provide tax-free 
income.
(a) Pre-1986 tax reform
    The extension of IRAs to pension-covered workers in 1981 by 
ERTA resulted in dramatically increased IRA contributions. In 
1982, the first year under ERTA, IRS data showed 12 million IRA 
accounts, over four times the 1981 number. In 1983, the number 
of IRAs rose to 13.6 million, 15.2 million in 1984, and 16.2 
million in 1985. In 1986, contributions to IRAs totaled $38.2 
billion. The Congress anticipated IRA revenue losses under ERTA 
of $980 million for 1982 and $1.35 billion in 1983. However, 
according to Treasury Department estimates, revenue losses from 
IRA deductions for those years were $4.8 billion and $10 
billion, respectively. By 1986, the estimated revenue loss had 
risen to $16.8 billion. Clearly, the program had become much 
larger than Congress anticipated.
    The rapid growth of IRAs posed a dilemma for employers as 
well as Federal retirement income policy. The increasingly 
important role of IRAs in the retirement planning of employees 
began to diminish the importance of the pension bond which 
links the interests of employers and employees. Employers began 
to face new problems in attempting to provide retirement 
benefits to their work forces.
    A number of questions arose over the efficiency of the IRA 
tax benefit in stimulating new retirement savings. First, does 
the tax incentive really attract savings from individuals who 
would be unlikely to save for retirement otherwise? Second, 
does the IRA tax incentive encourage additional saving or does 
it merely redirect existing savings to a tax-favored account? 
Third, are IRAs retirement savings or are they tax-favored 
saving accounts used for other purposes before retirement?
    Evidence indicated that those who used the IRA the most 
might otherwise be expected to save without a tax benefit. Low-
wage earners infrequently used IRA's. The participation rate 
among those with less than $20,000 income was two-fifths that 
of middle-income taxpayers ($20,000 to $50,000 annual income) 
and one-fifth that of high-income taxpayers ($50,000 or more 
annual income). Also, younger wage earners, as a group, were 
not spurred to save by the IRA tax incentive. As the life-cycle 
savings hypothesis suggests, employees nearing normal 
retirement age are three times more likely to contribute to an 
IRA than workers in their twenties. Those without other 
retirement benefits also appear to be less likely to use an 
IRA. Employees with job tenures greater than 5 years display a 
higher propensity toward IRA participation at all income 
levels. For those not covered by employer pensions, utilization 
generally increases with age, but is lower across all income 
groups than for those who are covered by employer pensions. In 
fact, 46 percent of IRA accounts are held by individuals with 
vested pension rights.
    Though a low proportion of low-income taxpayers utilize 
IRAs relative to higher income counterparts, those low-income 
individuals who do contribute to an IRA are more likely than 
their high-income counterparts to make the contributions from 
salary rather than pre-existing savings. High-income taxpayers 
apparently are more often motivated to contribute to IRAs by a 
desire to reduce their tax liability than to save for 
retirement.
    One of the stated objectives in the creation of IRAs was to 
provide a tax incentive for increased saving among those in 
greatest need. This need appears to be most pressing among 
those with low pension coverage and benefit receipt resulting 
from employment instability or low average career compensation. 
However, the likelihood that a taxpayer will establish an IRA 
increases with job and income stability. Thus, the tax 
incentive appears to be most attractive to taxpayers with 
relatively less need of a savings incentive. As a matter of tax 
policy, IRAs could be an inefficient way of improving the 
retirement income of low-income taxpayers.
    An additional issue was whether all IRA savings are in fact 
retirement savings or whether IRAs were an opportunity for 
abuse as a tax shelter. Most IRA savers probably view their 
account as retirement savings and are inhibited from tapping 
the money by the early 10 percent penalty on withdrawals before 
age 59 and a half. However, those who do not intend to use the 
IRA to save for retirement, can still receive tax benefits from 
an IRA even with early withdrawals. Most analysts agree that 
the additional buildup of earnings in the IRA, which occurs 
because the earnings are not taxed, will surpass the value of 
the 10-percent penalty after only a few years, depending upon 
the interest earned. Some advertising for IRA savings 
emphasized the weakness of the penalty and promoted IRAs as 
short-term tax shelters. Although the tax advantage of an IRA 
is greatest for those who can defer their savings until 
retirement, they are not limited to savings deferred for 
retirement.
(b) Post-1986 tax reform proposals
    In the 101st Congress (1989-1990) several proposals to 
restore IRA benefits were made: the Super IRA, the IRA-Plus, 
and the Family Savings Account (FSA).
    The Super-IRA proposal suggested by Senator Bentsen and 
approved by the Senate Finance Committee in 1989 (S. 1750) 
would have allowed one half of IRA contributions to be deducted 
and would have eliminated penalties for ``special purpose'' 
withdrawals (for first time home purchase, education, and 
catastrophic medical expenses). The IRA proposal was advanced 
as an alternative to the capital gains tax benefits proposed on 
the House side.
    The IRA-Plus proposal (S. 1771) sponsored by Senators 
Packwood, Roth and others proposed an IRA with the tax benefits 
granted in a different fashion from the traditional IRA. Rather 
than allowing a deduction for contributions and taxing all 
withdrawals similar to the treatment of a pension, this 
approach simply eliminated the tax on earnings, like a tax-
exempt bond. This IRA is commonly referred to as a back-loaded 
IRA. The IRA-Plus would also be limited to a $2,000 
contribution per year. Amounts in current IRAs could be rolled 
over and were not subject to tax on earnings (only on original 
contributions); there were also special purpose withdrawals 
with a 5-year holding period.
    The Administration proposal for Family Savings Accounts 
(FSAs) in 1990 also used a back-loaded approach with 
contributions allowed up to $2,500. No tax would be imposed on 
withdrawals if held for 7 years, and no penalty (only a tax on 
earnings) if held for 3 years. There was also no penalty if 
funds were withdrawn to purchase a home. Those with incomes 
below $60,000, $100,000, and $120,000 (single, head of 
household, joint) would be eligible.
    In 1991, S. 612 (Senators Bentsen, Roth and others) would 
have restored deductible IRAs, and also allowed an option for a 
nondeductible or back-loaded ``special IRA.'' No tax would be 
applied if funds were held for 5 years and no penalties would 
apply if used for ``special purpose withdrawals.''
    In 1992 the President proposed a new IRA termed a FIRA 
(Flexible Individual Retirement Account) which allowed 
individuals to establish back-loaded individual retirement 
accounts in amounts up to $2,500 ($5,000 for joint returns) 
with the same income limits as proposed in the 101st Congress. 
No penalty would be applied for funds held for 7 years.
    Also in 1992, the House passed a limited provision (in H.R. 
4210) to allow penalty-free withdrawals from existing IRAs for 
``special purposes.'' The Senate Finance Committee proposed, 
for the same bill, an option to choose between back-loaded IRAs 
and front-loaded ones, with a 5-year period for the back-loaded 
plans to be tax free and allowing ``special purpose'' 
withdrawals. This provision was included in conference, but the 
bill was vetoed by the President for unrelated reasons. A 
similar proposal was included in HR 11 (the urban aid bill) but 
only allowed IRAs to be expanded to those earning $120,000 for 
married couples and $80,000 for individuals (this was a Senate 
floor amendment that modified a Finance Committee provision). 
That bill was also vetoed by the President for other reasons.
    Prior to the passage of the Small Business Tax Act in 1996 
some were concerned that the IRA was not equally available to 
all taxpayers who might want to save for retirement. Before 
1997, nonworking spouses of workers saving in an IRA could 
contribute only an additional $250 a year. The Small Business 
Tax Act modified the rule to allow spousal contributions of up 
to $2,000 if the combined compensation of the married couple is 
at least equal to the contributed amount. Prior to this change, 
some contended that the lower $250 amount created an inequity 
between two-earner couples who could contribute $4,000 a year 
and one-earner couples who could contribute a maximum of $2,250 
in the aggregate. They argued that it arbitrarily reduced the 
retirement income of spouses, primarily women, who spent part 
or all of their time out of the paid work force. Those who 
opposed liberalization of the contribution rules contended that 
any increase would primarily advantage middle and upper income 
taxpayers, because the small percentage of low-income taxpayers 
who utilized IRAs often did not contribute the full $2,000 
permitted them each year.
    The Contract with America and the 1995 budget 
reconciliation proposal included proposed IRA expansions, but 
these packages were not adopted. The Health Insurance 
Portability and Accountability Act of 1996 allowed penalty-free 
withdrawals from IRAs for medical costs. Under this provision, 
amounts withdrawn for medical expenses in excess of 7.5 percent 
of a taxpayer's adjusted gross income will not be subject to 
the 10 percent penalty tax for early withdrawals. In addition, 
persons on unemployment for at least 12 weeks may make 
withdrawals to pay for medical insurance without being subject 
to the 10 percent penalty tax for early withdrawals.
(c) 1997 revisions and establishment of Roth IRAs
    The Taxpayer Relief Act of 1997 has a number of different 
provisions related to IRAs, including both liberalization of 
rules and restrictions governing the type of IRAs allowed under 
prior law; and creation of 2 new types of IRAs--so called 
``back loaded'' IRAs (so called because contributions are not 
deductible, but qualified withdrawals are not taxed) and 
education IRAs. The 1997 Act gradually doubles the phase-out 
threshold for deductions to IRAs to $50,000 by the year 2005 
($80,000 for couples). The Act also provides that persons will 
not be disqualified from deducting IRA contributions if they, 
themselves, do not participate in a pension, but their spouse 
does. Finally, withdrawals from IRAs prior to age 59\1/2\ are 
subject to a 10 percent early withdrawal tax; the 1997 Act 
permits penalty free withdrawals of funds used to pay higher 
education expenses or first-time home purchases. In the case of 
the new type of ``back loaded'' IRA--(also called Roth IRAs) if 
a person expects to have the same tax rate upon retirement as 
when contributions are made, the back loaded IRAs deliver the 
same magnitude of tax benefit, per dollar of contribution, as 
deductible IRAs. Somewhat different rules, however, apply to 
Roth IRAs: allowable contributions to them are phased out at 
higher AGIs than is the deduction--between $95,000 and $110,000 
for singles (between $150,000 and $160,000 for couples). In 
addition contributions to all an individual's IRAs (i.e., 
deductible and Roth IRAs combined) are not permitted to exceed 
$2,000 in one year. As with deductible IRAs, penalty free 
withdrawals are permitted under the Act for first-time home 
purchases or higher education expenses. The Act also provides 
that funds can generally be shifted from prior-law type IRAs to 
Roth IRAs. The shifted amounts are included in taxable income. 
The Act permits taxpayers to establish education IRAs with 
annual contributions limited to $500 per beneficiary and 
allowable contributions phased out for AGIs between $95,000 and 
$110,000 ($150,000 and $160,000 for joint returns).

         (2) Tax Benefits of IRAs: Front-Loaded and Back-Loaded

    The two types of IRAs front-loaded (deductible) and back-
loaded (nondeductible) are equivalent in one sense, but 
different in other ways. They are equivalent in that they both 
effectively exempt the return on investment from tax in certain 
circumstances.
(a) Equivalence of types
    A back-loaded IRA is just like a tax-exempt bond; no tax is 
ever imposed on the earnings.
    Assuming that tax rates are the same at the time of 
contribution and withdrawal, a deductible, or front-loaded, IRA 
offers the equivalent of no tax on the rate of return to 
savings, just like a back-loaded IRA. The initial tax benefit 
from the deduction is offset, in present value terms, by the 
payment of taxes on withdrawal. Here is an illustration. If the 
interest rate is 10 percent, $100 will grow to $110 after a 
year--$100 of principal and $10 of interest. If the tax rate is 
25 percent, $2.50 of taxes will be paid on the interest, and 
the after-tax amount will be $107.50, for an after-tax yield of 
7.5 percent. With a front-loaded IRA, however, the taxpayer 
will save $25 in taxes initially from deducting the 
contribution, for a net investment of $75. At the end of the 
year, the $110 will yield $8.25 after payment of 25 percent in 
taxes, and $8.25 represents a 10 percent rate of return on the 
$75 investment. The current treatment for those not eligible 
for a deductible IRA--a deferral of tax--results in a partial 
tax, depending on period of time the asset is held and the tax 
rate on withdrawal. For example, a deferral would produce an 
effective tax rate of 18 percent if held in the account for 10 
years, and a tax rate of 13 percent if held for 20 years.
(b) Differences in treatment
    There are, nevertheless, three ways in which these tax 
treatments can differ--if tax rates vary over time, if the 
dollar ceilings are the same, and if premature withdrawals are 
made. There are also differences in the timing of tax benefits 
that have some implications for individual behavior as well as 
revenue costs.
            (1) Variation in tax rates over time
    The equivalence of front-loaded and back-loaded IRAs only 
holds if the same tax rate applies to the individual at the 
time of contribution and the time of withdrawal. If the tax 
rate is higher on contribution than on withdrawal, the tax rate 
is negative. For example, if the tax rate were zero on 
withdrawal in the previous example, the return of $35 on a $75 
investment would be 46 percent, indicating a large subsidy to 
raise the rate of return from 10 percent to 46 percent. 
Conversely, a high tax rate at the time of withdrawal relative 
to the rate at the time of contribution would result in a 
positive tax rate. If tax rates are uncertain, and especially 
if it is possible that the tax rate will be higher in 
retirement, the benefits of a front-loaded IRA are unclear.
            (2) Dollar ceilings
    A given dollar ceiling that is binding for an individual 
for a back-loaded IRA is more generous than for a front-loaded 
one. If an individual has $2,000 to invest and the tax rate is 
25 percent, all of the earnings will be tax exempt with a back-
loaded IRA, but the front-loaded IRA is equivalent to a tax 
free investment of only $1,500; the individual would have to 
invest the $500 tax savings in a taxable account to achieve the 
same overall savings, but will end up with a smaller amount of 
after tax funds on withdrawal.
    Another way of explaining this point is to consider a total 
savings of $2,000, which, under a back-loaded account with an 8 
percent interest rate would yield $9,321 after, say, 20 years. 
With a front loaded IRA, an interest rate of 8 percent and a 25 
percent tax rate (so $2,000 would be invested in an IRA and the 
$500 tax savings invested in a taxable account) the yield would 
be $8,595 in 20 years. In order to make a back-loaded IRA 
equivalent to a front loaded one, the back-loaded IRA would 
need to be 75 percent as large as a front-loaded one. (Since 
the relative size depends on the tax rate, the back-loaded IRA 
is more beneficial to higher income individuals than a front-
loaded IRA, other things equal, including the total average tax 
benefit provided).
            (3) Non-qualified withdrawals
    Front-loaded and back-loaded IRAs differ in the tax burdens 
imposed if non-qualified withdrawals are made (generally before 
retirement age). This issue is important because it affects 
both the willingness of individuals to commit funds to the 
account that might be needed before retirement (or other 
eligibility) and the willingness to draw out funds already 
committed to an account.
    The front-loaded IRA provides steep tax burdens for early 
year withdrawals which decline dramatically because the penalty 
applies to both principal and interest. (Without the penalty, 
the effective tax rate is always zero). For example, with a 28 
percent tax rate and an 8 percent interest rate, the effective 
tax burden is 188 percent if held for only a year, 66 percent 
for 3 years and 40 percent for 5 years. At about 7 years, the 
tax burden is the same as an investment made in a taxable 
account, 28 percent. Thereafter, tax benefits occur, with the 
effective tax rate reaching 20 percent after 10 years, 10 
percent after 20 years and 7 percent after 30 years. These tax 
benefits occur because taxes are deferred and the value of the 
deferral exceeds the penalty.
    The case of the back-loaded IRA is much more complicated. 
First, consider the case where all such IRAs are withdrawn. In 
this case, the effective tax burdens are smaller in the early 
years. Although premature withdrawals attract both regular tax 
and penalty, they apply only to the earnings, which are 
initially very small. In the first year, the effective tax rate 
is the sum of the ordinary tax rate (28 percent) and the 
penalty (10 percent), or 38 percent. Because of deferral, the 
tax rate slowly declines (36 percent after 3 years, 34 percent 
after 5 years, 30 percent after 10 years). In this case, it 
takes 13 years to earn the same return that would have been 
earned in a taxable account. These patterns are affected by the 
tax rate. For example, with a 15 percent tax rate, it takes 
longer for the IRA to yield the same return as a taxable 
account--11 years for a front-loaded account and 19 years for a 
back-loaded one.
    Partial premature withdrawals will be treated more 
generously, as they will be considered to be a return of 
principal until all original contributions are recovered. This 
treatment is more generous than the provisions in the original 
Contract with America, where the reverse treatment occurred: 
partial premature withdrawals would be treated as income and 
fully taxed until the amount remaining in the account is equal 
to original investment.
    These differences suggest that individuals should be much 
more willing to put funds that might be needed in the next year 
or two for an emergency in a back-loaded account than in a 
front-loaded account, since the penalties relative to a regular 
savings account are much smaller. These differences also 
suggest that funds might be more easily withdrawn from back-
loaded accounts in the early years even with penalties. This 
feature of the back-loaded account along with the special tax-
favored withdrawals make these tax-favored accounts much closer 
substitutes for short-term savings not intended for retirement.
    It could eventually become more costly to make premature 
withdrawals from back-loaded accounts than from front-loaded 
accounts. Consider, for example, withdrawal in the year before 
retirement for all funds that had been in the account for a 
long time. For a front-loaded IRA, the cost is the 10 percent 
penalty on the withdrawal plus the payment of regular tax one 
year in advance--both amounts applying to the full amount. For 
a back-loaded account, where no tax or penalty would be due if 
held until retirement, the cost is the penalty plus the regular 
tax (since no tax would be paid for a qualified withdrawal) on 
the fraction of the withdrawal that represented earnings, which 
would be a large fraction of the account if held for many 
years.
            (4) Timing of effects
    The tax benefit of the front-loaded IRA is received in the 
beginning, while the benefit of the back-loaded IRA is spread 
over the period of the investment. These differences mean that 
the front-loaded IRA is both more costly than the back-loaded 
one in the short run (and therefore in the budget window) and 
that a front-loaded IRA is more likely to increase savings. 
These issues are discussed in the following two sections.
    Receiving the tax benefit up front might also make 
individuals more willing to participate in IRAs because the 
benefit is certain (the government could, in theory, disallow 
income exemptions in back-loaded IRAs already in existence). At 
the same time, however, the rollover provision makes it much 
less likely that the government would be willing to tax the 
return to existing IRAs, because a tax must be paid to permit 
the rollover.
    Some have argued that the attraction of an immediate tax 
benefit has played a role in the popularity of IRAs and may 
have contributed to increased savings (see the following 
discussion of savings).

                          (3) Savings Effects

    There has been an extensive debate about the effect of 
individual retirement accounts on savings. For a more complete 
discussion of the savings literature, see Jane G. Gravelle's 
The Economic Effects of Taxing Capital Income, Cambridge, 
Mass., MIT Press, 1994, p. 27, for a discussion of the general 
empirical literature on savings and pp. 193-197 for a 
discussion of the empirical studies of IRAs. Subsequent to this 
survey, a new paper by Orazio P. Attanasio and Thomas C. 
DeLeire, IRA's and Household Saving Revisited: Some New 
Evidence, National Bureau of Economic Research Working Paper 
4900, October 1994 was published. That study found little 
evidence that IRAs increased savings.
    Conventional economic analysis and general empirical 
evidence on the effect of tax incentives on savings do not 
suggest that IRAs would have a strong effect on savings. In 
general, the effect of a tax reduction on savings is ambiguous 
because of offsetting income and substitution effects. The 
increased rate of return may cause individuals to substitute 
future for current consumption and save more (a substitution 
effect), but, at the same time, the higher rate of return will 
allow individuals to save less and still obtain a larger target 
amount (an income effect). The overall consequence for savings 
depends on the relative magnitude of these two effects. 
Empirical evidence on the relationship of rate of return to 
saving rate is mixed, indicating mostly small effects of 
uncertain direction. In that case, individual contributions to 
IRAs may have resulted from a shifting of existing assets into 
IRAs or a diversion of savings that would otherwise have 
occurred into IRAs.
    The IRA is even less likely to increase savings because 
most tax benefits were provided to individuals who contributed 
the maximum amount--eliminating any substitution effect at all. 
(Note that over time, however, one might expect fewer 
contributions to be at the limit as individuals run through 
their assets.) For these individuals, the effect of savings is 
unambiguously negative, with one exception. In the case of the 
front-loaded, or deductible IRA, savings could increase to 
offset part of the up-front tax deduction, as individuals 
recognize that their IRA accounts will involve a tax liability 
upon withdrawal. The share of IRAs that were new savings would 
depend on the tax rate with a 28 percent tax rate, one would 
expect that 28 percent would be saved for this reason; with a 
15 percent tax rate, 15 percent would be saved for this reason.
    This effect does not occur with a back-loaded or 
nondeductible IRA. Thus, conventional economic analysis 
suggests that private savings would be more likely to increase 
with a front-loaded rather than a back-loaded IRA.
    Despite this conventional analysis, some economists have 
argued that IRA contributions were largely new savings. The 
theoretical argument has been made that the IRAs increase 
savings because of psychological, ``mental account,'' or 
advertising reasons. Individuals may need the attraction of a 
large initial tax break; they may need to set aside funds in 
accounts that are restricted to discipline themselves to 
maintain retirement funds; or they may need the impetus of an 
advertising campaign to remind them to save. There has also 
been some empirical evidence presented to suggest that IRAs 
increase savings. This evidence consists of (1) some simple 
observations that individuals who invested in IRAs did not 
reduce their non-IRA assets and (2) a statistical estimate by 
Venti and Wise that showed that IRA contributions were 
primarily new savings. This material has been presented by 
Steve Venti and David Wise in several papers; see for example, 
Have IRAs Increased U.S. Savings?, Quarterly Journal of 
Economics, v. 105, August, 1990, pp. 661-698.
    The fact that individuals with IRAs do not decrease their 
other assets does not prove that IRA contributions were new 
savings; it may simply mean that individuals who were planning 
to save in any case chose the tax-favored IRA mechanism. The 
Venti and Wise estimate has been criticized on theoretical 
grounds and another study by Gale and Scholz using similar data 
found no evidence of a savings effect. (See William G. Gale and 
John Karl Scholz, IRAs and Household Savings, American Economic 
Review, December 1994, pp. 1233-1260.) A study by Manegold and 
Joines comparing savings behavior of those newly eligible for 
IRAs and those already eligible for IRAs found no evidence of 
an overall effect on savings, although increases were found for 
some individuals and decreases for others; a study by Attanasio 
and DeLeire also using this approach found little evidence of 
an overall savings effect. (See Douglas H. Joines and James G. 
Manegold, IRAs and Savings: Evidence from a Panel of Taxpayers, 
University of Southern California; Orazio P. Attanasio and 
Thomas C. DeLeire, IRA's and Household Saving Revisited: Some 
New Evidence, National Bureau of Economic Research Work Paper 
4900, October 1994.) And, while one must be careful in making 
observations from a single episode, there was no overall 
increase in the savings rate during the period that IRAs were 
universally available, despite large contributions into IRAs.
    It is important to recognize that this debate on the 
effects of IRAs on savings concerned the effects of front-
loaded, or deductible IRAs. Many of the arguments that suggest 
IRAs would increase savings do not apply to back-loaded IRAs 
such as those contained in the legislation reported out by the 
Ways and Means Committee or allowed as an option in other 
proposals. Back-loaded IRAs do not involve the future tax 
liability that, in conventional analysis, should cause people 
to save for it.
    Indeed, based on conventional economic theory, there are 
two reasons that the proposal for back-loaded IRAs may decrease 
savings. First, those who are newly eligible for the benefits 
should, in theory reduce their savings, because these 
individuals are higher income individuals who are more likely 
to save at the limit. The closer substitutability of IRAs with 
savings for other purposes would also increase the possibility 
that IRA contributions up to the limit could be made from 
existing savings. Secondly, those who are currently eligible 
for IRAs who are switching funds from front-loaded IRAs or who 
are now choosing back-loaded IRAs as a substitute for front-
loaded ones should reduce their savings because they are 
reducing their future tax liabilities.
    Also, many of the ``psychological'' arguments made for IRAs 
increasing savings do not apply to the back-loaded IRA. There 
is no large initial tax break associated with these provisions, 
and the funds are less likely to be locked-up in the first few 
years because the penalty applying to withdrawals is much 
smaller. In addition, funds are not as tied up because of the 
possibility of withdrawing them for special purposes, including 
ordinary medical expenses.
    Overall, the existing body of economic theory and empirical 
research does not make a convincing case that the expansion of 
individual retirement accounts, particularly the back-loaded 
accounts will increase savings. For three papers that review 
the evidence from differing perspectives see the three articles 
published in the fall 1996 issue of the Journal of Economic 
Perspectives, pp. 73-90, 91-112, and 113-138: R. Glenn Hubbard 
and Jonathan S. Skinner, ``Assessing the Effectiveness of 
Savings Incentives,'' James Poterba, Steven F. Venti, and David 
A. Wise, ``How Retirement Saving Programs Increase Saving,'' 
and Eric M. Engen, William G. Gale, and John Karl Scholz, ``The 
Illusory Effects of Savings Incentives on Savings.''

                          (4) Revenue Effects

    The revenue loss from IRAs varies considerably over time. 
For a back-loaded IRA, the cost grows rapidly over time and the 
long-run revenue cost (in constant income levels) is about 
eight times as large as in the first 5 years, even if rollovers 
from existing accounts were not allowed. Front-loaded IRAs also 
have an uneven pattern of revenue cost, although they are 
characterized by a rise to a peak (as withdrawals occur) and 
then a steady state cost that could be a third or so larger 
than in the first 5 years.
    The IRA provision allowing a rollover of existing front-
loaded IRAs into back-loaded IRAs over a 4-year period has the 
effect of raising tax revenue in the short run although, of 
course, the rollover will result in lost revenues (with 
interest) in future years. As enacted, the IRA provisions are 
projected to ultimately result in a significant annual revenue 
loss. It can be expected that the revenue losses in the initial 
period understates the losses that will occur in the long run 
due to the shift to back-loaded accounts. The long phase-in of 
increased limits for deductible IRAs also causes costs to be 
lower in the short run.

                       (5) Distributional Effects

    Who benefits from the expansion of IRAs? In general, any 
subsidy to savings tends to benefit higher income individuals 
who are more likely to save. The benefits of IRAs for high 
income individuals are limited, however, compared to many other 
savings incentives because of the dollar limits. Nevertheless, 
the benefits of IRAs when universally allowed tended to go to 
higher income individuals. In 1986, 82 percent of IRA 
deductions were taken by the upper third of individuals filing 
tax returns (based on adjusted gross income); since these 
higher income individuals had higher marginal tax rates, their 
share of the tax savings would be larger.
    In addition, when universal IRAs were available from 1981-
1986, they were nevertheless not that popular. In 1986, only 15 
percent of individuals contributed to IRAs. Participation rates 
were lower in the bottom and middle of the income distribution: 
only 2 percent of taxpayers in the bottom third of tax returns 
and only 9 percent of individuals in the middle third 
contributed to IRAs. Participation rose with income: 33 percent 
of the upper third contributed, 54 percent of taxpayers in the 
top 10 percent contributed, and 70 percent of taxpayers in the 
top 1 percent contributed.
    The expansion of IRAs is even more likely to benefit higher 
income individuals because lower income individuals are already 
eligible for front loaded (deductible) IRAs that confer the 
same general tax benefit. Less than a quarter of individuals 
(1993 data) have incomes too large to be eligible for any IRA 
deduction (because they are above $50,000 for married 
individuals and $35,000 for singles) and less than a third 
exceed the beginning of the phaseout range. Also, those higher 
income individuals not already covered by a pension plan are 
also eligible. Therefore, only higher income individuals who 
did not otherwise have tax benefits from pension coverage were 
currently excluded from IRA coverage.
    Overall, expansion of IRAs tends to benefit higher income 
individuals, although the benefits are constrained for very 
high income individuals because of the dollar ceilings and 
because of income limits which also apply to back-loaded IRAs.

                       (6) Administrative Issues

    The more types of IRAs that are available, the larger the 
administrative costs associated with them. With the 
introduction of back-loaded accounts, three types of IRAs 
exist--the front-loaded that have been available since 1974 
(and universally available in 1981-1986), the non-deductible 
tax deferred accounts available in prior law to higher income 
individuals and that are now superseded by more tax preferred 
plans for all but a very high income group and the new back-
loaded accounts. Treatment on withdrawal will also be more 
complex, since some are fully taxable, some partially taxable, 
and some not taxable at all.
    Another administrative complexity that arises is 
withdrawals prior to retirement for special purposes, including 
education and first time home purchase.

          (7) Advantages of Front-Loaded Vs. Back-Loaded IRAs

    Most individuals now have a choice between a front-loaded 
and a back-loaded IRA. An earlier section discussed the 
relative tax benefits of the alternatives to the individual. 
This section discusses the relative advantages and 
disadvantages to these different approaches in achieving policy 
objectives.
    From a budgetary standpoint, the short-run estimated cost 
of the front-loaded IRA provides a more realistic picture of 
the eventual long-run budgetary costs of IRAs than does the 
back-loaded. This issue can be important if there are long run 
objectives of balancing the budget, which can be made more 
difficult if costs of IRAs are rising. In addition, if 
distributional tables are based on cash flow measures, as in 
the case of the Joint Tax Committee distributional estimates, a 
more realistic picture of the contribution of IRA provisions to 
the total distributional effect of the tax package is likely to 
emerge. In that sense, allowing back-loaded IRAs, even as a 
choice, has probably made it harder to meet long-run budgetary 
goals because the budget targets did not take into account the 
out-year costs.
    The front-loaded IRA is more likely to result in some 
private savings than the back-loaded IRA, from the perspective 
of either conventional economic theory or the ``psychological'' 
theories advanced by some; hence allowing back-loaded IRAs may 
have negative effects on national savings objectives. Of 
course, a front-loaded IRA also has so a larger revenue cost 
that overall saving is only different, under conventional 
analysis, if the difference in revenue costs is made up in some 
other way (and that offsetting policy does not itself affect 
savings.)
    There are, however, some advantages of back-loaded IRAs. 
The backloaded IRA avoids one planning problem associated with 
front-loaded IRAs: if individuals use a rule-of-thumb of 
accumulating a certain amount of assets, they may fail to 
recognize the tax burden associated with accumulated IRA 
assets. In that case, the front-loaded IRA would leave them 
with less after-tax assets in retirement than they had planned, 
a problem that would not arise with the back-loaded IRA where 
no taxes are paid at retirement. A possible second advantage of 
back-loaded IRAs is that the effective tax rate is always known 
(zero), unlike the front-loaded IRA where the effective tax 
rate depends on the tax rate today vs. the tax rate in 
retirement. Yet another advantage is that the effective 
contribution limit in a back-loaded IRA is not dependent on the 
tax rate (although it would be possible to devise an adjustment 
to the IRA contribution ceiling based on tax rate).

                             (8) Conclusion

    Unlike the initial allowance of IRAs in 1974 to extend the 
tax advantage allowed to employees with pension plans, the 
major focus of universal IRAs has been to encourage savings, 
especially for retirement. If the main objective of individual 
retirement accounts is to encourage private savings, the 
analysis does not suggest that we will necessarily achieve that 
objective. Moreover, the back-loaded approach allowed as an 
option is, according to many analysts, less likely to induce 
savings than the current form of IRAs or the form allowed 
during the period of universal availability (1981-1986). In 
addition, the ability to withdraw amounts for other purposes 
than retirement can dilute the focus of the provision on 
preparing for retirement.
    This new law may also put some pressure on overall national 
savings in the future, as the IRA provisions involve a growing 
budgetary cost.
    IRAs have often been differentiated from other tax benefits 
for capital income as the plan focused on moderate income or 
middle class individuals. The IRA has been successful in that 
more of the benefits are targeted to moderate income 
individuals than is the case for many other tax benefits for 
capital (e.g., capital gains tax reductions). Nevertheless, 
data on participation and usage, and the current allowance of 
IRAs for lower income individuals, suggest that the benefit 
will still accrue more to higher than to lower income 
individuals.
    Certain features will complicate administrative costs, and 
there has been relatively little attention paid to the dramatic 
differences in the penalties for early withdrawal associated 
with back-loaded vs front-loaded accounts.

                   (b) Residential Retirement Assets

    Tax incentives, which have long promoted the goal of home 
ownership, include the income tax deductions for real estate 
taxes and home mortgage interest. The other major homeowner 
incentive is the tax-free exclusion on up to $250,000 ($500,000 
for married taxpayers) of capital gains from the sale of a 
primary residence.
    Prior to 1986, there was no limit on the amount of mortgage 
interest that could be deducted. Under current law, the amount 
of mortgage interest that can be deducted on a principal or 
secondary residence (on loans taken out after 1987) is limited 
to the interest paid on the combined debt on these homes of up 
to $1.1 million. The $1.1 million limit on debt includes up to 
$100,000 of home equity loans that are often used for other 
purposes.
    Now that interest on personal loans is no longer 
deductible, more homeowners are taking out home equity lines of 
credit and using the proceeds to pay off or take on new debt 
for autos, vacations, or to make payments on credit card 
purchases. In effect, homeowners are converting nondeductible 
personal interest into tax deductible home mortgage interest 
deductions.
    Aside from the fairness issues (for example, that renters 
cannot take advantage of this tax provision), there is concern 
that some homeowners may find it too easy to spend their home 
equity (retirement savings in many cases) on consumer items, 
thereby reducing their retirement ``nest egg.'' At the same 
time, many elderly homeowners are finding home equity 
conversion programs useful because they make it easier to 
convert the built up equity in a home into much needed 
supplemental retirement income. A section that describes in 
detail home equity conversions is contained in chapter 13 of 
this committee print. Others are using this build up in equity 
to pay for property taxes, home repairs, and entrance into 
retirement communities or nursing homes. Some fear that the 
inappropriate use of home equity loans in the early or mid-
years of life could mean that for some, substantial mortgage 
payments might continue well into later life with the possible 
result being less retirement security than originally planned.


                               Chapter 4



                               EMPLOYMENT

                         A. AGE DISCRIMINATION

                             1. Background

    Older workers continue to face numerous obstacles to 
employment, including negative stereotypes about aging and 
productivity; job demands and schedule constraints that are 
incompatible with the skills and needs of older workers; and 
management policies that make it difficult to remain in the 
labor force, such as corporate downsizing brought on by 
recession.
    Age discrimination in the workplace plays a pernicious role 
in blocking employment opportunities for older persons. The 
development of retirement as a social pattern has helped to 
legitimize this form of discrimination. Although there is no 
agreement on the extent of age-based discrimination, nor how to 
remedy it, few would argue that the problem exists for millions 
of older Americans.
    The forms of age discrimination range from the more 
obvious, such as age-based hiring or firing, to the more 
subtle, such as early retirement incentives. Other 
discriminatory practices involve relocating an older employee 
to an undesirable area in the hopes that the employee will 
instead resign, or giving an older employee poor evaluations to 
justify the employee's later dismissal. The pervasive belief 
that all abilities decline with age has fostered the myth that 
older workers are less efficient than younger workers. Since 
younger workers, rather than older workers, tend to receive the 
skills and training needed to keep up with technological 
changes, the myth continues. However, research has shown that 
although older people's cognitive skills are slower, they 
compensate with improved judgment.
    Too often employers wrongly assume that it is not 
financially advantageous to retrain an older worker because 
they believe that a younger employee will remain on the job 
longer, simply because of his or her age. In fact, the mobility 
of today's work force does not support this perception. 
According to the Bureau of Labor Statistics, in 1998, the 
median job tenure for a current employee was as little as 3.6 
years.
    Age-based discrimination in the workplace poses a serious 
threat to the welfare of many older persons who depend on their 
earnings for their support. While the number of older persons 
receiving maximum Social Security benefits is increasing, most 
retirees receive less than the maximum.
    According to 1998 Bureau of Labor Statistics (BLS), the 
unemployment rate was 2.5 percent for workers age 55 to 59,2.7 
percent for workers 60 to 64, 3.3 percent for workers age 65 to 
69, and 3.2 percent for workers age 75 and over. Although older 
workers as a group have the lowest unemployment rate, these 
numbers do not reflect those older individuals who have 
withdrawn completely from the labor force due to a belief that 
they cannot find satisfactory employment.
    Duration of unemployment is also significantly longer among 
older workers. As a result, older workers are more likely to 
exhaust available unemployment insurance benefits and suffer 
economic hardships. This is especially true because many 
persons over 45 still have significant financial obligations.
    Prolonged unemployment can often have mental and physical 
consequences. Psychologists report that discouraged workers can 
suffer from serious psychological stress, including 
hopelessness, depression, and frustration. In addition, medical 
evidence suggests that forced retirement can so adversely 
affect a person's physical, emotional, and psychological health 
that lifespan may be shortened.
    Despite the continuing belief that older workers are less 
productive, there is a growing recognition of older workers' 
skills and value. In 1988 the Commonwealth Fund began a 5-year 
study, ``Americans Over 55 at Work,'' examining the economic 
and personal impact of what the fund saw as a ``massive shift 
toward early retirement that occurred in the 1970's and 
1980's.'' The fund estimates that over the past decade, 
involuntary retirement has cost the economy as much as $135 
billion a year. The study concludes older workers are both 
productive and cost-effective, and that hiring them makes good 
business sense.
    Many employers also have reported that older workers tend 
to stay on the job longer than younger workers. Some employers 
have recognized that older workers can offer experience, 
reliability, and loyalty. A 1989 AARP survey of 400 businesses 
reported that older workers generally are regarded very 
positively and are valued for their experience, knowledge, work 
habits, and attitudes. In the survey, employers gave older 
workers their highest marks for productivity, attendance, 
commitment to quality, and work performance.
    In the early 1990's there was a steady increase in the 
number of complaints received by the EEOC. The number of 
complaints rose from 14,526 in fiscal year 1990 to 19,573 in 
fiscal year 1992. Since that time, however, preliminary data 
show the number of complaints has declined to 15,191 in fiscal 
year 1998.

             2. The Equal Employment Opportunity Commission

    The EEOC is responsible for enforcing laws prohibiting 
discrimination. These include: (1) Title VII of the Civil 
Rights Act of 1964; (2) The Age Discrimination in Employment 
Act of 1967; (3) The Equal Pay Act of 1963; (4) Sections 501 
and 505 of the Rehabilitation Act of 1973; and (5) the 
Americans With Disabilities Act of 1990.
    When originally enacted, enforcement responsibility for the 
ADEA was placed with the Department of Labor (DOL) and the 
Civil Service Commission. In 1979, however, the Congress 
enacted President Carter's Reorganization Plan No. 1, which 
called for the transfer of responsibilities for ADEA 
administration and enforcement to the EEOC, effective July 1, 
1979.
    The EEOC has been praised and criticized for its 
performance in enforcing the ADEA. In recent years, concerns 
have been raised over EEOC's decision to refocus its efforts 
from broad complaints against large companies and entire 
industries to more narrow cases involving few individuals. 
Critics also point to the large gap between the number of age-
based complaints filed and the EEOC's modest litigation record. 
In fiscal year 1997, preliminary data show that the EEOC 
received 15,785 ADEA complaints and filed suit in less than 1 
percent of these complaints.

              3. The Age Discrimination in Employment Act

                             (a) Background

    Over two decades ago, the Congress enacted the Age 
Discrimination in Employment Act of 1967 (ADEA) (P.L. 90-202) 
``to promote employment of older persons based on their ability 
rather than age; to prohibit arbitrary age discrimination in 
employment; and to help employers and workers find ways of 
meeting problems arising from the impact of age on 
employment.''
    In large part, the ADEA arose from a 1964 Executive Order 
issued by President Johnson declaring a public policy against 
age discrimination in employment. Three years later, the 
President called for congressional action to eliminate age 
discrimination. The ADEA was the culmination of extended debate 
concerning the problems of providing equal opportunity for 
older workers in employment. At issue was the need to balance 
the right of older workers to be free from age discrimination 
in employment with the employer's prerogative to control 
managerial decisions. The provisions of the ADEA attempt to 
balance these competing interests by prohibiting arbitrary age-
based discrimination in the employment relationship. The law 
provides that arbitrary age limits may not be conclusive in 
determinations of nonemployability, and that employment 
decisions regarding older persons should be based on individual 
assessments of each older worker's potential or ability.
    The ADEA prohibits discrimination against persons age 40 
and older in hiring, discharge, promotions, compensation, term 
conditions, and privileges of employment. The ADEA applies to 
private employers with 20 or more workers; labor organizations 
with 25 or more members or that operate a hiring hall or office 
which recruits potential employees or obtains job 
opportunities; Federal, State, and local governments; and 
employment agencies.
    Since it's enactment in 1967, the ADEA has been amended a 
number of times. The first set of amendments occurred in 1974, 
when the law was extended to include Federal, State, and local 
government employers. The number of workers covered also was 
increased by limiting exemptions for employers with fewer than 
20 employees. (Previous law exempted employers with 25 or fewer 
employees.) In 1978, the ADEA was amended by extending 
protections to age 70 for private sector, State and local 
government employers, and by removing the upper age limit for 
employees of the Federal Government.
    In 1982, the ADEA was amended by the Tax Equity and Fiscal 
Responsibility Act (TEFRA) to include the so-called ``working 
aged'' clause. As a result, employers are required to retain 
their over-65 workers on the company health plan rather than 
automatically shifting them to Medicare. Under previous law, 
Medicare was the primary payer and private plans were 
secondary. TEFRA reversed the situation, making Medicare the 
payer of last resort.
    Amendments to the ADEA were also contained in the 1984 
reauthorization of the Older Americans Act (P.L. 98-459). Under 
the 1984 amendments, the ADEA was extended to U.S. citizens who 
are employed by U.S. employers in a foreign country. Support 
for this legislation stemmed from the belief that such workers 
should not be subject to possible age discrimination just 
because they are assigned abroad. Also, the executive exemption 
was raised from $27,000 to $44,000, the annual private 
retirement benefit level used to determine the exemption from 
the ADEA for persons in executive or high policymaking 
positions.
    The Age Discrimination in Employment Act Amendments of 1986 
contained provisions that eliminated mandatory retirement 
altogether. By removing the upper age limit, Congress sought to 
protect workers age 40 and above against discrimination in all 
types of employment actions, including forced retirement, 
hiring, promotions, and terms and conditions of employment. The 
1986 Amendments to the ADEA also extended through the end of 
1993 an exemption from the law for institutions of higher 
education and for State and local public safety officers (these 
issues are discussed below).
    In 1990, Congress amended the ADEA by enacting the Older 
Workers Benefit Protection Act (P.L. 101-433). This legislation 
restored and clarified the ADEA's protection of older workers' 
employee benefits. In addition, it established new protections 
for workers who are asked to sign waivers of their ADEA rights.
    The Age Discrimination in Employment Amendments of 1996 
(P.L. 104-208) amends the 1986 amendments to restore the public 
safety exemption. This allows police and fire departments to 
use maximum hiring ages and mandatory retirement ages as 
elements of their overall personnel policies.
    The ADEA was amended again in 1998 by the Higher Education 
Amendments of 1998 (HEA of 1998) (P.L. 105-244). The HEA of 
1998 creates an exception to the ADEA that allows colleges and 
universities to offer an additional age-based benefit to 
tenured faculty who voluntarily retire.

                     (b) Tenured Faculty Exemption

    Provisions in the 1986 amendments to the ADEA to 
temporarily exempt universities from the law reflect the 
continuing debate over the fairness of the tenure system in 
institutions of higher education. During consideration of the 
1986 amendments, several legislative proposals were made to 
eliminate mandatory retirement of tenured faculty, but 
ultimately a compromise allowing for a temporary exemption was 
enacted into law.
    The exemption allowed institutions of higher education to 
set a mandatory retirement age of 70 years for persons serving 
under tenure at institutions of higher education. This 
provision was in effect for 7 years, until December 31, 1993. 
The law also required the EEOC to enter into an agreement with 
the National Academy of Sciences to conduct a study to analyze 
the potential consequences of the elimination of mandatory 
retirement for institutions of higher education reporting the 
findings to the President and Congress. The National Academy of 
Sciences formed the Committee on Mandatory Retirement in Higher 
Education (the Committee) to conduct the study.
    Proponents of mandatory retirement at age 70 argue that 
without it, institutions of higher education will not be able 
to continue to bring in those with fresh ideas. The older 
faculty, it is claimed, would prohibit the institution from 
hiring younger teachers who are better equipped to serve the 
needs of the school. They also claim that allowing older 
faculty to teach or research past the age of 70 denies women 
and minorities access to the limited number of faculty 
positions.
    Opponents of the exemption claim that there is little 
statistical proof that older faculty keep minorities and women 
from acquiring faculty positions. They cite statistical 
information gathered at Stanford University and analyzed in a 
paper by Allen Calvin which suggests that even with mandatory 
retirement and initiatives to hire more minorities and women, 
there was only a slight change in the percentage of tenured 
minority and women. In addition, they argue that colleges and 
universities are using mandatory retirement to rid themselves 
of both undesirable and unproductive professors, instead of 
dealing directly with a problem that can affect faculty members 
of any age. The use of performance appraisals, they argue, is a 
more reliable and fair method of ending ineffectual teaching 
service than are age-based employment policies.
    Based upon its review, the Committee recommended ``that the 
ADEA exemption permitting the mandatory retirement of tenured 
faculty be allowed to expire at the end of 1993.'' On December 
31, 1993 this exemption expired.
    The Committee reached two key conclusions:

          At most colleges and universities, few tenured 
        faculty would continue working past age 70 if mandatory 
        retirement is eliminated because most faculty retire 
        before age 70. In fact, colleges and universities 
        without mandatory retirement that track the data on the 
        proportion of their faculty over age 70 report no more 
        than 1.6 percent; and
          At some research universities, a high proportion of 
        faculty may choose to work past age 70 if mandatory 
        retirement is eliminated. A small number of research 
        universities report that more than 40 percent of the 
        faculty who retire each year have done so at the 
        current mandatory retirement age of 70. The study 
        suggests that faculty who are research oriented, enjoy 
        inspiring students, have light teaching loads, and are 
        covered by pension plans that reward later retirement 
        are more likely to work past 70.

    The Committee examined the issue of faculty turnover and 
concluded that a number of actions can be taken by universities 
to encourage, rather than mandate selected faculty retirements. 
Although some expense may be involved, the proposals are likely 
to enhance faculty turnover. Most prominent among them is the 
use of retirement incentive programs. The Committee recommended 
Congress, the Internal Revenue Service, and the EEOC ``permit 
colleges and universities to offer faculty voluntary retirement 
incentive programs that are not classified as an employee 
benefit, include an upper age limit for participants, and limit 
participation on the basis of institutional needs.'' The 
Committee also recommended policies that would allow 
universities to change their pension, health, and other benefit 
programs in response to changing faculty behavior and needs.
    The 1998 ADEA amendments contained in the Higher Education 
Amendments of 1998 incorporate the suggestions of the 
Committee. The HEA of 1998 allows colleges and universities to 
create voluntary incentive programs through the use of 
supplemental benefits, or benefits in addition to any 
retirement or severance benefits that are generally offered to 
tenured employees upon retirement. Supplemental benefits may be 
reduced or eliminated on the basis of age without violating the 
ADEA. The amendment expressly prohibits non-supplemental 
benefits from being reduced or eliminated based on age. The 
voluntary incentive plans are subject to certain requirements. 
A tenured employee who becomes eligible to retire has 180 days 
in which time they may retire and receive both regular benefits 
and supplemental benefits. Upon electing to retire, an 
institution may not require retirement before 180 days from the 
date of the election.

               (c) State and Local Public Safety Officers

    In 1983 the Supreme Court in EEOC v. Wyoming, 460 U.S. 226, 
rejected a mandatory retirement age for State game wardens, 
holding that States were fully subject to the ADEA. In two 
cases in 1985 the Court outlined the standards for proving a 
``bona fide occupational qualification'' (BFOQ) defense for 
public safety jobs, Western Air Lines v. Criswell, 472 U.S. 400 
(rejecting mandatory retirement age for airline flight 
engineers), and Johnson v. Baltimore, 472 U.S. 353 (rejecting 
mandatory retirement age for firefighters). The Court made 
clear that age may not be used as a proxy for safety-related 
job qualifications unless the employer can satisfy the narrow 
BFOQ exception.
    Criswell's discussion of the BFOQ defense holds that the 
State's interest in public safety must be balanced by its 
interest in eradicating age discrimination. In order to use age 
as a public safety standard, the employer must prove that it is 
``reasonably necessary to the normal operation of the 
business.'' This may be proven only if the employer is 
``compelled'' to rely upon age because either (a) it has 
reasonable cause to believe that all or substantially all 
persons over that age would be unable to safely do the job; or 
(b) it is highly impractical to deal with older persons 
individually.
    In subsequent years, some States and localities with 
mandatory retirement age policies below age 70 for public 
safety officers were concerned about the impact of these 
decisions. By March 1986, 33 States or localities had been or 
were being sued by the EEOC for the establishment of mandatory 
retirement hiring age laws.
    In 1986, the ADEA was amended to eliminate mandatory 
retirement based upon age in the United States. As part of a 
compromise that enabled this legislation to pass, Congress 
established a 7-year exemption period during which State and 
local governments that already had maximum hiring and 
retirement ages in place for public safety employees could 
continue to use them. It's purpose was to give public employers 
time to phase in compliance without having to worry about 
litigation.\1\
---------------------------------------------------------------------------
    \1\ Senator Howard Metzenbaum, Congressional Record, S. 16852-53, 
Oct. 16, 1986.
---------------------------------------------------------------------------
    Supporters of a permanent exemption for State and local 
public safety officers argue that the mental and physical 
demands and safety considerations for the public, the 
individual, and co-workers who depend on each other in 
emergency situations, warrant mandatory retirement ages below 
70 for these State and local workers. Also, they contend that 
it would be difficult to establish that a lower mandatory 
retirement age for public safety officers is a BFOQ under that 
ADEA. Because of the conflicting case law on BFOQ, this would 
entail costly and time-consuming litigation. They note that 
jurisdictions wishing to retain the hiring and retirement 
standards that they established for public safety officers 
prior to the Wyoming decision are forced to engage in costly 
medical studies to support their standards. Finally, they 
question the feasibility of individual employee evaluations, 
some citing the difficulty involved in administering the tests 
because of technological limitations concerning what human 
characteristics can be reliably evaluated, the equivocal nature 
of test results, and economic costs. They do not believe that 
individualized testing is a safe and reliable substitute for 
pre-established age limits for public safety officers.
    Those who oppose an exemption contend that there is no 
justification for applying one standard to Federal public 
safety personnel and another to State and local public safety 
personnel. They believe that exempting State and local 
governments from the hiring and retirement provisions of the 
ADEA will give them the same flexibility that Congress granted 
to Federal agencies that employ law enforcement officers and 
firefighters.
    As an additional argument against exempting public safety 
officers from the ADEA, opponents note that age affects each 
individual differently. They note that tests can be used to 
measure the effects of age on individuals, including tests that 
measure general fitness, cardiovascular condition, and reaction 
time. In addition, they cite research on the performance of 
older law enforcement officers and firefighters which supports 
the conclusion that job performance does not invariably decline 
with age and that there are accurate and economical ways to 
test physical fitness and predict levels of performance for 
public safety occupations. All that the ADEA requires, they 
argue, is that the employer make individualized assessments 
where it is possible and practical to do so. The only fair way 
to determine who is physically qualified to perform police and 
fire work is to test ability and fitness.
    Last, those arguing against an exemption state that 
mandatory retirement and hiring age limits for public safety 
officers are repugnant to the letter and spirit of the ADEA, 
which was enacted to promote employment of older persons based 
on their ability rather than age, and to prohibit arbitrary age 
discrimination in employment. They believe that it was 
Congress' intention that age should not be used as the 
principal determinant of an individual's ability to perform a 
job, but that this determination, to the greatest extent 
feasible, should be made on an individual basis. Maximum hiring 
age limitations and mandatory retirement ages, they contend, 
are based on notions of age-based incapacity and would 
represent a significant step backward for the rights of older 
Americans.
    The 1986 amendments to the ADEA also required the EEOC and 
the Department of Labor to jointly conduct a study to 
determine: (1) whether physical and mental fitness tests are 
valid measures of the ability and competency of police and 
firefighters to perform the requirements of their jobs; (2) 
which particular types of tests are most effective; and (3) to 
develop recommendations concerning specific standards such 
tests should satisfy. Congress also directed the EEOC to 
promulgate guidelines on the administration and use of physical 
and mental fitness tests for police officers and firefighters. 
The 5-year study completed in 1992 by the Center for Applied 
Behavioral Sciences of the Pennsylvania State University (PSU) 
concluded that age is not a good predictor of an individual's 
fitness and competency for a public safety job. The study 
expressed the view that the best, but admittedly imperfect, 
predictor of on-the-job fitness is periodic testing of all 
public safety employees, regardless of age. No recommendations 
with respect to the specific standards that physical and mental 
fitness tests should measure were developed. Instead, the study 
discussed a range of tests that could be used. EEOC did not 
promulgate guidelines to assist State and local governments in 
administering the use of such tests.
    The issue of mandatory retirement for public safety 
officers was addressed in two bills introduced in the House of 
Representatives. On July 23, 1993, Representative Major R. 
Owens, together with Representative Austin J. Murphy and 15 
other cosponsors, introduced H.R. 2722, ``Age Discrimination in 
Employment Amendments of 1993.'' It is similar but not 
identical to H.R. 2554, ``Firefighters and Police Retirement 
Security Act of 1993,'' that Representative Murphy introduced 
on June 29, 1993.
    H.R. 2554 sought to amend the Age Discrimination in 
Employment Amendments of 1986 to repeal the provision which 
terminated an exemption for certain bona fide hiring and 
retirement plans applicable to State and local firefighters and 
law enforcement officers. H.R. 2554 would have preserved the 
exemption beyond 1993.
    H.R. 2722 sought to amend section 4 of the ADEA to allow, 
but not require, State and local bona fide employee benefit 
plans that used age-based hiring and retirement policies as of 
March 3, 1983 to continue to use such policies; and to allow 
State and local governments that either did not use or stopped 
using age-based policies to adopt such policies provided that 
the mandatory retirement age is not less than 55 years of age. 
In addition, H.R. 2722 once again directed the EEOC to identify 
particular types of physical and mental fitness tests that are 
valid measures of the ability and competency of public safety 
officers to perform their jobs and to promulgate guidelines to 
assist State and local governments in the administration and 
use of such tests.
    On March 24, 1993, the Subcommittee on Select Education and 
Civil Rights conducted an oversight hearing on the issue of the 
use of age for hiring and retiring law enforcement officers and 
firefighters. On March 24, 1993, the Subcommittee held a markup 
of H.R. 2722 and approved it by voice vote. The Committee on 
Education and Labor considered H.R. 2722 for markup on October 
19, 1993. The Committee accepted two amendments by voice vote, 
including an amendment offered by Representative Thomas C. 
Sawyer. A quorum being present, the Committee, by voice vote, 
ordered the bill favorably reported, as amended.
    On November 8, 1993, H.R. 2722, as amended, passed in the 
House by voice vote, under suspension of the rules (two-thirds 
vote required). On November 9, 1993, H.R. 2722 was referred to 
the Senate Committee on Labor and Human Resources. There was no 
further action on H.R. 2722 in the 103rd Congress.
    On September 30, 1996, The Age Discrimination in Employment 
Act Amendments of 1996 amended the ADEA to allow police and 
fire departments to use maximum hiring ages and mandatory 
retirement ages as elements in their overall personnel 
policies. The 1996 amendments to the ADEA were included in the 
Omnibus Consolidated Appropriations for fiscal year 1997 (P.L. 
104-208).

                         (d) The Supreme Court

    The Supreme Court addressed the elements of an ADEA prima 
facie case in O'Connor v. Consolidated Coin Caterers Corp., 517 
U.S. 308 (1996). The Court held that a prima facie case is not 
made out by simply showing that an employee was replaced by 
someone outside of the class. The plaintiff must show that he 
was replaced because of his age.\2\ The Court evaluated whether 
the prima facie elements evinced by the Fourth Circuit Court of 
Appeals were required to establish a prima facie case. The 
Fourth Circuit held that a prima facie case is established 
under the ADEA when the plaintiff shows that: ``(1) He was in 
the age group protected by the ADEA; (2) he was discharged or 
demoted; (3) at the time of his discharge or demotion, he was 
performing his job at a level that met his employer's 
legitimate expectations; and (4) following his discharge or 
demotion, he was replaced by someone of comparable 
qualifications outside of the protected class.'' \3\ The Court 
held that the fourth prong, replacement by someone outside of 
the class, is not the only manner in which a plaintiff can 
prove a prima facie case under the ADEA.\4\ A violation can be 
shown even if the person was replaced by someone who also falls 
within the protected class. For example, replacing a 76-year-
old with a 45-year-old may be a violation of the ADEA, if the 
person was replaced because of his age.
---------------------------------------------------------------------------
    \2\ O'Connor v. Consolidated Coin Caterers Corp., 517 U.S. 
308(1996).
    \3\ 517 U.S. 308,310(1996).
    \4\ Justice Scalia, writing for the majority states:
    ``As the very name `prima facie case' suggests, there must be at 
least a logical connection between each element of the prima facie case 
and the illegal discrimination for which it establishes a `legally 
mandatory' rebuttable presumption. * * * The element of replacement by 
someone under 40 fails this requirement. The discrimination prohibited 
by the ADEA is discrimination `because of [an] individual's age.' '' 
Consolidated Coin, 517 U.S. at 312 (quoting Texas Dept. of Community 
Affair v. Burdine, 450 U.S. 248, 254 n.7 (1981)).
---------------------------------------------------------------------------
    The U.S. Supreme Court ruled on two cases in 1993 that 
affect the aging community. Burden of proof problems formed the 
heart of the controversy in both employment discrimination 
cases.
    In Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993), the 
Court unanimously held there can be no violation of the ADEA 
when the employer's allegedly unlawful conduct is motivated by 
some factor other than the employee's age. Therefore, the fact 
that a protected age employee's discharge occurred a few weeks 
before his pension was due to vest did not per se establish a 
violation of the statute.
    A family-owned company hired an employee in 1977 and 
discharged him in 1986, when he was 62 years old. The 
discharge, which was the culmination of a dispute with the 
company over his refusal to sign a confidentiality agreement, 
occurred a few weeks prior to the end of the 10-year vesting 
period for his pension. The employee sued the employer under 
the ADEA and the Employee Retirement Income Security Act 
(ERISA). At trial, the jury found that the company had violated 
ERISA and ``willfully'' violated the ADEA. The district court 
granted judgment notwithstanding the verdict on the finding of 
willfulness. The First Circuit Court of Appeals affirmed the 
judgment on both the ADEA and ERISA counts, but reversed on the 
issue of willfulness.
    On appeal, the Supreme Court held that an employer's 
interference with pension benefits, which vest according to 
years, does not, by itself, support a finding of an ADEA 
violation. The Court reasoned that, in a disparate treatment 
case, liability depends on whether the protected trait 
motivated the employer's decision and that a decision based on 
years of service is not necessarily age-based.
    Justice O'Connor explained that the ADEA is intended to 
address the ``very essence'' of age discrimination, when an 
older employee is discharged due to the employer's belief in 
the stereotype that ``productivity and competence decline with 
old age.'' The ADEA forces employers to focus productivity and 
competence directly instead of relying on age as proxy for 
them. But the problems posed by such stereotypes disappear when 
the employer's decision is actually motivated by factors other 
than age, even when the motivating factor is correlated with 
age, as pension status typically is. Further, she explained 
that the correlative factor remains analytically distinct, 
however much it is related to age. The vesting of pension plans 
usually is a function of years of service. However, a decision 
based on that factor is not necessarily age-based. An older 
employee may have accumulated more years of service by virtue 
of his longer length of time in the workforce, but an employee 
too young to be protected by the ADEA may have accumulated more 
if he has worked for a particular employer for his entire 
career while an older worker may have been a new hire. Thus, 
O'Connor concluded that the discharge of a worker because his 
pension is about to vest is not the result of a stereotype 
about age but of an accurate judgment about the employee.
    The Court noted, however, that their holding does not 
preclude a possible finding of liability if an employer uses 
pension status as a proxy for age, a finding of dual liability 
under ERISA and ADEA, or a finding of liability if vesting is 
based on age rather than years of service. The Court also held 
that the TransWorld Airlines, Inc. v. Thurston, 469 U.S. 111 
(1985), ``knowledge or reckless disregard'' standard for 
liquidated damages applies to situations in which the employer 
has violated the ADEA through an informal decision motivated by 
an employee's age, as well as through a formal, facially 
discriminatory policy.
    In St. Mary's Honor Center v. Hicks, 509 U.S. 502 (1993) 
the Supreme Court rejected the burden shifting analysis for 
resolving Title VII intentional discrimination cases set forth 
in Texas Department of Community Affairs v. Burdine, 450 U.S. 
248 (1981). Burdine had regularly been applied to ADEA cases. 
See, e.g., Williams v. Valentec Kisco, Inc., 964 F.2d 723 (8th 
Cir.), cert. denied, 506 U.S. 1014 (1992); Williams v. Edward 
Apffels Coffee Co., 792 F.2d 1492 (9th Cir. (1992)). As a 
result of the holding in St. Mary's Honor Center, an employee 
who discredits all of an employer's articulated legitimate 
nondiscriminatory reasons for an employment decision is not 
automatically entitled to judgment in an action under ADEA.
    Twenty years ago, in McDonnell-Douglas Corp. v. Green, 411 
U.S. 792 (1973), the Supreme Court established a three-step 
framework for resolving Title VII cases involving intentional 
discrimination. This framework was reaffirmed by the Court in 
Texas Department of Community Affairs v. Burdine, 450 U.S. 248 
(1981):

          First, the plaintiff must establish a prima facie 
        case of discrimination with evidence strong enough to 
        result in a judgment that the employer discriminated, 
        if the employer offers no evidence of its own;
          Second, if the plaintiff establishes a prima facie 
        case, the employer must then come forward with a clear 
        and specific nondiscriminatory reason for the 
        challenged action; and
          Third, if the employer offers a nondiscriminatory 
        reason for its conduct, the plaintiff then must 
        establish that the reason the employer offered was a 
        pretext for discrimination. Significantly, the Supreme 
        Court made clear in Burdine that the plaintiff can 
        prevail at this third stage ``either directly by 
        persuading the court that a discriminatory reason more 
        likely motivated the employer, or indirectly by showing 
        that the employer's proffered explanation is unworthy 
        of credence.''

    The decision in Hicks explaining the various procedural 
burdens parties face in presenting and defending a Title VII 
case will make it harder for plaintiffs to prevail. The 
majority held that an employee who discredited all of an 
employer's stated reasons for his demotion and subsequent 
discharge was not automatically entitled to judgment in his 
case under Title VII. Accordingly, the trial court was entitled 
to grant judgment to the employer on the basis of a reason the 
employer did not articulate.
    In Hicks, an African-American shift commander at a halfway 
house was demoted to the position of correctional officer and 
later discharged. He had consistently been rated competent and 
had not been disciplined for misconduct or dereliction of duty 
until his supervisor was replaced. The new supervisor, however, 
viewed him differently. At trial, the plaintiff alleged the 
employment decisions were racially motivated. The employer 
claimed the plaintiff had violated work rules. The district 
court found these reasons to be pretextual. Nevertheless, it 
ruled for the halfway house. The district court felt the 
plaintiff had not shown that the effort to terminate him was 
racially rather than personally motivated. Although, personal 
animus was never put forward by the employer at trial to 
explain its conduct, the Eighth Circuit Court of Appeals 
reversed. It said that once the shift commander proved that all 
of the employer's proffered reasons were pretextual, the 
plaintiff was entitled to judgment as a matter of law, because 
the employer was left in a position of having offered no 
legitimate reason for its actions.
    In a 5-4 decision written by Justice Scalia, the Supreme 
Court reversed the Eighth, Circuit's decision and upheld the 
district court's judgment for the employer. The Court abandoned 
the 20-year-old McDonnell-Douglas framework and held that the 
plaintiff was not entitled to judgment even though he had 
proved a prima facie case of discrimination and disproved the 
employer's only proffered reason for its conduct. Instead, the 
majority said that plaintiffs may be required not just to prove 
that the reasons offered by the employer were pretextual, but 
also to ``disprove all other reasons suggested, no matter how 
vaguely, in the record.''
    Justice Souter wrote a dissenting opinion, joined by 
Justices Blackmun, White, and Stevens. Justice Souter charged 
that the majority's decision ``stems from a flat misreading of 
Burdine and ignores the central purpose of the McDonnell-
Douglas framework.'' He also accused the majority of rewarding 
the employer that gives false evidence about the reason for its 
employment decision, because the falsehood would be sufficient 
to rebut the prima facie case, and the employer can then hope 
that the factfinder will conclude that the employer acted for a 
valid reason. ``The Court is throwing out the rule,'' Justice 
Souter asserted, ``for the benefit of employers who have been 
found to have given false evidence in a court of law.''
    In Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998), 
the Supreme Court considered whether an employee had to return 
money she received as part of a severance agreement before 
bringing suit under the ADEA. The Older Workers Benefit 
Protection Act established new protections for workers who are 
asked to sign waivers of their ADEA rights. The employee 
received severance pay in return for waiving any claims against 
the employer. The Court held that the plaintiff did not have to 
return the money before bringing suit, because the employer 
failed to comply with three of the requirements of the waiver 
provisions under the ADEA.
    A related issue is the effect of arbitration clauses on 
ADEA claims. The Court held in Gilmer v. Interstate/Johnson 
Lane Corp., 500 U.S. 20 (1990), that the ADEA does not preclude 
enforcement of a compulsory arbitration clause. The plaintiff 
in Gilmer, signed a registration application with the New York 
Stock Exchange (NYSE), as required by his employer. The 
application provided that the plaintiff would agree to 
arbitrate any claim or dispute that arose between him and 
Interstate. Gilmer filed an ADEA claim with the EEOC upon being 
fired at age 62. In a prior decision, the Court held ``by 
agreeing to arbitrate a statutory claim, a party does not forgo 
the substantive rights afforded by the statute; it only submits 
to their resolution in an arbitral, rather than a judicial, 
forum.'' \5\
---------------------------------------------------------------------------
    \5\ Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 
U.S. 614, 628 (1987).
---------------------------------------------------------------------------
    The Supreme Court revisited the issue of mandatory 
arbitration of statutory antidiscrimination claims in Wright v. 
Universal Maritime Service Corp., 119 S. Ct. 391 (1998). In 
Wright, the Court held that a general arbitration clause 
contained in a collective bargaining agreement's grievance 
procedure was not enough to waive an employee's right to pursue 
statutory antidiscrimination claims in court. Instead, the 
Court stated that any clause in a collective bargaining 
agreement requiring an employee to arbitrate a statutory 
antidiscrimination claim must be clear and express. However, 
the Court did not address the issue of whether such a clause, 
even if clear and express, would be valid.

                          B. FEDERAL PROGRAMS

    There are two primary sources of federal employment and 
training assistance available to older workers. The first, and 
largest, is the Adult and Dislocated Worker Program authorized 
under Title I of the Workforce Investment Act of 1998. The 
second is the Senior Community Service Employment Program 
authorized under Title V of the Older Americans Act.

    1. The Adult and Dislocated Worker Program Authorized Under the 
                        Workforce Investment Act

    The Workforce Investment Act of 1998 (WIA) was enacted on 
August 7, 1998. The intent of the legislation is to 
consolidate, coordinate, and improve employment, training, 
literacy, and vocational rehabilitation programs. Among other 
things, WIA repeals the Job Training Partnership Act (JTPA) on 
July 1, 2000, and replaces it with new training provisions 
under Title I of WIA. States may begin implementing WIA July 1, 
1999 (assuming their state plans are approved by the Department 
of Labor) and must implement WIA no later than July 1, 2000.
    Under JTPA, there is an adult training program (Title II-A) 
for low-income individuals and a dislocated worker program 
(Title III) for individuals who, in general, have lost their 
jobs as a result of structural changes in the economy and who 
are not likely to find new jobs in their former industries or 
occupations. Each program has its separate appropriation, list 
of authorized services, and could have a separate delivery 
system. Under WIA, one set of services and one delivery system 
is authorized both for ``adults'' and for ``dislocated 
workers'', but funds will continue to be appropriated 
separately for the two groups. Funds for these programs are 
contained in the Labor-HHS-ED appropriations act. The FY1999 
appropriation under JTPA for adult training was $955 million, 
and for dislocated workers was approximately $1.4 billion. For 
FY2000, appropriations for these programs will be made under 
WIA authority.
    Funds from the adult funding stream, under both JTPA and 
WIA, are allotted among States according to the following three 
equally weighted factors: (1) relative number of unemployed 
individuals living in areas with jobless rate of at least 6.5 
percent for the previous year; (2) relative number of 
unemployed individuals in excess of 4.5 percent of the State's 
civilian labor force; and (3) the relative number of 
economically disadvantaged adults.
    Under JTPA, 77 percent of the funds allocated to States are 
allocated to local areas using the same three-part formula. 
Under WIA, 85 percent of the funds allocated to States are 
allocated to local areas by formula. Not less than 70 percent 
of the local funds must be allocated using the same three-part 
formula. The remainder of the adult funds allocated to local 
areas can be allocated based on formulas approved by the 
Secretary of Labor as part of the state plan that take into 
account factors relating to excess poverty or excess 
unemployment above the state average in local areas.
    Under JTPA, 5 percent of the funds allocated to a State for 
adult training were to be set-aside training and placement for 
economically disadvantaged workers age 55 or older. This 
requirement is not contained in WIA. For the period between 
July 1, 1996, and June 30, 1997, over 16,000 adults who 
terminated from the JTPA adult training program were age 55 or 
older, representing 10 percent of total adult terminees. Of 
this total, over 13,000 were served under the older worker set-
aside program.
    Funds from the dislocated worker funding stream, under both 
JTPA and WIA, are allotted among States according to the 
following three equally weighted factors: (1) relative number 
of unemployed individuals; (2) relative number of unemployed 
individuals in excess of 4.5 percent of the State's civilian 
labor force; and (3) the relative number of individuals 
unemployed 15 weeks or longer. Under WIA at least 60 percent of 
the funds allocated to States must be allocated to local areas 
based on a formula. This formula, prescribed by the Governor, 
must be based on factors such as, insured unemployment data, 
unemployment concentrations, and long-term unemployment data. 
For the period between July 1, 1995 and June 30, 1996, over 
26,000 adults who terminated from the JTPA dislocated worker 
program were age 55 or older, representing 10 percent of total 
adult terminees. Local areas, with the approval of the 
Governor, may transfer 20 percent of funds between the adult 
program and the dislocated worker program.
    Under WIA, any individual is eligible to receive core 
services, such as job search and placement assistance. To be 
eligible to receive intensive services, such as comprehensive 
assessments and individual counseling and career planning, an 
individual has to be unemployed, and unable to obtain 
employment through core services or employed but in need of 
intensive services to obtain or retain employment that allows 
for self-sufficiency. To be eligible to receive training 
services, such as occupational training, on-the-job training, 
and job readiness training, an individual has to have met the 
eligibility for intensive service and been unable to obtain 
employment through those services. Unlike JTPA, there is no 
income eligibility requirement for receiving services. Local 
areas are required, however, to give priority for receiving 
intensive services and training to recipients of public 
assistance and other low-income individuals if funds are 
limited in the local area. Training is provided primarily 
through ``individual training accounts.'' The purpose of 
individual training accounts is to provide individuals with the 
opportunity to choose training courses and providers. 
Typically, under JTPA, services are procured for groups of 
individuals.
    Under WIA, each local area must develop a ``one-stop'' 
system to provide core services and access to intensive 
services and training through at least one physical center, 
which may be supplemented by electronic networks. The law 
mandates that certain ``partners'', including entities that 
carry out the Senior Community Service Employment Program, 
provide ``applicable'' services through the one-stop system. 
Partners must enter into written agreements with local boards 
regarding services to be provided, the funding of the services 
and operating costs of the system, and methods of referring 
individuals among partners.
    Since 1984, DOL has sponsored biennial surveys (as 
supplements to the monthly Current Population Survey) to 
collect information on job displacement. Displaced workers are 
defined as those who had at least 3 years tenure on their most 
recent job and lost their job due to a plant shutdown or move, 
reduced work, or the elimination of their position or shift. 
Those in jobs with seasonal work fluctuations are excluded.
    The February 1998 survey polled workers who lost their jobs 
between January 1995 and December 1997. The majority of 
displaced older workers report job loss following a plant 
closing, for which seniority is no protection. Older displaced 
workers were much more likely than younger displaced workers to 
have left the labor force rather than be reemployed at the time 
of the survey. Thirty percent of the 55- to 64-year-olds, and 
55 percent of those 65 years and older were not in the labor 
force compared to 14 percent of all displaced workers 20 years 
and older. The reemployment rate for displaced workers 20 year 
and older was 76 percent, while the rates for workers 55 to 64 
years and 65 years and older were 60 percent and 35 percent 
respectively.

                 2. Title V of the Older Americans Act

    The Senior Community Service Employment Program (SCSEP) has 
as its purpose to promote useful part-time opportunities in 
community service activities for unemployed low income persons 
with poor employment prospects. Created during the 1960s as a 
demonstration program under the Economic Opportunities Act, and 
later authorized under the Title V of the Older Americans Act, 
it is one of a few subsidized jobs programs for adults. The 
program provides low income older persons an opportunity to 
supplement their income through wages received, to become 
employed, and to contribute to their communities through 
community service activities performed under the program. 
Participants may also have the opportunity to become employed 
in the private sector after their community service experience.
    SCSEP is administered by the Department of Labor (DoL), 
which awards funds to 10 national sponsoring organizations and 
to State agencies, generally State agencies on aging. These 
organizations and agencies are responsible for the operation of 
the program, including recruitment, assessment, and placement 
of enrollees in community service jobs.
    Table 1 shows FY1999 funding to national organizations and 
state agencies. Total funding is $440.2 million which supports 
about 61,000 enrollee positions. Appropriations Committee 
directives for most recent years have stipulated that the ten 
national organization sponsors are to receive 78 percent of 
total funds, and state agencies are to receive 22 percent.
    Persons eligible under the program must be 55 years of age 
and older (with priority given to persons 60 years and older), 
unemployed, and have income levels of not more than 125 percent 
of the poverty level guidelines issued by the Department of 
Health and Human Services (DHHS).

  TABLE 1. FY1999 FUNDING TO NATIONAL ORGANIZATIONS AND STATE SPONSORS
------------------------------------------------------------------------
                                                     FY1999
                     Sponsor                         amount     Percent
                                                   (millions)   of total
------------------------------------------------------------------------
American Association of Retired Persons..........       $50.6       11.6
Asociacion Nacional Por Personas Mayores.........        13.2        3.0
Green Thumb......................................       106.6       24.3
National Caucus and Center on the Black Aged.....        13.0        3.0
National Council on the Aging....................        38.0        8.7
National Council of Senior Citizens..............        64.4       14.7
National Urban League............................        15.3        3.5
National Indian Council on Aging.................         6.0        1.4
National Asian Pacific Center on Aging...........         6.0        1.4
U.S. Forest Service..............................        28.4        6.5
                                                  ----------------------
      National organization sponsors, total......      $341.5       78.0
      State agencies, total......................    \1\$96.3       22.0
                                                  ----------------------
      Total......................................  \2\ $437.8      100.0
------------------------------------------------------------------------
\1\ This amount includes funds allocated to the territories.
\2\ This amount differs from the total appropriation of $440.2 million
  due to a set-aside by DoL of $2.4 million for experimental projects
  under Section 502(e) of the Act.

    Enrollees are paid the greater of the Federal or State 
minimum wage, or the local prevailing rate of pay for similar 
employment, whichever is higher. Federal funds may be used to 
compensate participants for up to 1,300 hours of work per year, 
including orientation and training. Participants work an 
average of 20 to 25 hours per week. In addition to wages, 
enrollees may receive physical examinations, personal and job-
related counseling and, under certain circumstances, 
transportation for employment purposes. Participants may also 
receive training, which is usually on-the-job training and 
oriented toward teaching and upgrading job skills.
    Participants work in a wide variety of community service 
activities. In program year 1997-1998 (July 1, 1997-June 30, 
1998), about one-third of jobs were in services to the elderly 
community, including nutrition services, senior centers, and 
home care, and about two-thirds were in services to the general 
community, including social services, education and recreation 
and parks. The average hourly wage paid was $5.36.
    About 73 percent of participants were women. About 40 
percent had a high school education, but 36 percent did not 
complete high school. About 60 percent of participants were age 
65 and older and over one-third were 70 years or older. Members 
of minority racial or ethnic groups made up 41 percent of total 
participants.
    For further information, see the Older Americans Act 
Section.


                               Chapter 5



                      SUPPLEMENTAL SECURITY INCOME

                                OVERVIEW

    In 1972, the Supplemental Security Income (SSI) program was 
established to help the Nation's poor aged, blind, and disabled 
meet their most basic needs. The program was designed to 
supplement the income of those who do not qualify for Social 
Security benefits or those whose Social Security benefits are 
not adequate for subsistence. The program also provides 
recipients with opportunities for rehabilitation and incentives 
to seek employment. In 1998, 6.6 million individuals received 
assistance under the program.
    To those who meet SSI's nationwide eligibility standards, 
the program provides monthly payments. In most States, SSI 
eligibility automatically qualifies recipients for Medicaid 
coverage and food stamp benefits.
    Despite the budget cuts that many programs have suffered in 
the last decade, SSI benefit standards have not been lowered 
(although certain groups, such as immigrants, drug addicts and 
alcoholics, and some children) have been barred from benefit 
receipt. This is in part because the Gramm-Rudman-Hollings 
(GRH) Act exempts SSI benefit payments from across-the-board 
budget cuts. It is also because of recognition of the 
subsistence-level benefit structure and concern about the 
program's role as a safety net for the lowest-income Americans.
    Although SSI has largely escaped the budget axe, the 
program continues to fall far short of eliminating poverty 
among the elderly poor. Despite progress in recent years in 
alleviating poverty, a substantial number remain poor. When the 
program was started a quarter of a century ago, some 14.6 
percent of the Nation's elderly lived in poverty. In 1997, the 
elderly poverty rate was 10.5 percent.
    The effectiveness of SSI in reducing poverty is constrained 
by benefit levels, stringent financial criteria, and a low 
participation rate. In most States, program benefits do not 
provide recipients with an income that meets the poverty 
threshold. Nor has the program's allowable income and assets 
level kept pace with inflation. Further, only about one-half to 
two-thirds of those elderly persons poor enough to qualify for 
SSI actually receive program benefits.
    In recent years, Congressional attention has focused on the 
need to eliminate abuses in the management of the SSI program. 
Legislation enacted in 1996 (P.L. 104-121 and 104-193) 
eliminated SSI benefits for persons who were primarily 
considered disabled because of their drug addiction or 
alcoholism. It severely restricted SSI to most noncitizens, 
made it more difficult for children with ``less severe'' 
impairments to receive SSI, required periodic systematic review 
of disability cases to monitor eligibility status, and allowed 
SSA to make incentive payments to correctional facilities that 
reported prisoners who received SSI. P.L. 105-33, enacted 
during the 105th Congress, reversed some of the effects of P.L. 
104-193 allowing qualified noncitizen recipients who filed for 
benefits before August 22, 1996 to maintain their SSI 
eligibility.
    In 1997, the General Accounting Office (GAO) designated SSI 
as a ``high-risk'' program because of its susceptibility to 
waste, fraud, and abuse and insufficient management of the 
program. This high risk label on the program has given rise to 
a desire among advocates, many Members of Congress, and SSA 
itself to try and correct the program's inadequacies. During 
1998, a draft proposal to reduce SSI fraud and abuse was 
circulated, but not introduced. In October 1998, SSA released a 
report on management of the SSI program. According to SSA, its 
strategy to improve SSI program integrity and stewardship 
includes improving payment accuracy, conducting additional 
periodic continuing disability reviews and SSI 
redeterminations, implementing aggressive plans to deter, 
identify and prosecute fraud, and increasing debt collections.

                             A. BACKGROUND

    The SSI program, authorized in 1972 by Title XVI of the 
Social Security Act (P.L. 92-603), began providing a nationally 
uniform guaranteed minimum income for qualifying elderly, 
disabled, and blind individuals in 1974. Underlying the program 
were three congressionally mandated goals--to construct a 
coherent, unified income assistance system; to eliminate large 
disparities between the States in eligibility standards and 
benefit levels; and to reduce the stigma of welfare through 
administration of the program by SSA. It was the hope, if not 
the assumption, of Congress at the time that a central, 
national system of administration would be more efficient and 
eliminate the demeaning rules and procedures that had been part 
of many State-operated, public-assistance programs. SSI 
consolidated three State-administered, public-assistance 
programs--old age assistance; aid to the blind; and aid to the 
permanently and totally disabled.
    Under the SSI program, States play both a required and an 
optional role. They must maintain the income levels of former 
public-assistance recipients who were transferred to the SSI 
program. In addition, States may opt to use State funds to 
supplement SSI payments for both former public-assistance 
recipients and subsequent SSI recipients. They have the option 
of either administering their supplemental payments or 
transferring the responsibility to SSA.
    SSI eligibility rests on definitions of age, blindness, and 
disability; on residency and citizenship; on levels of income 
and assets; and, on living arrangements. The basic eligibility 
requirements of age, blindness, or disability (except of 
children under age 18) have not changed since 1974. Aged 
individuals are defined as those 65 or older. Blindness refers 
to those with 20/200 vision or less with the use of a 
corrective lens in the person's better eye or those with tunnel 
vision of 20 degrees or less. Disabled adults are those unable 
to engage in any substantial gainful activity because of a 
medically determined physical or mental impairment that is 
expected to result in death or that can be expected to last, or 
has lasted, for a continuous period of 12 months.
    As a condition of participation, an SSI recipient must 
reside in the United States or the Northern Mariana Islands and 
be a U.S. citizen or if not a citizen, (a) be a refugee or 
asylee who has been in the country for less than 7 years, or 
(b) be a ``qualified alien'' who was receiving SSI as of August 
22, 1996 or who was living in the United States on August 22, 
1996 and subsequently became disabled. In addition, eligibility 
is determined by a means test under which two basic conditions 
must be satisfied. First, after taking into account certain 
exclusions, monthly income must fall below the benefit 
standard, $500 for an individual and $751 for a couple in 1999. 
Second, the value of assets must not exceed a variety of 
limits.
    Under the program, income is defined as earnings, cash, 
checks, and items received ``in kind,'' such as food and 
shelter. Not all income is counted in the SSI calculation. For 
example, the first $20 of monthly income from virtually any 
source and the first $65 of monthly earned income plus one-half 
of remaining earnings, are excluded and labeled as ``cash 
income disregards.'' Also excluded are the value of social 
services provided by federally assisted or State or local 
government programs such as nutrition services, food stamps, or 
housing, weatherization assistance; payments for medical care 
and services by a third party; and in-kind assistance provided 
by a nonprofit organization on the basis of need.
    In determining eligibility based on assets, the calculation 
includes real estate, personal belongings, savings and checking 
accounts, cash, and stocks. Since 1989, the asset limit has 
been $2,000 for an individual and $3,000 for a married couple. 
The income of an ineligible spouse who lives with an SSI 
applicant or recipient is included in determining eligibility 
and amount of benefits. Assets that are not counted include the 
individual's home; household goods and personal effects with a 
limit of $2,000 in equity value; $4,500 of the current market 
value of a car (if it is used for medical treatment or 
employment it is completely excluded); burial plots for 
individuals and immediate family members; a maximum of $1,500 
cash value of life insurance policies combined with the value 
of burial funds for an individual.
    The Federal SSI benefit standard also factors in a 
recipient's living arrangements. If an SSI applicant or 
recipient is living in another person's household and receiving 
support and maintenance from that person, the value of such in-
kind assistance is presumed to equal one-third of the regular 
SSI benefit standard. This means that the individual receives 
two-thirds of the benefit. In 1999, that totaled $333 for a 
single person and $500 for a couple. If the individual owns or 
rents the living quarters or contributes a pro rata share to 
the household's expenses, this lower benefit standard does not 
apply. In September 1998, 4.1 percent, or 270,538 recipients 
came under this ``one-third reduction'' standard. Sixty-five 
percent of those recipients were receiving benefits on the 
basis of disability.
    When an SSI beneficiary enters a hospital, or nursing home, 
or other medical institution in which a major portion of the 
bill is paid by Medicaid, the SSI monthly benefit amount is 
reduced to $30. This amount is intended to take care of the 
individual's personal needs, such as haircuts and toiletries, 
while the costs of maintenance and medical care are provided 
through Medicaid.

                               B. ISSUES

              1. Limitations of SSI Payments to Immigrants

    The payment of benefits to legal immigrants on SSI has 
undergone dramatic changes during the last several years.
    Until the passage of the 1996 welfare reform legislation, 
an individual must have been either a citizen of the United 
States or an alien lawfully admitted for permanent residence or 
otherwise permanently residing in the United States under color 
of law to qualify for SSI. Before passage of the Unemployment 
Compensation Amendments of 1993 (P.L. 103-152), SSI law 
required that for purposes of determining SSI eligibility and 
benefit amount, an immigrant entering the United States with an 
agreement by a U.S. sponsor to provide financial support was 
deemed to have part of the sponsor's (and, in most instances, 
part of the sponsor's spouse's) income and resources available 
for his or her support during the first 3 years in the United 
States. Public Law 103-152 temporarily extended the ``deeming'' 
period for SSI benefits from 3 years to 5 years. This provision 
was effective from January 1, 1994, through September 30, 1996.
    The welfare legislation signed in 1996 (P.L. 104-193) had a 
direct impact on legal immigrants who were receiving SSI. The 
1996 law barred legal immigrants from SSI unless they have 
worked 10 years or are veterans, certain active duty personnel, 
or their families. Those who were receiving SSI at the date of 
the legislation's enactment were to be screened during the 1-
year period after enactment. If the beneficiary was unable to 
show that he or she had worked for 10 years, was a naturalized 
citizen, or met one of the other exemptions, the beneficiary 
was terminated from the program. After the 10 year period, if 
the legal immigrant has not naturalized, he or she will likely 
need to meet the 3 year deeming requirement that was part of 
the changes in the 1993 legislation.
    SSI and Medicaid eligibility was restored for some 
noncitizens under P.L. 105-33, the Balanced Budget Act of 1997. 
The Balanced Budget Act (1) continued SSI and related Medicaid 
for ``qualified alien'' noncitizens receiving benefits on 
August 22, 1996, (2) allowed SSI and Medicaid benefits for 
aliens who were here on August 22, 1996 and who later become 
disabled, (3) extended the exemption from SSI and Medicaid 
restrictions for refugees and asylees from 5 to 7 years after 
entry, (4) classified Cubans/Haitians and Amerasians as 
refugees, as they were before 1996, thereby making them 
eligible from time of entry for Temporary Assistance for Needy 
Families (TANF) and other programs determined to be means-
tested, as well as for refugee-related benefits, and (5) 
exempted certain Native Americans living along the Canadian and 
Mexican borders from SSI and Medicaid restrictions.

                   2. SSA Disability Redesign Project

    SSA's disability process redesign proposal, introduced on 
April 1, 1994, was the first attempt to address major 
fundamental changes needed to realistically cope with 
disability determination workloads for both Social Security 
Disability Insurance (DI) and disabled adult SSI beneficiaries.
    Currently SSA's disability determination process is 
extremely stressed. Workloads are increasing, and the backlogs 
are enormous. Until recently, SSA had not sought major 
improvements to reverse the mounting problems of long waiting 
periods and case backlogs at State disability determination 
service (DDS) offices.
    In 1998, it was estimated that 8.9 million DI and disabled 
adult SSI beneficiaries received benefits from SSA. The 
workload for initial disability claims was 2.0 million in 
fiscal year 1998. The initial case claims backlogs were 408,000 
cases in fiscal year 1998 and are expected to remain at that 
level through fiscal year 2000. SSA's reported administrative 
budget for processing disability and appeals determinations was 
about $4 billion in fiscal year 1997, almost two-thirds of its 
reported administrative costs.
    In response to concerns raised by the General Accounting 
Office (GAO), Congress, and disability advocates, SSA is in the 
process of finalizing its redesign plan. The solution presented 
by SSA focuses on streamlining the determination process and 
improving service to the public. The proposed process is 
intended to reduce the number of days for a claimant's first 
contact with SSA to an initial decision, from an average of 135 
days (in fiscal year 1998) to less than 15 days. To accomplish 
this goal, the team proposed that SSA establish a disability 
claims manager as the focal point for a claimant's contact and 
that the number of steps needed to produce decisions be 
substantially reduced. The proposal also suggested providing 
applicants with a better understanding of how the disability 
determination process works and the current status of their 
claims.
    Since 1994, SSA has been testing many of the initiatives 
outlined in its proposal, and has stated that decisions will be 
made in the near future on whether to implement some of them on 
a permanent basis.

          3. Employment and Rehabilitation for SSI Recipients

    Section 1619 and related provisions of SSI law provide that 
SSI recipients who are able to work in spite of their 
impairments can continue to be eligible for reduced SSI 
benefits and Medicaid. The number of SSI disabled and blind 
recipients with earnings has increased from 87,000 in 1980 to 
282,600 in 1998. In addition, 25,000 aged SSI recipients had 
earnings in 1998.
    Before 1980, a disabled SSI recipient who found employment 
faced a substantial risk of losing both SSI and Medicaid 
benefits. The result was a disincentive for disabled 
individuals to attempt to work. The Social Security Disability 
Amendments of 1980 (P.L. 96-265) established a temporary 
demonstration program aimed at removing work disincentives for 
a 3-year period beginning in January 1981. This program, which 
became Section 1619 of the Social Security Act, was meant to 
encourage SSI recipients to seek and engage in employment. 
Disabled individuals who lost their eligibility status for SSI 
because they worked were provided with special SSI cash 
benefits and assured Medicaid eligibility.
    The Social Security Disability Benefits Reform Act of 1984 
(P.L. 98-460), which extended the Section 1619 program through 
June 30, 1987, represented a major push by Congress to make 
work incentives more effective. The original Section 1619 
program preserved SSI and Medicaid eligibility for disabled 
persons who worked even though two provisions that set limits 
on earnings were still in effect. These provisions required 
that after a trial work period, work at the ``substantial 
gainful activity level'' (then counted as over $300 a month 
earnings, which has since been raised to $500) led to the loss 
of disability status and eventually benefits even if the 
individual's total income and resources were within the SSI 
criteria for benefits.
    Moreover, when an individual completed 9 months of trial 
work and was determined to be performing work constituting 
substantial gainful activity, he or she lost eligibility for 
regular SSI benefits 3 months after the 9-month period. At this 
point, the person went into Section 1619 status. After the 
close of the trial work period, there was, however, an 
additional one-time 15-month period during which an individual 
who had not been receiving a regular SSI payment because of 
work activities above the substantial gainful activities level 
could be reinstated to regular SSI benefit status without 
having his or her medical condition reevaluated.
    The Employment Opportunities for Disabled Americans Act of 
1986 (P.L. 99-643) eliminated the trial work period and the 15-
month extension period provisions. Because a determination of 
substantial gainful activity was no longer a factor in 
retaining SSI eligibility status, the trial work period was 
recognized as serving no purpose. The law replaced these 
provisions with a new one that allowed use of a ``suspended 
eligibility status'' that resulted in protection of the 
disability status of disabled persons who attempt to work.
    The 1986 law also made Section 1619 permanent. The result 
has been a program that is much more useful to disabled SSI 
recipients. The congressional intent was to ensure ongoing 
assistance to the severely disabled who are able to do some 
work but who often have fluctuating levels of income and whose 
ability to work changes for health reasons or the availability 
of special support services. Despite SSI work incentives, few 
recipients are engaged in work or leave the rolls because of 
employment. In September 1998, only 4.7 percent of SSI 
recipients had earnings.
    While Congress has been active in building a rehabilitation 
component into the disability programs administered by SSA over 
the last decade, the number of people who leave the rolls 
through rehabilitation is very small. In 1997, out of a 
population of about 7 million DI and adult SSI beneficiaries, 
only about 297,000 individuals were referred to a State 
Vocational rehabilitation agency. Moreover, only 8,337 of these 
individuals were considered successfully rehabilitated (which 
meant that State agencies were able to receive reimbursement 
for the services provided). Because of concerns about the 
growth in the SSI program, policymakers have begun to question 
the effectiveness of the work incentive provisions. The General 
Accounting Office (GAO) undertook two studies which were 
completed in 1996 which analyzed the weaknesses of the work 
incentive provisions and SSA's administration of these 
provisions. GAO's report concluded that the work incentives are 
not effective in encouraging recipients with work potential to 
return to employment or pursue rehabilitation options. In 
addition, it concluded that SSA has not done enough to promote 
the work incentives to its field employees, who in turn do not 
promote the incentives to beneficiaries.
    According to a 1998 report by the Social Security Advisory 
Board, entitled, How SSA's Disability Programs Can Be Improved 
(p. 37):

          To a large extent, the small incidence of return to 
        work on the part of disabled beneficiaries reflects the 
        fact that eligibility is restricted to those with 
        impairments which have been found to make them unable 
        to engage in any substantial work activity. By 
        definition, therefore, the disability population is 
        composed of those who appear least capable of 
        employment. Moreover, since eligibility depends upon 
        proving the inability to work, attempted work activity 
        represents a risk of losing both cash and medical 
        benefits. While some of this risk has been moderated by 
        the work incentive features adopted in recent years, it 
        remains true that the initial message the program 
        presents is that the individual must prove that he or 
        she cannot work in order to qualify for benefits.

    During the 105th Congress, the House passed H.R. 3433, the 
Ticket to Work and Self-Sufficiency Act of 1998. H.R. 3433 
directed the Commissioner of Social Security to establish a 
Ticket to Work and Self-Sufficiency Program (TWSSP) under which 
a disabled SSI or DI beneficiary may use a ticket to work and 
self-sufficiency issued by the Commissioner to obtain 
employment services, vocational rehabilitation services, or 
other support services from an employment network of the 
beneficiary's choice which is willing to provide such services 
pursuant to an appropriate individual work plan. The bill 
authorized certain State agencies to elect to participate in 
the program as employment networks coordinating and delivering 
services to individuals with tickets to work and self-
sufficiency. It permitted private entities to be employment 
networks. In addition, it required a written agreement 
stipulating how an employment network would reimburse a State 
agency before it or an approved State plan could accept any 
referral of a disabled beneficiary from the employment network 
to which the beneficiary assigned his or her ticket to work and 
self-sufficiency. H.R. 3433 also extended Medicare coverage to 
beneficiaries participating in the Ticket to Work and Self-
Sufficiency Program. The Senate did not consider the 
legislation during the 105th Congress.

              4. Fraud Prevention and Overpayment Recovery

    During the 105th Congress, an anti-fraud proposal was 
circulated by the House Ways and Means Subcommittee on Human 
Resources, but was not introduced. The proposal included 
provisions that would seek to (1) ensure termination of SSI 
benefit payments for deceased recipients; (2) reduce the 
incidence of residency fraud; (3) penalize collaborators (i.e., 
``middlemen'', doctors, health professionals, attorneys) who 
help aged, blind, or disabled persons to fraudulently qualify 
for SSI benefits; (4) promote cross-program recovery of SSI 
overpayments; and (5) make other changes in SSI program rules 
to lower the incidence of fraud, abuse, and erroneous payments.
    Until recently, because SSA was very lax in monitoring the 
current disability status of SSI recipients, many individuals 
whose medical condition had improved remained in the program. 
Members of Congress are now aware that there are huge costs 
associated with keeping ineligible persons on the rolls. In 
both the 104th Congress (P.L. 104-121) and the 105th Congress 
(P.L. 105-33), legislation was passed that provided additional 
funding for continuing disability reviews (CDRs). In addition, 
SSA has been increasing the number of SSI non-disability 
redeterminations (i.e., verifying income and resource 
requirements) it conducts.


                               Chapter 6



                              FOOD STAMPS

                          OVERVIEW: 1997-1998

    In addition to nutrition programs for the elderly operated 
under Title III of the Older Americans Act (discussed in the 
chapter devoted to the Older Americans Act), the Federal 
Government supports three non-emergency food assistance efforts 
affecting significant numbers of older persons--the Food Stamp 
program, the Commodity Supplemental Food program, and the 
adult-care component of the Child and Adult Care Food program: 
\1\ Three significant pieces of food stamp legislation were 
enacted in the 105th Congress. But no legislation affecting the 
Commodity Supplemental Food program or the adult-care component 
of the Child and Adult Care Food program was considered, other 
than annual appropriations.
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    \1\ Nutrition programs that can provide help to elderly persons 
also include two emergency assistance programs--the Emergency Food 
Assistance program and the Emergency Food and Shelter program. The 
Emergency Food Assistance program provides Agriculture Department 
support (through the States), in the form of federally donated food 
commodities and funding for distribution costs, to aid food 
distribution to needy persons served by public and private nonprofit 
emergency feeding organizations, such as food banks, food pantries, 
emergency shelters, hunger relief centers, soup kitchens, and local 
governmental agencies. The Emergency Food and Shelter program, operated 
through the Federal Emergency Management Administration, makes grants 
to local public and private nonprofit entities to provide services to 
the homeless. No significant legislative changes were made to these two 
programs in the 105th Congress.
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           The 1997 omnibus emergency supplemental 
        appropriations law (P.L. 105-18) included an amendment 
        that allows States to opt to pay the cost of providing 
        food stamps to noncitizens (and certain others) made 
        ineligible for federally financed food stamp benefits 
        by the 1996 welfare reform act (P.L. 104-193). And 
        another 1997 law, the Balanced Budget Act (P.L. 105-33) 
        directed increased Federal spending on work/training 
        efforts for food stamp recipients.
           In 1998, food stamp provisions added to the 
        Agricultural Research, Extension and Education Reform 
        Act (P.L. 105-185) returned federally financed food 
        stamp eligibility to many of the legal immigrants 
        barred because of the 1996 welfare reform law--
        effective November 1, 1998. This legislation also 
        reduced Federal spending for food stamp administrative 
        costs.
    In 1997 and again in 1998, food stamp enrollment and 
spending dropped significantly. Participation went from 25.5 
million people in FY1996, to 22.9 million in FY1997 and 19.8 
million in FY1998. An improved economy, program changes wrought 
by Federal and State welfare reform initiatives, and 
restrictions on eligibility (e.g., loss of eligibility by 
noncitizen legal immigrants) contributed to this decline. 
Participation by elderly persons, however, dropped much less 
(about 5 percent) than other participant categories (e.g., 
families with children); much of this drop was due to 
restrictions on the eligibility of legal immigrants enacted in 
1996, and only partially reversed late in 1998. Spending for 
the regular Food Stamp program declined from $24.4 billion in 
FY1996, to $21.7 billion in FY1997 and $19.2 billion in FY1998.
    On the other hand, participation in the Commodity 
Supplemental Food program grew noticeably in 1997 and 1998. 
Elderly enrollees in the program increased from 219,000 persons 
in FY1996, to 243,000 in FY1997 and 249,000 in FY 1998--while 
spending (for all recipients, including women, infants, and 
children) hovered around $90 million a year. And participation 
in and spending for the adult-care component of the Child and 
Adult Care Food program jumped significantly in FY1997 and 
FY1998--average daily attendance rose from 47,000 persons in 
FY1996 to 58,000 persons in FY1998; program costs increased 
from $25 million in FY1996 to $32 million in FY1998.
    Recent information about food security among the elderly 
presents a mixed picture. A 1997 report from Second Harvest (a 
food bank organization) indicates that about 16 percent of 
persons served by food banks were 65 years and older. On the 
other hand, the Agriculture Department's Household Food 
Security survey covering 1995-1998, found that, for households 
with elderly members or elderly persons living alone, some 95 
percent reported being ``food secure''--as opposed to about 90 
percent of all households in the survey.

                     A. BACKGROUND ON THE PROGRAMS

                             1. Food Stamps

    The Food Stamp program provides monthly benefits--averaging 
$71 a person in FY1998--that increase low-income recipients' 
food purchasing power. Eligible applicants must have monthly 
income and liquid assets below federally prescribed limits (or 
be receiving cash public assistance) and must pass several 
nonfinancial eligibility tests: e.g., work requirements, bars 
against eligibility for many noncitizens and postsecondary 
students. Benefits are based on the monthly cost of the 
Agriculture Department's ``Thrifty Food Plan,'' are adjusted 
annually for inflation, and vary with household size, amount 
and type of income (e.g., earnings are treated more liberally 
than income like Social Security or public assistance 
payments), and certain nonfood expenses (e.g., shelter costs, 
child support payments, dependent care and medical expenses). 
Basic eligibility and benefit standards are federally set, and 
the Federal Government pays for benefits (other than those 
financed by State reimbursements) and about half the cost of 
administration and work/training programs for recipients. 
States shoulder the remaining expenses and have responsibility 
for day-to-day operations (e.g., determining individuals' 
eligibility and issuing benefits) and a number of significant 
program rules. The regular Food Stamp program operates in the 
50 States, the District of Columbia, Guam, and the Virgin 
Islands. Variants of the regular program are funded through 
nutrition assistance block grants to Puerto Rico, American 
Samoa, and the Northern Marianas.
    The Food Stamp Act became law in 1964 (after a three-year 
pilot program); however, the program did not become nationally 
available until early 1975, when Puerto Rico and the last few 
countries in the country chose to enter. In 1977, the 1964 Act 
(as amended) was substantially rewritten and replaced with the 
Food Stamp Act of 1977, which greatly liberalized the program 
and increased participation. Amendments to the 1977 Act during 
the early 1980s significantly restricted eligibility and 
benefits. But, beginning in the mid-1980s and continuing 
through amendments in 1990 and 1993, program benefits were 
generally increased. In 1996, the welfare reform law (the 
Personal Responsibility and Work Opportunity Reconciliation 
Act; P.L. 104-193) incorporated the most extensive changes to 
the program since the 1977 rewrite of the law. Substantial 
benefit and eligibility cutbacks were legislated, and States 
were given more latitude in running the program. Among the 
changes most affecting the elderly was a provision that barred 
eligibility for most noncitizen legal immigrants (over 800,000 
persons, many of them elderly). In 1997, provisions in P.L. 
105-18 allowed States to choose to pay the cost of providing 
food stamp to noncitizens (and certain others) made ineligible 
by the 1996 welfare reform law, and, in 1998, amendments in 
P.L. 105-185 returned federally financed food stamp eligibility 
to many of those barred in the 1996 law. Two other recent 
legislative changes directed increased Federal spending on 
work/training programs for food stamp recipients (contained in 
the 1997 Balanced Budget Act; P.L. 105-33) and cut Federal 
spending for food stamp administrative costs (in P.L. 105-185).
    Eligibility. The food stamp ``assistance unit'' is a 
household, typically those living together who also purchase 
and prepare food together. But not all co-residents are 
required to apply together (e.g., while spouses and parents and 
children must apply together, unrelated persons not purchasing 
and preparing food in common may apply separately). Food stamp 
eligibility depends primarily on whether a household has cash 
monthly income and liquid assets below Federal limits.
    For the large majority of applicants, the income test 
confines eligibility to households with monthly total cash 
income at or below 130 percent of the Federal income poverty 
guidelines, annually adjust for inflation and differing by 
household size. Most income is counted in making an eligibility 
determination, but a few types of income are not (e.g., Federal 
energy assistance payments, most student aid, Earned Income Tax 
Credit payments, noncash income). For FY 1999, 130 percent of 
the poverty guidelines equals $873 a month for one person, 
$1,176 for two-person households, and higher amounts for larger 
households.\2\ However, a slightly more liberal test is applied 
to households containing elderly or disabled persons (for more 
detail on this, see the later discussion of the elderly and the 
Food Stamp program).
---------------------------------------------------------------------------
    \2\ Income eligibility limits are 25 percent higher in Alaska and 
15 percent higher in Hawaii.
---------------------------------------------------------------------------
    The liquid asset limit is $2,000, or $3,000 for households 
with an elderly member. But all financial resources are not 
taken into account. Some important exclusions include a 
household's home, furnishings, and personal belongings, the 
first $4,650 of the market value of any car, some retirement 
funds, burial plots, and work- or business-related assets.
    With some exceptions, food stamps are available 
automatically (i.e., without regard to the income and asset 
tests noted above) to recipients of cash public assistance 
under States' Temporary Assistance for Needy Families (TANF) 
programs, Supplemental Security Income (SSI) payments, and 
State or local general assistance benefits. Under the two major 
exceptions, (1) SSI recipients in California are not eligible 
for food stamps because their SSI payment is assumed to include 
a food stamp component and (2) public assistance recipients 
living with persons not receiving public aid are not 
automatically food-stamp eligible.
    Non-financial eligibility criteria include those related to 
work, student status, institutional residence, and citizenship. 
Most unemployed able-bodied non-elderly adults must meet work/
training requirements to remain eligible, and eligibility is 
denied to households with strikers. Non-working postsecondary 
students without children are barred. Residents of institutions 
(other than residents in substance abuse programs and shelters 
for the homeless and battered women and children) are not 
eligible. And the eligibility of noncitizens is limited to (1) 
those with long U.S. work histories, (2) veterans and active 
duty military personnel and their families, (3) refugees and 
asylees (for seven years after entry), (4) legal immigrant 
children who entered the country before August 22, 1996, (5) 
elderly legal immigrants who were here before August 22, 1996, 
(6) disabled legal immigrants who entered before August 22, 
1996 (including persons who become disabled after that date), 
and (7) Hmong refugees from Laos and certain Native Americans 
living along the Canadian and Mexican borders.
    Finally, States may, at their own expense, take advantage 
of an option to provide food stamp benefits to (1) any 
noncitizen legal immigrant barred form federally financed food 
stamps and (2) persons made ineligible for federally financed 
food stamps by certain work/training rules for able-bodied 
adults without dependents.
    Benefits. Food stamp benefits are aimed at increasing 
recipients' food purchasing power. In FY 1998, monthly benefits 
averaged $71 a person (about $170 for a typical household). 
They are inflation-adjusted each October, and vary with the 
type and amount of income, household size, and some nonfood 
expenses. Food stamps are provided monthly, and, except for 
very poor recipients, monthly allotments are not intended to 
cover all of a household's food costs--most recipients are 
expected to contribute a portion of their income to their food 
expenses.
    To determine monthly benefit allotments, a household's 
total cash monthly income is reduced to a ``net'' income figure 
(representing income deemed available for food and other normal 
living costs) by allowing a ``standard deduction'' ($134 a 
month) and additional deductions for certain expenses. These 
include deductions for excessively high (but not all) shelter 
costs, 20 percent of earnings, dependent care expenses related 
to work/education, child support payments, and, for elderly and 
disabled, medical expenses above $35 a month. Deduction for 
dependent care costs and the shelter expenses of households 
without elderly or disabled person are subject to monthly 
dollar limits.
    Food stamp allotments then equal the estimated monthly cost 
of an adequate low-cost diet (maximum benefits, set at the cost 
of the Agriculture Department's ``Thrifty Food Plan'' for the 
household's size and indexed annually for inflation), less 30 
percent of monthly net income (the household's expected 
contribution toward its food costs). The theory is that food 
stamps should fill the deficit between what a household can 
afford for food (its 30 percent contribution) and the estimated 
expense of a low-cost diet (maximum benefits). For FY 1999, 
maximum monthly benefits in the 48 States and the District of 
Columbia are $125 for one person, $230 for two-person 
households, and larger amounts for bigger households; 
significantly higher maximums apply in Alaska, Hawaii, Guam, 
and the Virgin Islands.
    Monthly allotments may be spent for virtually any food item 
(but not alcohol, tobacco products, or ready-to-eat hot foods) 
in approved food stores. They also may be used for some 
prepared meals (e.g., in shelters for the homeless and battered 
women and children, in elderly nutrition programs), seeds and 
plants for growing food, and hunting and fishing equipment in 
remote areas of Alaska. Purchases with food stamp benefits are 
not subject to sales taxes, and food stamp assistance is not 
counted as income under welfare, housing, and tax laws.
    Food stamp allotments historically have been issued as 
paper ``coupons.'' but food stamp recipients in all or part of 
nearly 40 States and the District of Columbia (about half of 
all recipients) now receive their benefits through ``electronic 
benefit transfer'' (EBT) systems that deliver them by using 
special ``ATM-like'' cards rather than coupons. And all States 
are expected to use EBT systems by 2002. Food stamp benefits 
also can, in some cases, be paid as cash--in a limited number 
of local projects for the elderly and disabled, for some 
recipients leaving cash welfare rolls, and in ``work 
supplementation'' programs (where the food stamp benefit is 
paid to a recipient's employer).
    Puerto Rico, American Samoa, and the Northern Marianas. 
Variants of the regular Food Stamp program operate in Puerto 
Rico, American Samoa, and the Northern Mariana Islands. Puerto 
Rico's Nutrition Assistance program provides its benefits in 
cash under rules similar to (but generally more restrictive 
than) the regular program. Federal support is limited to an 
annual block grant ($1.2 billion in FY 1998) and the program 
serves some 1.3 million persons. The programs in American Samoa 
and the Northern Marianas also are to limited Federal grants, 
each funded at $3-$5 million a year and serving 3,000-4,000 
people. They are not cash assistance programs and are roughly 
similar to the regular program, although American Samoa's 
program is limited to the elderly and disabled and the Northern 
Marianas' program has special rules directing use of some 
benefits to purchase local products.
    The Elderly and the Food Stamp Program. Food stamp 
participation by eligible elderly persons is relatively low, 
about 30 percent by the most recent count (1994). This compares 
with a participation rate of some 70 percent among all those 
eligible. Based on 1997-1998 Agriculture Department survey 
data, households with at least one elderly member account for 
18 percent of food stamp households. But, because the elderly 
generally live in small households (78 percent live in single-
person households, typically single women, and 16 percent live 
in two-person households), they make up only 8 percent of total 
food stamp enrollees. Overall, the survey information also 
shows that elderly food stamp recipients have income that 
generally is higher than other participants and, because of 
this and their smaller household size, have lower-than-average 
benefits. Average total monthly income for elderly persons in 
the Food Stamp program is about 80 percent of the Federal 
poverty income guidelines (compared to 53 percent of poverty 
among households with no elderly members), and their average 
household benefit is about one-third the average for all 
households in the program.
    The Food Stamp program includes a number of special rules 
for the elderly--
           A more liberal income eligibility test is 
        applied. Households with elderly (or disabled) members 
        must have monthly income below the Federal poverty 
        income guidelines after the standard and expense 
        deductions noted in the earlier discussion of benefits. 
        While their income is compared against a lower standard 
        than most other households (who must have total income 
        below 130 percent of the poverty guidelines), the 
        amount of income counted is significantly less because 
        the various deductions (nearly $300 a month on average) 
        have been subtracted out.
           A more liberal liquid asset limit is used. 
        Households with elderly members can have countable 
        liquid assets of up to $3,000 and remain eligible (vs. 
        $2,000 for others).
           When calculating benefits and income 
        eligibility, no monthly dollar limit on the size of the 
        deduction for excessively high shelter expenses is 
        applied to households with elderly (or disabled) 
        members; others are subject to a limit of $275 a month.
           When calculating benefits and income 
        eligibility, elderly (and disabled) households can 
        claim a deduction for any medical costs have $35 a 
        month; this deduction is not available to others. For 
        those claiming this deduction, it is typically about 
        $100 a month, translating into a monthly benefit 
        increase of some $3.
           Elderly (and disabled) persons who are 
        applicants for or recipients of Supplemental Security 
        Income benefits can make preliminary application for 
        food stamps through their Social Security office and 
        get assistance in completing their application.
    In addition, some general food stamp rules can have special 
importance for the elderly--food stamp offices are required to 
have special procedures for those who have difficulty applying 
at the office, and applicants and recipients can designate 
``authorized representatives'' to act on their behalf in the 
application process and using food stamp benefits.

               2. The Commodity Supplemental Food Program

    The Commodity Supplemental Food program provides 
supplemental foods to low-income elderly persons and to low-
income infants, children, and pregnant, postpartum, and 
breastfeeding women. It is authorized, through FY2002, under 
Section 4(a) of the Agriculture and Consumer Protection Act of 
1973, as amended (7 U.S.C. 612c note), and operates through 
local projects in 17 States, the District of Columbia, and two 
Indian reservations. The program began in the late 1960s and is 
the predecessor of the Special Supplemental Nutrition Program 
for Women, Infants, and Children (the WIC program). Until 1995, 
it served primarily women, infants, and children not 
participating in the WIC program. But, some 65 percent of is 
recipients now are elderly--249,000 out of 377,000 in FY 1998. 
And, while women, infants, and children are accorded priority, 
the proportion of elderly enrollees is expected to continue 
increasing. Coverage of this program is limited by annual 
appropriations, and, without significantly increased 
appropriations, new projects or substantially enlarged overall 
caseloads are unlikely.
    FY1998 spending for the Commodity Supplemental Food program 
was $89 million ($20 million of which represented support for 
administrative costs); in addition, almost $10 million worth of 
commodities donated from excess Federal stocks were made 
available. But, while elderly participants made up nearly two-
thirds of participants, their proportion of the value of the 
food packages distributed to them (about $15 a person) was 
significantly less than for packages provided to women, 
infants, and children (just over $19 a person).
    Participtig local projects establish most of their 
operating rules and receive (1) food items purchased with 
annually appropriated funds, (2) food commodities donated from 
excess Agriculture Department stocks, and (3) cash grants to 
help cover administrative costs. Food packages distributed by 
local sponsors are designed with the specific nutritional needs 
of the elderly and women, infants, children in mind. They 
include foods such as canned fruits, vegetables, meats, and 
fish, peanut butter, cereal and grain products, and dairy 
products.

                3. The Child and Adult Care Food Program

    The adult-care component of the Child and Adult Care Food 
program provides Federal cash subsidies for meals and snacks 
served to chronically impaired disabled adults, or those 60 
years of age or older, in licensed non-residential day care 
settings (``adult day care centers''). It is permanently 
authorized under Section 17 of the National School Lunch Act 
and offers the same subsidies given for meals and snacks served 
in child day care centers. Each meal and snack served that 
meets Federal nutrition standards is subsidized at a 
legislatively set (and inflation-adjusted) rate, with meals/
snacks served to lower-income persons subsidized at a higher 
rate than others. For July 1998-June 1999, the subsidy rates 
ranged from $1.94 for lunches/suppers served free to those with 
income below 130 percent of the Federal poverty income 
guidelines to 4 cents for snacks served to those with income 
above 185 percent of the poverty guidelines. In FY 1998, 
average daily attendance at the 1,700 sites operated by 1,100 
sponsors was just over 58,000 persons, and Federal subsidies 
totaled $32 million.

                      B. LEGISLATIVE DEVELOPMENTS

    There was no legislative activity associated with the 
Commodity Supplemental Food program or the adult-care component 
of the Child and Adult Care Food program during the 105th 
Congress. However, three laws were enacted that significantly 
affected the Food Stamp program.
    The 1997 omnibus emergency supplemental appropriations law 
(P.L. 105-18) added a provision to the Food Stamp Act that 
allows States to opt to pay the cost of providing food stamp 
benefits to noncitizens made ineligible for federally financed 
food stamp benefits by the 1996 welfare reform act (the 
Personal Responsibility and Work Opportunity Reconciliation 
Act; P.L. 104-193). The 1996 law made all legal immigrants 
ineligible for food stamps except (1) those with long U.S. work 
histories, (2) veterans and active duty military personnel and 
their families, and (3) refugees and asylees (for 5 years after 
entry). When enacted, it was estimated that over 800,000 
persons were barred because of this rule. Some 17 States took 
advantage of this new option to pay for food stamps for all or 
some of the noncitizens ineligible for federally funded 
benefits. P.L. 105-18 also permitted States to pay the cost of 
food stamp benefits to able-bodied non-elderly adults without 
dependents if they lost eligibility for food stamps because of 
a special work requirement limiting their time on food stamps; 
however, no States took advantage of this option.
    A separate 1997 law the Balanced Budget Act (P.L. 105-33) 
directed increased Federal spending on work/training programs 
for food stamp recipients--a total of $1.5 billion over five 
years.
    In 1998, food stamp provisions added to the Agricultural 
Research, Extension, and education Reform Act (P.L. 105-185) 
returned federally financed food stamp benefits to an estimated 
250,000 legal immigrants (primarily elderly and disabled 
persons) affected by the 1996 welfare reform law's withdrawal 
of eligibility. Effective November 1, 1998, eligibility was 
reinstituted for legal immigrant children who entered the 
country before August 22, 1996 (the effective date of the 1996 
welfare reform law), elderly legal immigrants (65 or older) 
here before August 22, 1996, disabled legal immigrants who 
entered before August 22, 1996 (including those who become 
disabled after that date), and Hmong refugees from Laos and 
certain Native Americans living along the Canadian and Mexican 
borders. Moreover, eligibility for refugees and asylees was 
extended from 5 to 7 years after entry. P.L. 105-185 also 
reduced Federal spending for food stamp administrative costs by 
over $200 million a year.

                   C. FOOD SECURITY AMONG THE ELDERLY

    A review of the available data from the last three decades 
on the nutritional health and food security of the elderly 
reveals that a variety of research has been conducted. However, 
the findings of that research also reveal both a mixed and 
inconclusive picture of the actual nutritional status of this 
age group.
    Concern about nutrition problems, particularly food 
insecurity, among the elderly is the result, in part, of the 
general characteristics of this age group. As a group, older 
Americans are a growing proportion of the U.S. population, yet 
there is relatively little data collected on the elderly 
compared to certain other high risk groups, such a children. As 
a group, the elderly seem to be more reticent to admit to being 
``hungry'' and needing assistance of any kind. Fixed incomes, a 
variety of health problems and loss of independence can all 
contribute to general health, nutrition and food security 
problems of older Americans. They seem less likely to use 
emergency feeding or participate in Federal food assistance 
programs. At the same time, the elderly are disproportionately 
heavy users of health care. A major concern has become 
minimizing health care costs, while maintaining a desirable 
quality of life in old age. It is well recognized that poor 
nutrition increases health problems and thus health care costs. 
Thus attention to the food security of elderly Americans is 
acknowledged as a way to help in reducing health care costs.
    The issue of hunger in America captured public attention in 
1967 when members of the then-Senate Subcommittee on 
Employment, Manpower and Poverty visited the rural South. The 
Subcommittee held hearings on the impact of the ``War on 
Poverty'' policy initiated during the Johnson administration 
and heard witnesses describe widespread hunger and poverty. 
Later that year, a team of physicians under the auspices of the 
Ford Foundation observed severe nutritional problems in various 
areas of the country where they traveled.
    Subsequently Congress authorized a national nutrition 
survey to determine the magnitude and location of malnutrition 
and related health problems in the country. The results of the 
Ten State Nutrition Survey revealed that persons over 60 years 
of age showed evidence of general undernutrition which was not 
restricted to the very poor or to any single ethnic group. The 
most significant nutritional problems in those over 60 years of 
age were in the intakes of iron, vitamins A, C and thiamin, as 
well as obesity (in elderly females).
    Reports on hunger and malnutrition in the United States, as 
well as the 1970 White House Conference on Food, Nutrition and 
Health, contributed to changes in several Federal programs in 
the 1970s. During this period the results of the Ten State 
Nutrition Survey led to the addition of a nutrition component 
to the health examination survey conducted by the then 
Department of Health, Education and Welfare. This addition 
created the Health and Nutrition Examination Survey (HANES), 
which was designed to collect and analyze data on the 
nutritional status of the U.S. population. The voluntary 
nutrition labeling program was initiated to provide consumers 
with more information on the nutrient content of the foods that 
they were purchasing. The Federal food assistance programs also 
underwent significant expansion during this period. In 1977 the 
physicians returned to the same communities visited a decade 
earlier to evaluate progress made in combating hunger. They 
discovered dramatic improvements in the nutritional status of 
the residents, which were attributed to the expansion of the 
Federal food programs.
    Throughout the 1980s, considerable attention was focused on 
the re-emergence of widespread hunger in the United States. 
Beginning in 1981 numerous national, State and local studies on 
hunger have been published by a variety of governmental 
agencies, universities and advocacy organizations. The reports 
have suggested that hunger in America is widespread and 
entrenched, despite national economic growth. However, the 
problem that exists has few clinical symptoms of deprivation, 
unlike the hunger observed during drought, famine, and civil 
war elsewhere in the world.
    In 1983 President Ronald Reagan appointed a commission to 
investigate allegations that hunger was widespread and actually 
growing in America. The President's Task Force on Food 
Assistance concluded that there was little evidence of 
widespread hunger in the United States and reductions in 
Federal spending for assistance had not hurt the poor. However, 
it did note that there was likely hunger that went undetected 
in certain high risk groups, including the elderly. The Task 
Force formulated several modest recommendations to make the 
Food Stamp Program more accessible to the hungry, along with 
offsetting cost-reduction measures that increased State 
responsibility for erroneous payments and offered the option of 
block granting food assistance.
    During the 1980s, numerous nongovernmental groups continued 
to document the prevalence of hunger and malnutrition 
throughout the country. Many reports focused specifically on 
children and families. The Harvard School of Public Health 
conducted a 15-month examination of the problem of hunger in 
New England and concluded in 1984 that substantial hunger 
existed in every State examined, was more widespread than 
generally believed, and had been growing at a steady pace for 
at least three years. The researchers reported that an 
increasing number of elderly persons were using emergency food 
programs, while many others were suffering quietly in the 
privacy of their homes. The report expressed concern about 
reports from medical practitioners that were increasing numbers 
of malnourished children and greater hunger among their elderly 
patients. The researchers cited the impact of malnutrition on 
health in general and emphasized that children and the elderly 
are likely to suffer the greatest harm from inadequate diets.
    In 1984 the U.S. Conference of Mayors issued its first 
report which detailed a significant increase in requests for 
emergency food assistance, citing unemployment as a primary 
cause. Subsequent reports published indicated annual increases 
ranging from 9 to 28 percent during the period of 1985 to 1998. 
In 1998 emergency food assistance requests by the elderly 
increased in 67 percent of the 30 cities surveyed and requests 
increased by an average of six percent in each city.
    The New York Times reported in 1985 that scientists 
estimated that from 15 to 50 percent of Americans over the age 
of 65 consume fewer calories, proteins, essential vitamins and 
minerals than are required for good health. According to the 
article, gerontologists were becoming increasingly alarmed by 
evidence that much of the physiological decline in resistance 
to disease seen in elderly patients (a weakening in 
immunological defenses that commonly has been blamed on the 
aging process) may be attributable to malnutrition. Experts 
reported that many elderly fall victim to the spiral of 
undereating, illness, physical inactivity, and depression. 
Reports more recently suggest that a significant amount of the 
illness among the elderly could be prevented through aggressive 
nutrition aid. Many physicians believe that immunological 
studies hold promise that many elderly could reduce their 
disease burden in old age by eating better.
    In 1987 a national survey of nutritional risk among the 
elderly was conducted by the Food Research and Action Center. 
Despite the fact that the majority of the elderly surveyed 
participated in an organized food service for older persons, 
many respondents reported signs of nutrition risk. Over half of 
those surveyed reported that they did not have enough money to 
purchase food they needed at least part of the time. Over one-
third usually ate less than three meals a day and 17 percent 
felt like eating noting at all at least once a week. Twenty 
percent had lost weight over the last month without trying. 
Some 17.2 percent could not shop for or prepare their own food, 
and 18.3 percent could not leave home without assistance of 
another person. Over 25 percent of respondents had no one to 
help them if they were sick in bed. Twenty percent responded 
affirmatively to at least five of the risk questions, which put 
them into nutritional risk category and this was especially 
true of the seniors who were living below the poverty level. 
Seniors living below the poverty level were much less likely to 
report being able to purchase the food they needed than those 
living on incomes above the poverty level.
    Because of well-organized concerns about poor nutritional 
status in older Americans, the Nutrition Screening Initiative 
was formed in 1990 by three health professionals and aging 
groups as a five-year multifaceted effort to promote nutrition 
screening and better nutritional care in the America's health 
care system. It was a direct response to the call for increased 
nutrition screening of the 1988 Surgeon General's Workshop on 
Health Promotion and Healthy People 2000. The group identified 
a number of risk factors or early warning signs that might be 
associated with poor nutritional status in older Americans. The 
risk factors included such elements as inappropriate food 
intake, poverty, social isolation, dependency/disability, 
acute/chronic diseases or conditions, chronic medication use 
and advanced age. Identification of these risk factors led to 
the creation of relatively easily administered screening tools 
that can be used in settings where social service or health 
care professionals are in contact with the elderly. The 
information obtained allows for the detection of common 
nutritional problems for which an intervention may be indicated 
and managed by qualified professionals. Nutrition Care Alerts 
were subsequently developed and distributed for use by 
caregivers in long term care facilities.
    The General Accounting Office reported in June 1992 on 
elderly Americans and the health, housing and nutrition gaps 
between the poor and nonpoor. GAO reported that the information 
on the relationship between poverty and nutrition among the 
elderly is limited, but that the available data indicate that 
poor elderly persons consume less of some essential nutrients 
than do nonpoor elderly persons. As many as one half of poor 
elderly persons consumed less than two thirds of the 
recommended daily allowance of vitamin C, calcium and other 
nutrients. However, the agency indicated that the data were 
limited by being a decade old, lacking information on specific 
elderly subpopulations and the absence of adequate nutritional 
standards or guidelines by which to judge the elderly 
population. GAO indicated that improvements were needed in both 
nutrition data and nutrition guidelines before definitive 
conclusions could be drawn about the poor elderly's nutritional 
status.
    In 1993, the Urban Institute released a report based on 
about 4300 interviews conducted in both community and meal 
program settings to determine the extent of food insecurity 
among the elderly. The findings showed no difference between 
the rate of food insecurity in urban and rural locations, which 
was about 37 percent experiencing food insecurity in a six-
month period. Hispanic elderly had the highest levels of food 
insecurity followed by blacks and the elderly of other races, 
while whites had the lowest levels. Other indicators of food 
deprivation, including eating fewer meals a day, eating a less 
balanced diet, experiencing days with no appetite, and 
reporting not getting enough to eat, provided an indication 
that these populations face a number of problems associated 
with food insecurity. Seniors with below poverty incomes 
appeared to suffer the greatest food insecurity, but those with 
incomes up to 150 percent of poverty still report considerable 
food insecurity. The report concluded that between 2.8 and 4.9 
million elderly Americans experience food insecurity in a six-
month period.
    A 1993 study published in the Journal of the American 
Dietetic Association reported that over one-third of the 
elderly who are admitted from their homes into a nursing 
facility were malnourished at the time of admission and nearly 
forty percent of those admitted from acute care facilities were 
malnourished. At the same time the prevalence of malnutrition 
in nursing home patients is between 35 and 85 percent of the 
population. The high prevalence of malnutrition in the nursing 
home population may reflect in part the transfer of 
malnourished patients from acute-care hospitals to the nursing 
facility or the progressive development of malnutrition during 
nursing home stays.
    The 1996 Administration on Aging report on the national 
evaluation of the elderly nutrition program in 1993-1995 
indicated that individuals who receive elderly nutrition 
program meals have higher daily intake for key nutrients than 
similar nonparticipants. These meals seem to provide between 40 
and 50 percent of participants' daily intakes of most 
nutrients. Participants have more social contacts per month 
than similar nonparticipants and most participant report 
satisfaction with the services provided.
    The Second Harvest (the largest domestic hunger relief 
organization) report, Hunger 1997: The Faces and Facts, 
concluded that about 16 percent of the clients being served by 
its network were 65 years and older. This age group were 
reported to represent 16.5 percent of clients in food pantries, 
17.2 percent in soup kitchens and 4.3 percent in shelters.
    The recent advanced report of Household Food Security in 
the United States released by USDA contained survey data from 
1995 to 1998. It indicated that 90 percent of all U.S. 
households were food secure, that is they had access at all 
times to enough food for an active healthy life with no need 
for recourse to emergency food sources or other extraordinary 
copying behaviors to meet their basic food needs. About 10.2 
percent of households were food insecure. For the households 
with elderly and elderly living alone, 94.5 percent and 94.6 
percent respectively reported being food secure. For the 
remaining approximately 5.5 percent in each group during this 
period, about 40 percent reported being food insecure with 
hunger, meaning that they did not have access to enough food to 
fully meet basic needs at all times during the year.


                               Chapter 7



                              HEALTH CARE

                  A. NATIONAL HEALTH CARE EXPENDITURES

                            1. Introduction

    In 1960, national health care expenditures amounted to 
$26.9 billion, or 5.1 percent of the Gross Domestic Product 
(GDP), the commonly used indicator of the size of the overall 
economy. The enactment of Medicare and Medicaid in 1965, and 
the expansion of private health insurance-covered services 
contributed to a health spending trend that grew much more 
quickly than the overall economy. By 1990, spending on health 
care was at $699.4 billion, or 12.2 percent of the GDP. 
Increases in health care spending during the late 1980s and 
early 1990s focused attention on the problems of rising costs 
and led to unsuccessful health care reform efforts in the 103rd 
Congress to expand access to health insurance and control 
spending.
    In the mid-1990s, however, changes in financing and 
delivery of health care, such as the emerging use of managed 
care by public and private insurers, had an impact on U.S. 
health care spending patterns. While spending for health care 
reached $1 trillion for the first time in 1996, growth in 
spending between 1993 and 1997 steadily slowed. Health spending 
growth was only 4.8 percent in 1997, the lowest rate in more 
than 3\1/2\ decades. Spending as a percent of the economy 
remained relatively constant at around 13.5 percent; for the 
first time this could be attributed to a slowdown in the rate 
of growth of health care spending, rather than growth in the 
overall economy. There are concerns, however, as to whether 
these trends in health care expenditures and costs will 
continue. Both the Health Care Financing Administration (HCFA) 
and the Congressional Budget Office (CBO) project larger 
increases in health care spending in the coming years. Both 
HCFA and CBO expect national health spending to reach over $2 
trillion by 2008, or approximately 15.5 percent to 16.2 percent 
of GDP.
    National health expenditures include public and private 
spending on health care, services and supplies related to such 
care, funds spent on the construction of health care 
facilities, as well as public and private noncommercial 
research spending. The amount of such expenditures is 
influenced by a number of factors, including the size and 
composition of the population, general price inflation, medical 
care price inflation, changes in health care policy, and 
changes in the behavior of both health care providers and 
consumers. The aging of the population contributes 
significantly to the increase in health care expenditures.
    In 1997, spending for health care in the United States 
totaled $1.1 trillion, with 89 percent of expenditures on 
personal health care, or services used to prevent or treat 
diseases in the individual. The remaining 11 percent was spent 
on program administration, including administrative costs and 
profits earned by private insurers, noncommercial health 
research, new construction of health facilities, and government 
public health activities.
    Ultimately, every individual pays for each dollar spent on 
health through health insurance premiums, out-of-pocket, taxes, 
philanthropic contributions, or other means. However, there has 
been a substantial shift over the past four decades in the 
relative role of various payers of health services. In 1960, 
almost half of all health expenditures were paid out-of-pocket 
by consumers, while private health insurance represented only 
22 percent and public funds (federal, state, and local 
governments) 25 percent. The growth of private health insurance 
and the enactment of the Medicare and Medicaid programs changed 
the system from one relying primarily on direct patient out-of-
pocket payments to one which depends heavily on third-party 
private and government insurance programs. In 1997, individual 
out-of-pocket spending (including coinsurance, deductibles, and 
any direct payments for services not covered by an insurer) 
represented only 17.2 percent of all health expenditures.
    Since 1990, the difference between the share of health 
spending financed by private and public sources has narrowed. 
In 1990, private spending paid for 59.5 percent and public 
programs funded 40.5 percent. While all private sources 
combined continued to finance most health care spending in 1997 
($585.3 billion, or 53.6 percent), public program funding 
increased to 46.4 percent ($507.2 billion). It is federal 
spending that is the largest single contributor, financing 34 
percent of all spending. The federal government assumed an 
increasingly significant role in funding national health 
expenditures in 1965 with the enactment of the Medicare and 
Medicaid programs. In 1960 the federal government contribution 
represented about 11 percent of all health expenditures; by 
1970, the federal government's share increased to 24 percent. 
Federal spending continued to rise as a percent of all 
expenditures until 1976, when it represented about 28 cents of 
each health dollar. Between 1976 and 1990, the share of health 
spending paid by the federal government hovered around 28 
percent. Since 1990, federal spending on health has grown from 
this plateau to represent 1/3 of all health spending in 1997. 
The federal government spent $367 billion, 33.6 percent of 
total national health expenditures, in 1997. The federal 
government is expected to spend $469 billion for health care in 
the year 2000, amounting to 36.2 percent of health care 
expenditures.

                 2. Medicare and Medicaid Expenditures

    The Medicare and Medicaid programs are an important source 
of health care financing for the aged. Medicare provides health 
insurance protection to most individuals age 65 and older, to 
persons who are entitled to Social Security or Railroad 
Retirement benefits because they are disabled, and to certain 
workers and their dependents who need kidney transplantation or 
dialysis. Medicare is a federal program with a uniform 
eligibility and benefit structure throughout the United States. 
It consists of three parts. Part A (Hospital Insurance) covers 
medical care delivered by hospitals, skilled nursing 
facilities, hospices and home health agencies. Part B 
(Supplementary Medical Insurance) covers physicians' services, 
laboratory services, durable medical equipment, outpatient 
hospital services and other medical services. Part C 
(Medicare+Choice) offers managed care options to beneficiaries. 
Most outpatient prescription drugs are not covered under 
Medicare, and some other services (such as coverage for care in 
skilled nursing facilities) are limited. Medicare is financed 
by Federal payroll and self-employment taxes, government 
contributions, and premiums from beneficiaries.
    Medicaid is a joint federal-state entitlement program that 
pays for medical services on behalf of certain groups of low-
income persons. Medicaid is administered by states within broad 
federal requirements and guidelines. The federal government 
finances between 50 percent and 83 percent of the care provided 
under the Medicaid program in any given state. For more 
information on the background and mechanics of the Medicare and 
Medicaid programs see Chapters 8 and 9.
    During 1967, the first full year of the program, total 
Medicare outlays amounted to $3.4 billion. In 1997, Medicare 
expenditures ($210.4 billion) accounted for 57.3 percent of all 
federal health spending and 19.2 percent of national health 
spending. While total Medicare spending has increased 
significantly since the program began, the average annual rate 
of growth has slowed somewhat in recent years. Over the 1980-
1990 period, total outlays grew from $35 billion to $109.7 
billion, for an average annual rate of growth of 12.1 percent. 
For the 1990-1997 period, total outlays grew from $109.7 
billion to $210.4 billion, for an average annual growth rate of 
9.5 percent. Different trends are recorded for spending on Part 
A and Part B. The average annual rate of growth in Part A 
spending remained the same at 10.6 percent over the FY1980-
FY1990 and the FY1990-FY1997 periods. However, the average 
annual rate of growth for Part B declined from 14.9 percent in 
the FY1980-FY1990 period to 7.6 percent over the FY1990-FY1997 
period.
    The Balanced Budget Act of 1997 provided for structural 
changes to the Medicare program and slowed the rate of growth 
in reimbursements for providers. Since passage of the Act, CBO 
has revised its projections for Medicare spending. It projects 
that Medicare outlays will be $334.8 billion in 2007. This 
represents a dramatic decrease in the average annual overall 
rate of growth to 4.75 percent for the time period FY1997-
FY2007.
    Medicaid expenditures have historically been one of the 
fastest growing components of both federal and state budgets. 
From 1975 to 1984, Medicaid spending almost tripled, increasing 
from $12.6 billion to $37.6 billion. Spending rose even more 
dramatically in the late 1980s and early 1990s, increasing an 
average of 21 percent per year from FY1989 through FY1992. This 
was attributed to increased enrollment, increases in spending 
per beneficiary, and growth in disproportionate share hospital 
(DSH) payments. Growth slowed down, however, to an average of 
about 10 percent from 1993 to 1995. This may be due to 
improvements in the overall economy, decreased enrollment, and 
increased use of managed care programs by states for Medicaid 
beneficiaries. Total federal and state outlays for Medicaid in 
1998 were $177.4 billion. The federal government pays about 57 
percent of total Medicaid costs. CBO projects that federal 
outlays for Medicaid will grow from $101 billion in 1998 to 
$205 billion in 2007, an average growth rate of 8.1 percent.
    Medicare covers about 53 percent of the total medical costs 
of the non-institutionalized elderly. About 14.4 percent of 
total costs are paid by the elderly out-of-pocket. The 
remaining costs are paid by private insurance coverage 
(including retiree health insurance plans and Medigap), 
government sources such as Medicaid or state assistance 
programs, or other private sources such as charity.
    Among the elderly in institutions (such as nursing homes), 
Medicare pays about 26 percent of total personal health costs, 
and Medicaid, funded by both the federal and state governments, 
pays an additional 29 percent of costs. Institutionalized 
elderly pay about 35 percent of the costs of care out-of-
pocket. Private health insurance pays for a greater proportion 
of costs among the non-institutionalized elderly (12 percent) 
than among the institutionalized elderly (5 percent) since 
relatively few elderly have private insurance coverage for 
long-term care.

                              3. Hospitals

    Hospital care costs continue to be the largest component of 
the nation's health care bill. In 1997, an estimated 34 
percent, or $371.1 billion, of national health care 
expenditures was paid to hospitals. Hospital care expenditures 
had reached 41.5 percent of total health expenditures in 1980, 
growing at an average annual rate of 31.9 percent. In 1983, 
Medicare's prospective payment system (PPS) was introduced. 
Under this program, hospitals are paid a predetermined rate for 
each patient based on the patient's diagnosis. With this 
incentive to provide care more efficiently, the hospital share 
of total health expenditures declined to 36.6 percent in 1990. 
The rate of growth in hospital spending continued to decrease 
in the past decade, falling to only 2.9 percent in 1997. This 
was slower than spending for any other personal health care 
service.
    In 1997, public (federal, state, and local) sources 
accounted for over 61 percent of hospital service expenditures. 
The federal government's share has grown from 17.3 percent in 
1960 to 50 percent in 1997, making it the single largest payer. 
Medicaid spending for hospitals dropped by 2.4 percent in 1997 
as a result of growing managed care enrollment, decline in the 
number of Medicaid recipients, and restrictions on states' 
disproportionate share payments to hospitals. Medicare spending 
for hospital services, however, grew by 6.3 percent, more than 
twice as fast as overall hospital spending in 1997.
    Private health insurance is responsible for about one-third 
of all hospital spending. In 1990, its portion was 37.3 
percent, but this has been declining as a larger portion of 
care has been provided in ambulatory settings, and managed care 
plans have negotiated lower prices for services. Out-of-pocket 
expenditures by consumers represented 20.7 percent of payments 
for hospital care before the enactment of Medicare and 
Medicaid; they represented only 3.3 percent in 1997.
    The introduction of Medicare's PPS in 1983 also had an 
effect on hospital admissions and the number of inpatient days. 
Hospital admissions for all age groups increased at an average 
annual rate of 1.0 percent between 1978 and 1983. After the 
start of PPS, however, total admissions decreased each year 
until 1993 and 1994, when they rose 0.7 percent and 0.9 percent 
respectively. In 1995, total admissions increased 1.5 percent 
over the previous year, the largest increase in 15 years. 
(While this number was higher because of the growth of the 65 
and over population, incentives such as the utilization of 
managed care and outpatient care actually led to a 6 percent 
reduction in hospital admissions per capita from 1990 to 1997.)
    Hospital inpatient admissions for persons 65 and over had 
been increasing an average of 4.8 percent per year since 1978. 
After introduction of PPS, admissions among the older 
population decreased from 1984 to 1986 and then grew more 
slowly at an average increase of 1.6 percent from 1987 to 1992. 
From 1993 to 1995, growth in hospital admissions of elderly 
patients ranged from 2.0 percent-2.9 percent. In 1996, however, 
there was a much smaller increase of 0.4 percent in the number 
of hospital admissions for the elderly.
    While average length of stays in a hospital tend to be 
almost two days longer for the elderly than for those under 65, 
the length of hospital stays for elderly patients declined by 
an average of two days from 1990 to 1996. The average stay for 
persons aged 65-74 was about 6.2 days in 1996, compared with 
6.8 days for the group aged 85 and older.

                        4. Physicians' Services

    Utilization of physicians' services increases with age. 
Largely as a result of an increase in the number of visits by 
the aged, the number of physician contacts per person has 
increased from 5.4 contacts per person per annum in 1987 to 5.8 
contacts per annum per year in 1995. For the elderly, the 
number of physician contacts increased from 8.9 contacts per 
year in 1989 to 11.3 contacts per person in 1994. This 
decreased slightly to 11.1 contacts in 1995.
    According to the National Health Interview Survey, an 
increasing number of the elderly are visiting physicians. This 
has grown from 69.7 percent in 1964 to 90 percent in 1995. This 
may in part reflect the need for care among those advanced ages 
combined with the increased average age of persons over 65 
years old and may also reflect an increase in regular 
preventive care.
    Approximately 54 percent of physician visits by the elderly 
in 1995 were made to a doctor's office. The remaining visits 
were to hospital outpatient departments, by telephone, in the 
home, or at clinics and other places outside a hospital.
    Expenditures for physician services, the second largest 
component of personal health care expenditures, stood at $5.3 
billion in 1960, and in 1980 had reached $45.2 billion. This 
represents a decline in the percentage of personal health care 
spending from 22.5 percent in 1960 to 20.8 percent in 1980. 
This percentage grew in the 1980s, reaching 23.8 percent in 
1990. Since 1991, the annual rate of growth in payments for 
physician services has been the slowest since the 1960s, 
falling from 10.9 percent in 1991 to 2.9 percent in 1996. 
Expenditures for physician services was $217.6 billion in 1997, 
or 22.5 percent of personal health care expenditures. This 
slowdown in the rate of growth could be attributable to several 
factors, including adjustments in private sector payment 
systems, reflecting Medicare's fee schedule (see Chapter 8); 
and increased use of managed care.
    In 1997, approximately 16 percent of the cost of physician 
services was paid out-of-pocket. These payments include 
copayments, deductibles, or in-full payments for services not 
covered by health insurance plans. Like hospital services, the 
probability of individuals paying for physicians services has 
declined sharply since the 1960s. However, unlike hospital 
services, the single largest payer for physician services is 
not the federal government, but rather private health insurance 
companies. In 1960, private health insurers contributed about 
30 percent of the total; by 1990 this figure had reached 46 
percent. In 1997 private health insurers paid for 50 percent of 
all physician services.
    Medicare spending for physician services was $46.4 billion 
in 1995, or 21.3 percent of total funding for care by 
physicians. In comparison, Medicare paid for only 12.5 percent 
or $1.7 billion of total physician service expenditures in 
1970. According to HCFA, the change in the average annual rate 
of growth in Medicare payments for physician services 1970-1990 
was 15.3 percent. National payments for physician services in 
this time period grew at an average annual rate of 12.6 
percent. Because of changes in the Medicare physician payment 
system, the growth of Medicare spending for physician services 
has decelerated substantially. The change in the average annual 
rate of growth in Medicare physician payments increased by 6.8 
percent between 1990 and 1997, compared with 5.8 percent for 
national physician payments during the same time period.

                 5. Nursing Home and Home Health Costs

    Long-term care refers to a broad range of medical, social, 
and personal care, and supportive services needed by 
individuals who have lost some capacity for self-care because 
of a chronic illness or condition. Services are provided either 
in a nursing home or in home and community-based care settings. 
The need for long-term care is often measured by assessing 
limitations in a person's capacity to manage certain functions. 
These are referred to as limitations in ADLs, ``activities of 
daily living,'' which include self-care basics such as 
dressing, toileting, moving from one place to another, and 
eating. Another set of limitations, ``instrumental activities 
of daily living,'' or IADLs, describe difficulties in 
performing household chores and social tasks.
    In its estimate of total national heath expenditures, HCFA 
includes spending for nursing home and home health care. The 
total for these two categories of services amounted to $115.1 
billion in 1997, and includes all age groups needing long-term 
care.
    In 1997, almost three-fourths of long-term care spending, 
or $82.8 billion, was for nursing home care. Nursing home care 
represented 7.6 percent and home care services represented 3 
percent of national health care expenditures. The cost of long-
term care can be catastrophic. The average cost of nursing home 
care is in excess of $40,000 a year. Senior citizens who must 
enter a nursing home encounter significant uncovered liability 
for this care with out-of-pocket payments by the elderly and 
their families comprising 37 percent of nursing home spending. 
Private insurance coverage of nursing home services is 
currently very limited, and covered only 4 percent of spending 
in 1997. The elderly can qualify for Medicaid assistance with 
nursing home expenses, but only after they have depleted their 
income and resources on the cost of care.
    Federal and state Medicaid funds finance a growing portion 
of the share of nursing home care--47.6 percent in the 1997. 
Medicare's role as a payer for nursing home care has also 
increased in the last several years to 12.3 percent. This 
accounts for much of the increase in the federal government's 
share of nursing home spending, which rose from 31 percent in 
1990 to 41.7 percent in 1997.
    About 1.56 million Americans were receiving nursing home 
care in 1996. This represented only 4.6 percent of the aged, 
however; most elderly prefer to use long-term care services in 
the home and community.
    Comparatively little long-term care spending is for these 
alternative sources of care, with home health care spending at 
$32.3 billion in 1997. In 1997, Medicare paid $17.6 billion for 
home health services, or 54.5 percent of the total. It should 
be noted that this total for home health excludes spending for 
nonmedical home care services needed by many chronically ill 
and impaired persons. Sources of funding for these services 
include the Older Americans Act, the Social Services Block 
Grant, state programs, and out-of-pocket payments.
    Also, while Americans are not entering nursing homes at the 
same rate as they have in previous years, pubic policy experts 
are concerned about the large future commitment of public 
funding to long term care. The elderly (65 years and over) 
population is the fastest growing age group in the U.S. In 
1997, there were 34 million people aged 65 and over 
representing 12.7 percent of the population. The middle-series 
projection for 2050 indicates that there will be 79 million 
people ages 65 and over, representing 20 percent of the 
population.
    Although chronic conditions occur in individuals of all 
ages, their incidence, especially as they result in disability, 
increases with age. The population ages 85 and over is growing 
especially fast and is the age group most likely to need 
nursing home care. This group is projected to more than double 
from nearly 4 million (1.4 percent of the population) in 1997 
to over 8 million (2.4 percent) in 2030, then to more than 
double again in size from 2030 to 2050 to 18 million (4.6 
percent).

                         6. Prescription Drugs 

                             (a) background

    According to data from HCFA's National Health Expenditures, 
in 1997, prescription drug expenditures in the United States 
were approximately $78.9 billion, or about 7.2 percent of total 
health care spending. This figure measures spending for 
outpatient prescription drugs, over-the counter medicines, and 
sundries purchased in retail outlets. It does not include the 
value of drugs and other products provided by hospitals, 
nursing homes, or health professionals. These drug costs are 
included with estimates of spending for those providers' 
services. In recent years, the rate of growth in spending for 
prescription drugs has risen at a faster rate than other health 
care spending. For example, between 1996 and 1997, spending on 
hospital care grew 2.9 percent, physician services spending 
rose 4.4 percent, and dental services spending grew 6.5 
percent. Spending on prescription drugs in the same period grew 
14.2 percent.

                     (b) issues for older americans

          (1) Prescription Drug Coverage Among Older Americans

    Most older Americans receive health insurance coverage 
through the Medicare program. However, Medicare provides 
limited coverage for drugs. The program provides coverage for 
drugs administered in a hospital or skilled nursing facility 
and for some drugs administered by physicians, but does not 
generally provide coverage for outpatient prescription drugs. 
For those that it does cover (see below), payments are made 
under Part B of the program. In FY1997, Medicare, which covered 
approximately 38 million beneficiaries, paid $2.75 billion for 
outpatient prescription drugs.
    Medicare provides coverage for drugs which cannot be self- 
administered and are ``incident to'' a physician's professional 
service. Coverage is generally limited to those drugs which are 
administered by injection.
    Despite the general limitation on coverage for outpatient 
drugs, the law specifically authorizes coverage for certain 
classes of drugs: those used for the treatment of anemia in 
dialysis patients, immunosuppressive drugs for three years 
following an organ transplant paid for by Medicare, certain 
oral cancer and associated anti-nausea drugs, and certain 
immunizations.
    Most beneficiaries have some form of private or public 
health insurance coverage to supplement Medicare. In 1996, 88.7 
percent had additional insurance coverage through managed care 
organizations, employer-sponsored plans, Medigap (three of the 
10 standardized Medigap plans offer some level of drug 
coverage), Medicaid, or other public sources. However, many 
persons with supplementary coverage have limited or no coverage 
for prescription drug costs. According to the Health Care 
Financing Administration (HCFA), in 1995, 65 percent of 
beneficiaries had some drug insurance coverage. HCFA reported 
that 95 percent of those enrolled in Medicare HMOs, 88 percent 
of those with Medicaid,\1\ 84 percent of those with employer-
sponsored plans, and 29 percent of those with Medigap plans had 
primary drug coverage. Beneficiaries with supplementary 
prescription drug coverage use prescriptions at a considerably 
higher rate than those without supplementary coverage. In 1995, 
persons with coverage used an average of 20.3 prescriptions per 
year compared to 15.3 for those without supplementary coverage. 
In addition, several states and the pharmaceutical industry 
offer assistance with prescription drug costs for low-income 
individuals.
---------------------------------------------------------------------------
    \1\ Persons with full Medicaid coverage have Medicaid drug 
coverage. Persons covered under the Qualified Medicare Beneficiary 
(QMB) or Specified Low-Income Medicare Beneficiary (SLIMB) programs, 
but not otherwise Medicaid-eligible, do not have drug coverage.
---------------------------------------------------------------------------

           (2) Prescription Drug Spending by Older Americans

    Older Americans take more prescription drugs on average 
than the population under age 65. In 1996, individuals aged 25 
to 44 filled an average of two to three prescriptions for the 
year; those 65 and over filled approximately nine to twelve. 
While the elderly represent about 13 percent of the population, 
about 34 million individuals, they account for almost 35 
percent of all prescriptions dispensed in the United States.
    In 1997, spending for prescription drugs by persons aged 65 
and over amounted to more than $20 billion or 25 percent of 
total expenditures for prescription drugs. Medicare 
beneficiaries (including disabled individuals under age 65) pay 
about half of their drug costs out-of-pocket; this compares 
with 34 percent paid out-of-pocket by the population as a 
whole. Beneficiaries spent an average of $600 a year on 
outpatient prescription drugs in 1995. The National Academy of 
Social Insurance (NASI) estimates that this number has 
increased to over $900 per beneficiary in 1999.
    Out-of-pocket spending varies depending on the 
beneficiary's coverage by supplemental health insurance. NASI 
has estimated 1999 out-of-pocket drug expenditures for non-
institutionalized Medicare beneficiaries who are not in 
Medicare+Choice plans. It estimates that 17 percent will have 
no drug expenditures. For the remainder, 34 percent will have 
out-of-pocket expenditures under $200, 21 percent will spend 
$200-$499, 15 percent between $500 and $999, 7 percent between 
$1,000 and $1,499, and 3 percent between $1,500 and $1,999. An 
estimated 4 percent will have out-of-pocket expenses of $2,000 
or more.
    Some observers contend that prices paid by the elderly 
paying cash for their prescriptions are significantly higher 
than those paid by large purchasers, such as managed care 
organizations and the federal government. One study conducted 
in 1998 by staff on the House Government Reform and Oversight 
Committee surveyed the prices of particular drugs used often by 
seniors. The results of their findings, cited in Table 1, list 
bulk and retail prices for an average monthly supply. Some 
analysts have criticized the methodology used in the study. One 
analysis of the data cites a problem with comparing the bulk 
buyer prices on the Federal Supply Schedule (FSS) with retail 
prices. Whereas the FSS price is the ``direct-from-the-
manufacturer'' price, the retail price includes markups made 
over and above the manufacturer price at both the wholesale and 
retail levels.

------------------------------------------------------------------------
                                                                 Retail
                                                      Prices     prices
                     Drug name                       for bulk   paid by
                                                      buyers     senior
                                                                citizens
------------------------------------------------------------------------
Synthoid..........................................      $1.75     $27.05
Micronase.........................................      10.05      46.50
Zocor.............................................      42.95     104.80
Prilosec..........................................      56.38     111.94
Norvasc...........................................      58.83     113.77
Procardia XL......................................      67.35     126.86
Zoloft............................................     123.88    213.72
------------------------------------------------------------------------
 AAAASource: House Government Reform and Oversight Committee, Democratic
  Staff Report.

                        (b) drug industry issues

              (1) Growth in Prescription Drug Expenditures

    As stated earlier, spending on prescription drugs grew 14.2 
percent in 1997. According to the Bureau of Labor Statistics, a 
relatively small portion of this aggregate spending growth (2.5 
percentage points) was due to price inflation. In fact, drug 
price inflation has been consistent with other medical care 
inflation, rising 3.7 percent in 1998, compared with a 3.3 
percent rise in hospital costs and a 3.0 percent rise in 
physician service costs. A much larger portion of the growth in 
spending (11.7 percentage points) was due to an increased 
volume of purchases of existing drugs and new products.
    Health plans have experienced large increases in their 
prescription drug costs. A recent Wall Street Journal article 
stated that spending for drugs by the automaker Chrysler has 
risen 86 percent in five years, and that for Blue Cross/Blue 
Shield of Michigan, spending for drugs is 28 percent of total 
spending--more than spending for physician visits.\2\
---------------------------------------------------------------------------
    \2\ Elyse Tanouye, ``Drug Dependency: U.S. Has Developed an 
Expensive Habit: Now, How to Pay for It?'' Wall Street Journal, 
November 16, 1998, p. A1.
---------------------------------------------------------------------------
    Profit margins in the pharmaceutical industry are high: 
they are predicted to grow approximately 16 percent-18 percent, 
compared to 4 percent-7 percent expected growth for other 
Fortune 500 companies. However, a 1994 study by the 
Congressional Budget Office stated that, with proper accounting 
for the inherent riskiness in pharmaceutical research and 
development, profit margins would be only slightly above 
industry in general.

                      (2) Research and Development

    The American pharmaceutical industry contends that higher 
profits are necessary to draw the investment capital needed for 
research and development. The industry has been described as 
one of the most innovative, producing almost half of the new 
drugs introduced internationally. About 20 percent of the 
industry's revenues are invested in R&D compared to 3 percent-6 
percent for other industries. Costs can be higher than 150 
million for clinical trials of a new drug. The drug development 
process, including the pre-clinical trial phase, clinical 
trials, and the approval phase, can take over 15 years. A 
relatively small percentage of drugs which enter these trials 
actually go on the market. New drugs have up to 22 years of 
patent protection (and exclusivity of sales), after which the 
generic drug industry can market their equivalents of brand 
name drugs. However, Food and Drug Administration (FDA) 
approval for new drugs sometimes comes several years after the 
drug was patented. The drug industry maintains that this limits 
their ability to recover the cost (which averages 500 million) 
of bringing a new drug to market.

          (3) Health Benefits and Cost-Effectiveness of Drugs

    The pharmaceutical industry argues that another reason for 
increasing expenditures on drugs is that drugs are used as 
substitutes for other more expensive health treatments. There 
are several studies that show cost savings result when drugs 
are used to treat certain conditions. For example, a study by 
the Agency for Health Care Policy and Research found that 
40,000 strokes per year could be prevented through the use of a 
blood-thinning drug at a savings of $600 million per year. A 
study published in the New England Journal of Medicine found 
that providing treatment with beta-blockers to patients 
following a heart attack can reduce deaths by 40 percent.\3\ 
Another study published in the New England Journal of Medicine 
showed that an ACE (angiotensin converting enzyme) inhibitor 
given to patients for congestive heart failure saved $9,000 per 
year in hospital costs and reduced deaths by 16 percent.\4\ New 
drugs used to treat AIDS have dramatically reduced death from 
the disease and decreased hospitalization costs. But, according 
to a study by the drug manufacturer Merck, the short-term costs 
of treating HIV-positive patients have not dropped; they have 
just been transferred from hospitals to drugs.\5\
---------------------------------------------------------------------------
    \3\ Gottlieb, et al., ``Effect of Beta-Blockade Among High-Risk and 
Low-Risk Patients After Myocardial Infarction, New England Journal of 
Medicine, 339 (8), 489-497, 1998.
    \4\ The SOLVD Investigations, New England Journal of Medicine, 325 
(5) 393-203, 1991.
    \5\ Tanouye.
---------------------------------------------------------------------------

                        (4) Role of Large Payers

    Another issue facing the drug industry is the role of large 
payers, such as insurance companies, hospitals, HMOs and other 
managed care organizations, and federal and state governments.
    Through the use of formularies (lists of drugs approved for 
use), insurers may limit the type of drugs that they will 
cover. Their large market share allows them the clout to 
negotiate significant discounts on prices paid to drug 
manufacturers. Additionally, manufacturers negotiate contracts 
with federal purchasers buying drugs through the Federal Supply 
Schedule. Under the Medicaid program, manufacturers must 
provide rebates to states for drugs purchased by beneficiaries.

                       (5) Generic Manufacturers

    Competition from generic drug manufacturers also affects 
sales in the brand name pharmaceutical industry. The Drug Price 
Competition and Patent Term Restoration Act of 1984 (P.L. 98-
417), referred to as the Hatch-Waxman Act, provided a statutory 
mechanism which enabled generic drug producers to bring their 
equivalent products to market immediately upon expiration of 
the brand name drug's patent. According to one market analyst, 
the generic drug market share increased from 18.6 percent in 
1984 to 42.8 percent in 1995. Managed care organizations and 
other large purchasers encourage the use of less expensive 
generic brands.
    Brand name manufacturers employ methods to diminish the 
encroachment on their markets by generic manufacturers. In some 
instances, they release a new, improved version of a drug just 
as the patent on the old drug expires. They also employ direct-
to-consumer (DTC) advertising to encourage individuals to ask 
their physicians to prescribe specific drugs by name. DTC 
advertising, once thought inappropriate by the drug industry, 
is used to supplement industry representative visits to 
physicians and hospitals. Between 1996 and 1997, DTC 
advertising increased 46 percent.

                       (c) congressional response

  (1) Previous Efforts To Expand Medicare's Coverage of Prescription 
                                 Drugs

    Since its inception in 1965, congress has been concerned 
over the lack of prescription drug coverage in the Medicare 
program. Over the past decade, two major attempts were made to 
add this coverage. The first was the Medicare Catastrophic 
Coverage Act of 1988 (P.L. 100-366). It contained catastrophic 
prescription drug coverage subject to a $600 deductible and 50 
percent coinsurance. The Act was repealed the following year. 
The second attempt was during the health reform debate in 1994. 
The Health Security Act, proposed by the Clinton 
Administration, would have added a prescription drug benefit to 
Medicare Part B beginning in 1996. After a $250 deductible had 
been met by the beneficiary, Medicare would pay 80 percent of 
the cost of each drug; the beneficiary would pay the remaining 
20 percent. This plan was never enacted into law.

                           (2) Current Debate

    Several proposals have been advanced in the 106th Congress 
affecting prescription drugs for Medicare beneficiaries. Some 
would extend coverage to the entire population while others 
would limit coverage to low-income beneficiaries. Most 
proposals would rely on pharmacy benefit managers or similar 
entities to administer the benefit and negotiate with 
manufacturers. A few measures would not add a new benefit, but 
rather would focus on reducing the price beneficiaries pay for 
drugs.
    The issue of prescription drug coverage was one of the most 
difficult facing the National Bipartisan Commission on the 
Future of Medicare. Although a plan was not issued from the 
Commission, Congressional attention was again directed at the 
lack of a comprehensive drug benefit.
    A number of issues must be considered in formulating a drug 
benefit for Medicare.
    Persons Covered. Some observers have recommended extending 
prescription drug coverage to the entire Medicare population; 
others have suggested targeting a new benefit toward those most 
in need, such as those with incomes below 135 percent of 
poverty who are not eligible for full Medicaid benefits.
    Medigap Mandates. As stated earlier, only three of the 10 
standardized Medigap plans offer some level of drug coverage. 
Many observers have noted that only persons who expect to 
utilize a significant quantity of prescriptions actually 
purchase Medigap plans with drug coverage. This adverse 
selection tends to drive up the premium costs of these 
policies. Some have suggested that all Medigap plans be 
required to offer prescription drug coverage. Unless the 
benefit were identical across all plans, there would still be 
some adverse selection. In addition, requiring prescription 
drug coverage could potentially make any Medigap coverage 
unaffordable for some beneficiaries, and result in less health 
coverage for any beneficiary forced to drop their Medigap 
coverage.
    Scope of Benefits. There is debate as to whether the 
benefit should be catastrophic or more comprehensive in scope. 
A catastrophic benefit would only help a small portion of the 
population and would likely have a high deductible and perhaps 
high coinsurance charges. A more comprehensive benefit would 
have lower beneficiary cost-sharing charges, perhaps more 
comparable to current beneficiary cost-sharing under Part B 
($100 deductible; 20 percent coinsurance).
    Cost Control Strategies. There is currently concern that 
Medicare pays more for prescription drugs than do other 
government programs or private managed care organizations. Some 
observers have suggested that cost control methods should be 
adopted. However, the pharmaceutical industry is concerned that 
cost controls could shrink industry profits and hinder future 
research and development of new drugs. Possible cost control 
methods being considered include drug formularies, 
manufacturers' discounts, rebates, prior authorization for use 
of certain categories of drugs, implementation of quantity 
limits (for example, drugs limited to 30- or 60-day supplies 
with a limited number of refills), and utilization review.
    Pharmacy Benefit Managers (PBMs). A growing number of 
health insurers have contracted with PBMs, companies which 
manage pharmacy benefit programs on behalf of health plans. 
Through the use of various strategies (developing retail 
pharmacy network arrangements, operating mail order pharmacies, 
developing formularies, negotiating discounts, etc.) PBMs are 
credited with controlling rapidly rising pharmacy costs. They 
have been attributed with saving the Federal Employees Health 
Benefits Program plans significant costs.
    Cost and Financing. The issues of cost and financing also 
must be addressed. The Congressional Budget Office (CBO) has 
estimated that a new benefit with a $250 deductible, 20 percent 
coinsurance, and an annual cap on out-of-pocket costs of $1,000 
would have a net cost of $22.5 billion in 2000.\6\ NASI has 
estimated that a drug benefit could add between 7 percent-13 
percent to Medicare's cost over the next decade.
---------------------------------------------------------------------------
    \6\ U.S. Congressional Budget Office. Health Care and Medicare 
Spending, by Dan Crippen. Handouts presented to the Subcommittee on 
Health, House Committee on Ways and Means. March 8, 1999.
---------------------------------------------------------------------------
    There is no consensus on how a drug benefit would be 
financed. Currently, Medicare's limited drug benefit is funded 
under Part B of the program. Under Part B, beneficiary premiums 
cover 25 percent of program costs and federal general revenues 
cover the remaining 75 percent. The addition of a comprehensive 
drug benefit under this arrangement would mean a substantial 
increase in overall Medicare expenditures paid by general 
revenues, and a significant increase in the Part B premium, 
above current CBO projections. It is expected that financing a 
drug benefit will be one of the most difficult issues to 
resolve.

              7. Health Care for an Aging U.S. Population

    Advances in medical care, medical research, and public 
health have led to a significant improvement in the health 
status of Americans during the twentieth century. Between 1900 
and 1997, the average life expectancy at birth increased from 
46 years to 73.6 years for men, and from 48 to 79.2 years for 
women. The American population is aging at an accelerating 
rate, due to increasing longevity and the number of ``baby 
boomers'' who will begin to reach age 65 in the year 2011. 
Currently, those aged 65 and over comprise 13 percent of the 
population. By 2015, they will constitute 15 percent, and will 
be 20 percent by 2030. The fastest growing group among those 65 
and over is people aged 85 and over. Currently 1.5 percent of 
the population, by 2050 they will comprise 4.6 percent.
    Increased longevity raises questions about the quality of 
these extended years and whether they can be spent as healthy, 
active members of the community. According to the Medicare 
Current Beneficiary Survey,\7\ in 1996, although 79 percent of 
the elderly aged 65 to 74 rated their health as good, very 
good, or excellent, that number falls to 64 percent in the 85+ 
group. While only 6.7 percent of the 65-74 age group reported 
that their health was poor, over 10 percent of the 85+ group 
reported their health as poor. Age is not the only factor 
affecting health status. Among individuals aged 65-74, 21.4 
percent of whites and 19 percent of Hispanics reported their 
health as excellent, compared to 12.5 percent of blacks. Only 
9.6 percent of whites and Hispanics aged 85 and over reported 
their health as poor; 16.5 percent of blacks in the same age 
group reported their health as poor. Another factor affecting 
self-reported health status is insurance coverage. Of those 
beneficiaries with only Medicare fee-for-service coverage, 61.7 
percent reported their health as excellent, very good, or good; 
14.45 percent reported poor health. Those percentages for 
beneficiaries in Medicare managed care were 80.3 percent and 
5.4 percent. Beneficiaries with Medicaid as their insurance to 
supplement Medicare reported poorer health (50 percent reported 
excellent, very good, or good health; 21 percent reported poor 
health). People with both individually-purchased and employer-
sponsored private health insurance to supplement their Medicare 
coverage reported the best health in 1996: 84 percent in the 
good-very good-excellent category, and 5.3 percent in the poor 
category.
---------------------------------------------------------------------------
    \7\ Data is based on the Medicare Current Beneficiary Survey Access 
to Care files which cover beneficiaries who were always enrolled in the 
program, i.e., those beneficiaries who were enrolled on January 1, 
1996, and were still enrolled on December 31, 1996. It does not include 
beneficiaries who became eligible for the program after January 1, 
1996, nor does it include beneficiaries who died during that year.
---------------------------------------------------------------------------
    Although most elderly Medicare beneficiaries consider their 
health good, about 75 percent report having two or more chronic 
conditions. The most common of these are arthritis and 
hypertension. With age, rates of hearing and visual impairments 
also increase rapidly. Alzheimer's disease is expected to 
become a significant source of disability and mortality in 
coming years, as the numbers of the oldest old grow. According 
to the National Institute on Aging, as many as 4 million people 
in the United States and about half the persons 85 years and 
older have symptoms.
    The extent of need for personal assistance with everyday 
activities (such as dressing, eating, moving about, and 
toileting)also increases with age and is an indicator of need 
for health and social services. Non-institutionalized elderly 
persons reporting the need for personal assistance with 
everyday activities in 1996 increased with age, from only 29 
percent of persons aged 65 to 74 up to 77 percent of those aged 
85 and older.
    Although the economic status of the elderly as a group has 
improved over the past 30 years, many elderly continue to live 
on very modest incomes. In 1995, 73 percent of elderly 
beneficiaries reported incomes of less than $25,000. Twenty-
eight percent had incomes of less than $10,000. Medicare 
coverage is an integral part of retirement planning for the 
majority of the elderly. However, there are a number of 
particularly vulnerable subgroups within the Medicare 
population who depend heavily on the program to meet all of 
their basic health needs, including the disabled; the 
``oldest'' old, particularly women over the age of 85; and the 
poor elderly. The majority of Medicare spending is for 
beneficiaries with modest incomes: 38 percent of program 
spending is on behalf of those with incomes of less than 
$10,000; 76 percent of program spending is on behalf of those 
with incomes of less than $25,000.
    Most persons spend a portion of their incomes out-of-pocket 
for health care. This spending includes payments for health 
insurance, medical services, prescription drugs, and medical 
supplies not covered by Medicare. The percentage of after-tax 
income that the elderly spend on health care has risen from 11 
percent in the early 1960s to 18 percent in 1994. In contrast, 
the percentage spent by nonelderly households has remained 
relatively constant, declining from 6 percent in the early 
1960s to 5 percent in 1994. The higher percentage spent by the 
elderly reflects several factors, including their higher usage 
of health care services, payments for long-term care services, 
and the premiums paid by those who purchase supplemental 
insurance (i.e., ``Medigap'') policies.
    Because per capita, the elderly consume four times the 
level of health spending as the under 65 population, the 
demands of an aging population for health services will 
continue to be a major public policy issue. One major concern 
is the availability and affordability of long term care. It is 
difficult however to predict the numbers of people that will 
need this service. Much depends on whether medical technology, 
which has contributed to the lengthening life expectancy, can 
increase active life expectancy among the oldest old. If 
symptoms of diseases which disproportionately afflict the aged 
could be delayed by five or 10 years, more of the end of life 
could be lived independently with less need for expensive 
medical services.


                               Chapter 8



                                MEDICARE

                             A. BACKGROUND

    Medicare was enacted in 1965 to insure older Americans for 
the cost of acute health care. Since then, Medicare has 
provided millions of older Americans with access to quality 
hospital care and physician services at affordable costs. In 
fiscal year 1998, Medicare insured approximately 39 million 
aged and disabled individuals at an estimated cost of $198.1 
billion ($218.8 billion in gross outlays offset by $20.8 
billion in beneficiary premium payments). Medicare is the 
second most costly Federal domestic program, exceeded only by 
the Social Security program.
    Medicare (authorized under title XVIII of the Social 
Security Act) provides health insurance protection to most 
individuals age 65 and older, to persons who have been entitled 
to Social Security or Railroad Retirement benefits because they 
are disabled, and to certain workers and their dependents who 
need kidney transplantation or dialysis. Medicare is a Federal 
program with a uniform eligibility and benefit structure 
throughout the United States. It is a non-means-tested program, 
that is, protection is available to insured persons without 
regard to their income or assets. Medicare is composed of the 
Hospital Insurance (HI) program (Part A) and the Supplementary 
Medical Insurance (SMI) program (Part B). A new Medicare-Choice 
program (Part C), providing managed care options for 
beneficiaries, was established by the Balanced Budget Act of 
1997 (BBA 97, P.L. 105-33).
    As insurance for short-term acute illness, Medicare covers 
most of the costs of hospitalization and a substantial share of 
the costs for physician services. However, Medicare does not 
cover all of these costs, and there are some services, such as 
long term care and prescription drug costs, which the program 
does not cover. To allay these expenses, in 1996, approximately 
88.7 percent of aged Medicare beneficiaries had supplemental 
coverage, including employer-based coverage, individually-
purchased protection (known as Medigap), and Medicaid. Another 
8.0 percent were enrolled in managed care organizations which 
are required to provide the same coverage to beneficiaries as 
traditional fee-for-service Medicare.
    One of the greatest challenges in the area of Medicare 
policy is the need to rein in program costs while assuring that 
elderly and disabled Americans have access to affordable, high 
quality health care.
    Among recent achievements are the establishment of the 
Medicare+Choice program; payment reform for skilled nursing 
facilities and home health agencies; and expansion of 
preventive care coverage.
    The 105th Congress passed the Balanced Budget Act of 1997 
which achieved Medicare savings of $116 billion over the period 
of FY1998 to FY2002. It provided for new payment methodologies 
for skilled nursing facilities, home health agencies, and other 
service categories. It also provided for additional coverage of 
preventive services. It established the Medicare-Choice program 
which expands capitated private plan options for beneficiaries 
to include preferred provider organizations, provider-sponsored 
organizations, and private fee for service plans; modifies 
payment methods for managed care organizations; and provides 
for a demonstration project allowing a limited number of 
beneficiaries to establish medical savings accounts in 
conjunction with a high deductible health insurance plan.

                 1. Hospital Insurance Program (Part A)

    Most Americans age 65 and older are automatically entitled 
to benefits under Part A. For those who are not automatically 
entitled (that is, not eligible for monthly Social Security or 
Railroad Retirement cash benefits), they may obtain Part A 
coverage provided they pay the full actuarial cost of such 
coverage. The monthly premium for those persons is $309 for 
1999. Also eligible for Part A coverage are those persons 
receiving monthly Social Security benefits on the basis of 
disability and disabled Railroad Retirement system annuitants 
who received such benefits for 2 years.
    Part A is financed principally through a special hospital 
insurance (HI) payroll tax levied on employees, employers, and 
the self-employed. Each worker and employer pays a tax of 1.45 
percent on covered earnings. The self-employed pay both the 
employer and employee shares. In fiscal year 1997, payroll 
taxes for the HI Trust Fund amounted to an estimated $114.7 
billion, accounting for the bulk of HI financing. An estimated 
$138 billion in Part A benefit payments were made in fiscal 
year 1997.
    Benefits included under Part A, in addition to inpatient 
hospital care, are skilled nursing facility (SNF) care, home 
health care and hospice care. For inpatient hospital care, the 
beneficiary is subject to a deductible ($768 in 1999) for the 
first 60 days of care in each benefit period. For days 61-90, a 
coinsurance payment of $192 is required. For hospital stays 
longer than 90 days, a beneficiary may elect to draw upon a 60-
day ``lifetime reserve.'' A coinsurance payment of $384 is 
required for each lifetime reserve day. For skilled nursing 
facility services, for each benefit period, there is no 
coinsurance payment required for the first 20 days, and a $96 
coinsurance payment for the 21st through the 100th day. The 
home health benefit requires no coinsurance payment. For 
hospice care, a limited coinsurance payment is required for 
prescription drug coverage and inpatient respite care.
    Hospital reimbursement.--Most hospitals are reimbursed for 
their Medicare patients on a prospective basis. The Medicare 
prospective payment system (PPS) pays hospitals fixed amounts 
which have been established in advance of the provision of 
services and are based on the average costs for treating a 
specific diagnosis. Each beneficiary admitted to a hospital is 
assigned to one of approximately 500 diagnosis-related groups 
(DRGs). The amount a hospital receives from Medicare no longer 
depends on the amount or type of services delivered to the 
patient, so there are no longer incentives to overuse services. 
If a hospital can treat a patient for less than the DRG amount, 
it can keep the savings. If treatment for the patient costs 
more, the hospital must absorb the loss. Hospitals are not 
allowed to charge beneficiaries any difference between hospital 
costs and the Medicare DRG payment.
    Underlying Medicare law requires that the base PPS rate be 
updated annually by a measure (known as the Market Basket 
Index, or MBI) of the costs of goods and services used by 
hospitals. Since hospital payments represent a significant part 
of total Medicare spending, and 66 percent of total Part A 
payments, reductions in the growth of Medicare payments to 
hospitals provides significant budgetary savings. BBA 97 
provided for limits to future growth in hospital spending, 
including reductions to the MBI update factor.
    In addition to the basic DRG payment, hospitals may also 
receive certain adjustments to their Medicare payments. 
Teaching hospitals may receive adjustments for indirect medical 
education costs (those not directly related to medical 
education but which are present in teaching hospitals, such as 
a higher number of more severely ill patients or an increased 
use of diagnostic testing by residents and interns). Certain 
hospitals which serve a higher number of low-income patients, 
known as Disproportionate Share Hospitals (DSH), also receive 
adjustments to their Medicare payments. Adjustments are also 
made to hospitals for atypical cases, known as ``outliers,'' 
which require either extremely long lengths of stay or 
extraordinarily high treatment costs. BBA 97 made reductions to 
each of these types of adjustments.
    Additional changes were made by BBA 97 to the way Medicare 
reimburses hospitals in other areas including the direct costs 
of graduate medical education (including salaries of residents 
and teachers, fringe benefits, and overhead costs related to 
teaching activities), capital-related costs, and enrollee bad 
debt payments.
    After Medicare changed to the PPS system in 1983, Medicare 
patients have been sent home from the hospital after shorter 
stays and, in some cases, greater need of follow-up health care 
which may be provided under the Medicare home health care 
benefit. A fuller discussion of the SNF and home health 
benefits under Medicare is provided in the next chapter.

              2. Supplementary Medical Insurance (Part B)

    Part B of Medicare, also called supplementary medical 
insurance, is a voluntary program. Anyone eligible for Part A 
and anyone over age 65 can obtain Part B coverage by paying a 
monthly premium ($45.50 in 1999). Beneficiary premiums finance 
25 percent of program costs with Federal general revenues 
covering the remaining 75 percent. Part B covers physicians' 
services, outpatient hospital services, physical therapy, 
diagnostic and X-ray services, durable medical equipment, and 
certain other services. Beneficiaries using covered services 
are generally subject to a $100 deductible and 20 percent 
coinsurance charges.
    Physician Payment.--The Omnibus Budget Reconciliation Act 
of 1989 made substantial changes in the way Medicare pays 
physicians, effective in 1992. A fee schedule was established 
based on a relative value scale (RVS). The RVS is a method of 
valuing individual services in relationship to each other. The 
relative values reflect three factors: physician work (time, 
skill, and intensity involved in the service), practice 
expenses, and malpractice costs. These relative values are 
adjusted for geographic variations. Geographically adjusted 
relative values are converted into a dollar payment amount by a 
dollar figure known as the conversion factor. Prior to BBA 97 
there were three conversion factors--one for surgical services, 
one for primary care services, and one for other services. BBA 
97 amended this, establishing a single conversion factor 
beginning in 1998. The conversion factor is updated by a 
``sustainable growth rate'' formula based on real gross 
domestic product growth.
    Practice Expenses.--Practice expenses include such items as 
salaries for a physician's staff, equipment and supplies, and 
overhead. While the calculation of the physician work portion 
of the fee schedule is based on resource costs, the practice 
expense and malpractice expense components continue to be based 
on historical charges. The Social Security Amendments of 1994 
(P.L. 103-432) required the Secretary of HHS to develop a 
resource-based methodology for practice expenses to be 
implemented in January 1998. A proposed rule was issued in June 
1997. However, its methodology was the subject of considerable 
controversy. Many observers suggested that sufficient, accurate 
data was not collected. They also cited the potential large 
scale payment reductions that could result for some physician 
specialties, particularly surgical specialties. BBA 97 
addressed these concerns. It delayed implementation of a 
resource-based practice expense methodology until 1999 and 
provided for a 4-year transition. On November 2, 1998, the 
Health Care Financing Administration (HCFA) issued a final rule 
regarding the methodology used to calculate resource-based 
practice expense component. HCFA used the American Medical 
Association's Socioeconomic Monitoring System for practice 
costs by specialty. It calculates practice expenses per hour by 
one of six cost pools (including clinical labor, medical 
supplies, office expenses, administrative labor). This is 
multiplied by total number of physician hours spent treating 
patients to determine practice expense pools by specialty and 
cost category. Then each practice expense cost pool is 
allocated to individual procedure codes, thus deriving costs of 
each procedure performed by a specialty. (Where more than one 
specialty performs the service, weighted average allocations 
are made.) This is known as the ``top-down'' approach. Although 
opposed by a number of specialists groups, this final rule is 
somewhat less controversial than the proposed rule issued in 
June 1997. In 1999, the payment will be based 75 percent on the 
1998 charge-based relative value unit, and 25 percent on the 
resource-based relative value; in 2000, the ratio will be 50 
percent/50 percent; in 2001 it will be 75 percent resource-
based and 25 percent charge-based. Beginning in 2002, the 
values will be totally resource-based.
    Private contracting.--Physicians are required to submit 
claims for services provided to their Medicare patients. They 
are subject to limits on the amounts they can bill these 
patients. Prior to BBA 97, the law was interpreted to prohibit 
physicians from entering into private contracts with Medicare 
beneficiaries to provide services for which no Medicare claim 
would be submitted. BBA 97 permitted private contracting under 
specified conditions. Among other things, a contract, signed by 
the beneficiary and the physician, must clearly indicate that 
the beneficiary agrees to be responsible for payments for 
services rendered under the contract. In addition, the 
beneficiary must acknowledge that no Medicare charge limits 
apply. An affidavit, filed with the Secretary of Health and 
Human Services, must be in effect at the time the services are 
provided. The affidavit, signed by the physician, must provide 
that the physician will not be reimbursed under the Medicare 
program for any item or service for a 2-year period beginning 
on the date the affidavit is signed.
    Outpatient services.--Medicare beneficiaries receive 
services in a variety of outpatient settings, including 
hospital outpatient departments (OPDs) and ambulatory surgical 
centers (ASCs). In the past, Medicare reimbursed OPDs on a 
reasonable cost basis with certain adjustments. BBA 97 mandated 
a prospective payment system (PPS) for OPDs (currently 
scheduled to take effect soon after the start of calendar year 
2000). Unlike most other Part B services where beneficiary cost 
sharing is 20 percent of the approved Medicare payment, for OPD 
services, beneficiary coinsurance is 20 percent of actual 
charges. Because actual charges are higher than approved 
payments, beneficiaries often pay a higher percentage of the 
Medicare approved payment. BBA 97 included a provision which 
will eventually correct this situation.
    Durable Medical Equipment (DME) and Prosthetics and 
Orthotics (PO).--Medicare covers a wide variety of DME and PO. 
As defined, DME must be equipment that can withstand repeated 
use, is used primarily to serve a medical purpose, generally 
would not be useful in the absence of illness or injury, and is 
appropriate for use in the home. Prosthetics and orthotics are 
items which replace all or part of an internal organ, other 
devices such as cardiac pacemakers, prostheses, back braces, 
and artificial limbs. DME and PO are reimbursed on the basis of 
a fee schedule established by the Omnibus Budget Reconciliation 
Act of 1987. If it is determined that the amount paid by the 
program is ``grossly excessive or grossly deficient and not 
inherently reasonable,'' the Secretary is authorized to adjust 
this amount accordingly. This is known as the inherent 
reasonableness authority. A lengthy process, involving public 
notices and input from all interested parties, must be followed 
before a change in the reimbursement level can be made. This 
process or congressional legislation are the only methods 
through which HCFA can address inappropriate reimbursement 
levels. Investigations have shown that Medicare payments for 
some DME and PO are higher than those made by other health care 
insurers, including the Department of Veterans Affairs (VA). 
Some interested parties, including HCFA, have suggested 
granting HCFA the authority to bid competitively for selected 
items of DME and PO, a practice currently used by the VA. BBA 
97 required the Secretary to establish five 3-year competitive 
bidding demonstration projects, in which suppliers of Part B 
items and services (except physician services) compete for 
contracts to furnish Medicare beneficiaries with these items 
and services. The Secretary is permitted to limit the number of 
suppliers in an area to the number necessary to meet the 
projected demand for the contracted goods. The first site, Polk 
County, Florida, was announced on May 29, 1998.
    Preventive care benefits.--Medicare covers health services 
which are reasonable and necessary for the diagnosis and 
treatment of illness of injury. In general the program has not 
covered preventive services. In recent years, Congress has 
responded to concerns about the lack of this coverage by adding 
specific benefits to Medicare law. BBA 97 further expanded 
these services. The program covers the following preventive 
services (unless otherwise noted, beneficiaries are liable for 
regular Part B cost-sharing charges: $100 annual deductible and 
20 percent coinsurance):
    Pneumococcal Pneumonia Vaccination.--Effective July 1980, 
Medicare began covering the costs for vaccinations against 
pneumococcal pneumonia. The benefit covers 100 percent of the 
reasonable costs of the vaccine and its administration when 
prescribed by a doctor (i.e., not subject to deductible or 
coinsurance).
    Hepatitis B Vaccination.--On September 1, 1984, Medicare 
began coverage of hepatitis B vaccinations for high- or 
intermediate-risk beneficiaries when prescribed by a doctor. 
The benefit includes the vaccine and its administration.
    Screening Pap Smears and Pelvic Examinations.--On July 1, 
1990, Medicare began covering pap smears to screen for early 
detection of cervical cancer. The benefit includes the test, 
which must be prescribed by a physician, and its interpretation 
by a doctor. BBA 97 expanded the benefit, beginning January 1, 
1998, to include a screening pelvic examination (defined to 
include a clinical breast examination) for the early detection 
of vaginal cancer, once every 3 years. The law also provides 
for an annual screening pelvic examination for certain high-
risk individuals. The Pap smear and screening pelvic 
examination benefits are not subject to the deductible; 
beneficiaries are liable for coinsurance payments for the 
screening pelvic examinations.
    Screening Mammography.--Medicare began covering screening 
mammographies for early detection of breast cancer, subject to 
specified frequency limits by age group, on January 1, 1991. 
BBA 97 authorized coverage of an annual screening mammography 
for all women over age 39, effective January 1, 1998. The 
benefit is not subject to the deductible.
    Influenza Vaccination.--Medicare began 100 percent coverage 
of the cost of influenza virus vaccine and its administration 
on May 1, 1993, for all Medicare beneficiaries. Coverage does 
not require a physician's prescription or supervision, and is 
not subject to coinsurance or deductible.
    Prostate Cancer Screening.--Beginning January 1, 2000, 
Medicare will cover annual prostate cancer screening tests for 
men over age 50. The benefit will cover digital rectal 
examinations and prostate specific antigen (PSA) blood tests. 
After 2002, Medicare will cover other procedures determined 
effective by the Secretary.
    Colorectal Cancer Screening.--Effective January 1, 1998, 
Medicare provides coverage of several screening procedures for 
early detection of colorectal cancer: annual screening fecal-
occult blood tests for beneficiaries over age 49; screening 
flexible sigmoidoscopy, every 4 years for beneficiaries over 
age 49; screening colonoscopies every 2 years for high-risk 
beneficiaries. Barium enema tests can be substituted for either 
of the two last procedures.
    Diabetes Self-Management.--On July 1, 1998, Medicare began 
covering educational and training services provided on an 
outpatient basis by physicians or other certified providers to 
qualified beneficiaries. Blood testing strips and home blood 
glucose monitors are covered for diabetics regardless of 
whether they are insulin-dependent.
    Bone Mass Measurement.--Beginning July 1, 1998, Medicare 
covers the cost of procedures used to measure bone mass, bone 
loss, or bone quality for certain high-risk beneficiaries.

                      3. Medicare+Choice (Part C)

    The Medicare+Choice program (M-C) was established by the 
Balanced Budget Act of 1997. It provides expanded options for 
Medicare beneficiaries who are enrolled in both Parts A and B. 
In addition to the traditional fee-for-service program, 
Medicare will provide coverage in several managed care and 
other health plan options: (1) Health Maintenance Organizations 
(HMOs) allow beneficiaries to obtain services from a designated 
network of doctors, hospitals, and other health care providers, 
usually with little or no out-of-pocket expenses. (This option 
has been available since 1983.) (2) HMOs with a Point-of-
Service (POS) option allow beneficiaries to selectively go out 
of the designated network of providers to receive services. 
Higher out-of-pocket expenses are required when a beneficiary 
goes out of the network. (3) Preferred Provider Organizations 
(PPOs) are networks of providers which have contracted with a 
health plan to provide services. Beneficiaries can choose to go 
to providers outside the network, and the plan will pay a 
percentage of the costs. The beneficiary is responsible for the 
rest. (4) Provider-Sponsored Organizations (PSOs) are similar 
in operation to an HMO, but they are generally cooperative 
ventures among a group of providers (such as hospitals and 
physicians) who directly assume the financial risk of providing 
services. (5) Private Fee-for-Service (PFFS) plans. Under these 
arrangements, the beneficiary chooses a private indemnity plan. 
The plan, rather than the Medicare program, decides what it 
will reimburse for services. Medicare pays the private plan a 
premium to cover traditional Medicare benefits. Providers are 
permitted to bill beneficiaries beyond what the health plan 
pays, up to a limit, and the beneficiary is responsible for 
paying this additional amount. The beneficiary might also be 
responsible for additional premiums. (6) Medical Savings 
Accounts (MSAs). BBA 97 authorized an MSA demonstration program 
for up to 390,000 participants. The beneficiary chooses a 
private high-deductible (up to $6,000) insurance plan. Medicare 
pays the premium for the plan and makes a deposit into the 
beneficiary's MSA. The beneficiary uses the money in the MSA to 
pay for services until the deductible is met (and for other 
services not covered by the MSA plan). There are no limits on 
what providers can charge above amounts paid by the MSA.
    A number of protections were established, including a 
guarantee of beneficiary access to emergency care, quality 
assurance and informational requirements for M-C organizations, 
and external review, grievance, and appeal requirements.
    Payment to plans is made in advance on a monthly basis. 
They are generally set by county. Prior to BBA 97, payments for 
beneficiaries in HMOs with risk-sharing contracts with Medicare 
were based on the adjusted average per capita cost (AAPCC) 
which was calculated by a complex formula based on the costs of 
providing benefits to Medicare beneficiaries in the fee-for-
service (i.e., non-managed care) portion of the Medicare 
program. Under BBA 97, a county's M-C rate is the maximum of 
the following three rates: (1) A floor, equal to the minimum of 
either $380 per month in 1999, for the 50 states and the 
District of Columbia, updated annually by the national growth 
percentage. (2) A ``minimum update'' rate equal to the previous 
year's payment rate plus an increase of 2 percent. (3) A 
``blended'' rate equal to a combination of local area-specific 
(i.e., county) and national input-price adjusted rates. AAPCCs 
have been criticized for their wide variation across the 
country. To reduce variation, the blended rate will reduce 
payments in counties that have traditionally been higher than 
the national average, and increase those that have been 
traditionally lower. Over time, the blended rate will rely more 
heavily on the national rate, and less heavily on the local 
rate, thus reducing variation in rates across the country. 
Rates must produce budget-neutral payments. If the budget 
neutrality target would be exceeded, counties scheduled to 
receive a blended rate would have rates reduced, but never 
below the higher of the floor or minimum update rate. In both 
1998 and 1999, no counties received blended rates because of 
the budget neutrality provision.

                    4. Supplemental Health Coverage

    At its inception, Medicare was not designed to cover 
beneficiaries' total health care expenditures. Several types of 
services, such as long-term care for chronic illnesses and most 
outpatient prescription drugs, are not covered at all, while 
others are partially covered and require the beneficiary to pay 
deductibles, and coinsurance. Medicare covers approximately 
half of the total medical expenses for noninstitutionalized, 
aged Medicare beneficiaries. Remaining health care expenses are 
paid for out-of-pocket or by private supplemental health 
insurance, such as Medigap, by employer-based coverage, by 
Medicaid, or other sources. Over 80 percent of beneficiaries 
have insurance to supplement their Medicare coverage. The term 
``Medigap'' is commonly used to describe an individually 
purchased private health insurance policy that is designed to 
supplement Medicare's coverage. These plans offer coverage for 
Medicare's deductibles and coinsurance and pay for some 
services not covered by Medicare. The Omnibus Budget 
Reconciliation Act of 1990 (OBRA 90) provided for a 
standardization of Medigap policies, in order to enable 
beneficiaries to better understand policy choices and to 
prevent marketing abuses.
    Standardized packages.--Generally, there are 10 
standardized Medigap benefit packages which can be offered in a 
state, designated as Plans A through J. Plan A offers a core 
group of benefits, with the other nine offering the same core 
benefits and different combinations of additional benefits. BBA 
97 added two additional high-deductible plans which offer the 
same benefits as either Plan F or J, but the deductible is 
$1,500 for 1999 and will be increased by the CPI in subsequent 
years. Not all 10 plans are available in all states; however, 
all Medigap insurers are required to offer the core plan. 
Insurers must use uniform language and format to outline the 
benefit options, making it easier for beneficiaries to compare 
packages. All Medigap policies sold in a state must be approved 
by that state under a regulatory program with standards at 
least as stringent as those established by the National 
Association of Insurance Commissioners and approved by the 
Secretary. There are no Federal limits set regarding premium 
prices; however, plans must return a certain percentage of the 
premiums in the form of benefits. States are required to have a 
process for approving premium increases proposed by insurers.
    Prevention of Duplicate Medigap Coverage.--Before issuing a 
Medigap policy to a Medicare beneficiary, the seller must 
ascertain what type of health insurance the applicant has, the 
source of this insurance, and whether the applicant is entitled 
to Medicaid. With certain limited exceptions, it is unlawful to 
sell a health insurance policy to a Medicare beneficiary with 
knowledge that it duplicates Medicare, Medicaid, or private 
health insurance benefits to which a beneficiary is otherwise 
entitled.
    Renewability, Preexisting Condition, and Medical 
Underwriting Limitations.--Medigap policies are required to be 
guaranteed renewable. Issuers must have a 6-month open 
enrollment period for beneficiaries who are turning 65 (this 
period is not required for the under-65 disabled population). 
Prior to BBA 97, issuers were permitted to exclude coverage for 
services related to a pre-existing condition, for no longer 
than 6 months. An individual meeting the 6-month period in one 
Medigap plan was not required to meet it again for a new plan. 
BBA 97 guaranteed issuance for certain specified beneficiaries 
without the 6-month pre-existing-condition exclusion, provided 
they enroll within 63 days of termination of other enrollment. 
The guarantee issue is, with certain exceptions, for Plans A, 
B, C, or F. BBA 97 also prohibits pre-existing condition 
exclusions for individuals enrolling in the guaranteed open 
enrollment period who have at least 6 months of creditable 
coverage, as defined in the Health Insurance Portability and 
Accountability Act (HIPAA, P.L. 104-191), for that condition. 
Medigap insurers are prohibited from discriminating in policy 
pricing based on an applicant's health status, claim 
experience, receipt of health care, or medical condition.
    Medicare Select.--OBRA 1990 established a demonstration 
project under which insurers could market a Medigap product 
known as Medicare SELECT which provides services through 
designated health professionals and facilities known as 
preferred providers. P.L. 104-18, signed into law July 7, 1995, 
extended the program for 3 years (to June 30, 1998) and to all 
states. A permanent extension beyond the 3-year period was 
authorized unless the Secretary determines, based on a study, 
that the SELECT program significantly increases Medicare 
expenditures, significantly diminishes access to and quality of 
care, or that it does not result in lower Medigap premiums for 
beneficiaries.

                               B. ISSUES

    A number of observers have stated that the Medicare program 
is now at a critical juncture. Efforts have delayed the 
program's insolvency, but have not addressed completely the 
underlying problems. It is argued that the whole structure of 
the program needs to be reexamined. BBA 97 provided for the 
establishment of the National Bipartisan Commission on the 
Future of Medicare to develop recommendations concerning a 
number of program issues. Some proposals being considered would 
involve modifications to the program's structure; others would 
involve major restructuring.

               1. Medicare Solvency and Cost Containment

    Controlling expenditures within the Medicare program and 
looking for ways to assure the program's solvency continue to 
be among the highest priority issues for both the Congress and 
the Administration. A driving force for Medicare cost 
containment is the need to assure solvency of the Medicare 
Hospital Insurance (HI) trust fund and to control the rate of 
growth in expenditures in the Supplementary Medicare Insurance 
(SMI) trust fund. Unlike the HI trust fund, the SMI trust fund 
does not face insolvency because it is financed through a 
combination of beneficiary premiums and Federal general 
revenues. However, both the rapid rate of growth and the impact 
of this growth on general revenue spending continue to be of 
concern. Both funds are maintained by the Treasury and 
evaluated each year by a board of trustees.
    Trustee projections show financial problems ahead for the 
HI fund. Since 1970, the trustees have been projecting the 
impending insolvency of the Part A trust fund. Their April 1997 
report predicted that the fund would become insolvent in 2001. 
In that year revenues coming into the trust fund (primarily 
payroll taxes), together with any balances carried over from 
prior years would be insufficient to cover that year's payment 
for Part A benefits.
    Because of its rapid growth, both in terms of aggregate 
dollars, and as a share of the Federal budget, the Medicare 
program has been a major focus of deficit reduction legislation 
passed by the Congress since 1980. With few exceptions, 
reductions in program spending have been achieved largely 
through reductions in payments to providers. Of particular 
importance were the implementation of the prospective payment 
system for hospitals beginning in 1984 and the fee schedule for 
physicians services beginning in 1992. These reductions 
stemmed, but did not eliminate the year-to-year increases in 
Medicare outlays.
    In response to the impending insolvency (as well as the 
larger goal of bringing the overall Federal budget into 
balance), the Balanced Budget Act of 1997 was enacted. This 
legislation provided for $116 billion in Medicare savings over 
the FY1998-FY2002 period. The legislation achieved these 
savings by again slowing the rate of growth in payments to 
providers and by establishing new payment methodologies for 
certain service categories. It also provided for a significant 
expansion in the choices available to beneficiaries for 
obtaining covered services. BBA 97 also provided for the 
transfer of some home health spending from Part A to Part B of 
the program. While this action does not reduce overall program 
spending, it does reduce Part A spending and thus delays the 
Part A projected insolvency date. In January 1999, the 
Congressional Budget Office (CBO) projected that the fund would 
be solvent at least through 2009. The April 1998 HI trustees 
report estimated insolvency in 2008. Both estimates show that 
while BBA 97 addressed the immediate short-term financing 
concerns, it did not resolve the longer-term financial 
problems.
    Major demographic changes are slated to affect the Medicare 
program. First, beginning in 2011, the baby boom generation 
(persons born between 1946 and 1964) begin to turn age 65. 
Second, there is a shift in the number of workers supporting 
persons receiving benefits under Part A. In 1995, there were 
3.9 workers per beneficiary. The ratio is expected to decline 
to 3.1 by 2015 and to 2.3 by 2030.
    The 1998 trustees' report stated that ``to bring the HI 
fund into financial solvency for over 25 years, either outlays 
would have to be reduced by 18 percent or total income 
increased by 22 percent (or some combination thereof)'' 
throughout the 25-year period. To accomplish this just through 
an increase in the payroll tax, the rate would have to be 
raised from the current 1.45 for employees and employers to 
1.81 percent each; the rate for self-employed individuals would 
go from 2.9 percent to 3.62 percent. Many observers have 
recommended that reforms be developed and enacted as rapidly as 
possible.

                        2. Program Modifications

    Increasing Eligibility Age from 65 to 67.--Some observers 
have suggested that the Medicare eligibility age should be 
increased according to the same phase-in schedule established 
for Social Security benefits under the Social Security Act 
Amendments of 1983. This legislation provided that the full 
retirement age be raised from 65 to 67 over the 2003-2027 
period. Proponents of raising Medicare's eligibility age argue 
that it is reasonable given the increase in life expectancy and 
improvements in health status which have occurred since 
Medicare was created in 1965. They further argue that needed 
program savings would result. CBO estimated in 1997 that such a 
provision would save $10.2 billion over the FY2003-FY2007 
period. Opponents of the proposal argue that it would place a 
number of seniors at risk. They refer to problems faced by the 
population aged 62-64, 16 percent of whom were uninsured in 
1996. Of these, 25 percent were poor and 51 percent were 
neither employed nor the dependent spouse of an employed person 
characteristics that would make it unlikely for them to afford 
health insurance. Opponents suggest that the problems could be 
magnified for the population aged 65-67. They also contend that 
some employers who currently offer health insurance to their 
retirees might decide that it would be too expensive to extend 
that coverage for additional years. Raising the eligibility age 
would also have implications for Medicaid. The program would 
(under current law) assume some of the expenses previously 
assumed by Medicare, resulting in some Medicare savings being 
transferred to Federal and state Medicaid costs.
    Some observers suggest that if Medicare's eligibility age 
is raised, the affected population should be able to buy into 
the program. According to an estimate by the American 
Association of Retired Persons, the premium for these 
individuals would be $420 per month ($5,041 per year), assuming 
a 20 percent participation rate. Higher participation rates 
could mean lower premiums. The Congressional Budget Office 
estimates that the premiums would be between $300 and $400 per 
month. Some are concerned about the possible effects of adverse 
selection (i.e., only those individuals anticipating higher 
than average medical costs enroll) which could drive up the per 
capita costs of the program.
    Means Testing.--Currently, Medicare is not a means tested 
program. There are no income or assets tests for eligibility. 
The Senate-passed version of BBA 97 would have provided for an 
income-related Part B premium. The Congressional Research 
Service estimated that 1.6 million persons aged 65 or older 
would have been affected. The provision was dropped in 
conference. The major issue during the debate was how means-
testing would be administered. Although the Internal Revenue 
Service (IRS) maintains income information, there is no such 
operational system in HCFA. Some argued that establishing such 
a system in HCFA would require a large resource commitment and 
that the IRS should administer an income-related premium. 
Others felt that this would be perceived as a tax.
    Increased Beneficiary Cost-Sharing.--Various proposals have 
been offered to increase beneficiary cost-sharing, including 
increasing Part B coinsurance from 20 percent to 25 percent, 
increasing the Part B deductible from $100 to a level more 
comparable to that in private insurance plans ($200 to $225), 
and imposing coinsurance on services not currently subject to 
such charges. Increased cost-sharing would presumably make 
beneficiaries more cost conscious in their use of services. 
However, some observers are concerned that it would impede 
access to care for low-income beneficiaries.
    Medigap Modifications.--Beneficiaries with Medigap coverage 
tend to perceive services as free at the point when they are 
actually receiving them; thus they use more services and cost 
Medicare more money than those without supplementary coverage. 
Some observers have suggested that incentives in current 
Medigap policies should be revised. Specifically, two Medigap 
plans offer identical coverage as Plans F and J except that 
they have high deductibles in exchange for lower premiums. Some 
have suggested that this approach be extended to some or all of 
the standard 10 Medigap packages, prohibiting insurers from 
offering plans without any deductible. This could have the 
effect of making beneficiaries more aware of their medical 
expenditures and could lower Medigap premium rates.

                        3. Program Restructuring

    A number of observers have suggested that more than program 
modifications are necessary to address Medicare's problems. 
They argue that Medicare has not kept pace with changes in the 
health care delivery system as a whole. Some suggest 
redesigning the benefit package to reflect employment-based 
coverage. This might include a prescription drug benefit or a 
catastrophic limit on out-of-pocket expenses. In order to avoid 
significantly increasing Medicare's costs, modifications could 
be considered in the context of other reforms. These might 
include higher Part B premiums, more freedom in selecting a 
package tailored to individual needs, or placing an overall per 
capita cap on expenditures. Another proposal entails combining 
Parts A and B of the program, noting that most beneficiaries 
are enrolled in both parts and that the program is increasingly 
emphasizing managed care approaches which cover both parts. One 
concern about this approach is the different ways in which the 
two parts are financed. Under current law, general revenue 
financing is not available for Part A. Some are concerned that 
if the programs were combined, there would be less incentive to 
control costs since general revenues might be available. 
However, such a plan would likely include some overall limit on 
general revenue expenditures.
    Defined Contribution/Premium Support.--Under the 
traditional fee-for-service program, Medicare itself assumes 
the financial risk associated with the provision of benefits. 
Under the Medicare+Choice program, individual plans assume the 
risk; however, they are required to offer beneficiaries 
coverage for at least the same services as are provided under 
the fee-for-service program. Payments to the M+C plans are 
based on a formula established in law and a specific dollar 
amount is paid on behalf of each Medicare recipient. Under a 
premium support plan, payments would be made using the same 
approach as the M+C program. However, unlike the current 
system, plans would not be required to offer a specified 
package of benefits. The approach most frequently suggested is 
that used under the current Federal Employees Health Benefits 
Plan (FEHBP). Under this proposal, the government would set 
minimum standards for plans to participate, provide a process 
for qualifying plans, and provide information on plan choices 
to the beneficiary population. Beneficiaries would select from 
a variety of plans with different benefits, cost-sharing 
requirements, and premium levels. Presumably, beneficiaries 
would no longer purchase Medigap coverage, but would purchase a 
single package for all their health insurance needs. The 
Federal Government would make a specified payment (``premium 
contribution'') per beneficiary. The beneficiary would pay the 
plan the difference between the Federal contribution and the 
plan's premium. A number of key design issues would need to be 
addressed, including how the initial Federal contribution 
amount would be set and the potential for adverse selection. 
Proponents of a defined contribution system argue that it would 
enable the Federal Government to control aggregate Federal 
outlays and would enable beneficiaries to purchase coverage 
more tailored to their individual needs. Critics suggest that 
the system may place individual beneficiaries at undue risk if 
the per capita payment fails to keep pace with the rising costs 
of plans.
    Private Investment Approaches.--Some persons have 
recommended that the current Medicare program be replaced by an 
investment-based system under which people build up assets 
during their working years to fund their medical costs in 
retirement. This is referred to as ``privatization.'' 
Privatization proposals would move away from the current system 
under which current workers pay for the Part A expenses of 
current retirees. Instead, workers would be saving for their 
own future health care needs. A number of proposals have been 
offered recently to privatize the Social Security cash benefits 
program. One would replace the current system with a system of 
personal investment accounts. Another would combine the current 
system with a new personal savings account system. A third 
would retain the current program structure but create a social 
security investment board with authority to invest in the stock 
market. Some aspects of these plans could be adopted in 
modified form for the Medicare program. Proponents of 
privatization hold that investment in stocks or mutual funds 
would allow the holdings to grow at rates significantly 
exceeding those of government securities. Opponents caution 
that the recent upsurge in the stock market may not continue 
over the long term. Another concern is how the transition from 
the old system to the new system would be financed and 
structured. Current workers pay for current retirees. If 
workers shifted some or all of their funds to saving for their 
own retirement, these funds would stop entering the system for 
current retirees.

                         4. Prescription Drugs

    Medicare provides coverage for prescription drugs used as 
part of a hospital stay, but in general does not cover 
outpatient prescription drugs. There are some exceptions, which 
include:
           Erythropoietin (EPO), used by end-stage 
        renal disease (ESRD) patients for the treatment of 
        anemia, which often is a complication of chronic kidney 
        failure;
           drugs which cannot be self-administered 
        which are incidental to a physician's service if 
        provided in the physician's office, such as an 
        injectable product;
           those used in immunosuppressive therapy, 
        such as cyclosporin, for the first 36 months beginning 
        after an individual receives a Medicare-approved 
        transplant, such as a kidney or liver transplant;
           oral cancer drugs, in certain cases; and
           acute oral anti-emetic (anti-nausea) drugs 
        used as part of an anticancer chemotherapeutic regimen.
    As an option to the current fee-for-service program, 
Medicare beneficiaries can choose to obtain all their health 
care services through a managed care plan. Many of these 
managed care plans offer outpatient prescription drug coverage 
as part of their standard benefits package. As of May 1998, 68 
percent of these plans offered this coverage.
    Beneficiaries may also obtain drug coverage under some 
employer-based policies. They may also purchase one of the 
Medigap policies that offers partial prescription drug coverage 
(Plans H, I, and J). However, these plans require that a $250 
deductible be met and then the plans cover 50 percent of the 
cost of drugs with an annual limit of $1,250 for Plans H and I 
and a $3,000 limit with Plan J. Beneficiaries who are ``dually 
eligible,'' (i.e., are also eligible for full Medicaid 
coverage) have prescription drug coverage.
    Payment for drugs prior to BBA 97 was based on the lower of 
the estimated acquisition cost or the national average 
wholesale price. Payment could also have been made as a part of 
a reasonable cost or prospective payment. BBA 97 provided that 
in any case where payment is not made on a cost or prospective 
payment basis, the payment will equal 95 percent of the average 
wholesale price.
    The cost of prescription drugs can significantly affect the 
elderly. A prescription drug benefit for Medicare beneficiaries 
has been considered in the past. A limited benefit was included 
in the Medicare Catastrophic Coverage Act of 1988. The Act was 
repealed in 1989. During consideration of the Health Security 
Act in 1994 the debate was again taken up. Some current 
Medicare reform proposals (including those being considered by 
the Bipartisan Commission) address the issue of expanding 
Medicare's coverage of prescription drugs.


                               Chapter 9



                             LONG-TERM CARE

                                OVERVIEW

    Long-term care encompasses a wide range of health, social, 
and residential services for persons who have lost some 
capacity for self-care. Among older people, who still use the 
majority of long-term care services, there is a drive for 
change in how long-term care is financed and delivered. Perhaps 
the most compelling argument for change is the fact that the 
expense of long-term care, especially nursing home care, can 
bankrupt a family.
    Many Americans are under the false impression that Medicare 
or their traditional health insurance will cover long-term care 
costs. Too often it is only when a family member becomes 
disabled that they learn that these expenses will have to be 
paid for out-of-pocket. Furthermore, individuals whose long-
term care needs arise as a result of a sudden onset of a stroke 
or other illness do not have adequate time to plan for the set 
of services that best meets their needs. With the cost of 
institutionalized care ranging from $35,000-$60,000 a year and 
home care costs between $35-$100 a day, long-term care expenses 
are unaffordable to even middle and upper-middle class 
families.
    At the same time, many older people and their families 
prefer to receive services in home and community-based 
settings. However, our current long-term care system relies 
predominately on institutionalized care and there is very 
little coverage, either through private or public programs, for 
home and community-based services.
    Despite often heroic efforts by family members to care for 
their older family members at home and help pay for uncovered 
expenses, many older and disabled Americans eventually rely on 
Medicaid to pay for their long-term care. Medicaid, a joint 
Federal/State matching entitlement program that pays for 
medical assistance for low-income persons, has increasingly 
become the primary payer of long-term care costs in this 
country. According to the Health Care Financing 
Administration's (HCFA) National Health Expenditures report, in 
1997 Federal, State, and local spending for nursing home care, 
mostly through the Medicaid program, was $51.4 billion; and an 
additional $17.7 billion was spent for home care. For many 
States long-term care has become the fastest growing part of 
State budgets. With the reality that long-term care costs will 
only grow as the population grows older in the next few 
decades, both Federal and State governments recognize the 
urgency in controlling the ever-growing costs of Medicaid long-
term care.
    Long-term care describes the set of services provided to 
individuals with disabilities or chronic health conditions that 
dictate a need for ongoing assistance. It differs from other 
types of health care in that the goal of long-term care is not 
to cure an illness, but to allow an individual to attain and 
maintain an optimal level of functioning. Long-term care also 
differs from other types of health care in that it includes 
services that are social, as opposed to purely medical, in 
orientation. Indeed, for many persons needing long-term care, a 
mixture of social services is often best to meet their needs. 
Because an individual's needs can change, long-term care is 
most effective when it encompasses an appropriate mix of health 
and social services.
    Despite changing ideas about long-term care, neither the 
private nor public sector have found adequate ways to finance 
it. With the trend toward reducing the growth of entitlement 
programs and the fact that institutions long-term care costs 
are simply too high for most American families, it seems likely 
that both sectors will be critical in financing the long-term 
care needs of our nation's elderly and disabled population. In 
recent years, there has been a growth in the private long-term 
care insurance market, but still, only a fraction of the 
population is covered for these expenses. How long-term care 
should be organized and delivered, how broadly it should be 
defined, who should be eligible for publicly funded services--
all of these are policy issues confronting Congress and State 
legislators throughout the country.
    This chapter will describe the various types of long-term 
care, the population served, the settings in which services are 
provided, and the providers and payers of long-term care 
services. Some of the special issues to be addressed in this 
chapter include inconsistency in the long-term care system, the 
role of care management, long-term care insurance, and ethical 
issues.

                             A. BACKGROUND

                       1. What Is Long-Term Care?

    Long-term care encompasses a wide array of medical, social, 
personal, and supportive and specialized housing services 
needed by individuals who have lost some capacity for self-care 
because of a chronic illness or disabling condition. Long-term 
care services range from skilled medical and therapeutic 
services for the treatment and management of these conditions 
to assistance with basic activities and routines of daily 
living, such as bathing, dressing, eating, and housekeeping. 
Any discussion about long-term care should include a discussion 
about its scope and definition. For the purposes of this 
section, long-term care includes a continuum of services of 
differing intensity. The following is a description of the 
services most commonly included in the long-term care 
continuum.

                           (a) Adult Day Care

    According to the National Council on the Aging's National 
Institute of Adult Day Care, adult day care is a community-
based group program designed to meet the needs of adults with 
functional and/or cognitive impairments through an individual 
plan of care. It is a structured, comprehensive program that 
provides a variety of health, social, and related support 
services in a protective setting during any part of a day, but 
less than 24-hour care. Individuals who participate in adult 
day care attend on a planned basis during specified hours. 
Services that are generally provided include client assessment, 
nursing, social services, personal care, physical, 
occupational, and speech therapies, nutrition, counseling, and 
transportation. Adult day care assists its participants to 
remain in the community, enabling families and other caregivers 
to continue caring at home for a family member with an 
impairment.
    Federal standards for adult day care do not exist. Many 
States have requirements for licensure and/or certification to 
assess the eligibility of centers for particular sources of 
funding; however, requirements for licensure and certification 
vary widely among States. NCOA has developed national standards 
that are designed to assure quality services delivery. In 1999, 
adult day care programs may voluntarily choose to be accredited 
under these standards. Accreditation is designed to assist 
families, consumers, and health and social services providers 
to choose quality programs.

                             (b) Home Care

    Several categories of care are provided in the in-home 
setting, including home health care, various types of 
rehabilitative therapy, personal assistance, personal care, and 
homemaker/chore services. It is important to note that not all 
of the above services are provided exclusively in the home. For 
example, personal assistance is a service that can be provided 
in any setting, including a workplace, to a person with a 
disability.
    Patients requiring home care may or may not require medical 
care, but almost always require assistance in essential every 
day tasks called activities of daily living, or ADLs. The six 
ADLs are bathing, eating, dressing, toileting, transferring, 
and continence. To provide patients with appropriate services 
an assessment can be conducted by an eligibility determination 
agency, a case manager, or the home care provider to measure an 
individual's functional impairments. After the assessment is 
conducted, a plan of care is developed to provide assistance in 
the affected areas.
    According to the National Association for Home Care, there 
were over 20,000 home care agencies in the United States as of 
1999. Of those agencies, 9,655 are Medicare-certified home 
health agencies, 2,287 are Medicare-certified hospices. The 
rest are home health agencies, home care aide organizations, 
and hospices that do not participate in Medicare.
    In the past few years, Medicare expenditures for home 
health have increased dramatically. Medicaid, through the home 
and community-based service waiver program, provides support 
for long term care as an alternative to institutionalization. 
In these programs, another way to gauge the need for home care 
services is by determining whether the individual would 
otherwise require hospital or skilled nursing care.

                            (c) Respite Care

    Respite care is intermittent care provided to a disabled 
person to provide relief to the regular caregiver. Care can be 
provided for a range of time periods, from a few hours to a few 
days. Care can also be provided in the individual's home, in a 
congregate setting such as a senior center or drop-in center, 
or in a residential setting such as a nursing home or other 
facility. Unlike other forms of long-term care which are aimed 
at benefiting the frail individual, respite care is a service 
to the caregiver usually a family member as well. Because 
respite care is not universally available, and has few sources 
of public funding, many innovative options for the delivery of 
respite care have taken shape across the country, including 
family caregivers of Alzheimer's Disease patients pooling their 
time and resources to provide voluntary services.

                         (d) Supportive Housing

    There is a lack of uniformity in defining the different 
types of housing-with-services options in the long-term care 
continuum. This is partly because there are many funding 
sources and partly because housing options have developed 
without due consideration being given to the linkages between 
housing and services. Some of the names given to the different 
types of supportive housing are congregate living, retirement 
community, sheltered housing, foster group housing, protective 
housing, residential care, and assisted living.
    Assisted living is being given a great deal of attention as 
a relatively new option with the potential to meet the needs of 
many older people. In large part, it has developed because 
service providers are recognizing that the medical model of 
providing long-term care does not meet the needs of many 
disabled individuals needing assistance. Advocates are hopeful 
that there will be an increase in availability of assisted 
living options for persons with moderate incomes. However, 
there has been concern regarding quality of care in some 
assistive living facilities.
    The various supportive housing options, including assisted 
living, are characterized by the availability of services to 
frail residents on an as-needed basis. Many such facilities 
have certain congregate services such as meals and other 
activities. Residents normally live in separate quarters. 
Laundry and housekeeping services are generally provided, and 
other services that can be provided on an as-needed basis are 
personal care, medication management, and other home care-type 
services.

               (e) Continuing Care Retirement Communities

    Continuing care retirement communities (CCRCs) are special 
housing which covers the entire spectrum of long-term care. 
Older people enter a CCRC by paying an entrance fee. A monthly 
fee is also required. In exchange for this payment, residents, 
who are typically able to live independently at the time of 
admission, are guaranteed that the CCRC will provide services 
needed from an agreed-upon menu of services specified in the 
entrance agreement. The menu of services can include skilled 
nursing care. When additional services are needed, there may be 
additional charges, depending upon the specific arrangement 
made by the community. CCRCs are an option only for those older 
people who can afford the fees, which are beyond the reach of 
older people with low and moderate incomes.

                           (f) Nursing Homes

    Nursing homes typically represent the high end of the long-
term care spectrum in both cost and intensity of services 
provided. Nursing home residents are typically very frail 
individuals who require nursing care and round-the-clock 
supervision or are technology-dependent. Nursing homes can have 
special units to manage certain illnesses like Alzheimer's-type 
dementia. Because of mounting costs, many States have 
instituted measures to limit nursing home construction, and are 
using gatekeeping measures to limit nursing home placement to 
individuals who need round-the-clock skilled care. Nursing 
homes have begun to concentrate more on post-acute care 
patients and to work aggressively to transition residents into 
other forms of care.

                          (g) Access Services

    A host of other services are considered to be part of the 
long-term care continuum because they offer access to other 
services. Examples of these services are transportation, 
information and referral, and case management. These services 
deserve mention in this section because as Federal, State, and 
local policymakers work to fashion long-term care systems, they 
are increasingly taking these other services into account. In 
rural areas, transportation is an essential link to community-
based long-term care services. Transportation is also an issue 
in the suburbs, where many of today's and tomorrow's older 
population resides. Suburbs, with their strip zoning and 
separation of residential, commercial, and service areas, were 
built with the automobile in mind. Older people who do not 
drive can find the suburbs to be an extremely isolating place.
    Information and referral is also a key linkage service. 
This service is essential because the sometimes conflicting 
funding streams and lack of consistent long-term care policy 
have sometimes resulted in a confusing array of services with 
multiple entry points and differing eligibility requirements. 
Both information and referral and case management are keys to 
sorting out this complex system for older people and their 
families. The role of case management will be discussed in 
greater detail later in this chapter.

                         (h) Nutrition Services

    Nutrition services, including both congregate and home-
delivered meals (also called ``meals on wheels''), are also 
considered to be a part of the long-term care continuum because 
they support older people living in the community by providing 
one to three nutritious meals per day. Home-delivered meals, 
provided through the Older Americans Act and the Social 
Services Block Grant (SSBG), ensure that frail older people, 
particularly those living alone, have an adequate supply of 
calories and important nutrients. Meals are commonly delivered 
hot, but can also be delivered cold or frozen to be heated and 
consumed later. In a small number of hard-to-reach rural areas, 
meal providers are experimenting with intermittent deliveries 
of frozen meals which can be heated in pre-programmed microwave 
ovens, which are also supplied by the meal provider.
    Congregate meals add a social component to the standard 
nutrition service. In addition to providing a hot nutritious 
meal, the dining site also offers socialization. Dining sites 
in the congregate nutrition program are also important access 
points for other services, e.g., health promotion activities, 
insurance and financial counseling, and recreation activities.

                    2. Who Receives Long-Term Care?

    The need for long-term care is often measured by assessing 
limitations in a person's capacity to manage certain functions 
or activities. For example, a chronic condition may result in 
the need for assistance with ADLs, and may require hands-on 
assistance, or direction, instruction, or supervision from 
another individual.
    Another set of limitations that reflect lower levels of 
disability is used to describe difficulties in performing 
household chores and social tasks. These are referred to as 
limitations in ``instrumental activities of daily living,'' or 
IADLs, and include such functions as meal preparation, 
cleaning, grocery shopping, managing money, and taking 
medicine.
    Limitations in ADLs and IADLs can vary in severity and 
prevalence. Persons can have limitations in any number of ADLs 
or IADLs, or both. An estimated 7.3 million elderly persons 
required assistance with ADLs or IADLs in 1994. This is nearly 
one-quarter of the Nation's elderly population. Of this total, 
an estimated 2.1 million elderly persons were living in the 
community with severe disabilities, needing help with at least 
three ADLs or requiring substantial supervision due to 
cognitive impairment or other behavioral problems. Another 1.6 
million elderly were residing in nursing homes.\1\
---------------------------------------------------------------------------
    \1\ U.S. General Accounting Office. Long-Term Care. Diverse, 
Growing Population Includes Millions of Americans of All Ages. GAO/
HEHS-95-26. November 1996. Washington, 1996. Note that estimates of the 
number of elderly persons with long-term care needs varies according to 
criteria used to measure impairment. Greater or smaller numbers of 
elderly might be judged to need long-term care if fewer or greater 
numbers of ADL limitations, or if IADL limitations, are used to measure 
impairment. In the past, legislation that would establish new long-term 
care benefits has targeted those elderly with two or more or three or 
more limitations in ADLs, for example.
---------------------------------------------------------------------------
    Long-term care services are usually differentiated by the 
settings in which they are provided, with services provided 
either in nursing homes and other institutions or in home and 
community-based settings. The great majority of elderly needing 
long-term care reside in the community. An estimated 5.7 
million elderly, or almost 80 percent of the total 7.3 million 
elderly having difficulty with ADLs or IADLs, live in their own 
homes or other community-based settings.\2\
---------------------------------------------------------------------------
    \2\ Ibid.
---------------------------------------------------------------------------
    The need for long-term care assistance by the elderly is 
expected to become more pressing in years to come, given the 
aging of the population and especially the growing numbers of 
the age 85+ population who are at the greatest risk of using 
long-term care. Estimates show that the number of elderly 
needing help with ADLs and/or IADLs may grow from 7.3 million 
to 10 to 14 million by 2020, and 14 to 24 million by 2060.\3\
---------------------------------------------------------------------------
    \3\ Ibid.
---------------------------------------------------------------------------
    These snapshot estimates are one way of looking at the 
prevalence of nursing home use among the elderly. Another way 
to look at this issue is to predict future nursing home use for 
a given cohort of elderly people. From the standpoint of public 
policy and personal planning, this provides a more important 
look into the need for nursing home care. While only 5 percent 
of the elderly reside in nursing homes, research has shown that 
many more are expected to use nursing home care at some time in 
their lives. Of those aged 65 and living in the community in 
1995, 39 percent are expected to use nursing home care for some 
period in their lives; 20 percent for more than one year; and 
10 percent for more than 5 years. As people age, their need for 
nursing home care increases. Of those aged 85 and living in the 
community in 1995, 49 percent are expected to use nursing home 
care at some point in their lives.\4\
---------------------------------------------------------------------------
    \4\ Komisar, Harriet L., Jeanne M. Lambrew, and Judith Feder. Long-
Term Care for the Elderly: A Chart Book. Institute for Health Care 
Research and Policy, Georgetown University.
---------------------------------------------------------------------------
    Analysis of nursing home utilization has found a high 
degree of variance in length-of-stay patterns among nursing 
home residents. The majority (65 percent) of persons entering a 
nursing home stay less than one year; 17 percent stayed for one 
to three years, and 19 percent stayed for three years or 
more.\5\ Nursing home residents are more likely to be very old 
and female. In 1996, residents age 85 and older comprised 44 
percent of the nursing home population, and 68 percent of 
elderly residents (over age 65) were female. A similar pattern 
exists for men, although their utilization rates are much 
lower.\6\
---------------------------------------------------------------------------
    \5\ Ibid.
    \6\ U.S. Health Care Financing Administration. Medicare Current 
Beneficiary Survey. Data Tables. 1996.
---------------------------------------------------------------------------

                 3. Where Is Long-Term Care Delivered?

    Long-term care services are often differentiated by the 
settings in which they are provided. In general, services are 
provided either in nursing homes or in home and community-based 
settings. Most settings are community settings, since the great 
majority of elderly persons needing long-term care reside in 
the community. An estimated 5.7 million elderly, or almost 80 
percent of the total 7.3 million elderly needing assistance 
with ADLs or IADLs, live in their own homes or other community-
based settings.
    Because of the growth in demand for services all along the 
long-term care continuum, services are now offered in a vast 
array of settings. Outside of the nursing home, there are many 
options in service settings. Nutrition services can be 
delivered in the home, as in the case of home-delivered meals, 
or in congregate dining sites. Sites can be located in senior 
centers and other community focal points, senior housing 
facilities, churches, schools, and government buildings. Adult 
day care centers can be located in nursing homes, hospitals, or 
in community-based settings such as senior centers, churches, 
senior housing facilities, and other focal points. Home health 
services are delivered in the recipient's home, whether it is a 
free-standing dwelling, apartment, board and care home, 
assisted living facility, or other type of group housing 
option. Respite care can be delivered in the client's home, or 
in a congregate setting such as a senior center or drop-in 
center, or in a residential setting such as a nursing home or 
other facility.

                    4. Who Provides Long-Term Care?

    Because of the wide assortment of long-term care services 
available to disabled individuals, it is difficult to present a 
comprehensive breakdown of all personnel delivering these 
services across the entire long-term care continuum. There is 
information available, however, about personnel working in some 
aspects of the long-term care field.
    Any discussion of individuals who deliver long-term care 
services would be incomplete without a discussion of informal 
caregivers. This is because most long-term care is provided by 
these caregivers. Despite substantial public spending for long-
term care, families provide the bulk of long-term care services 
to family members with physical and cognitive disabilities. 
About 37 million caregivers provide informal, or unpaid, care 
to family members of all ages. Typically, this care is provided 
by adult children to elderly parents. About two-thirds of the 
functionally impaired elderly rely exclusively on informal 
assistance. Research has documented the enormous 
responsibilities that families face in caring for relatives who 
have significant impairments. For example, caregivers of the 
elderly with certain functional limitations provide an average 
of 20 hours of unpaid help each week. Unpaid work, if replaced 
by paid home care, would cost an estimated $45 billion to $94 
billion annually.\7\
---------------------------------------------------------------------------
    \7\ Coty, Pamela. Caregiving: Compassion in Action. U.S. Department 
of Health and Human Services, 1998. p.13. This estimate is based on 
elderly persons who need assistance with ADL and IADL limitations.
---------------------------------------------------------------------------
    Formal caregivers in community-based settings include those 
professionals and paraprofessionals who provide in-home health 
care and personal care services. According to the National 
Association for Home Care (NAHC), there were 373,000 personnel 
delivering home care in Medicare-certified agencies in 1998. Of 
those, most were registered nurses and home care aides. 
According to a NAHC survey of home health agency compensation 
conducted in 1998, the median hourly salary for registered 
nurses was $18.22, and for home health aides was $8.76.

                    5. Who Pays for Long-Term Care?

    At least 80 Federal programs assist persons with long-term 
care problems, either directly or indirectly, through cash 
assistance, in-kind transfers, or the provision of goods and 
services. Examples of issues which have arisen as a result of 
the payment structure are access problems and the bias toward a 
high-cost medical model for delivering long-term care services.
    While the attention to long-term care financing has grown 
in the past few years, policymakers have been struggling with 
various aspects of the issue for the past twenty years. 
Creation of Federal task forces on long-term care issues, as 
well as Federal investment in research and demonstration 
efforts to identify cost-effective ``alternatives to 
institutional care,'' date back to the late 1960s and early 
1970s when payments for nursing home care began consuming a 
growing proportion of Medicaid expenditures. The awareness that 
public programs provided only limited support for community-
based care, as well as concern about the fragmentation and lack 
of coordination in Federal support for long-term care, led to 
the development of a number of legislative proposals in 
previous Congresses.
    The issue of financing long-term care costs has been 
heightened by the desire of Congress to slow the growth of 
entitlement programs such as Medicaid and Medicare. The table 
below indicates that the nation already spends a great deal of 
money on long-term care for the elderly nearly $91 billion in 
1995. Federal and State governments account for the bulk of 
this spending, $55 billion or 60 percent of the total.

TABLE 1. ELDERLY LONG-TERM CARE EXPENDITURES, BY SOURCE OF PAYMENT, 1995
                        [In billions of dollars]
------------------------------------------------------------------------
                                                     Nursing
                                                    home care  Home care
------------------------------------------------------------------------
Medicaid..........................................      $24.2       $4.3
Medicare..........................................        8.4       14.3
Other Federal.....................................        0.7        1.7
Other State and local.............................        0.6        0.5
Out-of-pocket payments and other..................       30.0        5.5
Private Insurance.................................        0.4        0.3
      Total.......................................       64.4       26.5
Total Long-Term Care: $90.9.
------------------------------------------------------------------------
Source: Office of the Assistant Secretary for Planning and Evaluation,
  DHHS. Totals may not add due to rounding.

    Approximately 70 percent of long-term care spending for the 
elderly is for nursing home care. Examination of the sources of 
payment for nursing home care reveals that the elderly face 
significant uncovered liability for this care. Two sources of 
payment--the Medicaid program and out-of-pocket payments--
account for nearly 84 percent of this total.
    Medicaid is the Federal-State health program for the poor. 
It limits coverage to those people who are poor by welfare 
program standards or those who have become poor as the result 
of incurring large medical expenses. Medicaid program data show 
that spending for the elderly is driven largely by its coverage 
of people who have become poor as the result of depleting 
assets and income on the cost of nursing home care. In most 
States, this ``spend-down'' requirement means that a nursing 
home resident without a spouse cannot have more than $2,000 in 
countable assets before becoming eligible for Medicaid coverage 
of their care. This is not difficult for persons needing 
nursing home care, with average cost in excess of $40,000 per 
year. It is the impoverishing consequences of needing nursing 
home care that has led policymakers over the years to try to 
look for alternative ways of financing long- term care.
    The table also indicates that nearly all private spending 
for nursing home care is paid directly by consumers out-of-
pocket. At present, private insurance coverage for long-term 
nursing home care is very limited, with private insurance 
payments amounting to 0.6 percent of total spending for nursing 
home care in 1995. This pattern of private spending for nursing 
home care is also a driving force in the long-term care debate. 
The only way individuals have been able to pay privately for 
expensive nursing home care is with their own accumulated 
resources and/or income. Some policymakers, especially during 
the last decade, have looked for alternative sources of private 
sector funding, through such mechanisms as private insurance, 
to provide protection against the risk of catastrophic nursing 
home expenses.
    While most persons needing long-term care live in the 
community and not institutions, many fewer public dollars are 
available to finance the home and community-based services that 
the elderly and their families prefer. In 1995, elderly 
spending for home care amounted to $26.5 billion, or almost 30 
percent of total long-term care spending for the elderly in 
that year. This spending does not take into account the 
substantial support provided to the elderly informally by 
family and friends. Research has shown that about 95 percent of 
the functionally impaired elderly living in the community 
receive at least some assistance from informal caregivers, but 
about two-thirds rely exclusively on unpaid sources, generally 
family and friends, for their care. Caregiving frequently 
competes with the demands of employment and requires caregivers 
to reduce work hours, take time off without pay, or quit their 
jobs.
    The table also reveals that Medicare plays a relatively 
small role in financing nursing home care services. Medicare, 
the Federal health insurance program for the elderly and 
disabled, is focused primarily on coverage of acute health care 
costs and was never envisioned as providing protection for 
long-term care. Coverage of nursing home care is limited to 
short-term stays in certain kinds of nursing homes, referred to 
as skilled nursing facilities, and only for those people who 
demonstrate a need for daily skilled nursing care or other 
skilled rehabilitation services following a hospitalization. 
Many people who require long-term nursing home care do not need 
daily skilled care, and, therefore, do not qualify for 
Medicare's benefit. As a result of this restriction, Medicare 
paid for only 13 percent of the elderly's nursing home spending 
in 1995.
    For similar reasons, Medicare covers only limited, albeit 
rapidly growing, amounts of community-based long-term care 
services-through the program's home health-benefit that 
impaired elderly persons could use. To qualify for home health 
services, the person must be in need of skilled nursing care on 
an intermittent basis, or physical or speech therapy. Most 
chronically impaired people do not need skilled care to remain 
in their homes, but rather nonmedical supportive care and 
assistance with basic self-care functions and daily routines 
that do not require skilled personnel. When added together, 
Medicare's spending for nursing home and home health care for 
the elderly amounted to approximately 25 percent of total 
public and private long-term care spending in 1995, as shown on 
Table 1.
    Three other Federal programs--the Social Services Block 
Grant (SSBG), the Older Americans Act, and the Supplemental 
Security Income (SSI) program--provide support for community-
based long-term care services for impaired elderly people. In 
addition to these Federal programs, a number of States devote 
significant State funds to home and community-based long-term 
care services.
           The SSBG provides block grants to States for 
        a variety of home-based services for the elderly, as 
        well as for younger adults and children with 
        disabilities.
           The Older Americans Act also funds a broad 
        range of in-home services for the elderly, including 
        home- delivered meals, and authorizes a specific 
        program for in-home services for the frail elderly.
           Under the SSI program, the federally 
        administered income assistance program for aged, blind, 
        and disabled people, many States provide supplemental 
        payments to the basic SSI payment to support selected 
        community-based long-term care services for certain 
        eligible people, including the frail elderly.
    However, since funding available for these three programs 
is limited, their ability to address the financing problems in 
long-term care is also limited. Recent decreases in Federal 
funding for the SSBG has affected States' abilities to support 
home care services for the frail elderly. Funding for the Older 
Americans Act in-home services program has remained stable in 
recent years.

                          B. FEDERAL PROGRAMS

    Although a substantial share of long-term care costs are 
paid out-of-pocket, the Federal programs that pay for long-term 
care are important in that they have provided the framework for 
how long-term care is provided in the United
    States. The following is a discussion of the primary public 
sources of long-term care financing: Medicaid, Medicare, the 
Older Americans Act, and Social Services Block Grants. No one 
of these programs can provide a comprehensive range of long-
term care services. Some provide primarily medical care, others 
focus on supportive or social services. The Medicaid program, 
for example, has certain income and asset requirements, while 
the Medicare program does not. Many advocates for the elderly 
contend that these differences contribute to the fragmented and 
uncoordinated nature of the long-term care system in this 
country.

                              1. Medicaid


                            (a) introduction

    Title XIX of the Social Security Act is a Federal-State 
matching entitlement program that pays for medical assistance 
for certain vulnerable and needy individuals and families with 
low incomes and resources. This program, known as Medicaid, 
became law in 1965, jointly funded between the Federal and 
State Governments. Each State designs and administers its own 
Medicaid Program, setting eligibility and coverage standards 
within broad Federal guidelines. Medicaid is the largest of the 
joint Federal/State entitlement programs and can be thought of 
as three distinct programs--one program funds long-term care 
for chronically ill, disabled and aged; another program 
provides comprehensive health insurance for low-income children 
and families; and, finally, Medicaid's disproportionate share 
(DSH) program assists hospitals with the cost of uncompensated 
care. In FY 1997, HCFA estimates that Medicaid enrolled 41.4 
million persons at a total cost of almost $166 billion. The 
Federal share of the cost was $95.6 billion.
    Although Medicaid was originally intended to provide basic 
medical services to the poor and disabled, it has become the 
primary source of public funds for nursing home care. The aged 
and disabled totaled about 31 percent of Medicaid recipients, 
but accounted for about 64 percent of spending in FY 1997.\1\ 
This disparity is due largely to Medicaid's coverage of long-
term care services, the greater likelihood that elderly and 
disabled persons will need and use these services than younger 
groups, and the high cost of these services. Because of the 
enormous role of the Medicaid program in financing nursing home 
care for the elderly, a section of this chapter provides an in-
depth discussion of Medicaid. Medicaid is the largest insurer 
of long-term care for all Americans, including the middle 
class.
---------------------------------------------------------------------------
    \1\ HCFA's Financial Report for FY 1997. Apr. 1, 1998.
---------------------------------------------------------------------------
    Though Medicaid's long-term care payments are primarily for 
nursing home care, some coverage of home and community-based 
care is provided mostly through the Section 2176 waiver 
program, also called the Section 1915(c) waiver program. 
Congress established these waiver programs in 1981, giving HHS 
the authority to waive certain Medicaid requirements to allow 
the States to broaden coverage to include a range of community-
based services for persons who, without such services, would 
require the level of care provided in a nursing home. Services 
covered under the Section 1915(c) waivers include case 
management, homemaker, home health aide, personal care 
services, adult day care, rehabilitation, respite, and others.
    Due to the rise in long-term care expenses, many States 
have imposed cost containment measures to control their 
Medicaid expenditures. For example, most States use a form of 
prospective reimbursement for nursing home care--which is a 
predetermined fixed payment nursing homes receive for each day 
of care needed by a Medicaid enrollee. This payment is intended 
to cover all costs of care provided to the nursing home 
resident; if costs exceed the payment, the nursing home 
receives no additional amount and the nursing home faces a 
loss. In addition, at least 30 States have instituted formal 
pre-admission screening programs for all Medicaid eligible 
persons wishing to enter a nursing home. Other States have 
toughened eligibility standards or adjusted their Medicaid 
assessment tools to require individuals to be more disabled 
than previously required to receive nursing home care. The 
Omnibus Budget Reconciliation Act of 1987 (OBRA 87) nursing 
home reforms require all States to screen current and 
prospective residents for mental illness or mental retardation, 
based on the premise that nursing homes are inappropriate for 
such persons. These screening programs are intended to identify 
those mentally disabled people who could be cared for in 
specialized facilities or their own homes or in the community 
if appropriate services were available, and to assure that 
nursing home beds are available for those who have medical 
needs. The certificate of need process, in which a provider 
must apply to the State in order to expand or construct new 
beds or risk becoming ineligible for Medicare or Medicaid 
reimbursement, is seen as a Medicaid cost-containment measure 
in some States.
    The Balanced Budget Act of 1997 included another option for 
States to provide home and community-based services to persons 
who would otherwise require institutional care known as PACE 
(Programs of All-inclusive Care for the Elderly). This option 
would allow eligible persons, generally very elderly frail 
individuals, to receive all health, medical, and social 
services they need in return for a prospectively determined 
monthly capitated payment. This care is provided largely 
through day health centers and in persons' homes but also 
includes care provided by hospitals, nursing homes and other 
practitioners determined also necessary by the PACE provider. 
PACE is a covered Medicare benefit as well. Regardless of 
source of payment, PACE providers receive payment only through 
the PACE agreement, and must make available all items and 
services covered under both Titles XVIII and XIX without 
amount, duration or scope limitations, and without application 
of any deductibles, copayments or other cost sharing. The 
individuals enrolled in PACE receive benefits solely through 
the PACE program.

               (b) medicaid availability and eligibility

    In general, Medicaid is a means-tested entitlement program; 
it covers certain groups of persons such as the aged, blind, 
disabled, members of families with dependent children, and 
certain other pregnant women and children if their incomes and 
resources are sufficiently low. Medicaid recipients are 
entitled to have payment made by the State for covered 
services. States then receive matching funds from the Federal 
Government to pay for covered services. There is no Federal 
limit on aggregate matching payments. Allowable claims are 
matched according to a formula which varies inversely with a 
State's per capita income. Therefore States with higher per 
capita income will receive a lower percentage of Federal 
matching funds and vice versa. The established minimum matching 
rate is 50 percent and may not exceed 83 percent. For FY 1998, 
9 States had matching rates of 50 percent. Twenty-three States 
had matching rates between 50 percent and 60 percent. Sixteen 
States and the District of Columbia had matching rates over 70 
percent. Mississippi had the highest rate in effect, 77.09 
percent. The national average matching rate was 57 percent.
    Each State establishes its own eligibility rules with broad 
Federal guidelines. States must cover certain population groups 
such as recipients of Supplemental Security Income (SSI), i.e., 
the aged, the blind and disabled, and have the option of 
covering others. Historically, Medicaid eligibility for poor 
families (generally women with dependent children) was linked 
to receipt of cash welfare payments. In recent years, 
Medicaid's ties to welfare benefits have been loosened. This 
trend culminated in creation of the Temporary Assistance for 
Needy Families (TANF) program in 1996. The new welfare law 
includes provisions severing the automatic link with Medicaid 
but allows States to maintain the link as an option. Medicaid 
does not cover everyone who is poor, reaching only 46 percent 
of persons in poverty in 1996. Eligibility is also subject to 
``categorical'' restrictions; benefits are available only to 
members of families with children and pregnant women, and to 
persons who are aged, blind, or disabled.
    Special eligibility rules apply to persons receiving care 
in nursing facilities and other institutions. Many of these 
persons have incomes well above the poverty level but qualify 
for Medicaid because of the high cost of their health care. 
Medicaid has thus emerged as the largest source of third-party 
funding for long-term care.
    The State-by-State variation in eligibility that Medicaid 
allows can mean persons with identical circumstances may be 
eligible to receive Medicaid benefits in one State, but not in 
another State. State officials have made the case that some 
individuals are likely to choose their State of residence 
according to how generous Medicaid benefits are.
    States are required under their Medicaid plans to cover 
certain services and have the option of covering others. 
Mandatory services include: physicians' and hospital services, 
and care in a nursing facility. Optional services include: 
prescription drugs; eyeglasses; and services in an intermediate 
care facility for the mentally retarded. States may also limit 
the amount, duration and scope of coverage of services; e.g., 
they may limit the number of covered hospital days. 
Reimbursement levels vary from State to State as well.

               (C) Qualified Medicare Beneficiary Program

    Because the Medicare program requires beneficiaries to pay 
a portion of the cost of acute health care services themselves 
in the form of cost-sharing charges as well as a monthly 
premium for enrollment in Part B, such charges posed a 
potential hardship for some persons--especially those who did 
not have supplementary protection through an individually 
purchased ``Medigap'' policy or employer-based coverage. In 
response to this concern, the Qualified Medicare Beneficiary 
(QMB) Program was enacted in 1988. Additional changes were made 
to the program by the Balanced Budget Act of 1997.
    Under this program, certain low-income Medicare 
beneficiaries are entitled to have their Medicare cost-sharing 
charges (Medicare premiums, co-payments, and deductibles) paid 
by the Federal-State Medicaid program. These persons are: 
qualified Medicare beneficiaries (QMBs), specified low-income 
beneficiaries (SLIMBs), and certain other qualified 
individuals. Persons meeting the qualifications for coverage 
under one of these categories, but not otherwise eligible for 
Medicaid, are not entitled to the regular Medicaid benefit 
package. The following are the four coverage groups:
    Qualified Medicare Beneficiaries (QMBs). QMBs are aged and 
disabled persons with incomes at or below the Federal poverty 
line ($8,240 for a single individual and $11,060 for a couple 
in 1999) \2\ and assets below $4,000 for an individual and 
$6,000 for a couple. QMBs are entitled to have their Medicare 
cost-sharing charges, including the Part B premium, paid by the 
Federal-State Medicaid program. Medicaid protection is limited 
to payment of Medicare cost-sharing charges (i.e., the Medicare 
beneficiary is not entitled to coverage of Medicaid plan 
services) unless the individual is otherwise entitled to 
Medicaid.
---------------------------------------------------------------------------
    \2\ The levels are actually higher since $20 per month of unearned 
income is disregarded in the calculation.
---------------------------------------------------------------------------
    Specified Low-Income Medicare Beneficiaries (SLIMBs). These 
are persons who meet the QMB criteria, except that their income 
is over the QMB limit. The SLIMB limit is 120 percent of the 
Federal poverty level. Medicaid protection is limited to 
payment of the Medicare Part B premium (i.e., the Medicare 
beneficiary is not entitled to coverage of Medicaid plan 
services) unless the individual is otherwise entitled to 
Medicaid.
    Qualifying Individual (QI-1). These are persons who meet 
the QMB criteria, except that their income is between 120 
percent and 135 percent of poverty. Further, they are not 
otherwise eligible for Medicaid. Medicaid protection is limited 
to payment of the Medicare Part B premium.\3\
---------------------------------------------------------------------------
    \3\ In general, Medicaid payments are shared between the Federal 
Government and the States according to a matching formula. However, 
expenditures under the QI-1 and QI-2 programs are paid for 100 percent 
by the Federal Government (from Part B trust fund) up to that State's 
allocation level. A State is only required to cover the number of 
persons which would bring its spending on these population groups in a 
year up to its allocation level. Any expenditures beyond that level are 
paid by the State. Total allocations are $200 million in FY1998, $250 
million for FY1999, $300 million for FY2000, $350 million for FY2001, 
and $450 million for FY2002. Assistance under the QI-1 and QI-2 
programs is available for the period January 1, 1998 to December 21, 
2002.
---------------------------------------------------------------------------
    Qualifying Individuals (QI-2). These are persons who meet 
the QMB criteria, except that their income is between 135 
percent and 175 percent of poverty. Further, they are not 
otherwise eligible for Medicaid. Medicaid protection is limited 
to payment of that portion of the Part B premium attributable 
to the gradual transfer of some home health visits from 
Medicare Part A to Medicare B ($1.07 in 1998; $2.23 in 
1999).\4\
---------------------------------------------------------------------------
    \4\ For more detailed information on Qualified Medicare 
Beneficiaries, see: CRS Report No. RL30147, Medicare: Prescription Drug 
Coverage for Beneficiaries and CRS Report No. 95-854, Qualified 
Medicare Beneficiary Program, both authored by Jennifer O'Sullivan.
---------------------------------------------------------------------------
    For purposes of the QMB program, income includes but is not 
limited to Social Security benefits, pensions, and wages. 
Assets subject to the $4,000 limit for a single individual 
include bank accounts, stocks, and bonds Certain items such as 
an individual's home and household goods are always excluded 
from the calculation.
    Participation rates in the QMB program have been lower than 
anticipated. According to a 1998 report by Families USA,\5\ 
``nationally, between 3.3 and 3.9 million low-income senior 
citizens and disabled individuals were eligible for QMB and 
SLMB benefits but were not receiving it.'' Many low-income 
elderly and disabled were unaware of the program. The Health 
Care Financing Administration (HCFA) has embarked on an 
outreach program to enroll those who may be eligible and HCFA 
also screens newly entitled Medicare beneficiaries to determine 
their QMB eligibility.
---------------------------------------------------------------------------
    \5\ Shortchanged: Billions Withheld From Medicare Beneficiaries. 
Families U.S.A. Foundation, July 1998. #98-103.
---------------------------------------------------------------------------

                       (D) Spousal Impoverishment

    The need for nursing home care--whose average cost can be 
in excess of $40,000 per year--can rapidly deplete the lifetime 
savings of elderly couples. In 1988, in the Medicaid 
Catastrophic Care Act, Congress enacted provisions to prevent 
what has come to be called ``spousal impoverishment''--a 
situation that leaves the spouse who is still living at home in 
the community (the community spouse) with little or no income 
or resources when the other spouse requires nursing home care 
or other long-term care. These rules are intended to prevent 
the impoverishment of the community spouse. Under the spousal 
impoverishment program, some of the spouse's ownership in 
assets and income can be transferred to the community spouse.
    Treatment of Resources.--The spousal impoverishment 
resource eligibility rules require States under their Medicaid 
programs to use a specific method of counting a couple's 
resources in initial eligibility determinations. Under these 
rules, States must assess a couple's combined countable 
resources, when requested by either spouse, at the beginning of 
a continuous period of institutionalization, defined as at 
least 30 consecutive days of care. HCFA's guidance on 
implementing spousal impoverishment law requires that nursing 
homes advise people entering nursing homes and their families 
that resource assessments are available upon request. The 
couple's home, household goods, personal effects, and certain 
burial-related expenses are excluded from countable resources; 
however, States are required to recover from the nursing home 
resident's estate, following the death of both the resident and 
community spouse, amounts paid by Medicaid on behalf the of the 
recipient.
    From the combined resources, an amount is required to be 
protected for the spouse remaining in the community. This 
amount is the greater of an amount equal to one-half of the 
couple's resources at the time the institutionalized spouse 
entered the nursing home, up to a maximum $81,960 as of January 
1999, or the State standard. As of January 1999, Medicaid law 
requires the State resource standard to be no lower than 
$16,392 and no greater than $81,960. These amounts are adjusted 
each year to reflect increases in the Consumer Price Index 
(CPI). When the community spouse's half of the couple's 
combined resources is less than the State standard, the 
institutionalized spouse transfers resources to the community 
spouse to bring that spouse up to the State standard. In other 
cases, the community spouse may be required to apply resources 
to the nursing home spouse's cost of care.
    Spousal Impoverishment Post-Eligibility Rules.--Spousal 
impoverishment law also established new post-eligibility rules 
for determining how much of the nursing home spouse's income 
must be applied to the cost of care. The rules require that 
States recognize a minimum maintenance needs allowance for the 
living expenses of the community spouse. As of 1999, the 
minimum is $1,383 per month. States may set the maintenance 
needs minimum allowance as high as $2,049 per month in 1999. 
These amounts may be increased, depending on the amount of the 
community spouse's actual shelter costs and whether minor or 
dependent adult children or certain other persons are living 
with the community spouse. Both of these minimum and maximum 
amounts are adjusted to reflect increase in the CPI. To the 
extent that income of the community spouse does not meet the 
State's maintenance need standard and the institutionalized 
spouse wishes to make part of his or her income available to 
the community spouse, the nursing home spouse may supplement 
the income of the community spouse to bring that spouse up to 
the State standard.

    (E) Personal Needs Allowance for Medicaid Nursing Home Residents

    Medicaid law allows nursing home residents to retain a 
small portion of their income for personal needs. This personal 
needs allowance (PNA) covers each month a wide range of 
expenses not paid for by Medicaid. On July 1, 1988, the PNA was 
increased from $25 to $30 per month. States have the option to 
supplement this payment. As of September 1996, 26 States did 
ranging from $34 in Colorado to $75 in Alaska. Prior to this, 
the PNA had not been increased--or adjusted for inflation--
since Congress first authorized payment in 1972. As a result, 
the $25 PNA was worth less than $10 in 1972 dollars. There is 
no provision for a cost-of-living adjustment (COLA) in the PNA, 
even though non institutionalized recipients of Social Security 
and SSI benefits have received annual COLAs to their benefits 
since 1974.
    For impoverished nursing home residents, the PNA represents 
the extent of their ability to purchase basic necessities like 
toothpaste and shampoo, eyeglasses, clothing laundry, 
newspapers, and phone calls. In addition to personal needs, 
many nursing home residents may have medical needs that are not 
covered by State Medicaid programs. Although the PNA is not 
intended to cover medical items, these residents may have to 
save their PNA's over many months to pay for costs for items 
such as hearing aids and dentures.
    If a nursing resident enters a hospital, a daily fee must 
be paid to the nursing facility to reserve a bed for her 
return. PNA funds are often used for this payment. A number of 
Medicaid programs will make payments to reserve a bed for a 
predetermined amount of days for hospitalization or 
``therapeutic leave''--such as a home visit, or vacation days--
and all other absent days are considered noncovered expenses. 
When a resident cannot pay this fee, he/she is likely to lose 
their place in the nursing home. Those Medicaid plans that 
don't make payments will not guarantee the nursing home 
resident a bed to come back to. As a result of this and various 
other expenses not covered by many Medicaid programs, many 
advocates of the Nation's nursing home residents believe the 
$30 PNA is inadequate to meet the needs of most residents.

                       (F) 1915(c) Waiver Program

    Prior to 1981, Federal regulations limited Medicaid home 
care services to the traditional acute care model. To counter 
the institutional bias of Federal long-term care spending, 
Congress in 1981 enacted new authority to waive certain 
Medicaid requirements to allow States to broaden coverage for a 
range of community-based services and to receive Federal 
reimbursement for these services. Specifically, Section 2176 of 
the Omnibus Budget Reconciliation Act of 1981 authorized the 
Secretary of the Department of Health and Human Services to 
approve ``Section 2176 waivers'' for home and community-based 
services--known as Medicaid Home and Community-Based Services 
Waiver (HCBW)--for a targeted group of individuals who without 
such services, would require the level of care provided in a 
hospital, nursing facility, or intermediate care facility for 
the mentally retarded, or who are already in such a facility 
and need assistance returning to the community. These waivers 
are also called ``1915(c) waivers.'' The target population may 
include the aged, the disabled, the mentally retarded, the 
chronically mentally ill, persons with AIDS, or any other 
population defined by the State as likely to need extended 
institutional care. Community-based services under the waiver 
include case management, homemaker/home health aide services, 
personal care services, adult day care services, habilitation 
services, respite care, and other community-based services.
    While, typically, programs are not managed care plans in a 
strict sense that they use capitation arrangements such as 
HMOs, they often incorporate case management principles and 
occasionally use service-bundled rates reimbursed under fee-
for-service. States use diverse models of care delivery, 
management and financing for waiver programs.
    The number of waivers and expenditures under them continue 
to grow dramatically, despite a lack of documentation on the 
effects of these waivers on cost, quality of care, or quality 
of life. According to HCFA, in FY1998, total expenditures for 
HCBW was $9.1 billion. The Federal share was $5.12 billion. The 
total number of operating waivers was 249. There are no 
accurate estimates for the number of individuals receiving 
services through these waivers \6\ (though in 1996 an estimated 
250,000 individuals were served). A high proportion of 
expenditures are directed toward services for the mentally 
retarded and developmentally disabled (nearly \3/4\ of all 
those served). State Medicaid agencies must assure HCFA that, 
on average, the cost of providing home and community-based 
services does not exceed the cost of institutional care.
---------------------------------------------------------------------------
    \6\ As per phone conversion with Larry Cutler, HCFA, with Rachel 
Kelly at CRS.
---------------------------------------------------------------------------

             (G) Prescription Drug Coverage Under Medicaid

          (1) Data on Medicaid Prescription Drug Expenditures

    Medicaid is the largest outpatient prescription drug 
program in the United States. Outpatient prescription drugs are 
provided to Medicaid recipients as part of their comprehensive 
health and medical package under the program.
    The Federal share of expenditures for Medicaid prescription 
drugs was a little over $7.1 billion in 1997 \7\ and nearly 21 
million Medicaid recipients received prescription drugs under 
the Medicaid program in FY1997.\8\ The average Medicaid 
prescription cost in 1997 ranged from $28.82 in Alabama to 
$47.17 in Alaska. The average annual Medicaid drug payment per 
recipient for prescription drugs was $571 in 1997.
---------------------------------------------------------------------------
    \7\ As per phone conversation with Miles McDermott, HCFA.
    \8\ Phone conversation with Tony Parker, HCFA.
---------------------------------------------------------------------------

                    (2) Medicaid Drug Rebate Program

    Created by the Omnibus Budget Reconciliation Act (OBRA) of 
1990, the Medicaid Drug Rebate Program requires a drug 
manufacturer to enter into and have in effect a national rebate 
agreement with the Secretary of the Department of Health and 
Human Services for States to receive Federal funding for 
outpatient drugs dispensed to Medicaid patients. The drug 
rebate program is administered by HCFA's Center for Medicaid 
and State Operations (CMSO). All 50 States and the District of 
Columbia cover drugs under the Medicaid program.
    As of January 1, 1996, the rebate for covered outpatient 
drugs is as follows:
          Innovator Drugs--the larger of 15.1 percent of the 
        Average Manufacturer's Price (AMP) per unit or the 
        difference between the AMP and the manufacturer's best 
        price per unit and adjusted by the CPI-U based on 
        launch date (fall of 1990) and current quarter AMP.
          Non-innovator Drugs--11 percent of the AMP per unit.
    The best price is the lowest price offered to any other 
customer, excluding Federal Supply Schedule prices, prices to 
State pharmaceutical assistance programs, and prices that are 
nominal in amount, and includes all discounts and rebates. 
Reimbursement for generic drugs requires a rebate of 11 percent 
of each product's AMP. Medicaid managed care plans arrange 
their own discounts with manufacturers and rebates are not 
required.\9\
---------------------------------------------------------------------------
    \9\ See: Pharmaceutical Research and Manufacturers of America 
Foundation, 1998 Industry Profile.
---------------------------------------------------------------------------

                  (4) Medicaid Drug Use Review Program

    The Medicaid Drug Utilization Review (DUR) Program was 
created by the Omnibus Budget Reconciliation Act of 1990. The 
main emphasis of the program is to promote patient safety by an 
increased review and awareness of outpatient prescribed drugs. 
States were encouraged by enhanced Federal funding to design 
and install point-of-sale electronic claims management systems 
that interface with their Medicaid Management Information 
System (MMIS) operations (the mechanized claims processing and 
information retrieval system which States are required to have, 
unless waived by the Secretary). The annual report requirement 
provides an excellent measurement tool to assess how well 
States have implemented the DUR program and the effect DUR has 
had on patient safety, provider prescribing habits and dollars 
saved by avoidance of problems such as drug-drug interactions, 
drug-disease interactions, therapeutic duplication and over-
prescribing by providers. It is the intent of HCFA to summarize 
the annual State reports and make them available to the public 
via electronic media. The first reports reviewed were for 
FY1994. Subsequent yearly reports will be added as they become 
available.

 (5) State-Based Pharmaceutical Assistance programs for Older Americans

    To assist low-income elderly who are ineligible for 
Medicaid's outpatient prescription drug benefits, 14 States 
have pharmaceutical assistance programs (PAPs) for the elderly. 
These States are Connecticut, Delaware, Illinois, Maine, 
Maryland, Michigan, Minnesota, New Jersey, New York, 
Pennsylvania, Rhode Island, Vermont, and Wyoming. These State-
financed programs assist the elderly (and in some cases, the 
disabled) by subsidizing the cost of their prescription drugs. 
Traditionally, these programs serve elderly patients who are 
poor, but have income levels that make them ineligible to 
receive Medicaid. These programs offered subsidized benefits to 
some 700,000 persons in 1997.
    Funding sources for State PAPs include general revenues, 
State lottery proceeds (Pennsylvania), and casino fund revenues 
(New Jersey). States have experienced increasing costs for 
their programs and several have enacted their own rebate 
program.\10\
---------------------------------------------------------------------------
    \10\ Sources: 1998 Industry Profile report issued by the 
Pharmaceutical Research and Manufacturers Of America Foundation; and 
State Pharmacy Assistance Programs, AARP Public Policy Institute #9905. 
Apr. 1999.
---------------------------------------------------------------------------

Nursing home quality

    The Senate Aging Committee held a hearing in March 1999 on 
nursing home enforcement and complaint investigations \11\ 
continuing the committee's oversight of quality of care 
provided by nursing homes. The hearing concluded that nursing 
home complaints must be investigated promptly and thoroughly 
and enforcement must be applied consistently. The General 
Accounting Office (GAO) released two reports that day 
discussing the danger faced by nursing home residents when 
complaint investigations aren't followed through.
---------------------------------------------------------------------------
    \11\ Residents at Risk? Weaknesses Persist in Nursing Home 
Complaint Investigation and Enforcement, March 22, 1999. Special 
Committee on Aging.
---------------------------------------------------------------------------
    One report \12\ indicated that nursing home compliance with 
Medicare and Medicaid standards had ``serious deficiencies.'' A 
common pattern was that ``HCFA would give notice to impose a 
sanction, the home would correct its deficiencies, HCFA would 
rescind the sanction, and a subsequent survey would find that 
the problems had returned.'' The second report determined that 
``Federal/State's practices for investigating complaints in 
nursing homes often are not as effective as they should be'' 
and that ``serious complaints of nursing home residents being 
harmed can remain uninvestigated for weeks or months.'' 
Although Federal funds finance over 70 percent of complaint 
investigations nationwide, HCFA plays a minimal role--leaving 
it largely to the States to decide which complaints place 
residents in immediate jeopardy.\13\
---------------------------------------------------------------------------
    \12\ Nursing Homes: Additional Steps Needed to Strengthen 
Enforcement of Federal Quality Standards. GAO/HEHS 99-46, Mar. 1999.
    \13\ Nursing Homes: Complaint Investigation Processes Often 
Inadequate to Protect Residents, GAO/HEH-99-80, March 1999.
---------------------------------------------------------------------------
    An Office of the Inspector General's (OIG) report \14\ 
found that quality of care problems still persist. Problems 
included a lack of supervision to prevent accidents, improper 
care for pressure sores, and lack of proper care for activities 
of daily living. According to the report, the OIG has excluded 
668 nursing home workers from participation in the Medicare/
Medicaid programs as a result of convictions related to patient 
abuse or neglect and approximately 1 percent or more of nursing 
home residents have had an abuse experience serious enough to 
register a complaint.
---------------------------------------------------------------------------
    \14\ Brown, June Gibbs. Department of Health and Human Services. 
Office of Inspector General. Quality of Care in Nursing Homes: An 
Overview. Mar. 1999.
---------------------------------------------------------------------------
    In March 1999, the Clinton Administration took action to 
enforce current standards for 1.6 million elderly and disabled 
Americans in nearly 17,000 nursing homes. HCFA will strengthen 
complaint-investigation requirements because some State 
investigations have lagged; HCFA will also launch a national 
education campaign in the spring on how to identify, report, 
and stop neglect which will also enable Americans to more 
easily obtain and review that information and also help them 
make educated decisions about nursing homes. The Administration 
has legislative proposals to require nursing homes to conduct 
criminal background checks of employees; to establish a 
national registry of workers who have been convicted of abusing 
residents; and to allow more types of nursing home workers with 
proper training to help residents eat and drink during 
mealtimes.

Asset transfer

    Under the Medicaid transfer of assets provisions, States 
must deny eligibility to persons who need various long-term 
care services when they dispose of their assets for less than 
fair market value in order to qualify for Medicaid. These 
provisions apply when assets are transferred by individuals in 
long-term care facilities or receiving home and community-based 
waiver services, or by their spouses, or someone else acting on 
their behalf.
    States must ``look back'' to find transfers of assets for 
36 months prior to the date the individual is institutionalized 
or, if later, the date he or she applies for Medicaid. For 
certain trusts, this look-back period extends to 60 months.
    If a transfer of assets for less than fair market value is 
found, the State must withhold payment for nursing facility 
care (and certain other long term care services) for a period 
of time referred to as the ``penalty period.'' The length of 
the penalty period is determined by dividing the value of the 
transferred asset by the average monthly private-pay rate for 
nursing facility care in the State. For example: A transferred 
asset worth $90,000, divided by a $3,000 average monthly 
private-pay rate, results in a 30-month penalty period. There 
is no limit to the length of the penalty period.
    For certain types of transfers, these penalties are not 
applied. The principal exceptions are: transfers to a spouse, 
or to a third party for the sole benefit of the spouse, 
transfers by a spouse to a third party for the sole benefit of 
the spouse, transfers to certain disabled individuals, or to 
trusts established for those individuals, transfers for a 
purpose other than to qualify for Medicaid, and transfers where 
imposing a penalty would cause undue hardship.

Estate recovery provision

    The estate recovery law requires States to claim a portion 
of the estates belonging to certain Medicaid recipients in 
order to recover funds Medicaid paid for the recipient's health 
care. Beneficiaries are notified of the Medicaid estate 
recovery program during their initial application for Medicaid 
eligibility and their annual redetermination process. 
Individuals in medical facilities (who do not return home) are 
sent a notice of action by their county Department of Social 
Services informing them of any intent to place a lien/claim on 
their real property. The notice also informs them of their 
appeal rights. Estate recovery procedures are initiated after 
the beneficiary's death.
    In addition, for individuals age 55 or older, States are 
required to seek recovery of payments from the individual's 
estate for nursing facility services, home and community-based 
services, and related hospital and prescription drug services. 
States have the option of recovering payments for all other 
Medicaid services provided to these individuals. In addition, 
States that had State plans approved after May 14, 1993 that 
disregarded assets or resources of persons with long-term care 
insurance policies must recover all Medicaid costs for nursing 
facility and other long- term care services from the estates of 
persons who had such policies. California, Connecticut, 
Indiana, Iowa, and New York are not required to seek adjustment 
or recovery from the estates of persons who had long-term care 
insurance policies. These States had State plans approved as of 
May 14, 1993 and are exempt from seeking recovery from 
individuals with long-term care insurance policies. For all 
other individuals, these States are required to comply with the 
estate recovery provisions as specified above. States are also 
required to establish procedures, under standards specified by 
the Secretary for waiving estate recovery when recovery would 
cause an undue hardship.

                              2. Medicare


                            (a) introduction

    The Medicare program, which insures almost 98 percent of 
all older Americans without regard to income or assets, 
primarily provides acute care coverage for those age 65 and 
older, particularly hospital and surgical care and accompanying 
periods of recovery. Medicare does not cover either long-term 
or custodial care. However, it does cover care in a skilled 
nursing facility (SNF), home health care, and hospice care in 
certain circumstances.

                (b) the skilled nursing facility benefit

    In order to receive reimbursement under the Medicare SNF 
benefit, which is financed under Part A of the Medicare 
program, a beneficiary must be in need of daily skilled nursing 
care and rehabilitation services following a hospitalization. 
The program does not cover custodial care.
    The SNF benefit is tied to a ``spell of illness'' which 
begins when a beneficiary enters the hospital and ends when he 
or she has not been an inpatient of a hospital or SNF for 60 
consecutive days. To qualify for the SNF benefit, a beneficiary 
must have been an inpatient of a hospital for at least three 
consecutive days and must be transferred to a SNF usually 
within 30 days of discharge from the hospital. The beneficiary 
is entitled to 100 days of SNF care per spell of illness. Days 
21-100 are subject to a daily coinsurance charge equal to one-
eighth of the hospital deductible ($96.00 in 1999).
    The SNF benefit has become one of Medicare's fastest 
growing benefits. Growth in spending can be explained largely 
by an increasing number of persons qualifying for the benefit 
and increases in reimbursements per day of care. The number of 
persons receiving SNF care increased from 384,000 in 1988 to 
1,630,000 in 1998, an average annual growth rate of 16 percent. 
Reimbursements per day of covered care increased from $87 in 
1988 to $262 in 1998, an increase on average of 12 percent. The 
average number of days per person served increased from about 
28 days in 1988 to 32 days in 1998.
    Prior to passage of the Balanced Budget Act of 1997 (BBA 
97, P.L. 105-33), Medicare reimbursed the great bulk of SNF 
care on a retrospective cost-based basis. This meant that SNFs 
were paid after services were delivered for the reasonable 
costs (as defined by the program) they had incurred for the 
care they provided. BBA 97 required a 3-year phase-in of a 
prospective payment system (PPS) for SNFs, beginning July 1, 
1998. Prospective payment involves setting a rate for a 
specific amount of services before the service is provided. 
Because SNFs would know in advance what payments they could 
expect and would have to keep their costs within these limits 
or incur losses, prospective payment is expected to improve 
provider efficiency.
    The PPS established by BBA 97 incorporates the costs of all 
covered service categories: (1) routine services costs that 
include nursing, room and board, administration, and other 
overhead; (2) ancillary services, such as physical and 
occupational therapy and speech language pathology, laboratory 
services, drugs, supplies and other equipment; and (3) capital-
related costs. It does not cover costs associated with approved 
educational activities. Covered services also includes services 
provided to SNF residents during a Part A-covered stay for 
which payment previously had been made under Part B (excluding 
physician services, certain non-physician practitioner 
services, and certain services related to dialysis).
    BBA 97 provided the basis for establishing a per diem 
federal payment rate which includes adjustments for case-mix 
and geographic variations in wages. A transition period 
covering three cost reporting periods was established to phase 
in the PPS.
    In addition, BBA 97 included requirements for reimbursing 
the SNF for covered Part B services provided to beneficiaries 
who are residing in SNFs but who are no longer eligible for 
coverage under Part A. Under this requirement, known as 
``consolidated billing,'' the SNF bills Medicare for all items 
and services received by its residents, regardless of whether 
the item or service was furnished by the facility, by others 
under arrangement, or under any other contracting or consulting 
arrangement. Payments for Part B services are based on existing 
fee schedules. On May 12, 1998, the Health Care Financing 
Administration issued final interim regulations establishing 
the PPS and consolidated billing.\15\
---------------------------------------------------------------------------
    \15\ For SNFs which have not begun the transition to PPS, 
consolidated billing has been postponed for those beneficiaries whose 
services are not covered under Part A.
---------------------------------------------------------------------------

                      (c) the home health benefit

    Both Part A and Part B of the Medicare program cover home 
health services for persons who need skilled nursing care on an 
intermittent basis or physical therapy or speech therapy.
    Persons must be homebound and under the care of a physician 
who establishes and periodically reviews a plan of care for the 
patient. Medicare's home health benefit is intended to serve 
beneficiaries needing acute medical care that must be provided 
by skilled health care personnel, and was never intended to 
cover non-medical supportive or personal care assistance needed 
by chronically impaired persons. If beneficiaries meet the 
required eligibility criteria, they become entitled to an 
unlimited number of home health visits, which are not subject 
to deductibles or coinsurance.
    Home health services covered under Medicare include the 
following:
           Part time or intermittent nursing care 
        provided by, or under the supervision of, a registered 
        professional nurse;
           Physical, occupational, or speech-language 
        pathology services;
           Medical social services provided under the 
        direction of a physician;
           Medical supplies and equipment (other than 
        drugs and medicines);
           Medical services provided by an intern or 
        resident enrolled in a teaching program in a hospital 
        affiliated or under contract with a home health agency; 
        and
           Part time or intermittent services provided 
        by a home health aide who has successfully completed a 
        training program approved by the Secretary of HHS.
    The home health benefit has been one of Medicare's fastest 
growing benefit. Most of the growth can be attributed to an 
increasing volume of services covered under the program, as 
measured by increases in the numbers of users as well as the 
number of covered visits per user. The number of persons 
receiving coverage increased from 1,582,000 in 1988 to 
3,865,000 in 1997, an average annual growth rate of 10 percent. 
The average number of visits per person served increased from 
23 in 1988 to 72 in 1997, an increase of 14 percent per year. 
In addition, a large portion of growth in volume of home health 
visits can be attributed to heavy users: by FY 1996, home 
health users with more than 100 visits had grown to 21 percent 
of all users, up from 4 percent in 1988. Increasing costs for 
home health services have accounted for comparatively little of 
the growth in spending. Payments per visit increased at an 
average annual rate of 1.5 percent between 1988 and 1997.
    Prior to enactment of the Balanced Budget Act of 1997 (BBA 
97), Medicare reimbursed home health agencies on a 
retrospective cost-based basis. In an effort to control the 
growth of the benefit, BBA 97 provided for the establishment of 
a prospective payment system (PPS) for home health services to 
begin October 1, 1999. This date was subsequently delayed by 
one year by the FY 1999 omnibus appropriations act. For the new 
system, the Secretary of HHS will consider an appropriate unit 
of service and the number, type, and duration of visits 
provided within that unit, potential changes in the mix of 
services provided within that unit and their cost, and a 
general system design that provides for continued access to 
quality services.
    Prior to implementation of the PPS, BBA 97 mandated that 
home health agencies be paid under an interim payment system 
(IPS). Under BBA 97, agencies will be paid the lesser of (1) 
their actual costs; (2) per-visit limits; or (3) a new blended 
agency-specific per-beneficiary annual limit. In January and 
March, 1998, the Health Care Financing Administration issued 
the first of its notices containing the per-visit and per-
beneficiary limits for FY 1998. The FY 1999 omnibus 
appropriations act made adjustments to the funding formulas 
established by BBA 97.

                        (d) the hospice benefit

    Medicare also covers a range of home care services for 
terminally ill beneficiaries. These services, authorized in 
1982 and referred to as Medicare's hospice benefit, are 
available to beneficiaries with a life expectancy of 6 months 
or less. Although a small portion of total Medicare outlays 
(approximately 1 percent in 1996), the benefit has grown in 
recent years. The number of Medicare-certified hospices has 
increased from 553 in 1988 to 2,154 in 1996. Medicare outlays 
for hospices has increased from $118.4 million in 1988 to $1.8 
billion in 1995. Medicare beneficiaries receiving hospice 
services has increased from 40,356 in 1988 to 302,608 in 1995.
    Hospice care benefits include nursing care, outpatient 
drugs, therapy services, medical social services, home health 
aide services, physician services, counseling, and short term 
inpatient care, and any other item or service that is specified 
in the hospice plan for which Medicare payment may otherwise be 
made. Hospice services that are not necessary for the 
alleviation or management of terminal illness are not covered. 
The beneficiary must give up the right to have Medicare pay for 
any other Medicare services that are related to the treatment 
of the terminal condition. However, the custodial care and 
personal comfort items which are excluded from other Medicare 
services are included in the hospice benefit.
    Beneficiaries may elect to receive hospice benefits for two 
90-day periods, followed by an unlimited number of 60-day 
periods. A beneficiary may revoke a hospice care election 
before a period ends and thus become eligible for regular 
Medicare benefits. After having revoked an election, a 
beneficiary is free to re-elect hospice care.
    Payments to providers for covered services are subject to a 
cap for each beneficiary served, which was $14,788 for the 
period November 1, 1997, through October 31, 1998. Enrollees 
are liable for limited copayments for outpatient drugs and 
respite care.

                     3. Social Services Block Grant

    Title XX of the Social Security Act authorizes 
reimbursement to states for social services, distributed 
through the Social Services Block Grant (SSBG). Among other 
goals, the SSBG is designed to prevent or reduce inappropriate 
institutional care by providing for community-based care, and 
to secure referral or admission for institutional care when 
other forms of care are inappropriate.
    Although the SSBG is the major social services program 
supported by the federal government, its ability to support the 
long-term care population is limited. Because it provides a 
variety of social services to a diverse population, the Title 
XX program has competing demands and can only provide a limited 
amount of care to the older population.
    States receive allotments of SSBG funds on the basis of 
their population, within a Federal expenditure ceiling. Because 
there are no requirements on the use of funds, States decide 
how to use their funds to respond to the social services needs 
of the eligible population.
    National data on the use of SSBG funds are scarce. States 
have been required to submit pre-expenditure reports to HHS on 
their planned use of funds, but these reports are not prepared 
in a uniform format and do not indicate the states' actual use 
of funds. In the Family Support Act of 1988 (P.L. 100-485), 
Congress required more detailed post-expenditure reports from 
states. An analysis of the state expenditure reports for FY1996 
by the Congressional Research Service (CRS) showed that of the 
states' FY1996 funds of $2.4 billion, 11 percent was spent for 
home-based services for both adults and children, 7.9 percent 
for special services for the disabled, 1.6 percent was spent 
for adult day care services, and 0.6 percent was spent for 
home-delivered meals. Of the many services supported by the 
SSBG, the largest spending categories is for child day care (15 
percent of FY1996 funds). Older persons with long-term care 
needs must compete with other eligible population groups for 
SSBG services.
    Beginning in FY1996, funding for the SSBG was reduced from 
its peak amount of $2.8 billion (which was the funding level 
for fiscal years 1989-1995). Funding for fiscal year 1996 was 
$2.4 billion; fiscal year 1997, $2.5 billion; fiscal year 1998, 
$2.3 billion; and fiscal 1999, $1.9 billion. Annual funds for 
the SSBG will be permanently set at $1.7 billion, beginning in 
FY2001 under provisions of the Transportation Equity Act (P.L. 
105-178 enacted on June 9, 1998.

                           C. SPECIAL ISSUES


                 1. System Variations and Access Issues

    One of the key issues in long-term care is the variation in 
the way States have chosen to structure their systems. Because 
long-term care has traditionally been a State, rather than a 
Federal issue, States have developed widely varying systems. 
This diversity can be a strength. The case can be made that the 
same system would not work in each State. Indeed, within a 
single State, the same system will not necessarily work in each 
community. Another recurring theme in long-term care policy is 
the fragmentation created by the multitude of funding streams. 
Several Federal programs contribute to long-term care. These 
programs have differing eligibility requirements and the 
agencies that administer them have historical relationships 
with different agencies at the local level. There are also many 
State programs for long-term care, some of which work hand-in-
hand with Federal programs and some of which are special State-
only programs. Finally, communities differ widely in the extent 
to which local governments and private foundations or 
philanthropies help finance long-term care services.
    The above-listed characteristics of the long-term care 
system can work together to create, at best, a situation where 
services are well-coordinated to meet each client's needs, and 
at worst, a situation of fragmentation and inconsistency that 
make it difficult to access services. Especially in the 
community-based services arena, it is important to maintain and 
improve access so that older people with chronic impairment 
receive the services they need in the setting they prefer (such 
as their own homes) so that institutionalization, often 
undesirable and costly, can be avoided.

                     2. The Role of Case Management

    Case management, also called care management, generally 
refers to ways of matching services to an individual's needs. 
In the context of long-term care, case management generally 
includes the following components: screening and assessment to 
determine an individual's eligibility and need for a given 
service or program; development of a plan of care specifying 
the types and amounts of care to be provided; authorization and 
arrangement for delivery of services; and monitoring and 
reassessment of the need for services on a periodic basis.
    Some State and local agencies have incorporated case 
management as a basis part of their long-term care systems 
development. The availability of Medicaid funds under the home 
and community-based wavier programs has spurred the development 
of case management services, but other sources of funds have 
been used by States to develop case management systems, 
including State-only funds, SSBG, and the OAA.
    Case management is carried out in a wide variety of ways. 
Organizational arrangements may range from centralized systems 
to those in which some case management functions are conducted 
by different agencies. Case management may be provided by many 
community organizations, including home health agencies, area 
agencies on aging, and other social service or health agencies. 
In some cases where statewide long-term care systems have been 
developed, one agency at the community level has been 
designated to perform case management functions, thereby 
establishing a single point of access to long-term care 
services.
    Case management has received a great deal of attention in 
recent years as a partial solution to the problem of 
coordination of long-term care services, particularly in 
community settings. In communities where an older person might 
have to contact three different agencies, with differing 
eligibility criteria for providing services, it is easy to see 
how a case manager's services can be needed to help an 
individual negotiate their way through the system.
    Case management is also important as a way of accomplishing 
the policy aim of targeting services to those most in need. In 
cases where a State has established a case management system to 
coordinate entry into the long-term care system, it is much 
easier to ensure that limited services are provided to those 
most in need, and that clients have the services that best meet 
their individual needs.
    There are three basic models for case management, referred 
to as the service management, broker, and managed care models. 
In the service management model, the one most often used by 
States, the case management agency has the authority to 
allocate services to individuals, but is not at financial risk. 
In the broker model, case managers help clients identify their 
service needs and assist in arranging services, but do not have 
authority over the actual services. The managed care model uses 
a risk-based financing system to allocate funds to the case 
management agency based on the anticipated number of eligible 
clients who will seek assistance, and the amount of money 
necessary to meet their needs.
    Because of the fragmented nature of our long-term care 
system, it is likely that the importance of case management 
will continue to increase as Congress approaches health care 
reform.

                  3. Private Long-Term Care Insurance

    Long-term care insurance is rapidly growing market. Almost 
5 million long-term care insurance policies were sold by 1996, 
as reported by Health Insurance Association of America (HIAA). 
This is almost a six-fold increase over the 800 hundred 
thousand policies sold by 1987.\16\ In one year alone from 1995 
to 1996 the number of policies sold increased by more than 
600,000. From 1987 to 1996, the average annual rate of increase 
in policies sold was 22 percent.\17\
---------------------------------------------------------------------------
    \16\ This is a cumulative total of policies sold; fewer persons 
would be covered, due to failure to pay premiums because of death, a 
change in income, a decision not to continue coverage, etc.
    \17\ Health Insurance Association of America (HIAA). Long-Term Care 
Insurance in 1996, by Susan Coronel. September 1998. Washington, DC p. 
13.
---------------------------------------------------------------------------
    Although growth has been considerable in a short period of 
time, the private insurance industry has approached this market 
with caution. Insurers have been concerned about the potential 
for adverse selection for this product, where only those people 
who are likely to need care actually buy insurance. In 
addition, they point to the problem of induced demand for 
services that can be expected to be generated by the 
availability of new long-term care insurance. With induced 
demand, individuals decide to use more services than they 
otherwise would because they have insurance and/or will shift 
from nonpaid to paid providers for their care. In addition, 
insurers are concerned that, given the nature of many chronic 
conditions, people who need long-term care will need it for the 
remainder of their lives, resulting in an open-ended liability 
for the insurance company.
    As a result of these risks, insurers have designed policies 
that limit their liability for paying claims. Policies are 
medically underwritten to exclude persons with certain 
conditions or illnesses. In addition, most plans provide 
indemnity benefits that pay only a fixed amount for each day of 
covered service. If these amounts are not updated for 
inflation, the protection offered by the policy can be 
significantly eroded by the time a person actually needs care. 
Today, policies generally offer some form of inflation 
adjustment, but only with significant increases in premium 
costs. HIAA reports that in 1996 the average annual base 
premium for leading long-term care insurers was $364 for 
persons at age 50, $980 for persons at age 65, and $3,907 for 
persons at age 79. The premium amounts increased rather 
substantially when inflation protection (of 5 percent) was 
added. Premiums increased to $802, $1,829, and $5,592, 
respectively.\18\ These premiums assume $100/$50 for nursing 
home/home health coverage, 4 years of coverage, and a 20-day 
waiting period for benefits.
---------------------------------------------------------------------------
    \18\ Ibid., p. 28.
---------------------------------------------------------------------------
    These design features of long-term care insurance have 
raised issues about the quality of coverage offered purchasers 
of policies. The insurance industry has responded to these 
concerns by offering new products that have provided broadened 
coverage and fewer restrictions. In addition, the National 
Association of Insurance Commissioners (NAIC) has established a 
model act and regulations for long-term care insurance products 
sold within their jurisdictions. Although all states have 
adopted at least some portion of these standards to protect 
purchasers of policies, adherence to all aspects of the NAIC 
model varies widely. The Health Insurance Portability and 
Accountability Act of 1996 (P.L. 104-191) required long-term 
care policies to meet many of the standards specified in the 
NAIC model act and regulations, in order to receive favorable 
tax treatment. The HIAA analysis reports that 42 states are at 
least 60 percent compliant with HIPAA requirements.\19\
---------------------------------------------------------------------------
    \19\ Ibid., p. 7.
---------------------------------------------------------------------------
    One of the key issues in expansion of the long-term care 
insurance market is affordability of the policies. As indicated 
above, premiums tend to be high especially when the policy 
includes an inflation adjustment. Many elderly people cannot 
afford these premiums. It is for this reason that some argued 
against tax code clarifications for long-term care insurance; 
they believe the clarifications would end up providing tax 
breaks to wealthy people who would probably buy coverage 
anyway.
    The insurance industry believes that affordability of 
premiums can be greatly enhanced if the pool of those to whom 
policies are sold is expanded. The industry has argued that the 
greatest potential for expanding the pool and reducing premiums 
lies with employer-based group coverage. Premiums should be 
lower in employer-based group coverage because younger age 
groups with lower levels of risk of needing long-term care 
would be included, allowing insurance companies to build up 
reserves to cover future payments of benefits. In addition, 
group coverage has lower administrative expenses. HIAA reports 
that average premiums of the leading insurers have been 
decreasing over time; the average premium in 1996 decreased by, 
on average, 5 percent compared to 1995 premium rates. 
Competition and market experience have tended to keep premiums 
relatively stable.\20\
---------------------------------------------------------------------------
    \20\ Ibid., p. 6.
---------------------------------------------------------------------------
    According to HIAA, employer-based activity has increased 
steadily over the years. By 1996, over 650,000 policies had 
been sold by 1,532 employers. Most of these plans require 
employees to pay all the costs of the premiums. In addition, 
the number of long-term care riders that permit conversion of 
at least some portion of life insurance policies to long-term 
care benefits has grown from 1,300 policies in 1988 to 340,000 
in 1996.
    But just how broad-based employer interest is in a new 
long-term care benefit is unclear. Many employers currently 
face large unfunded liabilities for retiree pension and health 
benefits. Employers are also concerned about benefit costs for 
their labor force. The majority of employers sponsoring plans 
require that the employee pay the full premium cost of 
coverage.


                               Chapter 10



        HEALTH BENEFITS FOR RETIREES OF PRIVATE SECTOR EMPLOYERS

                             A. BACKGROUND

    Employer-based retiree health benefits were originally 
offered in the late 1940s and 1950s as part of collective 
bargaining agreements. Costs were relatively low and there were 
few retirees compared to the number of active workers. 
Following the enactment of Medicare in the mid-1960's, the 
prevalence of employer-sponsored retiree health benefit 
packages increased dramatically. Employers could offer health 
benefits to their retirees with the assurance that the federal 
government would pay for many of the medical costs incurred by 
company retirees age 65 and older. Retiree health benefits were 
often included in large private employer plans and were a major 
source of Medicare supplemental insurance for retirees.
    In the late 1980s, however, retiree health benefits became 
more expensive for employers due to rising health care costs 
and changing demographics of the work force. The United States 
saw double-digit health care inflation and as employees retired 
earlier, employers experienced higher retiree-to-active worker 
ratios. Older Americans approaching or at retirement age 
consumed a higher level of medical services, and as a result, 
their health care was more expensive. With the increase in 
liability for health care costs, employers began to drop health 
care coverage for retirees.
    As more workers and retirees moved into managed care and 
employers took other cost savings measures, health benefit 
costs experienced a period of almost flat growth from 1993 to 
1997. The decline in access to retiree health care benefits and 
participation by retirees, continued, however, as employment 
shifted from manufacturing to service industries which are less 
likely to offer health insurance. According to the Mercer/
Foster Higgins National Survey of Employer-Sponsored Health 
Plans, the percentage of large employers (500+ employees) that 
provide health coverage to retirees 65 or over has fallen from 
40 percent in 1993 to 30 percent in 1998. For early retirees, 
not yet eligible for Medicare, coverage declined from 46 
percent in 1993 to 36 percent in 1998. Also, the Department of 
Labor reported that fewer retirees were electing coverage when 
it is offered by employers because of the increased costs they 
are expected to share.
    According to the GAO and the Employee Benefits Research 
Institute, other factors in the 1990s that may have contributed 
to employer decisions to modify or even eliminate retiree 
health benefits include downsizing, corporate takeovers, 
increased competitive pressures and the declining bargaining 
power of labor. Employers have also become more conscious of 
retiree health plan costs since financial accounting standards, 
known as FAS106, began requiring recognition of post retirement 
benefit liabilities on their balance sheets.
    In 1998, while fewer large employers are totally 
eliminating their retiree health benefit plans, a vast majority 
of companies have made numerous modifications to their retiree 
health benefits programs in an effort to reduce their overall 
liability for health care costs. Employers are asking retirees 
to pay an increasingly large share of the cost of coverage. 
According to the Mercer/Foster Higgins Survey, 41 percent of 
employers paid the full cost of premiums for early retirees in 
1993, but only 36 percent covered the total amount in 1998. 
Additional cost-control measures include providing a fixed 
(defined) employer contribution toward the cost of retiree 
health insurance instead of paying the premiums for whatever 
plan coverage an employee has chosen; placing lower limits on 
total lifetime health care costs; changing age and length of 
service requirements for eligibility; and offering a Medicare-
risk plan to their Medicare- eligible retirees.
    Some of these curtailments have prompted class-action law 
suits from retirees who would face higher costs and 
restrictions on providers or who would have to obtain and pay 
for individual insurance policies. In order to avoid court 
challenges over benefit changes, almost all employers now 
explicitly reserve the right in plan documents to modify those 
benefits. Because of fear of litigation as well as ethical and 
public relations concerns, firms are also more likely to modify 
or terminate benefits for future rather than current retirees.

                1. Who Receives Retiree Health Benefits?

    Privately sponsored retiree health benefits are far from 
universal and retirees are increasingly expected to share in 
the costs. Employer plans are nevertheless a major source of 
health coverage and of significant value to many retirees. 
According to EBRI estimates of the March 1998 Current 
Population Survey, about 36 percent of early retirees (ages 55 
to 64) have health benefits from prior employment, while about 
20 percent have employment coverage through another family 
member. Almost 38 percent have another form of insurance such 
as private policies, veterans health care, and Medicaid; and 
about 17 percent are uninsured. For those age 65 and over in 
1997, 96 percent were covered by Medicare or Medicaid, with 35 
percent also covered by health benefits from prior employment. 
(Percentages totaled more than 100 percent as retirees may have 
more than one source of health insurance coverage.)
    Availability of retiree health benefits tends to increase 
with workers' income and size of firm. Government workers are 
more likely to be covered than private-sector employees, though 
in some industries (communications and utilities, for example) 
coverage is more common. Retiree health benefits are least 
common in construction, wholesale and retail trades, personal 
services, and agriculture, forestry, and fishing. Unionized 
employees are more likely to have coverage than nonunionized, 
and full-time employees more than part-time.
    The cost of purchasing an individual health care policy 
following retirement is often prohibitive for many retirees who 
are not yet eligible for Medicare. Average health care expenses 
of insured people in their early 60s are twice those of people 
in their 40s; and they are three times those of people in their 
early 20s. While employment-based insurance spreads these costs 
over all workers in the same plan, private non-group insurance 
premiums generally reflect the higher risk attributable to the 
policyholder's age and health status. It is not unusual for 
people in their late fifties and early sixties without group 
coverage to face annual premiums of $4,000 to $6,000. If they 
have not had recent insurance coverage, in most states they 
could be charged more or even denied coverage. For those 65 or 
older living on a fixed income, employer-based benefits may 
help fill coverage gaps in Medicare, such as deductibles and 
copayments or the lack of a prescription drug benefit.

                       2. Design of Benefit Plans

    Employers that provide coverage for retired employees and 
their families in the company's group health plan may adjust 
their plans to take account of the benefits provided by 
Medicare once the retiree is eligible for Medicare at age 65. 
(If the employee continues to work once they are eligible for 
Medicare, the employer is required to offer them the same group 
health insurance coverage that is available to other employees. 
If the employee accepts the coverage, the employer plan is 
primary for the worker and/or spouse who is over age 65 and 
Medicare becomes the secondary payer.)
    When the Medicare program was first implemented, the most 
popular method of integrating benefit payments with Medicare 
was referred to as ``standard coordination of benefits'' (COB). 
The employer plan generally paid what Medicare did not pay and 
100 percent of the retiree's health care costs were covered. 
COB led to higher utilization of health care services, however, 
and a major change gradually occurred in how plans integrate 
their benefit payments with Medicare.
    Today, two out of three large employers use the 
``carveout'' method in which retirees have the same medical 
coverage as active employees with the same out-of-pocket costs. 
The employer plan calculates the retiree's health benefit under 
regular formulas as though Medicare did not exist and the 
Medicare payment is then subtracted or ``carved out''. A 1996 
Hewitt Associates survey of major U.S. employers found that 
plan costs using the ``carveout'' approach are 40 to 60 percent 
of the cost of a plan using the ``standard coordination of 
benefits'' method.
    In 1994, according to an earlier Foster Higgins Survey, 17 
percent of employers with more than 500 employees offered at 
least one Medicare HMO plan to their Medicare-eligible 
retirees. Typically, enrollees in Medicare HMOs are provided 
with additional services such as routine physicals, 
immunizations, and prescription drug coverage not available 
through traditional Medicare. This may not be an option, 
however, for retirees who travel extensively or live for more 
than 90 days in an area not covered by the HMO. Medicare HMO 
and other managed care options may also become unavailable in 
areas as some HMOs choose to stop providing care under Medicare 
risk contracts. The 1998 Mercer/Foster Higgins National Survey 
of Employer-Sponsored Health Plans indicated that only 10 
percent of employers with 500 or more employees offered a 
Medicare managed care option in 1998.

                 3. Recognition of Corporate Liability

    Until 1985, companies were not required to disclose the 
existence of retiree health plans or liabilities on financial 
statements or other reporting forms subject to public scrutiny. 
In November 1984, the Financial Accounting Standards Board 
(FASB), the independent, nongovernmental authority that 
establishes accounting principles and standards of reporting in 
the United States, adopted an interim rule that required plan 
disclosure starting in 1985. Specifically, FASB required firms 
that provide retiree health benefits to footnote certain 
information on their financial statements, including 
descriptions of the benefits provided and the employee groups 
covered, the methods of accounting and the funding policies for 
the benefits, and the costs of the benefits for the period of 
the financial statement.
    In December 1990, FASB released final rules requiring 
corporations to report accrued as well as current expenses for 
retiree health benefits. The accounting rules (known as FAS 
106) initially went into effect for publicly traded 
corporations with 500 or more employees for fiscal years 
beginning after December 15, 1992. Beginning in 1995, FAS 106 
requirements became applicable to smaller firms. A similar 
requirement known as GASB-26 became effective for state and 
local governments in June 1996. The requirement does not apply 
to firms whose employees receive health benefits through a 
Taft-Hartley plan which are union-organized and provide health 
coverage under collectively bargained agreements.
    While the new rules did not affect a company's cash flow by 
requiring employers to set aside funds to pay for future costs, 
it made employers much more aware of the potential liability of 
retiree health benefits. Investors are now able to determine 
whether a company could fund its retiree health plan and still 
earn competitive returns. Many companies cited FAS 106 as a 
reason for modifying retiree health benefits, including the 
phasing out of such coverage. Others have considered pre-
funding retiree health benefits.

                             4. Pre-Funding

    If a company could accumulate sufficient cash reserves that 
could be set aside in a fund dedicated solely to paying retiree 
health care costs, it would be able to finance the benefits out 
of the reserves as obligations are incurred rather than out of 
its operating budget. Such prefunding would also reduce the 
problem created by an unfavorable ratio of active workers to 
retirees where the actives subsidize the costs of the retirees 
through their premiums. Prefunding is not, however, a universal 
solution, as companies operating on the margins could not 
afford to put money aside.
    The majority of retiree health benefit plans are funded on 
a pay-as-you-go basis and represent large unfunded liabilities 
to employers. According to a 1997 study of 612 Fortune 1000 
companies by Watson Wyatt Worldwide, 83 percent of 
manufacturing companies and 61 percent of service companies 
provided some form of health benefits for retirees. However, 
only 20 percent of the companies prefund these postretirement 
benefits. And in 1997 those companies had funded only 25 
percent of their accumulated obligations of the retiree health 
benefits.
    In contrast to the companies' funding of pension plans, 
there is no requirement that companies prefund retiree health 
benefits and there is little financial incentive for them to do 
so. Currently, there are two major tax vehicles for pre-funding 
retiree health benefits. Provided requirements are met, 401(h) 
trusts and voluntary employees benefit association plans 
(VEBAs) allow employers to make tax deductible contributions to 
health insurance benefits for retirees, their spouses, and 
dependents and tax-deferred contributions to retiree and 
disability benefits. Account income is tax exempt and benefit 
payments are excludable from recipients' gross income.
    The Omnibus Budget Reconciliation Act of 1990 (P.L. 101-
508) permits employers to transfer without tax penalty their 
excess defined benefit pension plan assets to 401(h) accounts 
for financing retiree health benefits. P.L. 103-465 extended 
this provision through December 31, 2000. However, statutory 
restrictions and record-keeping requirements have limited the 
attractiveness of 401(h) plans. Employer contributions must be 
``subordinate'' or ``incidental'' to the retirement benefits 
paid by the employer pension plan. This provision is 
interpreted to mean that employers are limited to contributing 
to the trust no more than 25 percent of the annual total 
contributions to retiree benefits, including pension benefits, 
a limit employers find too low to adequately fund liabilities 
for retiree health and other benefits. Section 401(h) funds 
also cannot be used to fund other costs in the pension plan.
    VEBAs used to be the principal mechanism for prefunding 
retiree benefits. The tax code treated VEBAs like qualified 
pension plans, but imposed fewer restrictions on their use, 
thus providing more opportunities for abuse. Congress was also 
concerned that tax dollars being spent to fund retiree health 
and other employee benefit programs were not of benefit to most 
taxpayers. Strict limits on the use of VEBAs were included in 
the Deficit Reduction Act of 1984 (DEFRA) and, as a result, 
VEBAs lost much of their value as a prefunding mechanism.
    Under the 1984 Act, deductions were limited to the sum of 
qualified direct costs (essentially current costs) and 
allowable additions to a qualified asset account for health and 
other benefits, reduced by after-tax income. While the asset 
account limit may include an actuarially determined reserve for 
retiree health benefits, the reserve may not reflect either 
future inflation or changes in usage, which restricts its 
usefulness. Earnings on VEBA assets beyond certain amounts may 
also be subject to taxes on unrelated business income.
    Pre-funding of retiree health benefits will remain an 
unattractive option for employers unless tax incentives are 
provided similar to those available for pensions.

           B. BENEFIT PROTECTION UNDER EXISTING FEDERAL LAWS

                                1. ERISA

    Nothing in federal law prevents an employer from cutting or 
eliminating health benefits and while ERISA protects the 
pension benefits of retired workers, it offers only limited 
federal safeguards to retirees participating in a firm's health 
plan.
    The Employee Retirement Income Security Act (ERISA, P.L. 
93-406) was enacted in 1974 to establish federal uniform 
requirements for employee welfare benefit plans, including 
health plans. While ERISA protects the pensions of retired 
workers, the law draws a clear distinction between pensions and 
welfare benefits (defined to include medical, surgical, or 
hospital care benefits, as well as other types of welfare 
benefits). The content and design of employer health plans was 
left to employers in negotiation with their workforce and there 
are no vesting and funding standards as there are for pensions. 
Retiree health benefits are also in a less-protected position 
as a result of ERISA's preemption of state laws affecting 
employer-provided plans. Under ERISA, states can regulate 
insurance policies sold by commercial carriers to employers, 
but they are prohibited or ``preempted'' from regulating health 
benefit plans provided by employers who self-insure.
    ERISA does, however, require that almost all employer 
provided health benefit plans, including self-insured plans and 
those purchased from commercial carriers, comply with specific 
standards relating to disclosure, reporting, and notification 
in cases of plan termination, merger, consolidation, or 
transfer of plan assets. (Plans that cover fewer than 100 
participants are partially exempt from these requirements.) In 
addition, plan fiduciaries responsible for managing and 
overseeing plan assets and those who handle the plan's assets 
or property must be bonded. Fiduciaries must discharge their 
duties solely in the interest of participants and 
beneficiaries, and they can be held liable for any breach of 
their responsibilities.
    Plan participants and beneficiaries also have the right 
under ERISA to file suit in state and federal court to recover 
benefits, to enforce their rights under the terms of the plan, 
and to clarify their rights to future benefits. However, if the 
employer clearly states that it reserves the right to alter, 
amend, or terminate the retiree benefit plan at any time, and 
communicates that disclaimer to employees and retirees in clear 
language, then the courts will sustain the right of the 
employer to cut back or cancel all benefits.

                                2. COBRA

    Because losing access to employer-based coverage poses 
major challenges for retirees, Congress has allowed COBRA 
eligibility upon retirement and special COBRA extensions if 
employers file for chapter 11 bankruptcy. The Consolidated 
Budget Reconciliation Act of 1985 (COBRA, P.L. 99-272) included 
provisions requiring employers with 20 or more employees to 
offer employees and their families the option to continue their 
health insurance when faced with loss of coverage because of 
certain events.
    A variety of events trigger COBRA continuation of coverage, 
including retirement, termination of employment for reasons 
other than gross misconduct, or reduction in hours. When a 
covered employee leaves his or her job, cuts back in hours, or 
retires, the continued coverage of the employee and any 
qualified beneficiaries must be provided for 18 months. The 
significance of COBRA is that it provides retirees with 
continued access to group health insurance for either 18 months 
or until the individual becomes eligible for Medicare, 
whichever comes first. Thus COBRA coverage allows some 
individuals to retire at 63\1/2\ and continue with employer 
based group coverage until they become Medicare-eligible at age 
65. For retirees of companies that previously did not provide 
retiree health benefits, COBRA provides a source of coverage. 
However, if the employer discontinues the health plan for all 
employees, COBRA offers no help, because such an action is 
explicitly specified as a reason for terminating continuation 
coverage. Those eligible for COBRA coverage may also have to 
pay the entire premium plus an additional 2 percent. For many 
individuals, the high cost of COBRA coverage is a shock because 
their employer may have been covering 70 to 80 percent of the 
premium before retirement.
    In the 1986 Omnibus Budget Reconciliation Act (P.L. 99-
509), Congress amended COBRA to require continuation coverage 
for retirees in cases where the employer files for bankruptcy 
under Chapter 11 of the U.S. Code. Retired employees who lose 
coverage as a result of the employer's bankruptcy can purchase 
continuation coverage for life. For the surviving spouse or the 
dependent children of the covered employee, the coverage is 
limited to 36 months. The Retiree Benefits Bankruptcy 
Protection Act of 1988 (P.L. 100-334) provides additional 
protection in cases of bankruptcy. The Act resulted from an 
attempt of the LTV Corporation to terminate retiree health and 
life insurance when it entered bankruptcy in 1986. When a 
petition is filed under chapter 11 of the Bankruptcy Code, the 
Act provides that retiree non-pension benefits must be 
continued without change unless agreed to by the parties or 
ordered by the court. Retirees are ensured representation in 
bankruptcy proceedings, and further safeguards are stipulated 
with respect to trustee proposals and reorganization plans. The 
Act also amended earlier legislation, P.L. 99-591, to apply its 
provisions to bankruptcies filed after October 2, 1986, and 
before June 16, 1988, the effective date on P.L. 100-334.

                                3. HIPAA

    Finally, the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA, P.L. 104-191) may help some 
retirees obtain private individual insurance upon the 
exhaustion of their COBRA coverage or termination of their 
employer plan. HIPAA requires that all individual policies be 
guaranteed renewable, regardless of the health status or claims 
experience of the enrollees, unless the policyholder fails to 
pay the premium or defrauds the insurer. It also requires that 
individuals who recently had group coverage be offered health 
insurance without restrictions for pre-existing conditions. 
However, the Act allows states to comply in a variety of ways. 
It does not limit what insurers may charge for these policies, 
leaving that regulatory authority to the states. Some states 
have established high-risk pools for people who are hard to 
insure, but even their premiums can be adjusted for age, and 
they may be as high as two times the average premium charged 
for individual policies outside the risk pool.

                               C. OUTLOOK

    Some employers recognize that retiree health benefits help 
attract and retain employees and can give the employer an 
advantage in a tight-labor market. According to the Mercer/
Foster Higgins National Survey of Employer-Sponsored Health 
Plans, 3 percent of retiree medical plan sponsors actually 
offered retiree coverage for the first time in 1998, and 
another 9 percent are increasing the covered services they 
provide to retirees.
    Many employers, however, question whether they can continue 
the current level of benefits in the face of health care costs 
which have once again started to increase and the fast 
approaching retirement of the baby-boom generation. In 1998, 
employer costs for Medicare- eligible retirees jumped by 5 
percent according to a survey of large employer plans by the 
consulting firm Towers Perrin. Much of the increase was caused 
by rising prices for prescription drugs, which are not covered 
by Medicare and rising demand for services from an aging 
population. Responses to their 1999 survey indicated that costs 
for retirees age 65 and over will rise by an average of 10 
percent in 1999. The survey also found that plan costs for 
early retirees (those under age 65) are anticipated to rise in 
1999 by an average of 6 percent, compared with 4 percent in 
1998.
    The impact of potential Medicare reform on employer 
coverage of retiree health care is also uncertain. The National 
Bipartisan Commission on the Future of Medicare was established 
by the Balanced Budget Act of 1997 to review the long-term 
financial condition of Medicare and make recommendations about 
potential solutions. The Commission failed to reach agreement, 
however, and while President Clinton has released a plan to 
modernize and strengthen Medicare, it is not expected that 
sweeping changes will be agreed to between the Administration 
and Congress before the 2000 elections.
    Employers want the Medicare program to provide more 
benefits such as full prescription drug coverage for all their 
retirees which would enable them to cut their expenses for 
retiree health coverage. Some suggest, however, that improved 
Medicare coverage might encourage employers to drop 
prescription drug coverage or all of their retiree health care 
coverage. To avoid this, President Clinton's proposal for 
Medicare reform includes an incentive to employers to retain 
drug coverage.
    Employers are also concerned that reforms would raise the 
age of eligibility for Medicare enrollment from 65 to 67 and 
increase the gap between early retirement and receipt of 
Medicare benefits. While many employers now pay for health 
benefits until retirees qualify for Medicare, these early 
retirees are twice as expensive for employers to cover as older 
retirees who receive Medicare. According to the Mercer/Foster 
Higgins National Survey of Employer-Sponsored Health Plans, the 
cost of covering a pre-Medicare retiree averaged $4,984 in 
1998, almost 25 percent higher than the average cost of 
covering an active employee, $4,037 per employee. The cost of 
covering a Medicare-eligible retiree averaged $2,092 per 
retiree, less than half the cost of covering a pre-Medicare 
retiree.
    To address gaps in coverage for early retirees, President 
Clinton has proposed and bills have been introduced in the 
105th and 106th Congress that would allow people ages 62 
through 64 to buy into Medicare if they do not have access to 
employer-sponsored or federal health insurance. In addition, 
retirees ages 55 and over whose former employers terminated or 
substantially reduced retiree health instance would be 
permitted to extend their COBRA coverage until age 65. However, 
the cost of buying into Medicare or continuing COBRA coverage 
may also exceed what most uninsured can afford and questions 
have been raised about whether Medicare buy-ins would result in 
costs to the federal government.
    Others feel that the private sector should be encouraged to 
address health insurance needs, perhaps with the implementation 
of tax incentives rather than expanding a public program that 
is projected to face long-term financial problems. In the 106th 
Congress, both the House and Senate have approved a tax relief 
package with new deductions for health insurance for 
individuals who pay more than half of the premiums themselves 
and for prescription drug coverage for Medicare beneficiaries. 
It is not expected that President Clinton will sign the 
legislation, but the health tax measures should continue to be 
of interest to those concerned about declining health insurance 
coverage for American retirees and other workers.


                               Chapter 11



                      HEALTH RESEARCH AND TRAINING

                             A. BACKGROUND

    The general population is surviving longer. People with 
disabilities are also surviving longer because of effective 
vaccines, preventive health measures, better housing, and 
healthier lifestyle choices. With the rapid expansion of the 
Nation's elderly population, the incidence of diseases, 
disorders, and conditions affecting the aged is also expected 
to increase dramatically. The prevalence of Alzheimer's disease 
and related dementias is projected to triple by the year 2050 
if biomedical researchers do not develop ways to prevent or 
treat it. A commitment to expand aging research could 
substantially reduce the escalating costs of long-term care for 
the older population. The ratio of elderly persons to those of 
working age will have nearly doubled between 1990 and 2050. In 
addition, older Americans are living longer and longer. In 
fact, those aged 85 and older--the population most at risk of 
multiple health problems that lead to disability and 
institutionalization--are the fastest growing segment of our 
population.
    Support of scientific and medical research, sponsored 
primarily by the National Institutes of Health (NIH), is 
crucial in the quest to control diseases affecting the elderly 
population. Fiscal year 1998 appropriations for NIH totaled 
$13.6 billion, a 7.0 percent increase over the fiscal year 1997 
funding. In October 1998, Congress voted a 14.6 percent 
increase for fiscal year 1999, giving NIH $15.6 billion to 
spend this fiscal year.
    The National Institute on Aging (NIA) is the largest single 
recipient of funds for aging research. Fiscal year 1999 NIA 
appropriations have increased 15.1 percent over fiscal year 
1998 funding levels, from $518.3 million in fiscal year 1998 to 
$596.5 million in fiscal year 1999. This increase in aging 
research funding is significant not only to older Americans, 
but to the American population as a whole. Research on 
Alzheimer's disease, for example, focuses on causes, 
treatments, and the disease's impact on care providers. Any 
positive conclusions that come from this research will help to 
reduce the cost of long-term care that burdens society as a 
whole. In addition, research into the effects that caring for 
an Alzheimer's victim has on family and friends could lead to 
an improved system of respite care, extended leave from the 
workplace, and overall stress management. Therefore, the 
benefits derived from an investment in aging research apply to 
all age groups.
    Several other institutes at NIH are also involved in 
considerable research of importance to the elderly. The basic 
priority at NIA, besides Alzheimer's research, is to understand 
the aging process. What is being discovered is that many 
changes previously attributed to ``normal aging'' are actually 
the result of various diseases. Consequently, further analysis 
of the effects of environmental and lifestyle factors is 
essential. This is critical because, if a disease can be 
specified, there is hope for treatment and, eventually, for 
prevention and cure. One area receiving special emphasis is 
women's health research, including a multiyear, trans-NIH study 
addressing the prevention of cancer, heart disease, and 
osteoporosis in postmenopausal women.

                  B. THE NATIONAL INSTITUTES OF HEALTH

                           1. Mission of NIH

    The National Institutes of Health (NIH) seeks to improve 
the health of Americans by increasing the understanding of the 
processes underlying disease, disability, and health, and by 
helping to prevent, detect, diagnose, and treat disease. It 
supports biomedical and behavioral research through grants to 
research institutions, conducts research in its own 
laboratories and clinics, and trains young scientific 
researchers.
    With the rapid aging of the U.S. population, one of the 
most important research goals is to distinguish between aging 
and disease in older people. Findings from NIH's extensive 
research challenge health providers to seek causes, cures, and 
preventive measures for many ailments affecting the elderly, 
rather than to dismiss them as being the effects of the natural 
course of aging. A more complete understanding of normal aging, 
as well as of disorders and diseases, also facilitates medical 
research and education, and health policy and planning.

                           2. The Institutes

    Much NIH research on particular diseases, disorders, and 
conditions is collaborative, with different institutes 
investigating pathological aspects related to their 
specialties. At least 17 of the NIH research institutes and 
centers investigate areas of particular importance to the 
elderly. They are:
          National Institute on Aging
          National Cancer Institute
          National Heart, Lung, and Blood Institute
          National Institute of Dental and Craniofacial 
        Research
          National Institute of Diabetes and Digestive and 
        Kidney Diseases
          National Institute of Neurological Disorders and 
        Stroke
          National Institute of Allergy and Infectious Diseases
          National Institute of Child Health and Human 
        Development
          National Eye Institute
          National Institute of Environmental Health Sciences
          National Institute of Arthritis and Musculoskeletal 
        and Skin Diseases
          National Institute on Deafness and Other 
        Communication Disorders
          National Institute of Mental Health
          National Institute on Drug Abuse
          National Institute of Alcohol Abuse and Alcoholism
          National Institute of Nursing Research
          National Center for Research Resources

                    (a) national institute on aging

    The National Institute on Aging (NIA) was established in 
1974 in recognition of the many gaps in the scientific 
knowledge of aging processes. NIA conducts and supports a 
multidisciplinary program of geriatric research, including 
research into the biological, social, behavioral, and 
epidemiological aspects of aging. Through research and health 
information dissemination, its goal is to prevent, alleviate, 
or eliminate the physical, psychological, and social problems 
faced by many older people.
    Specific NIA activities include: diagnosis, treatment, and 
cure of Alzheimer's disease; investigating the basic mechanisms 
of aging; reducing fractures in frail older people; researching 
health and functioning in old age; improving long-term care; 
fostering an increased understanding of aging needs for special 
populations; and improving career development training 
opportunities in geriatrics and aging research. Recent NIA-
sponsored research has led to discovery of genetic mutations 
linked to Alzheimer's disease, increased knowledge of the basic 
biology of cellular aging, especially the role of oxidative 
damage, and hope for future new approaches to treatment of such 
common conditions as osteoporosis, cancer, heart disease, and 
diabetes.
    The longest running scientific examination of human aging, 
the Baltimore Longitudinal Study of Aging (BLSA), is being 
conducted by NIA at the Nathan W. Shock Laboratories, 
Gerontology Research Center (GRC) in Baltimore, MD. More than 
1,000 men and women, ranging in age from their twenties to 
nineties, participate every 2 years in more than 100 
physiological and psychological assessments, which are used to 
provide a scientific description of aging. According to the 
BLSA publication, Older and Wiser, ``the objectives of the BLSA 
are to measure changes in biological and behavioral processes 
as people age, to relate these measures to one another, and to 
distinguish universal aging processes from those associated 
with disease and particular environmental effects.'' One of the 
most significant results of the study thus far is that aging 
does not necessarily result in a general decline of all 
physical and psychological functions. Rather, many of the so-
called age changes appear to be the result of disease, which 
can often be prevented. Started in 1958, the BLSA has entered 
into its fifth decade, and there are no plans to conclude the 
research now being conducted.

                     (b) national cancer institute

    The National Cancer Institute (NCI) conducts and sponsors 
basic and clinical research relating to the cause, prevention, 
detection, and treatment of cancer. In 1995, 80 percent of all 
persons in the U.S. who died of cancer were over 60 years of 
age.
    The incidence of cancer increases with age. Although aging 
is not the cause of cancer, the processes are related. Over the 
past 20 years, mortality rates for many cancers have stayed 
steady or declined in people younger than 65 while increasing 
in people over 65. Meanwhile, cardiovascular mortality in those 
65 and over has declined from 45 percent of deaths in 1973 to 
36 percent of deaths in 1995. Because cancer is primarily a 
disease of aging, longer life expectancies and fewer deaths 
from competing causes, such as heart disease, are contributing 
to the increasing cancer incidence and mortality for people 
aged 65 and over.
    In addition to basic and clinical, diagnostic, and 
treatment research, NCI supports prevention and control 
programs, such as programs to stop smoking.

             (c) national heart, lung, and blood institute

    The National Heart, Lung, and Blood Institute (NHLBI) 
focuses on diseases of the heart, blood vessels, blood and 
lungs, and on the management of blood resources. Three of the 
most prevalent chronic conditions affecting the elderly--
hypertension, heart conditions, and arteriosclerosis--are 
studied by NHLBI. In 1997, approximately 1.2 million deaths 
were reported from all of the diseases under the purview of the 
Institute (half of the U.S. deaths that year). The projected 
economic cost in 1999 for these diseases is expected to be $424 
billion.
    Research efforts focus on cholesterol-lowering drugs, DNA 
technology, and genetic engineering techniques for the 
treatment of emphysema, basic molecular biology research in 
cardiovascular, pulmonary, and related hematologic research, 
and regression of arteriosclerosis. In 1997, NHLBI took over 
administration of the Women's Health Initiative, a 15-year 
research project established in 1991 to investigate the leading 
causes of death and disability among postmenopausal women.
    NHLBI also conducts an extensive professional and public 
education program on health promotion and disease prevention, 
particularly as related to blood pressure, blood cholesterol, 
and coronary heart disease. This has played a significant role 
in the decline in stroke deaths and heart disease deaths since 
1970.

       (d) national institute of dental and craniofacial research

    The National Institute of Dental and Craniofacial Research 
(NIDCR) supports and conducts research and research training in 
oral, dental, and craniofacial health and disease. Major goals 
of the Institute include the prevention of tooth loss and the 
preservation of the oral tissues. Other research areas include 
birth defects affecting the face, teeth, and bones; oral 
cancer; infectious diseases; chronic pain; epidemiology; and 
basic studies of oral tissue development, repair, and 
regeneration.
    The Institute sponsors research on many conditions that 
affect older adults. Oral cancers, with an average age at 
diagnosis of 60 years, cause about 8,000 deaths each year and 
often involve extensive and disfiguring surgery. The Institute 
has ongoing collaborations with the National Cancer Institute 
and other institutes in studies of head and neck cancer. In 
several research areas, development of animal models has 
facilitated the study of the mechanisms of disease. These 
include salivary gland dysfunction, bone and hard tissue 
disorders, including osteoporosis, and arthritis.

  (e) national institute of diabetes and digestive and kidney diseases

    The National Institute of Diabetes and Digestive and Kidney 
Diseases (NIDDK) conducts and supports research and research 
training in diabetes, endocrinology and metabolic diseases; 
digestive diseases and nutrition; and kidney, urologic and 
blood diseases.
    Diabetes, one of the Nation's most serious health problems 
and the largest single cause of renal disease, affects over 15 
million Americans, of whom over 6 million are age 65 or older. 
Among Americans age 65 and older, over 18 percent have 
diabetes, with the highest prevalence in minority groups. The 
Institute is studying the genetic factors that contribute to 
development of diabetes, and methods of prevention of diabetes 
with diet, exercise, or medication.
    Benign prostatic hyperplasia (BPH), or prostate 
enlargement, is a common disorder affecting older men. NIDDK is 
currently studying factors that can inhibit or enhance the 
growth of cells derived from the human prostate. NIDDK also 
supports research on incontinence and urinary tract infections, 
which affect many postmenopausal women.

      (f) national institute of neurological disorders and stroke

    The National Institute of Neurological Disorders and Stroke 
(NINDS) supports and conducts research and research training on 
the cause, prevention, diagnosis, and treatment of hundreds of 
neurological disorders. This involves basic research to 
understand the mechanisms of the brain and nervous system and 
clinical research.
    Most of the disorders studied by NINDS result in long-term 
disabilities and involve the nervous system (including the 
brain, spinal cord, and peripheral nerves) and muscles. NINDS 
is committed to the study of the brain in Alzheimer's disease. 
In addition, NINDS research focuses on stroke, Huntington's 
disease, Parkinson's disease, and amyotrophic lateral 
sclerosis. NINDS is also conducting research on neuroimaging 
technology and molecular genetics to determine the etiology of 
Alzheimer's disease.
    NINDS research efforts in Parkinson's disease include work 
on causes, such as environmental and endogenous toxins; genetic 
predisposition; altered motor circuitry and neurochemistry, and 
new therapeutic interventions such as surgical procedures to 
reduce tremor.
    Strokes, the Nation's third-leading cause of death and the 
most widespread neurological problem, primarily affects the 
elderly. New drugs to improve the outlook of stroke victims and 
surgical techniques to decrease the risk of stroke currently 
are being studied.

       (g) national institute of allergy and infectious diseases

    The National Institute of Allergy and Infectious Diseases 
(NIAID) focuses on two main areas: infectious diseases and 
diseases related to immune system disorders.
    Influenza can be a serious threat to older adults. NIAID is 
supporting and conducting basic research and clinical trials to 
develop treatments and to improve vaccines for high-risk 
individuals. Work is also ongoing on new-generation 
pneumococcal vaccines and on vaccines to protect against often 
fatal hospital-associated infections, to which older persons 
are particularly vulnerable.

      (h) national institute of child health and human development

    The National Institute of Child Health and Human 
Development (NICHD) supports research that has implications for 
the entire human lifespan. Examples of aging-related research 
include: The effect of maternal aging on reproduction; 
variation in women's transition to menopause; the use of 
hormone replacement therapy in women with uterine fibroids; 
treatments to improve motor function after stroke; the genetics 
of bone density; and the natural history of dementia in 
individuals with Down syndrome.

                       (i) national eye institute

    The National Eye Institute (NEI) conducts and supports 
research and research training on the prevention, diagnosis, 
treatment, and pathology of diseases and disorders of the eye 
and visual system. The age 65 and older population accounts for 
one-third of all visits for medical eye care. Glaucoma, 
cataracts, and aging-related maculopathy, which are of 
particular concern to the elderly, are being studied by NEI. 
Some of this research is intended to serve as a foundation for 
future outreach and educational programs aimed at those at 
highest risk of developing glaucoma. A particular focus is age-
related macular degeneration, the leading cause of new 
blindness in persons over age 65. Research is exploring both 
the genetic basis of the disease and methods of preventing 
complications with laser treatments.

        (j) national institute of environmental health sciences

    The National Institute of Environmental Health Sciences 
(NIEHS) conducts and supports basic biomedical research studies 
to identify chemical, physical, and biological environmental 
agents that threaten human health. A number of diseases that 
impact the elderly have known or suspected environmental 
components, including cancer, immune disorders, respiratory 
diseases, and neurological problems.
    Areas of NIEHS research include the genetic relationship of 
smoking and bladder cancer; environmental and genetic effects 
in breast cancer; suspected environmental components in 
autoimmune diseases such as scleroderma, multiple sclerosis, 
lupus, diabetes, and rheumatoid arthritis; and the role of 
environmental toxicants in Parkinson's disease, Alzheimer's 
disease, amyotrophic lateral sclerosis, and other 
neurodegenerative disorders.

   (k) national institute of arthritis and musculoskeletal and skin 
                                diseases

    The National Institute of Arthritis and Musculoskeletal and 
Skin Diseases (NIAMS) investigates the cause and treatment of a 
broad range of diseases, including osteoporosis, the many forms 
of arthritis, and numerous diseases of joints, muscles, bones, 
and skin. The Institute supports 30 specialized and 
comprehensive research centers.
    Over 40 million Americans are affected by the more than 100 
types of arthritis and related disorders. Older adults are 
particularly affected. Almost 50 percent of all persons over 
age 65 suffer from some form of chronic arthritis. An estimated 
25 million Americans, most of them elderly, have osteoporosis.
    The most common degenerative joint disease is 
osteoarthritis, which is predicted to affect at least 70 
percent of people over 65. Among other approaches, NIAMS is 
sponsoring studies on the death of cartilage cells, on improved 
imaging techniques, and on the usefulness of alternative 
therapies such as glucosamine and chondroitin sulfate.
    In rheumatoid arthritis research, scientists are studying 
clusters of genes that seem to influence susceptibility to 
rheumatoid arthritis and other autoimmune diseases. Progress is 
also being made on the goal to use gene therapy to treat 
rheumatoid arthritis.

  (l) national institute on deafness and other communication disorders

    The National Institute on Deafness and Other Communication 
Disorders (NIDCD) conducts research into the effects of 
advancing age on hearing, vestibular function (balance), 
speech, voice, language, and chemical and tactile senses.
    Presbycusis (the loss of ability to perceive or 
discriminate sounds) is a prevalent but understudied disabling 
condition. One-third of people age 65 and older have 
presbycusis serious enough to interfere with speech perception. 
Studies of the influence of factors, such as genetics, noise 
exposure, cardiovascular status, systemic diseases, smoking, 
diet, personality and stress types, are contributing to a 
better understanding of the condition.

                (m) national institute of mental health

    The National Institute of Mental Health (NIMH) is involved 
in extensive research relating to Alzheimer's and related 
dementias, and the mental disorders of the elderly. NIMH is 
working on identifying the nature and extent of structural 
change in the brains of Alzheimer's patients to better 
understand the neurochemical aspects of the disease. NIMH 
researchers have identified a new gene mutation that may help 
in understanding genetic and environmental factors in 
Alzheimer's.
    Depression is a relatively frequent and often unrecognized 
problem among the elderly. Nearly five million elderly persons 
suffer from a serious and persistent form of depression. 
Research has shown that nearly 40 percent of the geriatric 
patients with major depression also meet the criteria for 
anxiety, which is related to many medical conditions, including 
gastrointestinal, cardiovascular, and pulmonary disease.
    Clinical depression often leads to suicide. According to 
the Centers for Disease Control and Prevention, elderly suicide 
is emerging as a major public health problem. After nearly four 
decades of decline, the suicide rate for people over 65 began 
increasing in 1980 and has been growing ever since. It is 
particularly high among white males aged 85 and older--about 
six times the national U.S. rate.
    NIMH has identified disorders of the aging as among the 
most serious mental health problems facing this Nation and is 
currently involved in a number of activities relevant to aging 
and mental health.

                  (n) national institute on drug abuse

    The National Institute on Drug Abuse (NIDA) researches 
science-based prevention and treatment approaches to the public 
health and public safety problems posed by drug abuse and 
addiction. For many people, addictions established in the 
younger years, notably nicotine addiction, may carry on into 
old age. NIDA-supported research has begun to clarify the 
biological mechanisms in the brain that underlie the process of 
addiction, leading to hope for future prevention and treatment. 
Other research has shown that nicotine and nicotine-like 
compounds may have beneficial effects in treating neurological 
diseases such as Parkinson's and Alzheimer's disease.

         (o) national institute of alcohol abuse and alcoholism

    Alcoholism among the elderly is often minimized due to low 
reported alcohol dependence among elderly age groups in 
community and population studies. Also, alcohol-related deaths 
of the elderly are underreported by hospitals. Because the 
elderly population is growing at such a tremendous rate, more 
research is needed in this area.
    Although the prevalence of alcoholism among the elderly is 
less than in the general population, the highest rates of 
alcohol abuse and dependence have been reported among older 
white men.

               (p) national institute of nursing research

    The National Institute of Nursing Research (NINR) conducts, 
supports, and disseminates information about basic and clinical 
nursing research through a program of research, training, and 
other programs. Research topics related to the elderly include: 
depression among patients in nursing homes to identify better 
approaches to nursing care; physiological and behavioral 
approaches to combat incontinence; initiatives in areas related 
to Alzheimer's disease, including burden-of-care; osteoporosis; 
pain research; the ethics of therapeutic decisionmaking; and 
end-of-life palliative care.

               (q) national center for research resources

    The National Center for Research Resources (NCRR) is the 
Nation's preeminent developer and provider of the resources 
essential to the performance of biomedical research funded by 
the other entities of NIH and the Public Health Service.
    NCRR grantees of the General Clinical Research Centers 
(GCRC) program have found that short-term estrogen treatment is 
helpful in decreasing vascular stiffness and lowering blood 
pressure in older women. Another grantee discovered that many 
older people have too little vitamin D in their bodies, which 
can lead to fractures and other muscle and bone problems. 
Research studies on older monkeys have shown that many common 
geriatric diseases appear to be caused by old age and 
predisposing genetic factors rather than environmental or 
lifestyle factors.

                  C. ISSUES AND CONGRESSIONAL RESPONSE

                         1. NIH Appropriations

    At $15.6 billion for FY 1999, NIH's budget represents about 
40 percent of federal civilian (i.e., nondefense) spending for 
research and development. The agency has enjoyed strong 
bipartisan support from Congress, reflecting the interest of 
the American public in promoting medical research. Even in the 
face of pressure to reduce the deficit, Congress nearly doubled 
NIH's appropriation over the last decade. In real terms, from 
FY 1989 to FY 1998, the budget stayed about 24 percent ahead of 
inflation. For FY 1998, the President requested a 2.6 percent 
increase for NIH over FY 1997 compared with the estimated 3.1 
percent biomedical inflation rate. Congress responded with a 
7.0 percent increase to $13.6 billion. For FY 1999, the 
President reversed the practice of recent years by proposing a 
large increase for NIH, requesting a total of $14.8 billion, up 
8.4 percent over FY 1998. The House and Senate Appropriations 
Committees responded by recommending increases of 9.1 percent 
and 14.4 percent, respectively. The final appropriation, 
incorporated into the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act, 1999 (P.L. 105-277), gave NIH 
an increase of nearly $2 billion or 14.6 percent, for a total 
of $15.6 billion.
    With its increased appropriation, NIH plans to highlight 
six areas of research, cutting across all the institutes and 
centers, that offer particularly promising opportunities: the 
biology of brain disorders, including neurodegenerative 
disorders; new approaches to pathogenesis (disease origins and 
development); new preventive strategies against disease; new 
avenues for development of therapeutics; genetic medicine; and 
advanced instrumentation and computers in medicine and 
research. The six areas are a framework for initiatives on 
specific diseases, notably cancer research and diabetes 
research. Other types of funding receiving substantial 
increases are initiatives to enhance the research 
infrastructure, including increases for research training, 
shared instrumentation, new sequencing and imaging 
technologies, advanced computing, and clinical research. 
Funding is included for construction of the new Clinical 
Research Center, a new vaccine research facility, and for 
extramural facilities construction grants.
    Appropriations levels for the NIH institutes, including 
estimates for aging research, are as follows:

                 FISCAL YEAR 1999 APPROPRIATIONS FOR NIH
                        [In millions of dollars]
------------------------------------------------------------------------
                                                            Fiscal year
                                            Fiscal year     1999 aging
           Institute or Center                 1999          research
                                           appropriation    (estimates)
------------------------------------------------------------------------
Aging...................................          $596.5          $596.5
Cancer..................................         2,927.2            46.6
Heart/Lung/Blood........................         1,793.7            90.8
Dental/Craniofacial Research............           234.3            10.3
Diabetes/Digestive/Kidney...............           994.2            69.0
Neurology/Stroke........................           903.3            83.6
Allergy/Infectious Diseases.............         1,570.1            68.5
General Medical Sciences................         1,197.8  ..............
Child Health/Human Development..........           751.0             9.5
Eye.....................................           395.9            77.6
Environmental Health....................           375.7             6.0
Arthritis...............................           308.2            37.5
Deafness................................           229.9             9.3
Mental Health...........................           861.2            71.9
Drug Abuse..............................           603.3             1.2
Alcohol Abuse/Alcoholism................           259.7             5.0
Nursing Research........................            69.8             9.7
Human Genome Research...................           264.9  ..............
Research Resources......................           554.8            16.8
Fogarty International Center............            35.4  ..............
Library of Medicine.....................           181.3  ..............
Office of Director......................           306.6  ..............
Buildings & Facilities..................           197.5  ..............
                                         -------------------------------
      Total, NIH........................        15,612.4         1,209.8
------------------------------------------------------------------------

                2. NIH Authorizations and Related Issues

    Much of the congressional attention to NIH in the 105th 
Congress focused on budgetary and appropriations issues. 
Reauthorization legislation to extend provisions that expired 
in FY 1996 was not introduced, although a few of the expired 
authorities were extended in other health bills passed at the 
end of the Congress.
    In giving NIH its $2 billion increase for FY 1999, Congress 
responded to calls to double the agency's budget in five years, 
a process that would require increases of about 15 percent per 
year. Various legislative proposals had been introduced, some 
focusing on NIH and others seeking to double the budgets of a 
number of R&D agencies over 10 to 12 years (requiring increases 
of about 6 percent per year). Several other bills were 
introduced that sought to provide extra funding for NIH beyond 
its annual appropriation by establishing research trust funds 
in the Treasury, to be supported by income tax checkoffs, 
health plan premium set-asides, or tobacco settlement money. No 
action was taken on any of these measures. Since health 
research has received much more substantial increases than 
other science funding in recent years, Congress must weigh 
whether continued large increases for NIH are sustainable in 
the face of other priorities.
    Both the appropriations and the authorizing committees 
conducted considerable debate and several hearings on NIH 
priority setting and resource allocation. Congress is 
interested in overseeing how NIH can responsibly spend large 
increases in funding, and how funds are allocated among the NIH 
institutes, among various disease categories, and between 
laboratory and clinical research. The FY 1998 appropriations 
act mandated a study of NIH research priority setting, to be 
done by the Institute of Medicine of the National Academy of 
Sciences. The study, entitled Scientific Opportunities and 
Public Needs: Improving Priority Setting and Public Input at 
NIH, was released July 8, 1998, and is available at [http://
www.nap.edu/readingroom/books/nih/]. It made 12 recommendations 
relating to allocation criteria, the decisionmaking process, 
mechanisms for public input, and the impact of congressional 
directives. It particularly stressed that NIH needs to engage 
the public to a greater extent in informing the process of 
research priority setting. In response, NIH has established a 
Council of Public Representatives to advise the Director and an 
Office of Public Liaison in each institute and center. 
Additional scrutiny and oversight of NIH will continue in the 
106th Congress.
    Reauthorization legislation for various NIH programs was 
last enacted in 1993 (P.L. 103-43), with authorizations 
expiring in FY 1996. Potential issues for future legislation 
include clinical research, research facilities, alternative 
medicine, NIH administrative structure, establishing a trust 
fund for biomedical research, and research on women's health, 
bioengineering, genome sequencing, and prostate cancer. Related 
issues that may spark continued debate include stem cell 
research, the use of human fetal tissue or human embryos in 
research, and attempts to prohibit human cloning research.

                         3. Alzheimer's Disease

    Alzheimer's disease (AD) is the most common cause of 
dementia among the elderly. Researchers are beginning to 
uncover the causes of AD, but there is no cure, nor is there a 
conclusive diagnostic test for AD. Physical, psychological, and 
neurological tests allow for a probable diagnosis with 
approximately 90 percent accuracy, but AD can only be confirmed 
through an autopsy. The risk for the disease, which primarily 
affects people age 65 and older, increases sharply with 
advancing age. Currently, an estimated 4 million Americans 
suffer from AD. More than half of all Alzheimer's patients 
receive care at home, and the rest are in a variety of health 
care institutions. Lifestyle improvements and advances in 
medical technology in the decades ahead will lead to a 
significant increase in the number of people living to very old 
age and, therefore, the number of people at risk for AD. Unless 
medical science can find a way to prevent the disease, delay 
its onset, or halt its progress, it is estimated that 14 
million Americans will have Alzheimer's disease by the year 
2050.
    Caring for a person with AD can be emotionally, physically, 
and financially stressful. Researchers recently estimated the 
annual cost of caring for an Alzheimer's patient at more than 
$47,000. Overall, Alzheimer's disease costs the Nation an 
estimated $82.7 billion a year in medical expenses, round-the-
clock care, and lost productivity.
    In FY 1999, the National Institutes of Health (NIH) will 
spend an estimated $399.4 million on AD research. AD research 
funding more than tripled between FY 1987 and FY 1992, then 
remained flat (in real terms) until last year when it began to 
increase again. The National Institute on Aging (NIA) at NIH is 
the lead federal agency for AD research and accounts for more 
than two-thirds of NIH's Alzheimer's research funding. The 
Office of Alzheimer's Disease Research at NIA coordinates the 
institute's research activities and promotes Alzheimer's 
research programs supported by other federal and state agencies 
and private organizations. Other institutes at NIH that conduct 
AD research include the National Institute of Neurological 
Disorders and Stroke (NINDS), the National Institute of Mental 
Health (NIMH), the National Institute of Allergy and Infectious 
Diseases (NIAID), and the National Institute of Nursing 
Research (NINR).
    Since 1991, a series of important findings have pushed AD 
research to the forefront of biomedical science. The 
significant advances in our understanding of Alzheimer's come 
largely on the heels of more fundamental research developments 
in molecular biology and neuroscience. Researchers have 
discovered four genes associated with AD. This, in turn, has 
led to an outpouring of findings about the sequence of events 
that leads to the formation of protein plaques and tangled 
nerve cells in the brains of Alzheimer's patients. In an 
important step toward finding treatments for Alzheimer's, 
scientists have developed a strain of mice that suffer brain 
damage similar to that seen in humans with the disease. An 
animal model for Alzheimer's will be extremely useful in 
designing and testing new therapeutic agents.
    NIH's Alzheimer's Disease Prevention Initiative, which was 
established at the instruction of Congress (FY 1999 House and 
Senate Appropriations Committees report language), aims to 
redouble efforts to build on the recent spate of research 
findings and find ways to arrest the development of AD and 
prevent future cases. Without effective preventive strategies, 
research is currently the only option for bringing AD under 
control.
    Although an autopsy is still the only way to conclusively 
diagnose AD, scientists are making advances in diagnosing the 
disease while patients are still alive. A recent consensus 
statement by NIA and the Alzheimer's Association provides 
clinicians with guidelines for diagnosing AD. New brain-imaging 
technologies combined with genetic analysis may offer a way to 
establish early diagnosis, determine prognosis, monitor 
patients, and evaluate treatment efficacy.
    Currently, there is no effective way to treat or prevent 
Alzheimer's disease. FDA has approved two drugs, Cognex and 
Aricept, that have been shown to produce modest improvements in 
cognitive ability in some patients with mild to moderate 
symptoms. Neither drug stops or reverses the progression of AD. 
Several clinical trials of compounds are underway, as 
scientists look for treatments that have no serious side 
effects and that can ease a broad range of symptoms and improve 
patients' activities of daily living and cognitive function. 
Researchers are studying the use of estrogen, anti-inflammatory 
drugs, and anti-oxidants in AD patients, determining which 
groups of people develop AD, and conducting several initiatives 
related to caregiving.
    The NIA funds 27 Alzheimer's Disease Centers (ADCs) at 
major medical research institutions across the country. The 
ADCs provide clinical services to Alzheimer's patients, conduct 
basic and clinical research, disseminate professional and 
public information, and sponsor educational activities. Much of 
the success in AD research can be attributed to resources 
provided by NIA to the ADCs.
    In 1990, the NIA began a program to link satellite 
diagnostic and treatment clinics to the existing ADCs. The aim 
is to target minority and rural populations in order to 
increase the size and diversity of the research patient pool. 
It also permits special population groups to participate in 
research protocols and clinical drug trials associated with the 
parent center. NIA also established the Consortium to Establish 
a Registry for Alzheimer's Disease (CERAD), a project to 
develop a national registry for standardized data on AD.
    A variety of initiatives are underway to help caregivers 
manage the daily activities and stresses of looking after AD 
patients. A five-year NIA program will provide caregivers with 
support, skills, and information and will include a focus on 
African American and Hispanic families. NIA is also funding 
efforts to compare care and outcomes in special care units in 
nursing homes.
    The Alzheimer's Disease Demonstration Grant to States 
program at the Administration on Aging provides funds to states 
to develop model practices for serving persons with AD and 
their families. A recent national evaluation of the program 
found that it had proven very successful in expanding support 
services to AD patients and family caregivers, especially hard-
to-reach minority, low- income, and rural families.
    The Alzheimer's Disease and Related Dementias Services 
Research Act of 1986 (Title IX of P.L. 99-660) established the 
Federal Council on Alzheimer's Disease, the DHHS Advisory Panel 
on Alzheimer's Disease, and the Alzheimer's Disease Education 
and Referral (ADEAR) Center. The role of the council is to 
coordinate Alzheimer's disease research conducted by and 
through Federal agencies and identify promising areas of 
research. Membership includes the directors (or administrators) 
of all the institutes and agencies within DHHS that conduct 
Alzheimer's programs. The advisory panel is comprised of 
research scientists and its role is to set Alzheimer's research 
priorities and make policy recommendations. The panel prepares 
an annual report for the Secretary of DHHS, the council, and 
Congress.
    Alzheimer's advocates complain that the current health care 
system does not provide adequate care for people with dementia. 
Most people who get AD are Medicare beneficiaries, but the 
program is poorly structured to meet the health care needs of 
those with chronic illness and disability. Studies indicate 
that AD is very costly to Medicare, though much of the cost 
comes from preventable health care crises (e.g., falls, 
injuries, infections, malnutrition, medication mismanagement) 
that are a direct result of impaired memory, judgment, and 
capacity for self care.
    Financing the high cost of long-term care is the issue of 
greatest concern to the families of Alzheimer's patients. At 
least 70 percent of AD patients live at home, where families 
provide most of the care at an average cost of more than 
$12,500. Many AD patients eventually have to be placed in a 
nursing home where the costs can exceed $40,000 a year. 
Medicaid, the only significant source of financial assistance 
for long-term care, now pays half of all nursing home costs in 
the country. Medicaid's nursing home spending is driven by its 
coverage of persons who spend down to Medicaid eligibility 
levels.
    The ADEAR Center at NIA provides information on diagnosis, 
treatment issues, patient care, caregiver needs, long-term 
care, education and training, research activities, and ongoing 
programs, as well as referrals to resources at both national 
and State levels. The ADEAR Center produces and distributes a 
variety of educational materials such as brochures, factsheets, 
and technical publications [www.alzheimers.org]. The Alzheimers 
Association also provides information and assistance to AD 
patients and their families through its nationwide network of 
local chapters, in addition to funding research [www.alz.org].

               4. Arthritis and Musculoskeletal Diseases

    The National Institute of Arthritis and Musculoskeletal and 
Skin Diseases (NIAMS) conducts the primary Federal biomedical 
research for arthritis and osteoporosis. Support research for 
these disorders is also carried out by the National Institute 
of Allergy and Infectious Diseases, the National Institute of 
Dental and Craniofacial Disorders, the National Heart, Lung, 
and Blood Institute, and the National Institute on Aging, among 
others.
    Osteoporosis is a disease characterized by exaggerated loss 
of bone mass and disruption in skeletal microarchitecture which 
leads to a variety of bone fractures. It is a symptomless, 
bone-weakening disease, which usually goes undiscovered until a 
fracture occurs. Osteoporosis is a major threat for an 
estimated 28 million Americans, 10 million of whom already have 
osteoporosis. Another 18 million have low bone mass and are at 
increased risk for the disease. The annual cost of osteoporosis 
was estimated at $14 billion in 1995. Medical costs will 
increase significantly as the population ages and incidence 
increases. Research holds the promise of significantly reducing 
these costs if drugs can be developed to prevent bone loss and 
the onset of osteoporosis, and to restore bone mass to those 
already affected by the disease.
    Research initiatives to address osteoporosis are underway 
in several NIH institutes, and also involve other agencies 
through the Federal Working Group on Bone Diseases, coordinated 
by NIAMS. The NIH Women's Health Initiative is currently 
studying osteoporosis and fractures to determine the usefulness 
of calcium and vitamin D supplements. Other research is 
investigating the genes and molecules involved in the formation 
and resorption of bone, the role of estrogen as a bone 
protector, and the use of combinations of drugs as therapy for 
osteoporosis. The NIH Osteoporosis and Related Bone Diseases 
National Resource Center is a joint Federal-nonprofit sector 
effort to enhance information dissemination and education on 
osteoporosis to the public.
    In addition to research in osteoporosis, NIAMS is the 
primary research institute for arthritis and related disorders. 
The term arthritis, meaning an inflammation of the joints, is 
used to describe the more than 100 rheumatic diseases. Many of 
these disorders affect not only the joints, but other 
connective tissues of the body as well. Approximately 40 
million Americans, one in seven persons, has some form of 
rheumatic disease, making it the Nation's leading crippler. 
That number is expected to climb to nearly 60 million, or 18 
percent of the population, by the year 2020, due largely to the 
aging of the U.S. population. Although no cure exists for the 
many forms of arthritis, progress has been made through 
clinical and basic investigations. The two most common forms of 
arthritis are osteoarthritis and rheumatoid arthritis.
    Osteoarthritis (OA) is a degenerative joint disease, 
affecting more than 20 million Americans. OA causes cartilage 
to fray, and in extreme cases, to disappear entirely, leaving a 
bone-to-bone joint. Disability results most often from disease 
in the weight-bearing joints, such as the knees, hips, and 
spine. Although age is the primary risk factor for OA, age has 
not been proven to be the cause of this crippling disease. NIH 
scientists are focusing on studies that seek to distinguish 
between benign age changes and those changes that result 
directly from the disease. This distinction will better allow 
researchers to determine the cause and possible cures for OA. 
Other areas of research involve using animal models to study 
the very early stages of OA, work on diagnostic tools to detect 
and treat the disease earlier, genetic studies to elucidate the 
role of inheritance, and development of comprehensive treatment 
strategies.
    Rheumatoid arthritis (RA), one of the autoimmune diseases, 
is a chronic inflammatory disease affecting more than 2.1 
million Americans, over two-thirds of whom are women. RA causes 
joints to become swollen and painful, and eventually deformed. 
The cause is not known, but is the result of the interaction of 
many factors, such as a genetic predisposition triggered by 
something in the internal or external environment of the 
individual.
    There are no known cures for RA, but research has 
discovered a number of therapies to help alleviate the painful 
symptoms. Current treatment approaches involve both lifestyle 
modifications, such as rest, exercise, stress reduction, and 
diet, as well as medications and sometimes surgery. To further 
their understanding of RA, researchers are studying basic 
abnormalities in the immune system of patients, genetic 
factors, the relationships among the hormonal, nervous, and 
immune systems, and the possible triggering role of infectious 
agents.

                  5. Geriatric Training and Education

    The Health Professions Education Partnerships Act of 1998 
amended the Public Health Service Act (PHSA) to consolidate and 
reauthorize current health professions and minority and 
disadvantaged health education programs. Section 753 of the 
PHSA authorizes the Secretary of the Department of Health and 
Human Services (DHHS) to award grants or contracts for: (1) 
Geriatric Education Centers (GECs); (2) Geriatric Training 
Regarding Physicians and Dentists; and (3) Geriatric Faculty 
Fellowships. The programs are administered by the Bureau of 
Health Professions at the Health Resources and Services 
Administration (HRSA) of DHHS.
    Finally, the Secretary is authorized to make grants to 
GECs. A GEC is a program that: (1) improves the training of 
health professionals in geriatrics, including geriatric 
residencies, traineeships, or fellowships; (2) develops and 
disseminates curricula relating to treatment of health problems 
of elderly individuals; (3) supports the training and 
retraining of faculty to provide instruction in geriatrics; (4) 
supports continuing education of health professionals who 
provide geriatric care; and (5) provides students with clinical 
training in geriatrics in nursing homes, chronic and acute 
disease hospitals, ambulatory care centers, and senior centers.
    With respect to the program for geriatric training for 
physicians and dentists, the Secretary may make grants to, and 
enter into contracts with, schools of medicine, schools of 
osteopathic medicine, teaching hospitals, and graduate medical 
education programs, for the purpose of providing support 
(including residencies, traineeships, and fellowships) for 
geriatric training projects to train physicians, dentists and 
behavioral and mental health professionals who plan to teach 
geriatric medicine, geriatric behavioral or mental health, or 
geriatric dentistry.
    The Secretary is authorized to establish a Geriatric 
Academic Career Awards program to provide fellowship awards to 
eligible individuals to promote the career development of such 
individuals to serve on school faculties as academic 
geriatricians.
    HRSA reported in its Justification of Estimates for 
Appropriations Committees for FY1999 that the goal of the 
Geriatric Programs was to increase the supply of geriatric 
faculty and to improve the distribution and increase the supply 
of geriatric trained practitioners. To date the GECs have 
trained 335,000 practitioners in 27 health-related disciplines; 
trained 7,500 academic and clinical faculty in 170 health-
related schools and 550 affiliated clinical sites. The GECs 
also have developed over 1,000 different curricular materials 
on topics such as adverse drug reactions, Alzheimer's disease, 
depression, elder abuse, ethnogeriatrics, and teleconferencing.
    HRSA estimates the number of full-time primary care 
internists and family physicians needed by the year 2000 to 
provide geriatric care to be 30,000. There are 8,966 physicians 
currently trained in geriatrics and this is a declining number 
due to physician retirements. Currently, the GECs produce 
around 100 new fellowship- trained geriatricians each year 
which is not enough to replace those that die or retire.
    There are 30 GECs in the national network and they have 
collectively formed an Ethnogeriatric Collaborative to formally 
link all minority related resources and activities. Though 
ethnic minorities are 40 percent of all GEC trainees, the 
numbers of minority faculty remains small for each discipline.
    HRSA has awarded grants to train 52 faculty fellows in 
geriatric medicine, dentistry, and psychiatry to help reduce 
the unmet need for geriatric faculty.
    Appropriations for FY1999 totaled $9.7 million for 
geriatric training programs.

        6. Social Science Research and the Burdens of Caregiving

    Most long-term care is provided by families at a tremendous 
emotional, physical, and financial cost. The NIA conducts 
extended research in the area of family caregiving and 
strategies for reducing the burdens of care. The research is 
beginning to describe the unique caregiving experiences by 
family members in different circumstances; for example, many 
single older spouses, are providing round-the-clock care at the 
risk of their own health. Also, adult children are often trying 
to balance the care of their aged parents, as well as the care 
for their own children.
    Families must often deal with a confusing and changing 
array of formal health and supportive services. For example, 
older people are currently being discharged from acute care 
settings with severe conditions that demand specialized home 
care. Respirators, feeding tubes, and catheters, which were 
once the purview of skilled professionals, are now commonplace 
in the home.
    The employed caregiver is becoming an increasingly common 
long-term care issue. This issue came to the forefront during 
legislative action on the ``Family and Medical Leave Act.'' 
While many thought of this only as a child care issue, elderly 
parents are also in need of care. Adult sons and daughters 
report having to leave their jobs or take extended leave due to 
a need to care for a frail parent.
    While the majority of families do not fall into this 
situation, it will be a growing problem. Additional research is 
needed to balance work obligations and family responsibilities. 
A number of employers have begun to design innovative programs 
to decrease employee caregiver problems. Some of these include 
the use of flex-time, referral to available services, adult day 
care centers, support groups, and family leave programs.
    While clinical research is being conducted to reduce the 
need for long-term care, a great need exists to understand the 
social implications that the increasing population of older 
Americans is having on society as a whole.

                             D. CONCLUSION

    Within the past 50 years, there has been an outstanding 
improvement in various measures of the health and well-being of 
the American people. Some once-deadly diseases have been 
controlled or eradicated, and the mortality rates for victims 
of heart disease, stroke, and some cancers have improved 
dramatically. Many directly attribute this success to the 
Federal Government's longstanding commitment to the support of 
biomedical research.
    The demand for long-term care will continue to grow as the 
population ages. Alzheimer's disease, for example, is projected 
to more than triple by the year 2050 if biomedical researchers 
do not develop ways to prevent or treat it. For the first time, 
however, Federal spending for Alzheimer's disease research will 
approach the $400 million mark. The increased support for this 
debilitating disease indicates a recognition by Congress of the 
extreme costs associated with Alzheimer's disease. It is 
essential that appropriation levels for aging research remain 
consistent so that promising research may continue. Such 
research could lead to treatments and possible prevention of 
Alzheimer's disease, other related dementias, and many other 
costly diseases such as cancer and diabetes.
    Various studies have highlighted the fact that although 
research may appear to focus on older Americans, benefits of 
the research are reaped by the population as a whole. Much 
research, for example, is being conducted on the burdens of 
caregiving on informal caregivers. Research into the social 
sciences needs to be expanded as more and more families are 
faced with caring for a dependent parent or relative.
    Finally, research must continue to recognize the needs of 
special populations. Too often, conclusions are based on 
research that does not appropriately represent minorities and/
or women. Expanding the number of grants to examine special 
populations is essential in order to gain a more complete 
understanding of such chronic conditions as Alzheimer's 
disease, osteoporosis, and Parkinson's disease.


                               CHAPTER 12



                            HOUSING PROGRAMS

                                OVERVIEW

    Relatively few low-income households receive assistance.--
Nearly 5 million low-income households now receive Federal 
rental assistance. This represents only about 25 percent of the 
low-income households who are eligible to receive help with 
their rent. The Department of Housing and Urban Developments 
(HUD) March 1996 report Rental Housing Assistance at a 
Crossroads: A Report to Congress on Worst Case Housing Needs, 
says that among the 5.3 million unassisted low income 
households with worst case needs (those paying more than 50 
percent of their incomes for housing or living in substandard 
units), almost 1.2 million are headed by an elderly person. 
Almost half (49 percent) of these elderly have acute housing 
needs--severe rent burdens or severely substandard housing. 
Many large cities no longer accept additions to their waiting 
list for Federal rental assistance since those at the end of 
the list will wait at least 5 years before getting help. There 
is an added concern: the number of households with worst case 
needs has continued to increase during the 1990's despite 
relatively favorable economic conditions.
    The most pressing housing issue.--Finding enough funds to 
continue assisting those renters currently being helped is the 
largest housing issue facing the 106th Congress. Over the next 
4 years, there will be a very large and increasing number of 
rental assistance contracts with private landlords coming up 
for renewal under HUD's Section 8 program (discussed below). In 
fiscal year 1999 the nearly 2 million units up for renewal will 
require budget authority of $9.6 billion, according to HUD. 
This will increase to 2.7 million units and $16.2 billion in 
fiscal year 2002. In March 1997, to calm fears of some assisted 
tenants, Representative Jerry Lewis, chairman of the House 
Appropriations Subcommittee for VA, HUD, and Independent 
Agencies said ``This Congress is not about putting people 
currently receiving assistance out on the street.'' This has 
led to another concern--that in an effort to renew all rental 
contracts, other HUD programs, including the Section 202 
program for the elderly (discussed below), public housing 
operating subsidies, and the ``preservation'' program could be 
substantially reduced.
    Housing reform bills.--In 1995, House and Senate conferees 
were unable to agree on a compromise version of housing 
authorization bills H.R. 2406 and S. 1260. In the 105th 
Congress, a new reform bill was introduced. This bill, H.R. 2, 
The Housing Opportunity and Responsibility Act of 1997, 
generally followed H.R. 2406, addressing public housing and 
project-based Section 8 admission preferences--who should get 
priority. Currently, nearly 75 percent of assistance is given 
to extremely low-income households. There is now a desire to 
move toward more mixed-income rental buildings with role 
models. This will give more preference to the working poor 
rather than to the poorest of the poor. H.R. 2 included tenant 
incentives to work, and provisions for more market-oriented 
landlord/tenant relationships. A new flexible grant option 
would deregulate well-run public housing agencies, letting them 
design programs and set their own priorities, but holding them 
more accountable for results. Poorly performing agencies would 
come under more intense scrutiny. The matching Senate bill, S. 
462, The Public Housing Reform and Responsibility Act of 1997, 
addressed similar issues. Resident participation would be 
encouraged in the development of the public housing authority 
operating plan and incentives for implementing anti-crime 
policies. It would promote increased residential choice and 
mobility by increasing opportunities for residents to use 
tenant-based assistance (vouchers). And it would institute 
reforms such as ceiling rents, earned income adjustments, and 
minimum rents which encourage and reward work. Conferees on the 
two bills began informal discussions on their differences, and 
by Fall of 1998, they believed they had worked out an 
acceptable compromise. To assure passage of this housing 
authorization bill, it was included in the VA-HUD 
Appropriations bill for fiscal year 1999 as Title V, The 
Quality Housing and Work Responsibility Act of 1998. The 
overall thrust of this new authorization bill is greater 
flexibility for local housing authorities, more demolitions of 
obsolete public housing units, and a merger of the Section 8 
voucher and certificate programs.
    Preserving Section 8 projects.--In addition to expiring 
Section 8 contracts, there are two important related issues 
known as the ``portfolio re-engineering'' and ``preservation'' 
programs. Both have to do with Section 8 projects, many with 
excessive costs and deteriorated physical conditions. Many 
projects have mortgages insured by HUD's Federal Housing 
Administration (FHA) for more than the buildings are now worth. 
HUD is under strong pressure to reduce the excessive costs, but 
at the same time, avoid driving landlords into foreclosure. A 
foreclosure would not only be costly to the FHA insurance 
program, but would be disruptive to the low-income tenants in 
these projects. Congress has initiated a restructuring program 
to test for a satisfactory resolution to this problem--`` 
portfolio re-engineering.'' Rents would be reduced in return 
for the government forgiving some of the mortgage debt. Final 
regulations for the restructuring program have been submitted 
to the HUD Office of General Counsel for clearance, and HUD has 
released the list of 52 state and local housing agencies that 
qualified to participate in the first phase of the program. HUD 
expects to publish the final regulations and handbook for the 
program in early Spring 1999.
    Also among the Section 8 landlords are those that have the 
contractual right after 20 years to prepay the remaining debt 
on their subsidized mortgages and end their obligation to rent 
to low income households. Here too, Congress is wrestling with 
the design of a ``preservation'' program that protects existing 
low-income tenants, while reducing excessive costs.
    Low-income housing not a priority.--Housing assistance for 
lower income households has not been among the highest 
priorities of Congress during the past dozen years. In funding, 
programs for the elderly and handicapped have fared better than 
most. While pressure to cut the Federal deficit is often given 
as a reason for HUD budget reductions, this reasoning is not 
carried over to the much larger ($80 billion in fiscal year 
1997) housing assistance that largely goes to upper middle 
income homeowners received through the tax code. Another 
justification for cutbacks in HUD programs is the frustration 
with excessive costs, poor management, and the seemingly 
intractable problems that prevent many very low-income 
households from moving away from welfare and into the economic 
mainstream. In an effort to move families from Welfare-to-Work, 
the HUD budget for fiscal year 1999 includes a provision of 
$283 million for 50,000 new vouchers to help families who are 
currently on welfare move closer to places of employment, and 
become self-sufficient.
    A continuing flow of new immigrants, both legal and 
illegal, also guarantees that there will be an increasing 
number of households in need of housing assistance. While 
serious management problems are said to be largely confined to 
the largest public housing projects in the big inner cities, 
publicity about this and other problems have tainted HUD's 
reputation.
    Housing initiatives on a limited budget.--In recent years, 
HUD has moved aggressively to combat discrimination against 
minorities, women, and low-income households in housing and 
mortgage credit. Although some housing analysts question the 
appropriateness of homeownership for very low income 
households, HUD has pushed hard to increase the opportunities 
for minorities and lower income households to become 
homeowners. The agency has also made increasing efforts to 
address the problem of declining neighborhoods in inner cities 
and older suburbs by encouraging community development 
organizations to join with the for-profit private sector.
    At the same time, HUD is taking on major commitments to 
reform itself and its programs. It has committed itself to a 
sharp reduction in its size. Four years ago the agency had 
13,000 employees; today, about 10,000; and by the year 2000, it 
expects to be down to 7,500.

                     A. RENTAL ASSISTANCE PROGRAMS

                            1. Introduction

    Beginning in the 1930's with the Low-Rent Public Housing 
Program, the Federal role in housing for low- and moderate-
income households has expanded significantly. In 1949, Congress 
adopted a national housing policy calling for a decent home and 
suitable living environment for every American family.
    Although the Government has made striking advances in 
providing affordable and decent housing for all Americans, data 
indicate that the 4.8 million assisted units available at the 
end of fiscal year 1998 were only enough to house approximately 
25 percent of those eligible for assistance. However, a large 
percentage of newly constructed subsidized housing over the 
past 10 years have been for the elderly. The relative lack of 
management problems and local opposition to family units make 
elderly projects more popular. Yet, even with this preference 
for the construction of units for the elderly, in many 
communities there is a long waiting list for admission to 
projects serving the elderly. Such lists are expected to grow 
as the demand for elderly rental housing continues to increase 
in many parts of the Nation.

                   2. Housing and Supportive Services

    Congress has a long history of passing laws to assist in 
providing adequate housing for elderly, but only in recent 
years has it moved to provide support for services. This is 
done through programs which permit the providers of housing to 
supply services needed to enable the elderly to live with 
dignity and independence. The following three programs provide 
housing and supportive services for the elderly.

           (a) Section 202 Supportive Housing for the Elderly

    Since its revision in 1974 the Section 202 program provided 
rental assistance in housing designed specifically for the 
elderly. It is also the Federal Government's primary financing 
vehicle for constructing subsidized rental housing for elderly 
persons. In 1990, the program was once again completely revised 
by the National Affordable Housing Act to provide not only 
housing for its residents, but services as well.
    The Section 202 program is one of capital advances and 
rental assistance. The capital advance is a noninterest loan 
which is to be repaid only if the housing is no longer 
available for occupancy by very-low income elderly persons. The 
capital advances could be used to aid nonprofit organizations 
and cooperatives in financing the construction, reconstruction, 
or rehabilitation of a structure, or the acquisition of a 
building to be used for supportive housing.
    Rental assistance is provided through 20-year contracts 
between HUD and the project owners, and will pay operating 
costs not covered by tenant's rents. Tenants' portion of the 
rent payment is 30 percent of their income or the shelter rent 
payment determined by welfare assistance.
    Since 1992, organizations providing housing under the 
Section 202 program must also provide supportive services 
tailored to the needs of its project's residents. These 
services should include meals, housekeeping, transportation, 
personal care, health services, and other services as needed. 
HUD is to ensure that the owners of projects can access, 
coordinate and finance a supportive services program for the 
long term with costs being borne by the projects and project 
rental assistance.
    At the end of fiscal year 1998, there were approximately 
20,000 Section 202 projects, comprised of approximately 224,000 
units eligible for payment. The appropriations for fiscal year 
1999 provide $660 million which, according to HUD, should 
finance 7,000 additional units of supportive housing for the 
elderly.

                    (b) congregate housing services

    Congregate housing provides not only shelter, but 
supportive services for residents of housing projects 
designated for occupancy by the elderly. While there is no way 
of precisely estimating the number of elderly persons who need 
or would prefer to live in congregate facilities, groups such 
as the Gerontological Society of America and the AARP have 
estimated that a large number of people over age 65 and now 
living in institutions or nursing homes would choose to 
relocate to congregate housing if possible.
    The Congregate Housing Services Program was first 
authorized as a demonstration program in 1978, and later made 
permanent under the National Affordable Housing Act of 1990. 
The program provides a residential environment which includes 
certain services that aid impaired, but not ill, elderly and 
disabled tenants in maintaining a semi-independent lifestyle. 
This type of housing for the elderly and disabled includes a 
provision for a central dining room where at least one meal a 
day is served, and often provides other services such as 
housekeeping, limited health care, personal hygiene, and 
transportation assistance.
    Under the Congregate Housing Services Program, HUD and the 
Farmer's Home Administration (FmHA) enter into 5-year renewable 
contracts with agencies to provide the services needed by 
elderly residents of public housing, HUD-assisted housing and 
FmHA rural rental housing. Costs for the provision of the 
services are covered by a combination of contributions from the 
contract recipients, the Federal Government, and the tenants of 
the project. Contract recipients are required to cover 50 
percent of the cost of the program, Federal funds cover 40 
percent, and tenants are charged service fees to pay the 
remaining 10 percent. If an elderly tenant's income is 
insufficient to warrant payment for services, part or all of 
this payment can be waived, and this portion of the payment 
would be divided evenly between the contract recipient and the 
Federal Government.
    In an attempt to promote independence among the housing 
residents, each housing project receiving assistance under the 
congregate housing services program must, to the maximum extent 
possible, employ older adults who are residents to provide the 
services, and must pay them a suitable wage comparable to the 
wage rates of other persons employed in similar public 
occupations.
    Congress last appropriated funding directly for the 
Congregate Housing Program in fiscal year 1995. For FY1996 
through FY1997, no appropriations were made, but the program 
was supported by carryovers in funding from previous years. In 
FY1998 and fiscal year 1999, the VA-HUD appropriations bills 
provided funding for congregate services and service 
coordinators for the elderly and disabled as a set-aside of the 
Community Development Block Grants (CDBG). In FY1998, at least 
$7 million was to be used for this purpose; in FY1999 at least 
$20 million was set-aside.
    Since Federal funding for housing program has been reduced 
dramatically in recent years, some States have established 
their own housing initiatives, including congregate housing 
programs in an effort to provide their elderly citizens with 
needed care without relying on Federal funds. In the last few 
years, private developers have shown a growing interest in the 
development of congregate housing. Considering the growing 
number of elderly who may benefit from congregate housing 
services, this is one avenue of housing assistance that the 
States may want to explore more carefully.
    Today there are approximately 100 projects serving nearly 
3,500 elderly residents that receive Federal assistance under 
the Congregate Housing Services Program.

                   (c) hope for elderly independence

    Title IV of the National Affordable Housing Act of 1990 is 
entitled ``Homeownership and Opportunity for People Everywhere 
(HOPE) Programs.'' The title comprises several programs 
encouraging homeownership and a higher quality of housing 
opportunities as well. One of these programs of particular 
interest here is entitled HOPE for Elderly Independence.
    HOPE for Elderly Independence is a five-year demonstration 
program through which HUD enters into contracts with public 
housing agencies to provide rental assistance through the use 
of housing vouchers or certificates and supportive services to 
frail elderly who are living independently. A limit of 1,500 
vouchers and certificates can be funded in any fiscal year for 
the program.
    Supportive services are to be funded as they are under the 
revised congregate housing program: HUD is to pay 40 percent of 
the cost, the Public Housing Authority (PHA) is to pay 50 
percent, and the person receiving the services would pay the 
remaining 10 percent. HUD can waive the tenant's portion of the 
cost if it determines that the tenant is not able to pay their 
share, and the amount would again be covered by HUD and the PHA 
in a 50-50 split.
    The HUD appropriations for fiscal year 1992 funded $35.8 
million to provide 1,500 rental vouchers for the program, and 
$10 million for the provision of supportive services. Funds 
were appropriated again in fiscal year 1993 totaling $38.3 
million for another 1,500 rental assistance vouchers and $10 
million for supportive services. No further funding has been 
requested or appropriated for the program since 1993.
    The effectiveness of the HOPE for Elderly Independence 
Program was evaluated by HUD in 1998 after the five-year 
expiration period had expired. A completed report on the 
program is expected to be released in the Spring of 1999.

                           3. Public Housing

    Conceived during the Great Depression as a means of aiding 
the ailing construction industry and providing decent, low-rent 
housing, the Public Housing Program has burgeoned into a system 
that includes 1.3 million units, housing more than 3.7 million 
people. Approximately 45 percent of public housing units are 
occupied by elderly persons.
    The Public Housing Program is the oldest Federal program 
providing housing for the elderly. It is a federally financed 
program operated by State-chartered local public housing 
authorities (PHA's). Each PHA usually owns its own projects. By 
law, a PHA can acquire or lease any property appropriate for 
low-income housing. They are also authorized to issue notes and 
bonds to finance the acquisition, construction, and improvement 
of projects. When the program began, it was assumed that 
tenant's rents would cover project operating costs for such 
items as management, maintenance, and utilities. Rent payments 
are now set at 30 percent of tenant's adjusted income. However, 
since passage of the FY1999 VA-HUD Appropriations Act, PHAs 
have the option of setting a minimum rent of $50 if they 
believe it is necessary for the maintenance of their projects, 
with exception made for families where this rent level would 
present a hardship. Tenant rents have not kept pace with 
increased operating expenses, so PHAs receive a Federal subsidy 
to help defray operating and modernization costs.
    A critical problem of public housing is the lack of 
services for elderly tenants who have ``aged in place'' and 
need supportive services to continue to live independently. 
Congregate services have been used in some projects in recent 
years, but only about 40 percent of the developments report 
having any on-site services staff to oversee service delivery. 
Thus, even if a high proportion of developments would have some 
services available, there is evidence that these services may 
often only reach a few residents, leaving a large unmet need.
    Under the National Affordable Housing Act of 1990, Congress 
established service coordinators as eligible costs for 
operating subsidies. In addition, up to 15 percent of the cost 
of providing services to the frail elderly in public housing is 
an eligible operating subsidy expense. Services may include 
meals, housekeeping, transportation, and health-related 
services. Although services and service coordinators are an 
eligible cost for using the operating subsidy, they are not 
required and therefore, not available in all public housing 
projects.
    Another problem surfacing in public housing in recent years 
is that of mixed populations living in the same buildings. By 
``mixed populations'' we mean occupancy by both elderly and 
disabled persons in buildings designated as housing for the 
elderly.
    The Housing and Community Development Act of 1992 addressed 
the problem of mixed populations in public housing projects. 
This seems to have become a concern in part because of the 
broadened definition of ``disabled'' to include alcoholics and 
recovering drug abusers, and the increasing number of mentally 
disabled persons who are not institutionalized. Also, by 
definition, elderly families and disabled families were 
included in one term, ``elderly'' in the housing legislation 
authorizing public housing.
    The 1992 Act provided separate definitions of elderly and 
disabled persons. It also permitted public housing authorities 
to designate housing for separate or mixed populations within 
certain limitations, to ensure that no resident of public 
housing is discriminated against or taken advantage of in any 
way.
    This action was reinforced in 1996 with the signing into 
law of (P.L. 104-120), the Housing Opportunity Program 
Extension Act of 1996. This act contained two provisions of 
particular interest to persons in public and assisted housing.
    Section 10 of the law permitted PHAs to rent portions of 
the projects designated for elderly tenants to ``near elderly 
persons (age 55 and over) if there were not enough elderly 
persons to fill the units. The law also goes into detail on the 
responsibilities of PHAs in offering relocation assistance to 
any disabled tenants who choose to move out of units not 
designated for the elderly. Persons already occupying public 
housing units cannot be evicted in order to achieve this 
separation of populations. However, tenants can request a 
change to buildings designated for occupancy for just elderly 
or disabled persons. Managers of projects may also offer 
incentives to tenants to move to designated buildings, but they 
must ensure that tenants' decisions to move are strictly 
voluntary.
    Section 9 of the Housing Opportunity Program Extension Act 
of 1996 is concerned with the safety and security of tenants in 
public and assisted housing. This provision of the law makes it 
much easier for managers of such apartments to do background 
checks on tenants to see if they have a criminal background. It 
also makes it easier for managers to evict tenants who engage 
in illegal drug use or abuse alcohol.
    In recent years, the condition of public housing projects 
has declined noticeably in some areas of the country, 
particularly in the inner cities. There are varied reasons for 
the decline of public housing, including a concentration of the 
poorest tenants in a few projects, an increase in crime and 
drugs in developments, and a lack of funds to maintain the 
projects at a suitable level. Some analysts believe that public 
housing has outlived its usefulness and should be replaced by 
providing tenants with rental assistance vouchers that they can 
use to find their own housing in the private market. Other 
analysts disagree with this point of view and say that some 
tenants, the elderly in particular, would have a hard time 
finding their own housing if they were handed a voucher and 
told to find their own apartments. These analysts believe that 
doing away with public housing is not the answer, but that more 
of an income mix is needed among tenants and funds should be 
directed to some type of ``reward'' system to offer incentives 
to PHAs to improve public housing.
    Title V of the FY1999 VA-HUD Authorization Act (P.L. 105-
276) makes many changes to the current public housing program. 
Some of these changes are: non-working, non-elderly or disabled 
persons residing in public housing will be required to perform 
8 hours of community service a month; tenants are given 
opportunities for increased input in decisionmaking; PHA's have 
greater access to nation-wide police reporting services to 
screen applicants for criminal or drug activity before 
admitting them to public housing, and troublesome tenants can 
be evicted quickly.

                      4. Section 8 Housing Program

    Traditional public housing assistance offers few choices as 
to the location and type of housing units desired by low-income 
families. Also, some housing advocates believe that many 
problems plaguing public housing projects could be avoided if 
the poor were not concentrated in these projects, but given 
rental assistance to live in privately owned apartments. To 
this end, the Section 8 rental assistance program was created 
in 1974.
    Section 8 is designed to provide subsidized housing to 
families with incomes too low to obtain decent housing in the 
private market. Under the original program, subsidies were paid 
to landlords on behalf of eligible tenants to not only assist 
tenants paying rents, but also for promoting new construction 
and substantial rehabilitation. The program as it was then, 
came to be seen as too costly--particularly the costs 
associated with new construction and rehabilitation. As a 
result, authority to enter into new contracts for new 
construction was eliminated and rehabilitation was limited in 
1983. While eliminating new construction, and limiting 
substantial rehabilitation to only projects designated for 
occupancy by the homeless, the Housing Act of 1983 continued 
the use of rental assistance certificates, and introduced the 
Section 8 voucher program as well.
    Now, in 1999, the supply of affordable housing is in 
jeopardy, not only because of budget constraints, but also 
because many of the subsidized projects are reaching the end of 
their contract terms, and owners may opt out of providing low-
income units. This is particularly true of Section 8 contracts 
written in the late 1970's and early 1980's that are now 
reaching their expiration dates. In fact, as they reach the end 
of their contract terms, some owners of projects that are in 
revitalized or higher rent areas, are looking for ways to 
prepay their mortgage and free up their properties. Other 
owners say they are heavily in debt and unable to raise rents 
to support the cost of repairs. These owners claim that if they 
were able to prepay their loans, the projects could be sold to 
profit-motivated owners who could afford private financing for 
needed repairs.
    The 1990 Housing Act permitted prepayment of mortgages in 
limited circumstances. The prepayment plan provides complex 
paths of procedures to be followed by the owner, by HUD and by 
a possible purchaser. For example, HUD will only approve a 
prepayment if it concludes that doing so would not cause a 
hardship for current tenants. In addition, tenants cannot be 
involuntarily displaced as a result of prepayment unless 
comparable housing is available without rental assistance. 
Owners seeking to prepay must also ensure that affordable 
housing is available for low-income families near employment 
opportunities.
    HUD must permit prepayment if it cannot find sufficient 
subsidies, known as ``incentives'', to provide owners with a 
fair return on their equity when low-income use is continued, 
or if a buyer with HUD subsidies cannot be found to purchase at 
a fair market price. All in all, tenants are given a number of 
protections in the determination process, and tenant-based 
rental assistance is provided if the owner is allowed to 
prepay.

                      5. Vouchers and Certificates

    There is one major difference between Section 8 
certificates and vouchers. Under the Section 8 certificate 
program, rents and rent-to-income ratio is capped and subsidy 
depends on the rent. A family who rents a Section 8 unit pays 
30 percent of its income as rent, and HUD pays the rest based 
on a fair market rent formula. Units are rented from private 
developers who have Section 8 assistance attached to their 
projects. Under the Section 8 voucher program, there are no 
caps and the subsidy is fixed. This means that the family 
receives a voucher from HUD stating that the Department will 
pay up to the fair market rent minus 30 percent of the family's 
adjusted income as a rental subsidy payment. The family is free 
to find an apartment and negotiate a rent with a landlord. If 
they find a more expensive apartment that they want to occupy, 
they will pay more than 30 percent of their income as their 
share of the rent since HUD will only pay the fixed amount. 
Likewise, if they find a less expensive apartment, they would 
pay less than 30 percent of their income as rent since once 
again HUD would pay a fixed amount.
    Advocates of the voucher program argue that the voucher 
system would avoid segregation and warehousing of the poor in 
housing projects, and would allow them to live where they 
choose at lower cost than new construction programs.
    Critics of the voucher program question whether it would 
really help those most in need and believe they would present 
potential problems for some elderly renters who need certain 
amenities such as grabrails and accommodations for wheelchairs 
that are not found in all apartments. They also doubt that many 
elderly would be in a position to look for housing in safe, 
sanitary conditions and negotiate rents with landlords.
    HUD seems to favor the certificate and voucher programs and 
in Title V of the VA-HUD Appropriations Act for FY1999 (P.L. 
105-276) Congress included a provision which combines the two 
programs. Regulation for this new Sec. 8 program have not been 
discussed as yet, and preliminary regulations probably would 
not be presented before Summer of 1999.
    In fiscal year 1999, Congress appropriated $10.1 billion 
for the Section 8 program: $9.7 billion for the renewal and 
amendment of contracts, and $434 million for certificates and 
vouchers to prevent families from being displaced by 
prepayments or other actions of Federal housing programs.

                       6. Rural Housing Services

    The Housing Act of 1949 (P.L. 81-171) was signed into law 
on October 25, 1949. Title V of the Act authorized the 
Department of Agriculture (USDA) to make loans to farmers to 
enable them to construct, improve, repair, or replace dwellings 
and other farm buildings to provide decent, safe, and sanitary 
living conditions for themselves, their tenants, lessees, 
sharecroppers, and laborers. The Department was authorized to 
make grants or combinations of loans and grants to farmers who 
could not qualify to repay the full amount of a loan, but who 
needed the funds to make the dwellings sanitary or to remove 
health hazards to the occupants or the community.
    Over time the Act has been amended to enable the Department 
to make housing and grants to rural residents in general. The 
housing programs are generally referred to by the section 
number under which they are authorized in the Housing Act of 
1949, as amended. The programs are administered by the Rural 
Housing Service. As noted below, only one of the programs 
(Section 504 grants) is targeted to the elderly.
    Under the Section 502 program, USDA is authorized to make 
direct loans to very low- to moderate-income rural residents 
for the purchase or repair of new or existing single-family 
homes. The loans have a 33-year term and interest rates may be 
subsidized to as low as 1 percent. Borrowers must have the 
means to repay the loans but be unable to secure reasonable 
credit terms elsewhere.
    In a given fiscal year, at least 40 percent of the units 
financed under this section must be made available only to very 
low-income families or individuals. The loan term may be 
extended to 38 years for borrowers with incomes below 60 
percent of the area median.
    Borrowers with income of up to 115 percent of the area 
median may obtain guaranteed loans from private lenders. 
Guaranteed loans may have up to 30-year terms. Priority is 
given to first-time homebuyers, and the Department of 
Agriculture may require that borrowers complete a homeownership 
counseling program.
    In recent years, Congress and the Administration have been 
increasing the funding for the guaranteed loans and decreasing 
funding for the direct loans.
    Under the Section 504 loan program, USDA is authorized to 
make loans to rural homeowners with incomes of 50 percent or 
less of the area median. The loans are to be used to repair or 
improve the homes, to make them safe and sanitary, or to remove 
health hazards. The loans may not exceed $20,000. Section 504 
grants may be available to homeowners who are age 62 or more. 
To qualify for the grants, the elderly homeowners must lack the 
ability to repay the full cost of the repairs. Depending on the 
cost of the repairs and the income of the elderly homeowner, 
the owner may be eligible for a grant for the full cost of the 
repairs or for some combination of a loan and a grant which 
covers the repair costs. A grant may not exceed $5,000. The 
combination loan and grant may total no more than $15,000.
    Section 509 authorizes payments to Section 502 borrowers 
who need structural repairs on newly constructed dwellings.
    Under the Section 514 program, USDA is authorized to make 
direct loans for the construction of housing and related 
facilities for farm workers. The loans are repayable in 33 
years and bear an interest rate of 1 percent. Applicants must 
be unable to obtain financing from other sources that would 
enable the housing to be affordable by the target population.
    Individual farm owners, associations of farmers, local 
broad-based nonprofit organizations, federally recognized 
Indian Tribes, and agencies or political subdivisions of local 
or State governments may be eligible for loans from the 
Department of Agriculture to provide housing and related 
facilities for domestic farm labor. Applicants, who own farms 
or who represent farm owners, must show that the farming 
operations have a demonstrated need for farm labor housing and 
applicants must agree to own and operate the property on a 
nonprofit basis. Except for State and local public agencies or 
political subdivisions, the applicants must be unable to 
provide the housing from their own resources and unable to 
obtain the credit from other sources on terms and conditions 
that they could reasonably be expected to fulfill. The 
applicants must be unable to obtain credit on terms that would 
enable them to provide housing to farm workers at rental rates 
that would be affordable to the workers. The Department of 
Agriculture State Director may make exceptions to the ``credit 
elsewhere'' test when (1) there is a need in the area for 
housing for migrant farm workers and the applicant will provide 
such housing and (2) there is no State or local body or no 
nonprofit organization that, within a reasonable period of 
time, is willing and able to provide the housing.
    Applicants must have sufficient initial operating capital 
to pay the initial operating expenses. It must be demonstrated 
that, after the loan is made, income will be sufficient to pay 
operating expenses, make capital improvements, make payments on 
the loan, and accumulate reserves.
    Under the Section 515 program, USDA is authorized to make 
direct loans for the construction of rural rental and 
cooperative housing. When the program was created in 1962, only 
the elderly were eligible for occupancy in Section 515 housing. 
Amendments in 1966 removed the age restrictions and made low- 
and moderate-income families eligible for tenancy in Section 
515 rental housing. Amendments in 1977 authorized Section 515 
loans to be used for congregate housing for the elderly and 
handicapped.
    Loans under section 515 are made to individuals, 
corporations, associations, trusts, partnerships, or public 
agencies. The loans are made at a 1 percent interest rate and 
are repayable in 50 years. Except for public agencies, all 
borrowers must demonstrate that financial assistance from other 
sources will not enable the borrower to provide the housing at 
terms that are affordable to the target population.
    Under the Section 516 program, USDA is authorized to make 
grants of up to 90 percent of the development cost to nonprofit 
organizations and public bodies seeking to construct housing 
and related facilities for farm laborers. The grants are used 
in tandem with Section 514 loans.
    Section 521 established the interest subsidy program under 
which eligible low- and moderate-income purchasers of single-
family homes (under Section 515 or Section 514) may obtain 
loans with interest rates subsidized to as low as 1 percent.
    In 1974, Section 521 was amended to authorize USDA to make 
rental assistance payments to owners of rental housing (Section 
515 or 514) to enable eligible tenants to pay no more than 25 
percent of their income in rent. Under current law, rent 
payments by eligible families may equal the greater of (1) 30 
percent of monthly adjusted family income, (2) 10 percent of 
monthly income, or (3) for welfare recipients, the portion of 
the family's welfare payment that is designated for housing 
costs. Monthly adjusted income is adjusted income divided by 
12.
    The rental assistance payments, which are made directly to 
the borrowers, make up the difference between the tenants' 
payments and the rent for the units approved by USDA. Borrowers 
must agree to operate the property on a limited profit or 
nonprofit basis. The term of the rental assistance agreement is 
20 years for new construction projects and 5 years for existing 
projects. Agreements may be renewed for up to 5 years. An 
eligible borrower who does not participate in the program may 
be petitioned to participate by 20 percent or more of the 
tenants eligible for rental assistance.
    Section 523 authorizes technical assistance (TA) grants to 
States, political subdivisions, and nonprofit corporations. The 
TA grants are used to pay for all or part of the cost of 
developing, administering, and coordinating programs of 
technical and supervisory assistance to families that are 
building their homes by the mutual self-help method. Applicants 
may also receive site loans to develop the land on which the 
homes are to be built.
    Sites financed through Section 523 may only be sold to 
families who are building homes by the mutual self-help method. 
The homes are usually financed through the Section 502 program.
    Section 524 authorizes site loans for the purchase and 
development of land to be subdivided into building sites and 
sold on a nonprofit basis to low- and moderate-income families 
or to organizations developing rental or cooperative housing.
    Sites financed through Section 524 have no restrictions on 
the methods by which the homes are financed or constructed. The 
interest rate on Section 524 site loan is the Treasury cost of 
funds.
    Under the Section 533 program, USDA is authorized to make 
grants to nonprofit groups and State or local agencies for the 
rehabilitation of rural housing. Grant funds may be used for 
several purposes: (1) rehabilitating single family housing in 
rural areas which is owned by low- and very low-income 
families, (2) rehabilitating rural rental properties, and (3) 
rehabilitating rural cooperative housing which is structured to 
enable the cooperatives to remain affordable to low- and very 
low-income occupants. The grants were made for the first time 
in fiscal year 1986.
    Applicants must have a staff or governing body with either 
(1) the proven ability to perform responsibly in the field of 
low-income rural housing development, repair, and 
rehabilitation; or (2) the management or administrative 
experience which indicates the ability to operate a program 
providing financial assistance for housing repair and 
rehabilitation.
    The homes must be located in rural areas and be in need of 
housing preservation assistance. Assisted families must meet 
the income restrictions (income of 80 percent or less of the 
median income for the area) and must have occupied the property 
for at least one year prior to receiving assistance. Occupants 
of leased homes may be eligible for assistance if (1) the 
unexpired portion of the lease extends for 5 years or more, and 
(2) the lease permits the occupant to make modifications to the 
structure and precludes the owner from increasing the rent 
because of the modifications.
    Repairs to manufactured homes or mobile homes are 
authorized if (1) the recipient owns the home and site and has 
occupied the home on that site for at least one year, and (2) 
the home is on a permanent foundation or will be put on a 
permanent foundation with the funds to be received through the 
program. Up to 25 percent of the funding to any particular 
dwelling may be used for improvements that do not contribute to 
the health, safety, or well being of the occupants; or 
materially contribute to the long term preservation of the 
unit. These improvements may include painting, paneling, 
carpeting, air conditioning, landscaping, and improving closets 
or kitchen cabinets.
    Section 5 of the Housing Opportunity Program Extension Act 
of 1996 (P.L. 104-120) added Section 538 to the Housing Act of 
1949. Under this newly created Section 538 program, borrowers 
may obtain loans from private lenders to finance multifamily 
housing and USDA guarantees to pay for losses in case of 
borrower default. Under prior law, Section 515 was the only 
USDA program under which borrowers could obtain loans for 
multifamily housing. Under the Section 515 program, however, 
eligible borrowers obtain direct loans from USDA.
    Section 538 guaranteed loans may be used for the 
development costs of housing and related facilities that (1) 
consist of 5 or more adequate dwelling units, (2) are available 
for occupancy only by renters whose income at time of occupancy 
does not exceed 115 percent of the median income of the area, 
(3) would remain available to such persons for the period of 
the loan, and (4) are located in a rural area.
    The loans may have terms of up to 40 years, and the 
interest rate will be fixed. Lenders pay to USDA a fee of 1 
percent of the loan amount. Nonprofit organizations and State 
or local government agencies may be eligible for loans of 97 
percent of the cost of the housing development. Other types of 
borrowers may be eligible for 90 percent loans. On at least 20 
percent of the loans, USDA must provide the borrowers with 
interest credits to reduce the interest rate to the applicable 
Federal rate. On all other Section 538 loans, the loans will be 
made at the market rate, but the rate may not exceed the rate 
on 30-year Treasury bonds plus 3 percentage points.
    The Section 538 program is viewed as a means of funding 
rental housing in rural areas and small towns at less cost than 
under the Section 515 program. Since the Section 515 program is 
a direct loan program, the government funds the whole loan. In 
addition, the interest rates on Section 515 loans are 
subsidized to as low as 1 percent, so there is a high subsidy 
cost. Private lenders fund the Section 538 loans and pay 
guarantee fees to USDA. The interest rate is subsidized on only 
20 percent of the Section 538 loans, and only as low as the 
applicable Federal rate, so the subsidy cost is not as deep as 
under the Section 515 program. Occupants of Section 515 housing 
may receive rent subsidies from USDA. Occupants of Section 538 
housing may not receive USDA rent subsidies. All of these 
differences make the Section 538 program less costly to the 
government than the Section 515 program.
    It has not been advocated that the Section 515 program be 
replaced by the Section 538 program. Private lenders may find 
it economically feasible to fund some rural rental projects, 
which could be funded under the Section 538 program. Some areas 
may need rental housing, but the private market may not be able 
to fund it on terms that would make the projects affordable to 
the target population. Such projects would be candidates for 
the Section 515 program.
    The Section 538 program was a demonstration program whose 
authority expired on September 30, 1998. The program has been 
made permanent by Section 599C of the Quality Housing and Work 
Responsibility Act of 1998 (P.L. 105-276). The Act also amends 
the program to provide that the USDA may not deny a developer's 
use of the program on the basis of the developer using tax 
exempt financing as part of its financing plan for a proposed 
project.

                   7. Federal Housing Administration

    The Federal Housing Administration (FHA) is an agency of 
the Department of Housing and Urban Development (HUD) which 
administers programs that insure mortgages on individual home 
purchases and loans on multifamily rental buildings. The loans 
are made by private lenders and FHA insures the lenders against 
loss if the borrowers default. The FHA program is particularly 
important to those who are building or rehabilitating apartment 
buildings. The elderly are often the occupants of such 
buildings.
    Of particular importance to the elderly is the revision 
that Congress made to Section 232 of the National Housing Act. 
This section authorizes FHA to insure loans for Nursing Homes, 
Intermediate Care Facilities, and Board and Care Homes. Section 
511 of the Housing and Community Development Act of 1992 (P.L. 
102-550) amended Section 232 to authorize FHA to insure loans 
for assisted living facilities for the frail elderly.
    The term ``assisted living facility'' means a public 
facility, proprietary facility, or facility of a private 
nonprofit corporation that:
    (1) Is licensed and regulated by the State (or if there is 
no State law providing for such licensing and regulation by the 
State, by the municipality or other political subdivision in 
which the facility is located);
    (2) Makes available to residents supportive services to 
assist the residents in carrying out activities of daily living 
such as bathing, dressing, eating, getting in and out of bed or 
chairs, walking, going outdoors, using the toilet, laundry, 
home management, preparing meals, shopping for personal items, 
obtaining and taking medications, managing money, using the 
telephone, or performing light or heavy housework, and which 
may make available to residents home health care services, such 
as nursing and therapy; and
    (3) Provides separate dwelling units for residents, each of 
which may contain a full kitchen or bathroom, and includes 
common rooms and other facilities appropriate for the provision 
of supportive services to residents of the facility.
    The term ``frail elderly'' is defined as an elderly person 
who is unable to perform at least three activities of daily 
living adopted by HUD.
    An assisted living facility may be free-standing, or part 
of a complex that includes a nursing home, an intermediate care 
facility, a board and care facility or any combination of the 
above.
    The law also authorizes FHA to refinance existing assisted 
living facilities.

                    8. Low Income Housing Tax Credit

    The Low Income Housing Tax Credit program (LIHTC), created 
by the Tax Reform Act of 1986, provides tax credits to 
investors who build or rehabilitate rental housing units that 
must be kept available to lower income households for long 
periods of time. Although initially approved for 3 years, and 
then annually, it was made permanent in 1993. This $3.5 billion 
a year program (which is expected to increase to $5.3 billion 
by 2003) is administered at the state level by housing finance 
agencies. Estimates vary, but the program may have helped 
create as many as 800,000 apartments since 1987. A significant 
but unknown number are occupied by lower-income elderly 
households. The tax credits, that are based on the amount spent 
to develop the subsidized units themselves, are claimed by both 
individual and corporate investors over a 10-year period. In 
return for the tax credits, investors must keep the units 
rented to households whose incomes are no more than 60 percent 
of the median income in the local area for up to 30 years and 
sometimes longer. In many cases, the tax credits do not provide 
enough financial support by themselves to make the project 
economically viable. This is particularly the case where 
housing finance agencies negotiate agreements with investors to 
provide special services to tenants, or where apartments must 
be rented to those with incomes significantly lower than is 
generally required. In cases such as these, the tax credit is 
often combined with funds from various HUD programs, primarily 
Community Development Block Grant and HOME money, and sometimes 
Section 8 rental assistance. The use of tax-exempt bond 
financing is also common.
    Despite substantial political support, some critics contend 
that this supply side ``project-based'' program is an expensive 
way to provide housing assistance compared to alternatives. 
Little is known about how much the units cost when all public 
subsidies are considered and how much rents are being reduced 
compared to similar unassisted apartments. There is some 
concern, based on the past experience of other assisted rental 
projects, that service to renters may deteriorate or that units 
will not be adequately maintained over the long run since 
investors receive most of their financial incentives during the 
first 10 years of the project's life. But housing advocates 
argue that for those with low-wage jobs, it is becoming 
increasingly difficult to find affordable housing and that the 
tax credit program is very important. They point to government 
figures showing that more than 5 million very-low income 
households have serious housing problems, most paying more than 
50 percent of their income for shelter.\1\ The formula for the 
allocation of tax credits, $1.25 per capita, has not been 
changed since the program's beginning in 1986, and thus, the 
benefits have been eroded by inflation. Housing organizations 
support legislation that has been introduced in the 106th 
Congress that would increase the credit limit to $1.75 per 
capita (a 40 percent increase), and adjust it each year for 
inflation.
---------------------------------------------------------------------------
    \1\ See Housing the Poor: Federal Housing Programs for Low-Income 
Families. By Morton J. Schussheim. CRS Report 98-860 E. October 20, 
1998.
---------------------------------------------------------------------------

              B. PRESERVATION OF AFFORDABLE RENTAL HOUSING

                            1. Introduction

    In addition to the expiration of Section 8 rental 
contracts, another current issue is the excessive costs and 
poor conditions at a number of Section 8 ``project-based'' 
rental complexes. Over the past several decades, HUD's FHA has 
insured the mortgages on Section 8 rental projects with about 
860,000 low income units. For a variety of reasons, including 
rigid ``annual adjustment factor'' rent increases, the rents at 
many projects are now 20 percent or more above competitive 
market levels. At the same time, many buildings have also 
deteriorated from lack of maintenance and capital improvements. 
Whether this is because of poor management, purposeful 
disinvestment, or factors beyond the landlord's control remains 
an important issue. But the result is that many projects are 
insured for more than they are currently worth. This has 
created a dilemma: because many of these apartments are costly 
to operate and maintain, HUD must either pay larger sums to the 
owners on behalf of the assisted tenants (pay more of the 
above-market rents), or--to the extent that HUD ceases to 
support these high rents or tenants obtain flexibility to move 
elsewhere (housing vouchers)--the projects become financially 
unworkable and HUD loses money as the insurer of the mortgage. 
The Federal Government must pay either way. With substantial 
pressure to balance the Federal budget, Congress has wrestled 
over what to do for several years now. There is considerable 
pressure to reduce excessive subsidies going to some landlords. 
The elderly in many of these projects have become concerned 
that Congressional efforts at reforms might mean they would 
have to pay more rent or have to move elsewhere.
    If excessively high rents and deteriorating conditions 
sound contradictory, they may be. HUD has announced a $50 
million effort to crack down on Section 8 landlords in 50 of 
the biggest cities who take substantial Federal housing 
subsidies but allow their apartments to fall into serious 
disrepair. There will be more investigators sent into the 
field, and more civil and criminal charges filed. But this does 
not get to the root of the problems. Aside from the serious 
design flaw of fully insuring these mortgages, the problems 
highlight a fundamental difficulty with project-based 
assistance. In the regular rental market, tenants will move if 
conditions or services deteriorate beyond a certain point. This 
possibility keeps most landlords on their toes. But in Section 
8 projects, tenants cannot or will not move because they would 
lose their rent subsidy.

                  2. Portfolio Re-Engineering Program

    Title V of the VA-HUD Appropriations Act for fiscal year 
1998 (P.L. 105-65) contains the latest restructuring plan for 
Section 8 contracts. This title establishes a mark-to-market 
program for restructuring FHA-insured mortgages for Section 8 
project-based contracts, reduces the costs of oversubsidized 
Section 8 properties, gives HUD the authority to appoint 
participating administrative entities (PAEs) who would develop 
and administer a restructuring plan for the projects, seeks to 
minimize fraud and abuse in federally assisted housing, and 
creates the Office of Multifamily Housing Assistance 
Restructuring in HUD.
    The Re-Engineering Program authorizes the Secretary of HUD 
to enter into portfolio restructuring agreements with housing 
finance agencies, capable public entities, and profit and non-
profit organizations. These agencies are to notify applicants 
of their acceptance or rejection as PAEs, and they are to 
administer the restructuring of mortgages. The restructuring 
program is voluntary and owners have the option of not renewing 
their HUD Section 8 contracts. The PAEs are to screen owners 
interested in participating in the restructuring program to see 
if their properties are economically viable and in good 
physical condition. Owners of properties that are approved 
would then work with the PAE in developing a rental assistance 
plan for the project. If properties are in an advanced state of 
deterioration where rehabilitation would be too costly, the 
properties would be demolished or disposed of. Tenants in 
projects that do not have renewed contracts would be eligible 
for voucher assistance and would receive reasonable moving 
expenses.
    Projects funded by Section 202 housing for the elderly, 
Section 811 housing for the disabled, or the McKinney Homeless 
Authorization Act, are exempt from the restructuring levels. 
These projects even if restructured, would operate on current 
rent levels with operating and adjustment factors being 
considered. Therefore, the elderly, disabled or previously 
homeless persons living in these projects would not be affected 
by a mortgage restructuring.
    On September 11, 1998, HUD published proposed rules for the 
restructuring program in the Federal Register, and on October 
11 interim rules were implemented. Final rules are expected by 
Spring 1999.

                            C. HOMEOWNERSHIP

                         1. Homeownership Rates

    The 1998 homeownership rate reached a record high of 66.3 
percent, with 69.1 million families owning their homes. This is 
an increase of more than 7 million during the past 5 years. The 
rate for households with heads age 65 or over stood at 79.2 
percent at the end of 1998. A strong growth in jobs, and 
mortgage rates as low as they've been in 30 years, played an 
important part. Until a year or so ago, generally stable home 
prices in most markets also helped new buyers. This has been a 
particularly opportune time for minorities, lower-income 
households, and those living in neighborhoods often underserved 
by lenders, to apply for and receive a home mortgage. 
Homeownership rates for these groups have lagged, and still 
lag, considerably behind the national rate (see figures below), 
but vigorous enforcement of fair housing laws and the Community 
Reinvestment Act have made mortgage credit more available. In 
addition, homeownership efforts by the government-sponsored 
enterprises Fannie Mae and Freddie Mac, and a variety of 
affordable home lending initiatives by HUD, the real estate 
industry, and others have contributed to increased 
opportunities for lower-income buyers. While the rate for (non-
Hispanic) whites went up 3.4 percent between 1993 and 1998, 
during this same period, the rate for blacks increased 9.8 
percent and that for Hispanics, 13.5 percent.

------------------------------------------------------------------------
                Homeownership rates                    1993       1998
------------------------------------------------------------------------
Nationwide........................................       64.0       66.3
White (non-Hispanic)..............................       70.2       72.6
Black (non-Hispanic)..............................       42.0       46.1
(Hispanic)........................................       39.4       44.7
Central Cities....................................       48.6       50.0
Suburbs...........................................       70.3      73.6
------------------------------------------------------------------------
Source: U.S. Department of Housing and Urban Development.

    Minorities, lower-income households, and recent immigrants 
should continue to benefit from the current extraordinarily 
favorable climate for home buyers. The Federal Housing 
Administration (FHA), an insurance program that is part of HUD, 
makes it possible for lower-income households with blemished 
credit records to purchase a home with as little as a 3 percent 
downpayment. The program has insured more than 5 million 
mortgages since 1993. Changes to the FHA program in 1998 now 
make it possible to get insured loans of up to $208,800 in 
communities where housing costs are high. In addition, HUD has 
a new homeownership voucher program that will allow as many as 
50,000 families to use their ``Section 8'' rental assistance 
vouchers to become first-time homebuyers.

Homeownership Rates by Age--4th Quarter 1998

Less than 35 year.................................................  39.6
35-44.............................................................  67.6
45-54.............................................................  74.9
55-64.............................................................  81.7
        65 years and over.........................................  79.2

Source: U. S. Census Bureau.

    A coalition of 66 national groups, (the National Partners 
in Homeownership), established in 1995, including the housing 
industry, lenders, and non-profit groups, will also continue 
their commitment to make buying a home more affordable and 
easier. These efforts are being carried out by 153 local 
partnerships and include counseling sessions, home buying 
fairs, and help with locating homes.
    As noted, the economic climate has been very favorable in 
recent years, but during a period of rising unemployment, many 
of the newest homebuyers could face difficulties. Many low-
income buyers have been enticed to buy with very little 
downpayments and very little savings set aside to carry them 
through economic setbacks. Some wonder if there are adequate 
safety nets in place for when the economy turns downward. HUD's 
FHA insurance program does have a new ``Loss Mitigation 
Program'' to help borrowers retain their homes and cure a 
delinquency on their mortgage. Existing assistance for 
borrowers in trouble include special forbearance, mortgage 
modifications, pre-foreclosure sale and deed-in-lieu of 
foreclosure. The program has a new ``partial claims'' option 
that supports home buyers who can only partially recover from a 
financial difficulty.

                    2. Homeownership Tax Provisions

    The largest Federal housing programs help exclusively 
upper-middle and upper income homeowners with their housing 
costs through the mortgage interest and property tax 
deductions. The Congressional Joint Committee on Taxation have 
estimated the cost of these two tax benefits for fiscal year 
1999 to be $66.3 billion: $48.5 billion for the mortgage 
interest deduction and $17.8 billion for the deduction of 
property taxes. They are projected to increase to a total of 
$77.1 billion by the year 2003. These provisions are of little 
or no value to lower income households, or to most elderly 
homeowners who own their home without a mortgage. Three-
quarters of the benefits go to households with incomes of 
$75,000 or more. By comparison, the 1999 fiscal year budget for 
HUD, whose programs serve low income households, was about $26 
billion.
    While the elderly have very high homeownership rates, and 
thus have not benefited as much from the home buying 
initiatives described above, there have been some important 
changes in the tax laws that have been particularly beneficial 
for those approaching retirement age and beyond. Prior to 1997, 
homeowners could generally avoid paying a tax on the gain from 
the sale of their residence by purchasing a more expensive 
home, the ``rollover provision'' in the tax code. However, this 
often meant that households had to buy a more expensive home 
than they preferred. In addition, a small number of people who 
had to sell their home because of the loss of a job, a major 
medical expense, or a divorce, and thus could not buy a more 
expensive home, were often faced with a large tax on the sale 
of their home. Before 1997, there was also a tax provision that 
allowed many home sellers age 55 and above to exclude from 
taxation up to $125,000 of gain from the sale of a home.
    The Taxpayer Relief Act of 1997 made major changes to the 
treatment of gains from the sale of a home, replacing the 
rollover and the $125,000 exclusion. The 1997 Act provides, 
instead, a $250,000 exclusion of gain from the sale of a 
principal residence ($500,000 for joint returns) that does not 
require a rollover and is not restricted to those over age 55. 
The exclusion can be used for one sale every 2 years and the 
amount of the exclusion is generally pro-rated for periods of 
less than 2 years. It is available for sales made after May 6, 
1997. This change benefits homeowners such as those in divorce 
proceedings or facing a serious financial setback that forces 
them to sell their home. It also allows owners nearing 
retirement age to sell their home, and either purchase a 
smaller home (downsize) or become renters, without having to 
worry about the tax consequences of the sale.
    In addition, most homeowners will no longer need to save a 
lifetime of financial documents on home purchases, sales, and 
spending on improvements.
    There were also changes made in the 1997 Act that affect 
Individual Retirement Accounts and homes. Under the Act, the 10 
percent penalty tax on IRA withdrawals before age 59\1/2\ will 
not apply to funds used for a qualified home purchase. (But IRA 
money for which a tax deduction has been taken, and earnings on 
such money, will be subject to tax upon withdrawal). 
Withdrawals must be used within 120 days for the home purchase 
expenses of the taxpayer or the taxpayer's spouse, child, 
grandchild, or ancestor, or the spouse's ancestor. This 
penalty-free withdrawal is limited to $10,000 less any 
qualified home buyer withdrawals made in prior years. The funds 
can be used to acquire, construct, or rebuild a residence and 
to pay for settlement, financing, and closing costs. The home 
must be a principal residence, and the purchaser must have had 
no ownership interest in a principal residence for 2 years 
before the purchase. This provision is effective for tax years 
beginning after December 31, 1997. There is some concern that 
parents and grandparents could feel obligated to help with a 
home purchase even though this might not be in their best 
interest.

           3. Possible Changes to Residential Tax Provisions

    There have been some suggestions for changes to the tax 
code that would allow losses from the sale of a home to be 
treated as a capital loss, the same as losses from the sale of 
stocks, bonds, and other investments. A number of other 
property related proposals are being examined by Congress: To 
provide a tax credit against income tax for the purchase of a 
principal residence by a first time home buyer; to permit loans 
from individual retirement plans for first time homebuyers; to 
allow withdrawals (without the 10 percent penalty) from IRAs 
that are used to pay down home mortgage amounts; to provide a 
credit against income tax to individuals who rehabilitate 
historic homes for use as a principal residence; to allow 
indexing of homes for purposes of determining gain or loss so 
as to permit a larger exclusion amount; to amend the code so as 
to provide that the sale of a life estate or a remainder 
interest in a principal residence qualifies for the exclusion; 
and a suggestion to provide a tax credit for the purchase of a 
principal residence within an empowerment zone or enterprise 
community by a first time home buyer.

                       4. Home Equity Conversion

    It is estimated that more than 23 million American 
homeowners have no mortgage debt, and that the average age of 
the such owners is 64.3 years. For many of the elderly 
homeowners, the equity in their homes represents their largest 
asset, and estimates of their collective equity range from $600 
billion to more than $1 trillion.
    Many elderly homeowners find that while inflation has 
increased the value of their homes, it has also eroded the 
purchasing power of those living on fixed incomes. They find it 
increasingly difficult to maintain the homes while also paying 
the needed food, medical, and other expenses. Their incomes 
prevent them from obtaining loans. ``House rich and cash poor'' 
is the phrase that is often used to describe their dilemma. One 
option is to sell the home and move to an apartment or small 
condominium. For a variety of reasons, however, many of the 
elderly prefer to remain in the homes for which and in which 
they may have spent most of their working years.
    Since the 1970's, parties have sought to create mortgage 
instruments which would enable elderly homeowners to obtain 
loans to convert their equity into income, while providing that 
no repayments would be due for a specified period or (ideally) 
for the lifetime of the borrower. These instruments have been 
referred to as reverse mortgages, reverse annuity mortgages, 
and home equity conversion loans. Active programs are described 
below.
    The Department of Housing and Urban Development (HUD) 
Demonstration Program is the first nationwide home equity 
conversion program which offers the possibility of lifetime 
occupancy to elderly homeowners. The Housing and Community 
Development Act of 1987 (P.L. 100-242) authorized HUD to carry 
out a demonstration program to insure home equity conversion 
mortgages for elderly homeowners. The borrowers (or their 
spouses) must be elderly homeowners (at least 62 years of age) 
who own and occupy one-family homes. The interest rate on the 
loan may be fixed or adjustable. The homeowner and the lender 
may agree to share in any future appreciation in the value of 
the property.
    Authority for the HUD program has been extended through 
September 30, 2000 and up to 50,000 mortgages may be made under 
the program. The program was recently revised to permit the use 
of it for 1- to 4-family residences if the owner occupies one 
of the units. Previous law permitted only 1-family residences.
    The mortgage may not exceed the maximum mortgage limit 
established for the area under section 203(b) of the National 
Housing Act. The borrowers may prepay the loans without 
penalty. The mortgage must be a first mortgage, which, in 
essence, implies that any previous mortgage must be fully 
repaid. Borrowers must be provided with counseling by third 
parties who will explain the financial implications of entering 
into home equity conversion mortgages as well as explain the 
options, other than home equity conversion mortgages, which may 
be available to elderly homeowners. Safeguards are included to 
prevent displacement of the elderly homeowners. The home equity 
conversion mortgages must include terms that give the homeowner 
the option of deferring repayment of the loan until the death 
of the homeowner, the voluntary sale of the home, or the 
occurrence of some other events as prescribed by HUD 
regulations.
    The Federal Housing Administration (FHA) insurance protects 
lenders from suffering losses when proceeds from the sale of a 
home are less than the disbursements that the lender provided 
over the years. The insurance also protects the homeowner by 
continuing monthly payments out of the insurance fund if the 
lender defaults on the loan.
    When the home is eventually sold, HUD will pay the lender 
the difference between the loan balance and sales price if the 
sales price is the lesser of the two. The claim paid to the 
lender may not exceed the lesser of (1) the appraised value of 
the property when the loan was originated or (2) the maximum 
HUD-insured loan for the area.
    The Federal National Mortgage Association (Fannie Mae) has 
been purchasing the home equity conversion mortgages originated 
under the demonstration program.
    A company named Freedom Home Equity Partners has begun to 
make home equity conversion loans in California. The borrower 
must be at least age 60 and own a one-to-four family home that 
is not a mobile home or cooperative. The borrower receives a 
single lump sum which may be used to purchase an immediate 
annuity to provide monthly cash advances for the remainder of 
the borrower's life. An equity conservation feature guarantees 
that at least 25 percent of the value of the home will be 
available to the borrower or to heirs when the loan is 
eventually repaid. The company reportedly intends to expand the 
program to other States.
    Transamerica HomeFirst was marketing home equity conversion 
loans in California, New Jersey, and Pennsylvania. To qualify 
for this so-called ``HouseMoney'' plan, the borrower could own 
a one-to-four family home that is not a mobile home or 
cooperative. A manufactured home could qualify if it were 
attached to a permanent foundation.
    There is no minimum age requirement, per se, but the 
borrower's age and home value must be sufficient to generate 
monthly cash advances of at least $150. For borrowers less than 
age 93, the cash advance is paid in two ways. First, the 
borrower receives monthly loan advances for a specified number 
of years based on life expectancy. Second, the borrower begins 
receiving monthly annuity advances after the last loan advance 
is received. The annuity advance continues for the remainder of 
the borrower's life. A borrower, aged 93 or more when obtaining 
a HouseMoney loan, receives monthly loan advances for a fixed 
number of years as selected by the borrower. No annuity 
advances are available to such borrowers.
    Currently, the company is administering old loans, but no 
new loans are being written under the program.
    In November 1995 the Federal National Mortgage Association 
(Fannie Mae) announced the introduction of the ``Home Keeper 
Mortgage.'' This is the first conventional reverse mortgage 
that will be available on nearly a nationwide basis. 
(Currently, reverse mortgages are not being written in Texas, 
and the Home Keeper Mortgage is not available in 
Massachusetts.) An eligible borrower must (1) be at least age 
62, (2) own the home free and clear or be able to pay off the 
existing debt from the proceeds of the reverse mortgage or 
other funds, and (3) attend a counseling course approved by 
Fannie Mae. The loan becomes due and payable when the borrower 
dies, moves, sells the property, or otherwise transfers title. 
The interest rate on the loan adjusts monthly according to 
changes in the 1 month CD index published by the Federal 
Reserve. Over the life of the loan the rate may not change by 
more than 12 percentage points. In some States the borrower 
will have the option of agreeing to share a portion of the 
future value of the property with the lender and in return will 
receive higher loan proceeds during the term of the loan.
    A variant of the Home Keeper Mortgage may be used for home 
purchases by borrowers age 62 or more. A combination of 
personal funds (none of which may be borrowed) and proceeds 
from a Home Keeper Mortgage may be used to purchase the 
property. No payments are due on the loan until the borrower no 
longer occupies the property as a principal residence.

                        (a) Lender Participation

    The FHA and Fannie Mae plans have the potential for 
participation by a large number of lenders. Lenders in 49 
States have expressed an interest in the Fannie Mae program, 
but the program is new, so actual lender participation is not 
known yet. In theory, any FHA-approved lender could offer home 
equity conversions loans. In practice, it appears that the 
mortgages are only being offered by a few lenders. Several 
factors could account for this. From a lender's perspective, 
home equity conversion loans are deferred-payment loans. The 
lender becomes committed to making a stream of payments to the 
homeowner and expects a lump-sum repayment at some future date. 
How are these payments going to be funded over the loan term? 
What rate of return will be earned on home equity conversion 
loans? What rate could be earned if these funds were invested 
in something other than home equity conversions? Will the home 
be maintained so that its value does not decrease as the owner 
and the home ages? How long will the borrower live in the home? 
Will the institution lose ``goodwill'' when the heirs find that 
most or all of the equity in the home of a deceased relative 
belongs to a bank?
    These issues may give lenders reason to be reluctant about 
entering into home equity conversion loans. For lenders 
involved in the HUD program, the funding problem has been 
solved since the Federal National Mortgage Association has 
agreed to purchase FHA-insured home equity conversions from 
lenders. The ``goodwill'' problem may be lessened by FHA's 
requirement that borrowers receive third-party counseling prior 
to obtaining home equity conversions. Still, many lenders do 
not understand the program and are reluctant to participate.

                       (b) Borrower Participation

    Likewise, many elderly homeowners do not understand the 
program and are reluctant to participate. After spending many 
years paying for their homes, elderly owners may not want to 
mortgage the property again.
    Participants may be provided with lifetime occupancy, but 
will borrowers generate sufficient income to meet future health 
care needs? Will they obtain equity conversion loans when they 
are too ``young'' and, as a result, have limited resources from 
which to draw when they are older and more frail and sick? Will 
the ``young'' elderly spend the extra income on travel and 
luxury consumer items? Should home equity conversion mechanisms 
be limited as last resort options for elderly homeowners?
    Will some of the home equity be conserved? How would an 
equity conversion loan affect the homeowner's estate planning? 
Does the homeowner have other assets? How large is the home 
equity relative to the other assets? Will the homeowner have 
any survivors? What is the financial position of the heirs 
apparent? Are the children of the elderly homeowner relatively 
well-off and with no need to inherit the ``family home'' or the 
funds that would result from the sale of that home? 
Alternatively, would the ultimate sale of the home result in 
significant improvement in the financial position of the heirs?
    How healthy is the homeowner? What has been the 
individual's health history? Does the family have a history of 
cancer or heart disease? Are large medical expenses pending? At 
any given age, a healthy borrower will have a longer life 
expectancy than a borrower in poor health.
    What has been the history of property appreciation in the 
area? Will the owner have to share the appreciation with the 
lender?
    The above questions are interrelated. Their answers should 
help determine whether an individual should consider home 
equity conversion, what type of loan to consider, and at what 
age home equity conversion should be considered.

         (c) Recent Problems with Home Equity Conversion Loans

    Telemarketing operations may obtain data on homeownership, 
mortgage debt, and age of the homeowner. In recent years, some 
``estate planning services'' have been contacting elderly 
homeowners and offering to provide ``free'' information on how 
such homeowners may turn their home equity into monthly income 
at no cost to themselves. The companies did little more than 
refer loan applications to mortgage lenders participating in 
the HUD reverse mortgage program or to insurance companies 
offering annuities. Reportedly, the estate planning services 
were pocketing 6 to 10 percent of any loan that the referred 
homeowner received.
    On March 17, 1997, HUD issued Mortgage Letter 97-07 which 
informed FHA-approved lenders that, effective immediately, HUD 
would no longer insure reverse mortgages obtained with the 
assistance of estate planning services. Lenders were notified 
that HUD would take action to withdraw FHA approval from 
lenders who continue to use certain estate planning services.
    HUD asked lenders to inform senior citizens that counseling 
is provided at little or no cost through HUD-approved, non-
profit counseling services. Lenders were given a telephone 
number that homeowners may call to receive the name and phone 
number of a HUD-approved counseling agency near their home.
    One of the estate planners obtained a restraining order to 
block HUD from enforcing the changes suggested in the Mortgage 
Letter. Basically, the court found that HUD had not followed 
required rulemaking procedures. The Mortgage Letter did not, 
for example, permit a period for public comment. In response, 
the Senior Homeowner Reverse Mortgage Protection Act (H.R. 
1297) and the Senior Citizen Home Equity Protection Act (S. 
562) were introduced in the 105th Congress. The bills were 
identical except for their titles. The provisions of these 
bills were amended and included in the fiscal year 1999 HUD 
Appropriations Act, P.L. 105-276.
    Title V of P.L. 105-276 is cited as the Quality Housing and 
Work Responsibility Act. Section 593 of the Act amends the 
National Housing Act to prevent the funding of unnecessary or 
excessive costs for obtaining FHA-insured home equity 
conversion loans. The eligibility requirements for obtaining 
FHA insurance have been amended to require that borrowers 
receive full disclosure of costs charged to the borrower, 
including the costs of estate planning, financial advice, and 
other services that are related to the mortgage but that are 
not required to obtain the mortgage. The disclosure must 
clearly state which charges are required to obtain the mortgage 
and which charges are not required to obtain the mortgage. The 
loans must be made with such restrictions as HUD determines are 
appropriate to ensure that the borrower does not fund any 
unnecessary or excessive costs for obtaining the mortgage, 
including the costs of estate planning, financial advice, or 
other related services.
    HUD is directed to expedite the change by promulgating an 
interim rule. Within 90 days of the enactment of P.L. 105-276 
(October 21, 1998), HUD is directed to issue final regulations 
to be promulgated under standard procedures which provide 
notice and opportunity for public comment. The interim rule 
would be superseded by the final rule.
    Section 593 requires that, in each of fiscal years 2000 
through 2003, up to $1 million of any funds made available for 
housing counseling under Section 106 of the HUD Act of 1968, 
must be used for housing counseling and consumer education in 
connection with HUD home equity conversion mortgages. HUD is 
directed to consult with interested parties to identify 
alternative approaches to providing the consumer information 
that may be feasible and desirable for the FHA-insured reverse 
mortgage and for other reverse mortgage programs. HUD is given 
the discretion to adopt alternative approaches to consumer 
education that are developed through this consultation. HUD may 
only use alternative approaches if such approaches provide 
consumers with all the information specified in the law.

                   D. INNOVATIVE HOUSING ARRANGEMENTS


               1. Continuing Care Retirement Communities

    Continuing care retirement communities (CCRCs), also called 
life-care communities, typically provide housing, personal 
care, nursing home care, and a range of social and recreation 
services as well as congregate meals. Residents enter into a 
contractual agreement with the community to pay an entrance fee 
and monthly fees in exchange for benefits and services. The 
contract usually remains in effect for the remainder of a 
resident's life.
    The American Association of Homes and Services for the 
Aging states that CCRC residents obtain easy access to health 
care, exercise opportunities and nutritious meals. A supportive 
environment is offered by staff and other residents which often 
make the residents more likely to engage in healthy behaviors.
    The definition of CCRCs continues to be confusing and 
inconsistent due to the wide range of services offered, 
differing types of housing units, and the varying contractual 
agreements. According to the American Association of Homes for 
the Aging (AAHA), ``continuing care retirement communities are 
distinguished from other housing and care options for older 
people by their offering of a long-term contract that provides 
for housing, services and nursing care, usually all in one 
location.'' In its study on life care, the Pension Research 
Council of the University of Pennsylvania developed a 
definition of life-care communities. It includes providing 
specified health care and nursing home care services at less 
than the full cost of such care, and as the need arises.
    There are approximately 2,100 continuing care retirement 
communities with an estimated 625,000 residents, which 
represent about 2 percent of the elderly population. While most 
life-care communities are operated by private, nonprofit 
organizations and some religious organizations, there has been 
an increasing interest on the part of corporations in 
developing such facilities.
    Continuing care retirement communities are often viewed as 
a form of long-term care insurance, because communities protect 
residents against the future cost of specified health and 
nursing home care. Like insurance, residents who require fewer 
health and nursing home care services in part pay for those who 
require more of such services. Entrance fees are usually based 
on actuarial and economic assumptions, such as life expectancy 
rates and resident turnover rates, which is also similar to 
insurance pricing policies.
    Entry fees and monthly fees vary greatly among CCRCs (and 
sometimes even within a CCRC) depending on the type of unit 
occupied and the contract offered. Generally, determinants of 
fee structures include: size of unit, number of occupants, 
refundability of the entry fee, the amount of health-care 
coverage provided, the number of meals provided, additional 
services provided and the CCRCs amenities.
    According to AAHA's guidebook to CCRCs, the many variations 
of contracts can be grouped into three types: extensive, 
modified, and fee-for-service. All three types of contracts 
include shelter, residential services, and amenities. The 
difference is in the amount of long-term nursing care services. 
The extensive contract includes unlimited long-term nursing 
care. A modified contract has a specified amount of long-term 
nursing care. This specified amount may be 2 months, for 
example, after which time the resident will begin to pay a 
monthly or per diem rate for nursing care. The fee-for-service 
contract guarantees access to the nursing facility, but 
residents pay a full per diem rate for all long-term nursing 
care required. Emergency and short-term nursing care may, but 
not always, be included in the contract. (The consumer 
guidebook for CCRCs is available from the American Association 
of Homes for the Aging.)

                           2. Shared Housing

    Shared housing can be best defined as a facility in which 
common living space is shared, and at least two unrelated 
persons (where at least one is over 60 years of age) reside. It 
is a concept which targets single and multifamily homes and 
adapts them for elderly housing. Also, Section 8 housing 
vouchers can be used by persons in a shared housing 
arrangement.
    Shared housing can be agency-sponsored, where four to ten 
persons are housed in a dwelling, or, it may be a private home/
shared housing situation in which there are usually three or 
four residents.
    The economic and social benefits of shared housing have 
been recognized by many housing analysts. Perhaps the most 
easily recognized benefit is companionship for the elderly. 
Also, shared housing is a means of keeping the elderly in their 
own homes, while helping to provide them with financial 
assistance to aid in the maintenance of that home.
    There are a number of shared housing projects in existence 
today. Anyone seeking information in establishing such a 
project can contact two knowledgeable sources. One is called 
``Operation Match'', which is a growing service now available 
in many areas of the country. It is a free public service open 
to anyone 18 years or older. It is operated by housing offices 
in many cities and matches people looking for an affordable 
place to live with those who have space in their homes and are 
looking for someone to aid with their housing expenses. Some of 
the people helped by Operation Match are single working 
parents, persons in need of short-term housing assistance, 
elderly people hurt by inflation or health problems, and the 
disabled who require live-in help to remain in their homes.
    The other knowledgeable source of information in shared 
housing is the Shared Housing Resource Center in Philadelphia. 
It was founded in 1981, and acts as a link between individuals, 
groups, churches, and service agencies that are planning to 
form shared households.

                        3. Accessory Apartments

    Accessory apartments have been accepted in communities 
across the Nation for many years, as long as they were occupied 
by members of the homeowner's family. Now, with affordable 
housing becoming even more difficult to find, various interest 
groups, including the low-income elderly, are looking at 
accessory apartments as a possible source of affordable 
housing.
    Accessory apartments differ from shared housing in that 
they have their own kitchens, bath, and many times, own 
entrance ways. It is a completely private living space 
installed in the extra space of a single family home.
    The economic feasibility of installing an accessory 
apartment in one's home depends to a large extent on the design 
of the house. The cost would be lower for a split-level or 
house with a walk-out basement than it would be for a Cape Cod. 
In some instances, adding an accessory apartment can be very 
costly, and the benefit should be weighed against the cost.
    Many older persons find that living in accessory apartments 
of their adult children is a way for them to stay close to 
family, maintain their independence, and have a sense of 
security. They are less likely to worry about break-ins and 
being alone in an emergency if they occupy an accessory 
apartment.
    Not everyone, however, welcomes accessory apartments into 
their areas. Many people are skeptical, and see accessory 
apartments as the beginning of a change from single-family 
homes to multifamily housing in their neighborhoods. They are 
afraid that investors will buy up homes for conversion to 
rental duplexes. Many worry about absentee landlords, increased 
traffic, and the violation of building codes. For these 
reasons, in many parts of the country, accessory apartments are 
met with strong opposition.
    Some communities have found ways to deal with these 
objections. One way is to permit accessory apartments only in 
units that are owner-occupied. Another approach is to make 
regulations prohibiting exterior changes to the property that 
would alter the character of the neighborhood. Also, towns can 
set age limits as a condition for approval of accessory 
apartments. For example, a town may pass an ordinance stating 
that an accessory apartment can only be occupied by a person 
age 62 or older.
    Because of the opposition and building and zoning codes, 
the process of installing an accessory apartment may be 
intimidating to many people. However, anyone seriously 
considering providing an accessory apartment in his home should 
seek advice from a lawyer, real estate agents and remodelers 
before beginning so that the costs and benefits can be weighed 
against one another.

                     4. Granny Flats or Echo Units

    Another innovative housing arrangement being examined in 
this country is the ``granny flat'' or ``ECHO unit.'' The 
granny flat was first constructed in Australia as a means of 
providing housing for elderly parents or grandparents where 
they can be near their families while maintaining a measure of 
independence. In the United States, we call this concept ECHO 
units, an acronym for elder cottage housing opportunity units.
    ECHO units are small, freestanding, barrier free, energy 
efficient, and removable housing units that are installed 
adjacent to existing single-family houses. Usually they are 
installed on the property of adult children, but can also be 
used to form elderly housing cluster arrangements on small 
tracts of land. They can be leased by nonprofit organizations 
or local housing authorities.
    The National Affordable Housing Act of 1990 authorized a 
demonstration program to determine whether the durability of 
ECHO units is appropriate to include them for funding under the 
Section 202 program of providing housing for the elderly. The 
Housing and Community Development Act of 1992 authorized a 
reservation of sufficient Section 202 funds to provide 100 ECHO 
units for this 5-year demonstration program. HUD was to present 
Congress with a report on the ECHO demonstration program in 
1998, but the report was never completed. HUD said that the 
report could not be done because they were unable to gather the 
necessary data for a report.

               E. FAIR HOUSING ACT AND ELDERLY EXEMPTION

    The Fair Housing Amendments Act of 1988 amended the Civil 
Rights Act of 1968, and made it unlawful to refuse to sell, 
rent, or otherwise make real estate available to persons or 
families, based on ``familial status'' or ``handicap.'' This 
amendment was put into law to end discrimination in housing 
against families with children, pregnant women, and disabled 
persons.
    In passing this law, however, Congress did grant exceptions 
for housing for older persons. The Act does not apply to 
housing: (1) provided under any State or Federal program (such 
as Sec. 202) specifically designed and operated to assist 
elderly persons; (2) intended for and solely occupied by 
persons 62 years of age or older; or (3) intended and operated 
for occupancy by at least one person 55 years of age or older 
per unit, subject to certain conditions.
    In 1994, the Department of Housing and Urban Development 
(HUD) proposed a rule which would determine whether or not a 
project occupied by senior citizens would be exempt from the 
law. The proposal was met with negative responses from many 
elderly advocacy groups promoting congressional response.
    On December 28, 1995, P.L. 104-76, the Housing for Older 
Persons Act of 1995, was signed into law. This law defined 
senior housing as a ``facility or community intended and 
operated for the occupancy of at least 80 percent of the 
occupied units by at least one person 55 years of age or 
older.'' The law also requires that projects or mobile home 
parks publish and adhere to policies and procedures which would 
show its intent to provide housing for older persons.

                       F. HUD HOMELESS ASSISTANCE

    The plight of the homeless continues to be one of the 
Nation's pressing concerns. One of the most frustrating and 
troubling aspects of the homeless issue is that no definitive 
statistics exist to determine the number of homeless persons. 
Numerous studies have produced an array of answers to the 
causes of homelessness and to the question of how many people 
are homeless at any one point in time in the U.S. During the 
1990's, HUD has generally operated on the Urban Institute's 
finding that as many as 600,000 people are homeless on any 
given night.
    Homelessness stems from a variety of factors, including 
unemployment, poverty, lack of affordable housing, social 
service and disability cutbacks, changes in family structure, 
substance abuse, and chronic health problems. About three 
quarters of homeless people are single adults without children. 
Families with children make up another fifth. The great 
majority of these families are headed by single women. It is 
estimated that one half of the homeless adults have current or 
past substance abuse problems. In addition, approximately 40 
percent of the adult males are veterans. The homeless are often 
separated into two broad categories which sometimes overlap. In 
the first category are persons living in persistent poverty who 
do not have the resources to overcome disruptions or crises 
that results in bouts of episodic homelessness. In the second 
category are the long-term homeless. These individuals usually 
have chronic disabilities, mental illness, and/or substance 
abuse problems.
    Homelessness among the elderly stems largely from the lack 
of affordable housing due to skyrocketing rents and the 
elimination of single-room-occupancy hotels. In the meantime, 
the number of people on waiting lists for low-income public 
housing continues to rise.
    During the early 1980's, the policy of 
deinstitutionalization of the mentally ill was credited as a 
leading cause of homelessness in America. However, 
deinstitutionalization was initiated over 25 years ago, and 
most surveys report that only a modest percentage of homeless 
persons are former residents of mental hospitals. Today, many 
observers believe that ``noninstitutionalization'' 
(individuals' lack of access to or choice of mental health 
treatment) is a critical factor contributing to homelessness.
    The Federal Government's primary response to addressing the 
problems of the homeless has been the programs of the Stewart 
B. McKinney Homeless Assistance Act of 1987. The McKinney Act's 
homeless assistance has covered a wide range of programs 
providing emergency food and shelter, transitional and 
permanent housing, primary health care services, mental health 
care, alcohol and drug abuse treatment, education, and job 
training. The Department of Housing and Urban Development (HUD) 
currently administers approximately 70 percent of the McKinney 
Act funds. The Federal Emergency Management Agency (FEMA) and 
four other departments (Health and Human Services, Veterans 
Affairs, Labor, and Education) are involved with McKinney grant 
programs. Most of the McKinney Act programs provide funds 
through competitive and formula grants. An exception is FEMA's 
Emergency Food and Shelter Program in which assistance is 
available through the local boards that administer FEMA funds. 
The assistance programs also focus on building partnerships 
with States, localities, and not-for-profit organizations in an 
effort to address the multiple needs of the homeless 
population.
    The numerous programs created by the McKinney Act have been 
praised for their efforts and accomplishments. At the same 
time, the fragmented approach has raised concerns; critics and 
proponents have recommended a reorganization and/or 
consolidation of the programs.
    On May 19, 1993, President Clinton signed an executive 
order to develop a comprehensive plan to deal with the issue of 
homelessness. This order provides that: (1) Federal agencies 
acting through the Interagency Council on the Homeless, shall 
develop a single coordinated Federal plan for ``breaking the 
cycle'' of existing homelessness and for preventing future 
homelessness; (2) the plan shall recommend Federal 
administrative and legislative initiatives identifying ways to 
streamline and consolidate existing programs; (3) the plan 
shall make recommendations on how current funding programs can 
be redirected, if necessary, to provide links between housing, 
support, and education services, and to promote coordination 
among grantees; and (4) the Council shall consult with 
representatives of State and local governments, advocates for 
the homeless, homeless individuals, and other interested 
parties. In May 1994, the council submitted a Federal plan in a 
report entitled ``Priority: Home! The Federal Plan to Break the 
Cycle of Homelessness.''
    In an effort to simplify the administration of HUD homeless 
assistance programs and to use McKinney Act funds more 
efficiently, HUD has proposed consolidating six homeless 
assistance programs: Shelter Plus Care, Supportive Housing, 
Emergency Shelter Grants, Section 8 Moderate Rehabilitation 
Single Room Occupancy (SRO), Rural Homeless Grants, and Safe 
Havens. This approach has not been enacted by Congress.
    In 1995 and 1996 HUD overhauled the application process 
used by the Department for the distribution of competitively 
awarded McKinney Act funds. The intent was to shift the focus 
from individual projects to community-wide strategies for 
solving the problems of the homeless. The new options in the 
application process incorporate HUD's continuum of care 
strategy. Four major components are considered on this 
approach: prevention (including outreach and assessment), 
emergency shelter, transitional housing with supportive 
services, and permanent housing with or without supportive 
services. The components are used as guidelines in developing a 
plan for the community that reflects local conditions and 
opportunities. This plan becomes the basis of a jurisdiction's 
application for McKinney Act homeless funds. All members of a 
community interested in addressing the problems of homelessness 
(including homeless providers, advocates, representatives of 
the business community, and homeless persons) can be involved 
in this continuum of care approach to solving the problems of 
homelessness.
    The new application model established a combined 
application process for all of HUD's McKinney Act programs with 
the exception of Emergency Shelter Grants. There are three 
major programs: the Supportive Housing Program, Shelter Plus 
Care, and Section 8 Moderate Rehabilitation Single Room 
Occupancy.
    In the application process, a jurisdiction presents funding 
requests for all projects addressing the problem of 
homelessness. Gaps in homeless service provisions and housing 
are identified and priorities are set.
    The following is a description of the four programs 
contained in a December 1996 HUD report entitled: ``The 
Continuum of Care: A Report on the New Federal Policy to 
Address Homelessness.''
    Emergency Shelter Grant (ESG) Formula Program provides 
money to convert, renovate, or rehabilitate buildings into 
emergency shelters. It also provides funds for food, consumable 
supplies, and beds and bedding. Through this program, HUD is 
able to help communities maintain and create places where 
homeless people may go to quickly to put a roof over their 
heads and to perhaps get initial service provision.
    Supportive Housing Program (SHP) emphasizes supportive 
services in transitional living arrangements, although it also 
has a permanent housing component for people with disabilities. 
SHP has four components:
          Transitional Housing helps move homeless individuals 
        and families into housing within 24 months. The 
        temporary housing may be combined with support services 
        that prepare individuals and families for living as 
        independently as possible by promoting residential 
        stability and increased job and other skills.
          Permanent Housing for Persons with Disabilities 
        provides long-term community-based housing for people 
        with mental, physical, or drug/aleristics:
          Supportive Services only address the specific needs 
        of homeless persons but does not provide housing. 
        (However, there must be a demonstrated connection to 
        addressing housing needs.)
          Safe Haven provides supportive housing for homeless 
        persons with severe mental illness who live on the 
        streets and have been unwilling or unable to 
        participate in supportive service. These are 24-hour 
        residences that provide shelter for an unspecified 
        duration and private or semi-private accommodations for 
        up to 25 persons.
    Shelter Plus Care Program (S&C) is intended to provide 
supportive permanent housing and service for people with 
disabilities by providing grantees, e.g., services providers, 
with several flexible ways to provide rental assistance for 
their clients. It has four major components:
           Tenant-based Rental Assistance allows 
        homeless assistance providers to make rental assistance 
        available to participants who then choose appropriate 
        housing (within certain constraints), with the 
        flexibility to continue the assistance if they move.
           Sponsor-based Rental Assistance provides 
        rental assistance through a contract between the 
        grantee, e.g., a homeless service provider, and a non-
        profit organization that owns or leases the housing 
        units. This provides service providers with an avenue 
        to permanent housing for their program participants.
           Project-based Rental Assistance provides 
        rental assistance to homeless people through a contract 
        between a nonprofit and a building owner that allows 
        program participants to stay housed for up to 10 years, 
        and for buildings to be rehabilitated.
           SRO-based Rental Assistance provides rental 
        assistance for housing in a single room occupancy 
        building where the units to be used need some 
        rehabilitation.
    Section 8 Moderate Rehabilitation Single Room Occupancy 
Program (SRO Section 8) is designed to increase the supply of 
single room occupancy apartments; the kind of permanent housing 
that has historically housed poor, single men who were 
episodically homeless. It provides funds for rehabilitating 
single room units within a building of up to 100 units. Like 
the Shelter Plus Care program, it is designed to provide 
permanent housing. Unlike Shelter Plus Care, however, the 
provision of supportive services is optional.
    Congressional action resulted in a single appropriations 
for homeless assistance grants in fiscal years 1995-1999. The 
funding for homeless assistance in FY1995 was $1.12 billion. 
The funding was reduced to $823 million for FY1996, FY1997 and 
FY1998. For FY1999 the funding was increased to $975 million, 
at least 30 percent of the appropriated funds are to be used 
for permanent housing.

                 G. HOUSING COST BURDENS OF THE ELDERLY

    Housing costs are a serious burden for many low- and 
moderate-income households, particularly for elderly households 
living on fixed incomes. Figures from the Department of Labor's 
Consumer Expenditure Survey from 1997 show that households 
headed by those age 65 and over, who had an average income of 
$23,965 in 1997, spent $8,082 or 34 percent of their income on 
housing. The figure for consumer units of all ages was 28 
percent. This category includes not only the cost of shelter 
itself, but utilities and household operations, housekeeping 
supplies, and household furnishings (see table below). While 
the percentage of income spent on mortgage interest drops 
sharply for households age 65 and over, other housing costs 
remain high. Even though household income falls significantly 
for the elderly, ($23,965 compared to the average household 
income of $39,926 in 1997), the amount of property taxes paid 
by the elderly is higher than that paid by the average 
household ($1060 in 1995 versus $971 for the average 
household). The elderly spend 4.4 percent of income for 
property taxes; the average household, about 2.4 percent. The 
elderly spend 9 percent of their income on utilities, including 
telephone, and water, compared to about 6 percent for the 
average household.


                               Chapter 13



                  ENERGY ASSISTANCE AND WEATHERIZATION

                                OVERVIEW

    Energy costs have a substantial impact on the elderly poor. 
Often they are unable to afford the high costs of heating and 
cooling, and they are far more physically vulnerable than 
younger adults in winter and summer.
    The high cost of energy is a special concern for low-income 
elderly individuals. The inability to pay these costs causes 
the elderly to be more susceptible to hypothermia and heat 
stress. Hypothermia, the potentially lethal lowering of body 
temperature, is estimated to be the cause of death for up to 
25,000 elderly people each year. The Center for Environmental 
Physiology in Washington, DC reports that most of these deaths 
occur after exposure to cool indoor temperatures rather than 
extreme cold. Hypothermia can set in at indoor temperatures 
between 50 and 60 degrees Fahrenheit. Additionally, extremes in 
heat contribute to heat stress, which in turn can trigger heat 
exhaustion, heatstroke, heart failure, and stroke.
    Two Federal programs exist to ease the energy cost burden 
for low-income individuals: The Low-Income Home Energy 
Assistance Program (LIHEAP) and the Department of Energy's 
Weatherization Assistance Program (WAP). Both LIHEAP and WAP 
give priority to elderly and handicapped citizens to assure 
that these households are aware that help is available, and to 
minimize the possibility of utility services being shut off. In 
the past, States have come up with a variety of means for 
implementing the targeting requirement. Several aging 
organizations have suggested that Older Americans Act programs, 
especially senior centers, be used to disseminate information 
and perform outreach services for the energy assistance 
programs. Increased effort has been made in recent years to 
identify elderly persons eligible for energy assistance and to 
provide the elderly population with information about the risks 
of hypothermia.
    Although these programs have played an important role in 
helping millions of America's poor and elderly meet their basic 
energy needs, and to weatherize their homes, there is a 
dramatic gap between existing Federal resources and the needs 
of the population these programs were intended to serve. 
According to HHS data, in 1981, 36 percent of eligible 
households received heating and/or winter crisis assistance 
benefits. By 1995, only 19 percent of eligible households 
received those benefits.
    As a proportion of total income, low-income households pay 
three to four times what all households combined pay for 
residential home energy costs; approximately 12 percent versus 
4 percent, respectively. For example, in fiscal year 1996 
LIHEAP households spent $1,140 or 12.4 percent of their income 
on residential energy, as compared to $1,294, or 3.8 percent of 
total income for households of all income levels. All low-
income households (annual incomes under 150 percent of the 
poverty line or 60 percent of the State's median income) spent 
$1,108, or 9.1 percent of their income, on their residential 
energy needs.
    Both the LIHEAP and weatherization programs are vital to 
the households they serve, especially during the winter months. 
According to a 1994 HHS study, since major cuts in LIHEAP began 
in 1988, the number of low-income households with ``heat 
interruptions'' due to inability to pay has doubled. Thus, many 
low-income people go to extraordinary means to keep warm when 
financial assistance is inadequate, such as going to malls, 
staying in bed, using stoves, and cutting back on food and/or 
medical needs.

                             A. BACKGROUND

            1. The Low-Income Home Energy Assistance Program

    In the 1970's, prior to LIHEAP, there were a series of 
modest, short-term fuel crisis intervention programs. These 
programs were administered by the Community Services 
Administration (CSA) on an annual budget of approximately $200 
million. However, between 1979 and 1980 the price of home 
heating oil doubled. As a result, Congress sharply expanded aid 
for energy by creating a three-part, $1.6 billion energy 
assistance program. Of this amount, $400 million went to CSA 
for the continuation of its crisis-intervention programs; $400 
million to HHS for one-time payments to recipients of 
Supplemental Security Income (SSI); and $800 million to HHS for 
distribution as grants to States to provide supplemental energy 
allowances.
    In 1980, Congress passed the Home Energy Assistance Act as 
part of the crude oil windfall profit tax legislation, 
appropriating $1.85 billion for the program. At present, LIHEAP 
is authorized by the Low-Income Home Energy Assistance Act 
(Title XXVI of the Omnibus Budget Reconciliation Act of 1981) 
as amended by the Human Services Reauthorization Acts of 1984, 
1986, 1990, the National Institutes of Health Revitalization 
Act of 1993, the Human Services Amendments of 1994, and the 
Human Services Reauthorization Act of 1998.
    LIHEAP is one of the seven block grants originally 
authorized by OBRA and administered by HHS. The purpose of 
LIHEAP is to assist eligible households in meeting the costs of 
home energy. Grants are made to the States, the District of 
Columbia, approximately 124 Indian tribes and tribal 
organizations, and six U.S. territories. Each grantee's annual 
grant is a percentage share of the annual Federal appropriation 
(grants to Indian tribes are taken from their State's 
allocation). The percentage share is set by a formula 
established in 1980 for LIHEAP's predecessor. If the Federal 
appropriation is above $1.975 billion, a new formula takes 
effect, and grants are allocated by a formula based largely on 
home energy expenditures by low-income households. Annual 
Federal grants can be supplemented with the following funds: 
oil price overcharge settlements (money paid by oil companies 
to settle oil price control violation claims and distributed to 
States by the Energy Department); State and local funds and 
special agreements with energy providers; money carried over 
from the previous fiscal year; authority to transfer funds from 
other Federal block grants; and payments under a $24 million-a-
year special incentive program for grantees that successfully 
``leverage'' non-Federal resources.
    Financial assistance is provided to eligible households, 
directly or through vendors, for home heating and cooling 
costs, energy-related crisis intervention aid, and low-cost 
weatherization. Some States also make payments in other ways, 
such as through vouchers or direct payments to landlords. 
Homeowners and renters are required to be treated equitably. 
Flexibility is allowed in the use of the grants. No more than 
15 percent may be used for weatherization assistance (up to 25 
percent if a Federal waiver is given, and up to 10 percent may 
be carried over to the next fiscal year. A maximum of 10 
percent of the grant may be used for administrative costs. A 
new provision of the Human Services Reauthorization Act of 1998 
added language stating that grantees should give priority for 
weatherization services to those households with the lowest 
incomes that pay a high proportion of their income for home 
energy.
    States establish their own benefit structures and 
eligibility rules within broad Federal guidelines. Eligibility 
may be granted to households receiving other forms of public 
assistance, such as SSI, Temporary Assistance to Needy 
Families, food stamps, certain needs-tested veterans' and 
survivors' payments, or those households with income less than 
150 percent of the Federal poverty income guidelines or 60 
percent of the State's median income, whichever is greater. 
Lower income eligibility requirements may be set by States and 
other jurisdictions, but not below 110 percent of the Federal 
poverty level.
    LIHEAP places certain program requirements on grantees. 
Grantees are required to provide a plan which describes 
eligibility requirements, benefit levels, and the estimated 
amount of funds to be used for each type of LIHEAP assistance. 
Public input is required in developing the plan. The highest 
level of assistance must go to households with the lowest 
incomes and highest energy costs in relation to income. Energy 
crisis intervention must be administered by public or nonprofit 
entities that have a proven record of performance. Crisis 
assistance must be provided within 48 hours after an eligible 
household applies. In life-threatening situations, assistance 
must be provided in 18 hours. A reasonable amount must be set 
aside by grantees for energy crisis intervention until March 15 
of each year. Applications for crisis assistance must be taken 
at accessible sites and assistance in completing an application 
must be provided for the physically disabled.

                            (A) Program Data

    The most recent estimates from HHS concerning LIHEAP are 
for fiscal year 1997. They indicate that States provided 
heating assistance to 4.1 million households in that year. 
Additionally, 762,490 households received winter crisis 
assistance, 124,103 received cooling assistance, 78,678 
received weatherization assistance and 21,266 received summer 
crisis assistance. Previous State estimates indicate that about 
two-thirds of the national total of households receiving winter 
crisis assistance also receive regular heating assistance. 
Based on this overlap among households receiving both types of 
assistance, an estimated 4.3 million households received help 
with heating costs in fiscal year 1997, as was the estimate in 
fiscal year 1996, compared with 5.5 million households in 
fiscal year 1995, and 6.0 million in fiscal year 1994.
    In fiscal year 1997, grantees reported average annual 
LIHEAP benefits ranging from $42 to $381 for heating 
assistance, maximum winter crisis aid benefits ranging from 
$100 to $800, and benefits ranging from $37 to $540 for cooling 
assistance. The Department of Health and Human Services 
estimates that the fiscal year 1996 national annual benefit for 
households receiving heating and/or winter crisis aid was $180, 
a 9 percent decrease compared with fiscal year 1995. (Fiscal 
year 1997 estimate is not available.) Benefits accounted for 91 
percent of LIHEAP spending in fiscal year 1996, with 9 percent 
for administration.
    The Department of Health and Human Services used the March 
1997 Current Population Survey data to arrive at estimates 
regarding the demographics of households receiving heating 
assistance during October 1996-March 1997. The CPS data 
indicate that of those households:
          65 percent had incomes below 110 percent of poverty.
          74 percent had incomes below 125 percent of poverty.
          84 percent had incomes below 150 percent of poverty.
          36 percent had at least one member 60 years or older.
          44 percent received social security benefits.
    The State-reported data for fiscal year 1995 indicate that 
30 percent of LIHEAP heating assistance recipient households 
contained a person age 60 or older. Of households containing an 
individual age 60 or over and eligible for LIHEAP, 21 percent 
received heating assistance in fiscal year 1995. The percentage 
of all eligible households that received LIHEAP heating 
assistance in fiscal year 1995 was 26 percent.
    The fiscal year 1996 LIHEAP Home Energy Notebook, prepared 
for the U.S. Department of Health and Human Services in March, 
1998 revealed:
          On average, residential energy expenditures for all 
        households increased by 3.8 percent, from $1,247 in 
        fiscal year 1995 to $1,294 in fiscal year 1996. LIHEAP 
        recipient households increased their average 
        residential energy expenditures by 4.7 percent, from 
        $1,089 in fiscal year 1995 to $1,140 in fiscal year 
        1996;
          Low-income households are more likely than non-low-
        income households to use liquefied petroleum gas (LPG) 
        and kerosene as their main source of heat; LIHEAP 
        recipient households are more likely than low-income 
        households to use kerosene and LPG as their main fuel 
        source. Low-income and LIHEAP households use natural 
        gas at a lower rate than non-low-income households 
        (51.3 percent and 45.6 percent versus 54.1 percent);
          Average home heating expenditures for non-low-income 
        households were about $441, 14 percent higher than the 
        $380 average home heating costs for low-income 
        households in fiscal year 1996. Average home heating 
        expenditures for LIHEAP recipient households were about 
        $426;
          Home heating expenditures represented a higher 
        percentage of annual household income for low-income 
        households (about 3.2 percent; 4.3 percent for LIHEAP 
        recipient households) than for all households (about 
        0.8 percent);
          While electricity is used by most households to cool 
        their homes, low-income households are less likely than 
        all households to cool their homes;
          Average annual home cooling expenditures in fiscal 
        year 1996 for all households that cooled was about 
        $144, and for LIHEAP recipients that cooled was about 
        $92;
          Cooling expenditures represented a higher percentage 
        of average annual income for low-income households that 
        cooled (0.8 percent) than for all households that 
        cooled (0.3 percent).

                              (B) Funding

    There has been a substantial reduction in LIHEAP funding 
levels in the past decade from a high of $2.1 billion in fiscal 
year 1985 to the current level of $1.1 billion in fiscal year 
1999.
    In fiscal year 1994, LIHEAP was funded at $1.473 billion; 
the appropriation also included a contingency fund for weather 
emergencies of $600 million. In fiscal year 1995, LIHEAP was 
funded at $1.319 billion, the appropriation also included a 
weather emergency fund of $600 million. In fiscal year 1996, 
LIHEAP was funded at $900 million; the appropriation also 
included an emergency fund of $300 million. In fiscal year 
1997, LIHEAP was funded at $1 billion, with a contingency fund 
of $420 million. In fiscal year 1998, Public Law 105-78 funded 
LIHEAP at the $1 billion level again, with a $300 million 
emergency fund. The fiscal year 1999 omnibus appropriations 
bill (Public Law 105-277), signed October 21, 1998, provides 
$1.1 billion in LIHEAP funding for fiscal year 1999, plus $300 
million in emergency funding. The bill also includes $1.1 
billion in advanced funding for fiscal year 2000.
    According to the Department of Health and Human Services' 
most recent estimates of states' obligation of LIHEAP funds, in 
fiscal year 1996, $652.4 million were used for heating 
assistance, $14.5 million for cooling assistance, $138.4 
million for crisis assistance, and $110.6 million for low-cost 
residential weatherization assistance or other energy-related 
home repair.
    Contingency LIHEAP funds have been utilized in recent years 
for both cold and hot weather emergencies. From fiscal year 
1994 through fiscal year 1998, the President has released 
emergency funds totaling $955 million on eight different 
occasions. During January 1997, President Clinton released $215 
million in emergency LIHEAP funds, citing cold weather and a 
nationwide price hike in fuel costs. In fiscal year 1998, 
President Clinton released $160 million in emergency LIHEAP 
funds, the bulk of which was received by 11 states suffering 
from extreme heat waves.

     2. The Department of Energy Weatherization Assistance Program

    Federal efforts to weatherize the homes of low-income 
persons began on an ad hoc, emergency basis after the 1973 oil 
embargo. A formal program was established, under the Community 
Services Administration (CSA), in 1975. The Federal Energy 
Administration (FEA) became involved in 1976 with passage of 
Public Law 94-385. In October 1977, the newly formed Department 
of Energy (DOE) assumed the responsibilities of the FEA. In 
1977 and 1978, DOE administered a grant program that paralleled 
and supplemented the CSA program; DOE provided money for the 
purchase of material and CSA was responsible for labor. In 
1979, DOE became the sole Federal agency responsible for 
operating a low-income weatherization assistance program.
    The DOE's Weatherization Assistance Program is authorized 
under Title IV of the Energy Conservation and Production Act 
(P.L. 94-385, as amended). The goals of the Weatherization 
Assistance Program (WAP) are to decrease national energy 
consumption and to reduce the impact of high fuel costs on low-
income households, particularly those of the elderly and the 
handicapped. Additionally, the program seeks to increase 
employment opportunities through the installation and 
manufacturing of low-cost weatherization materials. The 1990 
legislation reauthorizing the program also permits and 
encourages the use of innovative energy saving technologies to 
achieve these goals.
    The Weatherization Assistance Program is a formula grant 
program which flows from the Federal to State governments to 
local weatherization agencies. There are 51 State grantees 
(each State and the District of Columbia), and approximately 
1,103 local weatherization agencies, or subgrantees.
    To be eligible for weatherization assistance, household 
income must be at or below 125 percent of the Federal poverty 
level. States, however, may raise their income eligibility 
level to 150 percent of the poverty level to conform to the 
LIHEAP income ceiling. States may not, however, set it below 
125 percent of the poverty level. Households with persons 
receiving Temporary Assistance to Needy Families (TANF), 
Supplemental Security Insurance (SSI), or local cash assistance 
payments are also eligible for assistance. Priority for 
assistance is given to households with an elderly individual, 
age 60 and older, or a handicapped person.
    Although the law is not specific, Federal regulations 
specify that each State's share of funds is to be based on its 
climate, relative number of low-income households and share of 
residential energy consumption. Funds made available to the 
States are in turn allocated to nonprofit agencies for 
purchasing and installing energy conserving materials, such as 
insulation, and for making energy-related repairs. Federal law 
allowed a maximum average expenditure of $2,002 per household 
in fiscal year 1998 ($2,032 in fiscal year 1999), unless a 
state-of-the-art energy audit shows that additional work on 
heating systems or cooling equipment would be cost-effective.

                            (A) Program Data

    Since its inception through fiscal year 1998, the 
weatherization program has served more than 5 million homes. In 
approximately 36 percent of the homes weatherized, at least one 
resident was 60 years of age or older. An estimated 105,973 
homes were weatherized in fiscal year 1995 and 56,545 in fiscal 
year 1996.
    In 1993, the DOE issued a report entitled National Impacts 
of the Weatherization Assistance Program in Single Family and 
Small Multifamily Dwellings. The report represents 5 years of 
research that shows DOE's Weatherization Assistance Program 
saves money, reduces energy use, and makes weatherized homes a 
safer place to live. Two researchers at DOE's Oak Ridge 
National Laboratory concentrated on data from the 1989 program 
year (April 1 through March 31) in which 198,000 single-family 
and small multifamily buildings and 20,000 units in large 
multifamily buildings were weatherized. 14,970 dwellings 
weatherized in that year were studied. The report revealed:
          The Weatherization Assistance Program saved $1.09 in 
        energy costs for every $1 spent;
          The average energy savings per dwelling was $1,690, 
        while it cost $1,550 to weatherize the average home, 
        including overhead;
          The program was most effective in cold weather States 
        in the Northeast and upper Midwest, which may be due to 
        DOE's early emphasis on heating rather than cooling;
          States with cold climates produced the highest energy 
        savings. For natural gas consumption, first-year 
        savings represented a 25-percent reduction in gas used 
        for space heating and a 14-percent reduction in total 
        electricity use;
          Weatherization reduced the average low-income 
        recipient's energy bill by $116, which represented 
        approximately 18 percent of the total home heating bill 
        of $640;
          Energy savings through weatherization reduced U.S. 
        carbon emissions by nearly 1 million metric tons. 
        Savings were the most dramatic in single-family, 
        detached houses in cold climates; and
          The average low-income household in the North was 
        particularly hard hit by home energy costs, spending 17 
        percent of income on residential energy. Elsewhere 
        across the country, low-income people typically spent 
        12 percent of their income on energy, compared to only 
        3 percent for other income levels.
    In 1996, the Department of Energy reported that the 
Weatherization Assistance Program's performance had improved 
significantly because of the implementation of many of the 
recommendations of the 1990 National Evaluation that was 
conducted under the supervision of the Oak Ridge National 
Laboratory. A 1996 ``metaevaluation'' of 17 state-level 
evaluations of the Weatherization Program concluded that 
improved practices had produced 80 percent higher average 
energy savings per dwelling in 1996 as compared to measured 
savings in 1989. These savings equal a 23.4 percent reduction 
in consumption of natural gas for all end uses.

                              (B) Funding

    In fiscal year 1996, the appropriation for the 
Weatherization Assistance Program was $111.7 million. The 
fiscal year 1997 appropriation was $120.8 million. The fiscal 
year 1998 appropriation was $129 million, and the fiscal year 
1999 appropriation was $133 million.

                     B. RECENT LEGISLATIVE ACTIVITY

    Public Law 105-285 was enacted on October 27, 1998 and 
reauthorized LIHEAP for 5 years (through fiscal year 2004). On 
October 9, 1998 the Senate and House agreed to the conference 
report reauthorizing the program for 5 years at ``such sums as 
may be necessary'' for fiscal year 2000 and fiscal year 2001, 
and for $2 billion annually for fiscal years 2002-2004. Earlier 
House legislation had proposed a 2-year reauthorization. In 
addition to reauthorizing LIHEAP for 5 years, P.L. 105-285 
contains provisions to:
          Clarify the intent of Congress to provided funding 
        for LIHEAP 1 year in advance;
          Clarify the conditions under which the President may 
        release energy emergency contingency funds. The new 
        Section 303 ``provides for release of LIHEAP funds in 
        response to emergencies, including a natural disaster, 
        any other event meeting criteria the Secretary 
        determines appropriate, or a significant increase in: 
        home energy supply shortages or disruptions; the cost 
        of home energy; home energy disconnections; 
        participation in a public benefit program such as the 
        food stamp program; or a significant increase in 
        unemployment or layoffs.''
          Add an emphasis on giving priority for weatherization 
        services to those households with the lowest incomes 
        that pay a high proportion of their income for home 
        energy;
          Direct the General Accounting Office to conduct an 
        evaluation of the Residential Energy Assistance 
        Challenge (REACH) grant program; and
          Increase from $250,000 to $300,000 the amount of 
        annual LIHEAP appropriations that may be reserved by 
        the Secretary to provide training and technical 
        assistance.
    The appropriation for LIHEAP was a topic of debate between 
the House and Senate in the 105th Congress. On July 20, 1998, 
the House Labor/HHS/Education Appropriations Committee reported 
H.R. 4274 (H. Rept. 105-635), which would have rescinded the 
$1.1 billion in advanced fiscal year 1999 funding, but restored 
$1.1 billion for fiscal year 2000. The Senate's reported bill, 
S. 2440 (S. Rept. 105-300) would have maintained the funding 
level of $1.1 billion plus $300 million in emergency funds for 
fiscal year 1999, and maintained the same $1.1 million in 
advanced funding for fiscal year 2000. The fiscal year 1999 
omnibus appropriations bill (P.L. 105-277), signed October 21, 
1998 included the Senate's recommended $1.1 billion in LIHEAP 
funding for fiscal year 1999, plus $300 million in emergency 
funding, and $1.1 billion in advance funding for fiscal year 
2000.


                               Chapter 14



                          OLDER AMERICANS ACT

                         HISTORICAL PERSPECTIVE

    The Older Americans Act (OAA), enacted in 1965, is the 
major vehicle for the organization and delivery of supportive 
and nutrition services to older persons. It was created during 
a time of rising societal concern for the needs of the poor. 
The OAA's enactment marked the beginning of a variety of 
programs specifically designed to meet the social services 
needs of the elderly.
    The OAA was one in a series of Federal initiatives that 
were part of President Johnson's Great Society programs. These 
legislative initiatives grew out of a concern for the large 
percentage of older Americans who were impoverished, and a 
belief that greater Federal involvement was needed beyond the 
existing health and income-transfer programs. Although older 
persons could receive services under other Federal programs, 
the OAA was the first major legislation to organize and deliver 
community-based social services exclusively to older persons.
    The OAA followed similar social service programs initiated 
under the Economic Opportunity Act of 1964. The OAA's 
conceptual framework was similar to that embodied in the 
Economic Opportunity Act and was established on the premise 
that decentralization of authority and the use of local control 
over policy and program decisions would create a more 
responsive service system at the community level.
    When enacted in 1965, the OAA established a series of broad 
policy objectives designed to meet the needs of older persons. 
Over the years, the essential mission of the OAA has remained 
very much the same: to foster maximum independence by providing 
a wide array of social and community services to those older 
persons in the greatest economic and social need. The key 
philosophy of the program has been to help maintain and support 
older persons in their homes and communities to avoid 
unnecessary and costly institutionalization.
    The Act authorizes a wide array of service programs through 
a nationwide network of 57 State agencies on aging and 660 area 
agencies on aging (AAAs). It supports the only federally 
sponsored job creation program benefitting low-income older 
persons and is a source of Federal funding for training, 
research, and demonstration activities in the field of aging. 
It authorizes funds for supportive and nutrition services for 
older Native Americans and Native Hawaiians and a program to 
protect the rights of older persons.
    The Act establishes the Administration on Aging (AOA) 
within the Department of Health and Human Services (HHS) which 
administers all of the Act's programs except for the Senior 
Community Service Employment Program administered by the 
Department of Labor (DOL), and the commodity or cash-in-lieu of 
commodities portion of the nutrition program, administered by 
the U.S. Department of Agriculture (USDA).
    The original legislation established AOA within HHS and 
established a State grant program for community planning and 
services programs, as well as authority for research, 
demonstration, and training programs. The Act has been amended 
thirteen times since the original legislation was enacted. 
During the 1970s, Congress significantly improved the OAA by 
broadening its scope of operations and establishing the 
foundation for a ``network'' on aging under a Title III program 
umbrella. In 1972, Congress established the national nutrition 
program for the elderly. In 1973, the area agencies on aging 
(AAAs) were authorized. These agencies, along with the State 
Units on Aging (SUAs), provide the administrative structure for 
programs under the OAA. In addition to funding specific 
services, these entities act as advocates on behalf of older 
persons and help to develop a service system that will best 
meet older Americans' needs. As originally conceived by the 
Congress, this system was meant to encompass both services 
funded under the OAA, and services supported by other Federal, 
State, and local programs.
    Other amendments established the long-term care ombudsman 
program and a separate grant program for older Native Americans 
in 1978, and a number of additional service programs under the 
State and area agency on aging program in 1987, including in-
home services for the frail elderly, programs to prevent elder 
abuse, neglect and exploitation, and health promotion and 
disease prevention programs, among others. The most recent 
amendments in 1992 created a new Title VII to consolidate and 
expand certain programs that focus on protection of the rights 
of older persons (which under prior law were authorized under 
Title III).
    Increased funding during the 1970s allowed for the further 
development of AAAs and for the provision of other services, 
including access (transportation, outreach, and information and 
referral), in-home, and legal services. Expansion of OAA 
programs continued until the early 1980s when, in response to 
the Reagan Administration's policies to cut the size and scope 
of many Federal programs, the growth in OAA spending was slowed 
substantially, and for some programs was reversed. For example, 
between fiscal years 1981 and 1982, Title IV funding for 
training, research, and discretionary programs in aging was cut 
by approximately 50 percent.
    Until the 104th Congress, there had been widespread 
bipartisan congressional support of OAA programs, especially 
the nutrition and senior community service employment program. 
The 104th Congress marked the beginning of controversy over a 
number of proposals that surfaced as part of the Act's 
reauthorization. This controversy continued through the 105th 
Congress (see discussion below). The Act's authorization 
expired at the end of FY1995, but funding has continued through 
appropriations legislation.

                   A. THE OLDER AMERICANS ACT TITLES

    The following is a brief description of each Title of the 
Older Americans Act:

                  Title I. Objectives and Definitions

    Title I outlines broad social policy objectives aimed at 
improving the lives of all older Americans in a variety of 
areas including income, health, housing, long-term care, and 
transportation.

                Title II. Administration on Aging (AoA)

    Title II of the Older Americans Act establishes AoA, within 
the Department of Health and Human Services (DHHS), as the 
chief Federal agency advocate for older persons. It also 
authorizes the Federal Council on Aging, whose purpose is to 
advise the President and the Congress on the needs of older 
persons. However, the last time the Council received funding 
was in FY1995. The FY1999 Omnibus Appropriations Act contains a 
permanent provision prohibiting the expenditure of funds for 
the Council.

      Title III. Grants for States and Community Programs on Aging

    Title III authorizes grants to State and area agencies on 
aging to act as advocates on behalf of, and to coordinate 
programs for, the elderly. The program supports 57 State 
agencies on aging, 660 area agencies on aging, and over 27,000 
service providers and currently funds six separate service 
programs. States receive separate allotments of funds for 
supportive services and centers, congregate and home-delivered 
nutrition services, U.S. Department of Agriculture (USDA) 
commodities or cash-in-lieu of commodities, disease prevention 
and health promotion services, and in-home services for the 
frail elderly. Three other programs--assistance for special 
needs, school-based meals and multigenerational activities, and 
supportive activities for caretakers--are not funded.
    Title III services are available to all persons aged 60 and 
over, but are targeted to those with the greatest economic and 
social need, particularly low-income minority persons. Means 
testing is prohibited. Participants are encouraged to make 
voluntary contributions for services they receive.
    Funding for supportive services, congregate and home-
delivered nutrition services, and in-home services for the 
frail elderly is allocated to States by AoA based on each 
State's relative share of the total population of persons aged 
60 years and over. States are required to award funds for the 
local administration of these programs to area agencies on 
aging. USDA provides commodities or cash-in-lieu of commodities 
to States, in conjunction with the AoA nutrition programs.
    The Title III nutrition program is the Act's largest 
program. FY1999 funding of $626 million represents 43 percent 
of the Act's total funding and 66 percent of Title III funds. 
Most recent data show that the program provided 240 million 
meals to over 3 million older persons. About half of total 
meals served were provided in congregate settings, such as 
senior centers and schools, and half were provided to frail 
older persons in their homes.
    Data from a national evaluation of the nutrition program 
show that, compared to the total elderly population, nutrition 
program participants are older and more likely to be poor, to 
live alone, and to be members of minority groups. They are also 
more likely to have health and functional limitations that 
place them at nutritional risk. The report found the program 
plays an important role in participants' overall nutrition and 
that meals consumed by participants are their primary source of 
daily nutrients. The evaluation also indicated that for every 
Federal dollar spent, the program leverages on average $1.70 
for congregate meals, and $3.35 for home-delivered meals.\1\
---------------------------------------------------------------------------
    \1\ U.S. Department of Health and Human Services. Office of the 
Assistant Secretary for Aging. Serving Elders at Risk: The Older 
Americans Act Nutrition Programs, National Evaluation of the Elderly 
Nutrition Program, 1993-1995. June 1996.
---------------------------------------------------------------------------
    The supportive services and centers program provides funds 
to States for a wide array of social services and activities of 
approximately 6,400 multipurpose senior centers. The most 
frequently provided services are transportation, information 
and assistance, home care, and recreation. In FY1996, the 
program provided about 40 million rides, responded to over 13 
million requests for information and assistance, and provided 
about 15 million home care services (i.e., personal care, 
homemaker, or chore services).

        Title IV. Research, Training, and Demonstration Program

    Title IV of the Act authorizes the Assistant Secretary for 
Aging to award funds for training, research, and demonstration 
projects in the field of aging. Funds are to be used to expand 
knowledge about aging and the aging process and to test 
innovative ideas about services and programs for older persons. 
Title IV has supported a wide range of projects, including 
community-based long-term care, support services for 
Alzheimer's disease, and career preparation and continuing 
education in the field of aging.

          Title V. Senior Community Service Employment Program

    Title V of the Act authorizes a program to provide 
opportunities for part-time employment in community service 
activities for unemployed, low-income older persons who have 
poor employment prospects. The program has three goals: to 
provide employment opportunities for older persons; to create a 
pool of persons who provide community services; and to 
supplement the income of low-income older persons (income below 
125 percent of the Federal poverty level). Enrollees work in a 
variety of community service activities and are paid the higher 
of the national or State minimum wage or the local prevailing 
pay for similar employment. The program, which is not 
considered a job training program, supports over 61,500 jobs in 
program year (PY) 1998-1999 (July 1, 1998-June 30, 1999).
    Title V is administered by the Department of Labor (DOL), 
which awards funds to ten national organizations and to all 
States. National organizations that receive funds are 
Asociacion Pro Personas Mayores, the National Caucus and Center 
on Black Aged, National Council on Aging, American Association 
of Retired Persons, National Council of Senior Citizens, 
National Urban League, Inc., Green Thumb, National Pacific/
Asian Resource Center on Aging, National Indian Council on 
Aging, and the U.S. Forest Service.
    Funding is distributed using a combination of factors, 
including a ``hold harmless'' for employment positions held by 
national organizations in 1978, and a formula based on States' 
relative number of persons aged 55 and over and per capita 
income. Appropriations Committee directives in recent years 
have required that funds be distributed so that national 
organizations receive 78 percent of the total appropriation, 
and States receive 22 percent.

           Title VI. Grants for Services for Native Americans

    Title VI authorizes funds for supportive and nutrition 
services to older Native Americans. Funds are awarded directly 
by AoA to Indian tribal organizations, Native Alaskan 
organizations, and non-profit groups representing Native 
Hawaiians.

        Title VII. Vulnerable Elder Rights Protection Activities

    Title VII authorizes five separate vulnerable elder rights 
protection activities. States receive separate allotments of 
funds for the long-term care ombudsman program and elder abuse 
prevention activities. Three other authorized programs--elder 
rights and legal assistance, Native Americans elder rights 
program, and outreach, counseling, and assistance--are not 
funded. Funding for vulnerable elder rights protection 
activities is allotted to States based on the States' relative 
share of the total population age 60 and older. State agencies 
on aging may award funds for these activities to a variety of 
organizations for administration, including other State 
agencies, area agencies on aging, county governments, nonprofit 
services providers, or volunteer organizations.
    The largest elder rights protection program is the long-
term care ombudsman program, whose purpose is to investigate 
and resolve complaints of residents of nursing facilities, 
board and care facilities, and other adult care homes. It is 
the only Older Americans Act program that focuses solely on the 
needs of institutionalized persons and is authorized under both 
Title III (supportive services and centers) and Title VII. 
State and other non-Federal funds represent a significant 
amount of total funds for the program. In FY1996, about $42 
million in Federal and non-Federal funding was devoted to 
support this program. About 62 percent of the program effort 
was supported by Older Americans Act sources; non-Federal and 
other funds represented about 38 percent of the total program 
support.

            B. SUMMARY OF MAJOR ISSUES IN THE 105th CONGRESS

    Authorizations of appropriations for the Older Americans 
Act expired at the end of 1995. The 105th Congress, like the 
104th Congress, did not reauthorize the Act. Appropriations 
legislation for the last four years--FY 1996 through FY 1999--
has continued the program.
    In the past, the Act has received bipartisan congressional 
support. However, beginning with the 104th Congress, and 
continuing through the 105th Congress, Members of Congress have 
differed about certain provisions that were under discussion as 
part of the reauthorization. Although the House Economic and 
Educational Opportunities Committee and the Senate Labor and 
Human Resources Committee reported bills to reauthorize the Act 
in 1996, these bills were not acted upon by either chamber.
    In June 1998, the Chairman of the Subcommittee on Early 
Childhood, Youth and Families of the House Education and the 
Workforce Committee (which has responsibility for the Act) 
introduced H.R. 4099, the Older Americans Act Amendments of 
1998. The bill revisited issues that remained in controversy at 
the end of the 104th Congress, and modified proposals that were 
contained in the House Committee-reported 104th Congress bill. 
H.R. 4099 would have reduced the 20 currently authorized 
programs to eight, made structural changes in the community 
service employment program, and modified the formula for 
distributing funds, among other things. The Chairman of the 
Subcommittee on Aging of the Senate Labor and Human Resources 
Committee, which has responsibility for the Act, did not 
introduce legislation in the 105th Congress.

                 1. Activity During the 105th Congress

    Although many Members of Congress and many aging 
organizations were concerned about the delay in enactment of 
reauthorization legislation, ultimately the 105th Congress did 
not take final action. The controversy raised by certain 
proposals in the 104th Congress bills, and devising ways to 
modify approaches to these proposals, were major factors in the 
delay in the 105th Congress.
    H.R. 4099 revisited certain issues that remained in 
controversy at the end of the 104th Congress, and modified 
proposals that were contained in the House Committee-reported 
104th Congress bill. These issues included proposals to (1) 
consolidate authorizations of appropriations for certain 
programs under the Act; (2) restructure the community service 
employment program; (3) change the interstate formula for 
distribution of Title III funds for supportive and nutrition 
services; (4) revise certain requirements to target supportive 
and nutrition services to low-income minority older persons 
that are in current law, while retaining an overall requirement 
to target services to these persons; and (5) impose cost-
sharing requirements for certain services so that participants 
contribute toward their costs. The Chairman of the Subcommittee 
on Aging of the Senate Labor and Human Resources Committee, 
which has responsibility for the Act, did not introduce 
legislation in the 105th Congress.
    By early summer 1998, some Members of Congress were 
concerned that there appeared to be no action on 
reauthorization. In response to rising criticism from 
constituents and constituent organizations about the lack of 
action, two bills were introduced that would have reauthorized 
the Act through FY2001. Senator McCain introduced S. 2295 on 
July 13, 1998, and Representative DeFazio introduced a 
companion bill, H.R. 4344, on July 29, 1998. The bills would 
have simply reauthorized the Act, and made no substantive 
program changes. They received substantial congressional 
support--S. 2295 had 67 co-sponsors, and H.R. 4344 had 188 co-
sponsors.
    Other reauthorization proposals were introduced. These were 
S. 390, Older Americans Act Amendments of 1997 (Mikulski), and 
H.R. 1671, Older Americans Act Amendments of 1997 (Martinez). 
These bills were similar to the reauthorization proposals 
suggested by the Administration during the 104th Congress. They 
differed from H.R. 4099 and bills reported by the House and 
Senate Committees during the 104th Congress in a number of 
ways. For example, they would not have consolidated 
authorizations of appropriations for the Act's programs, nor 
would have made major structural changes in the community 
service employment program.
    Other 105th Congress bills included S. 948, the Pension 
Assistance and Counseling Act of 1997, introduced by Senator 
Grassley, with a companion bill in the House,H.R. 2167, 
introduced by Representative Schumer. These bills would have 
amended the research, training, and demonstration program 
authorized under Title IV of the Act to create a toll-free 
telephone number for individuals who are seeking information 
and assistance regarding pension and other retirement benefits, 
among other things. No final action was taken on these bills.

                      2. Issues in Reauthorization

    Issues that continued to be in controversy in the 105th 
Congress included proposals to: restructure the Act's programs 
and reduce the number of authorizations of appropriations; 
restructure the community service employment program; impose 
cost-sharing requirements on participants toward services they 
receive; revise the formula for distributing funds for 
nutrition and supportive services to States; and change 
provisions that target services to low income minority older 
persons. The following discusses issues that were raised as 
part of the reauthorization:

  (A) Consolidation and Restructuring of Older Americans Act Programs

    Similar to the 104th Congress House and Senate Committee 
reported bills, H.R. 4099 would have consolidated and 
restructured certain Older Americans Act programs, and given 
more flexibility to States in the operation of aging service 
programs. Current law authorizes twenty separate programs under 
the Act (although some have never been funded). H.R. 4099 would 
have reduced the number of separately authorized programs to 
eight.
    While the bill proposed major changes in the structure of 
the Act, it would have preserved core functions of the State 
and area agency on aging programs under Title III. These 
include responsibilities of these agencies to plan and 
coordinate service programs on behalf of older persons, and to 
advocate for programs and services on their behalf. Current law 
requirements that State and area agencies develop State and 
area plans on aging, taking into consideration the needs of 
older persons with the greatest social and economic need, would 
have remained intact. Similar to the 104th Congress 
legislation, H.R. 4099 would have eliminated a number of 
specific plan requirements that were viewed as burdensome to 
State and area agencies.
    H.R. 4099 would have consolidated the authorization of 
appropriations for the congregate and home-delivered nutrition 
programs, now under two separate authorities. Under this 
approach, States would have received one allotment of funds for 
congregate and home-delivered meals, but would have been 
expected to assess the need for both types of nutrition 
services. The bill would have retained a separate authorization 
of appropriations for the U.S. Department of Agriculture 
portion of the nutrition program.

       (b) Restructuring the Community Service Employment Program

    The senior community service employment program, authorized 
under Title V of the Act, provides opportunities for part-time 
employment in community service activities for unemployed, low-
income older persons who have poor employment prospects. The 
program is funded at $440 million in FY1999, representing 30 
percent of Older Americans Act funds. It is administered by the 
Department of Labor (DoL), which awards funds directly to 
national sponsoring organizations \2\ and to States.
---------------------------------------------------------------------------
    \2\ The ten national organizations are: American Association of 
Retired Persons; Asociacion Nacional Por Personas Mayores; Green Thumb; 
National Asian Pacific Center on Aging; National Center and Caucus on 
the Black Aged; National Council on Aging; National Council of Senior 
Citizens; National Indian Council on Aging; National Urban League; and 
the U.S. Forest Service.
---------------------------------------------------------------------------
    H.R. 4099 would have made changes in (1) the distribution 
of funds by the Federal Government; (2) formula allocations to 
grantees; and (3) requirements regarding use of funds by 
grantees for enrollee wages and fringe benefits, 
administration, and other enrollee costs. Like the 104th 
Congress Committee-reported bills, H.R. 4099 would have 
restructured the program, in part, to respond to a 1995 General 
Accounting Office (GAO) report. That report reviewed certain 
administrative issues related to the program, including DoL's 
method of awarding funds, formula allocation of funds, and 
grantee use of funds.\3\ H.R. 4099 would have given States more 
control of the administration of the program and introduced 
competition for funds among prospective grantee organizations.
---------------------------------------------------------------------------
    \3\ General Accounting Office. Senior Community Service Employment 
Program Delivery Could Be Improved Through Legislative and 
Administrative Actions. GAO/HEHS-96-4. November 1995.
---------------------------------------------------------------------------
    In addition, H.R. 4099 would have retained the community 
service employment program as a separate Older Americans Act 
title, and retained DoL as the Federal administrative 
authority. The 104th Congress legislation would have eliminated 
the separate title and moved the program to AoA.
    Distribution of Community Service Employment Funds by the 
Federal Government.--Currently, 78 percent of funds are awarded 
by DoL directly to ten national organizations on a non-
competitive basis; 22 percent of funds is distributed to 
States. The 104th Congress bills would have transferred all 
funds now administered by national organizations to States. In 
contrast, H.R. 4099 would have transferred only a portion of 
funds now administered by national organizations to States, so 
that by FY2003, 50 percent of total funds would have been 
distributed to national organizations and 50 percent to States. 
The national organizations' share of total funds would have 
decreased from 78 percent of the total to 50 percent by FY2003, 
and the States' share would have increased from 22 percent to 
50 percent.\4\ In addition, the bill would have required that 
funds to national organizations be awarded on a competitive 
basis.
---------------------------------------------------------------------------
    \4\ Despite requirements in the authorizing statute that States are 
to receive a larger portion of funds, appropriations law for many years 
has stipulated that 78 percent of funds be distributed to national 
organizations, and 22 percent to States. This has been a long-standing 
issue. In the 1978 reauthorization of the Older Americans Act, the 
Senate Labor and Human Resources Committee expressed concern about the 
``circumvention'' by the Appropriations Committee of the authorizing 
committee formula.
    In more recent action on the funding split, for FY1997 the House 
Appropriations Committee proposed to increase the amount of funding 
allocated to States to 35 percent of the total, thereby reducing funds 
to national organizations to 65 percent. This action was taken in part 
based on recognition that the House authorizing committee was moving 
toward transferring all Title V funding to the states. However, in 
final action on FY1997 appropriations (P.L. 104-208), Congress 
continued to stipulate the 78 percent/22 percent split for national 
organizations and States, as it had done in the past.
---------------------------------------------------------------------------
    This approach was, in part, based on a goal of reducing the 
number of national organizations that operate in each State, 
and of giving States more control in the administration and 
coordination of the program. National organizations receive 
funds to administer the program in all but three States; in 
many States, multiple national organizations administer 
programs in addition to a designated State agency. Some State 
agencies have been concerned about the duplication of national 
organizations' activities that affect the distribution of 
employment positions within a State. In its report, GAO noted 
that there is inequitable distribution of funding within some 
States as well as duplication of effort among national and 
State sponsors.
    Proponents of the approach to equalize funds for national 
organizations and States indicate that costs of program 
administration and duplication of effort within States would 
decrease since there would be fewer organizations that would 
administer the program in some States. Proponents also say that 
giving States more leverage in funding decisions would increase 
coordination of effort among all grantees in States.
    The restructuring of the senior community service 
employment program generated substantial controversy during 
both the 104th and 105th Congresses. Some existing national 
grantees expressed concern that their continued existence would 
be threatened if more program funding were to be shifted to 
States, and if States, rather than the Federal Government, were 
to make decisions about which organizations would be grantees. 
They were also concerned that restructuring could result in 
disruption of jobs for some existing enrollees.\5\ A number of 
organizations and some Members of Congress indicated that the 
program has operated well under the national organizations' 
administration, and that, because of the long-standing 
association of some of the organizations with the program, they 
have expertise to continue administering the majority of funds.
---------------------------------------------------------------------------
    \5\ The modifications to the program were debated during markup of 
the bills by the House EEO Committee and the Senate Labor and Human 
Resources Committee in the 104th Congress, with certain members of the 
Committees voicing objections to the proposed restructuring. Some 
Members were concerned about the bills' approach to completely turn 
over the program to the States and that such a transition could be 
disruptive to enrollees. There was also concern that there would be a 
loss of the national organizations' expertise in administering the 
program.
    An amendment to S. 1643 to maintain direct award of funding to 
national organizations by the Federal Government offered by Senator 
Mikulski during the Labor and Human Resources Committee markup was not 
approved. Senator Mikulski stated that the restructuring of the Title V 
program would be revisited when S. 1643 reached the Senate floor. A 
similar amendment was proposed by Representative Kildee during the 
markup of H.R. 2570, but was also rejected by the EEO Committee.
---------------------------------------------------------------------------
    Formula Allocations to Grantees.--Tile V funding is 
distributed to national organizations and States using a 
combination of factors, including a ``hold harmless'' for 
employment positions held by national organizations in each 
State in 1978, and a formula based on States' relative share of 
persons aged 55 and over and per capita income. In FY 1998, 57 
percent of funds were distributed according to the hold 
harmless provision ($252 million out of $440.2 million for July 
1, 1998-June 30, 1999 program year); the balance was 
distributed according to each State's relative population of 
persons aged 55 and over and per capita income. Because the 
hold harmless provision is based on a 1978 State-by-State 
distribution of positions held by national organizations, it 
does not ensure equitable distribution of funds based on 
relative measures of age and per capita income. In its report 
on the program, GAO recommended that if Congress wishes to 
ensure equitable distribution of funds, it should consider 
eliminating or amending the hold harmless provision.
    The formula in H.R. 4099 built upon the current 
methodology, but it would have moved the hold harmless amount 
to 1998. The bill would have required that funds for FY1999-
FY2003 be distributed to States based on the share of funds 
they received in FY1998; any funds appropriated in excess of 
the FY1998 level would have been distributed on the basis of 
States' relative share of persons age 55 and over and per 
capita income. Funds would have then been distributed to 
national organizations and to State agencies as described 
above.
    Use of Funds for Enrollee Wages/Fringe Benefits, 
Administration, and Other Enrollee Costs.--Currently, funds are 
used for (1) enrollee wages and fringe benefits; (2) 
administration; and (3) other enrollee costs. DoL regulations 
require that at least 75 percent of funds be used for enrollee 
wages and fringe benefits. The law specifies that grantees are 
allowed to use up to 13.5 percent of Federal funds for 
administration (and up to 15 percent in certain circumstances). 
Any remaining funds may be used for ``other enrollee costs'' 
that, under current DoL regulations, may include recruitment 
and orientation of enrollees and supportive services for 
enrollees, among other things. In its review, GAO found that 
most national organizations and some State sponsors had 
budgeted administrative costs in excess of the statutory limit 
by inappropriately classifying them as ``other enrollee 
costs.''
    H.R. 4099 would have established a new minimum amount of 
grant funds that must be used for enrollee wages and fringe 
benefits, specify a limit on ``other enrollee costs,'' and 
redefine such costs. First, it would have required that a 
minimum of 85 percent of a grantee's funds be used for enrollee 
wages and fringe benefits compared to 75 percent in DOL 
regulations). Of these funds, up to 5 percent could be used for 
``other enrollee costs.'' The bill would have defined these as 
costs for employment-related counseling, supportive services, 
and transportation. This approach was designed to limit funds 
for administration by prohibiting funds categorized as ``other 
enrollee costs'' to be used for administration.
    The bill would have retained the same limit on 
administrative costs as in current law, that is, up to 13.5 
percent of a grantee's funds (with a waiver up to 15 percent, 
if approved by the Secretary). Under this approach, grantees 
would have paid for enrollee assessments and training from 
their administrative costs.
    Performance Standards.--H.R. 4099 would have required the 
Secretary of Labor to publish regulations establishing 
performance standards.\6\ The standards would have included 
requirements that:
---------------------------------------------------------------------------
    \6\ Development of performance standards for the program was also 
discussed during the 104th Congress. During markup of the Senate bill 
by the Committee on Labor and Human Resources, Senator Mikulski 
introduced an amendment that would have established certain performance 
standards for the program.
---------------------------------------------------------------------------
         At least 20 percent of participants are placed 
        in unsubsidized employment, and that they remain in 
        unsubsidized jobs for at least four months after 
        placement;
         There be a specific percentage reduction in 
        participants' dependency on public assistance, as a 
        result of program participation;
         A specific percentage of participants receive 
        employment and training through other Federal, State 
        and local training programs; and
         There be a specific percentage increase in 
        employment opportunities in underserved areas.
    The bill also specifies penalties and adjustment to grants 
if grantees fail to meet the standards.

  (c) Interstate Funding Formula for Supportive and Nutrition Services

    The way in which AoA distributes nutrition and supportive 
funds to States continued to be at issued during the 105th 
Congress as it had during the 104th Congress. Current law 
requires the Administration on Aging (AoA) to distribute Title 
III funds for supportive and nutrition services to States based 
on their relative share of the population aged 60 and older. In 
addition to specifying certain minimum funding amounts, the law 
contains a ``hold harmless'' provision requiring that no State 
receive less than it received in FY1987.
    AoA distributes funds for supportive and nutrition services 
in the following way. First, States are allotted funds in an 
amount equal to their FY1987 allocations, which were based on 
estimates of States' relative share of the total U.S. 
population in 1985.\7\ Second, the balance of the appropriation 
is allotted to States based on their relative share of the 
population aged 60 and over as derived from the most recently 
available estimates of State population. And third, State 
allotments are adjusted to assure that the minimum grant 
requirements are met. The effect of this methodology is that 
the majority of funds are distributed according to population 
estimates that do not reflect the most recent population 
trends. For example, for FY1998, 84 percent of total Title III 
funds were distributed according to the FY1987 ``hold 
harmless.'' The remainder of funds appropriated was distributed 
according to 1996 population data.
---------------------------------------------------------------------------
    \7\ There is usually a two-year time lag in availability of 
estimates of State population from the U.S. Census Bureau; therefore, 
for example, 1998 funding allotments relied on 1996 State population 
estimates.
---------------------------------------------------------------------------
    The method that AoA uses to meet the 1987 ``hold harmless'' 
provision has received some scrutiny. In a 1994 report, GAO 
concluded that Title III funds are not distributed according to 
the requirements of the statute.\8\ GAO concluded that the 
method employed by AoA does not distribute funds 
proportionately according to States' relative share of the 
older population, based on the most recent population data and, 
therefore, negatively affects States whose older population is 
growing faster than others. GAO recommended that AoA revise its 
method to allot funds to States, first, on the basis of the 
most current population estimates, and then adjust the 
allotments to meet the hold harmless and statutory minimum 
requirements.
---------------------------------------------------------------------------
    \8\ U.S. General Accounting Office. Older Americans Act. Title III 
Funds Not Distributed According to Statute. GAO/HEHS-94-37. January 
1994.
---------------------------------------------------------------------------
    H.R. 4099 would have followed the GAO recommendation by 
requiring that funds be distributed, first, according to the 
most recent data on States' relative share of persons sixty 
years and older. The bill then stipulated that no State would 
receive less than it received in FY1998, thereby creating a 
1998 hold harmless requirement. The intent of this approach was 
to have more of total funding distributed according to the most 
recent population data as total funding increases over the 
FY1998 level, but at the same time assuring that States 
allotments would not go below their FY1998 levels. The actual 
effect of this approach in FY1999 would have been that States 
would have generally received approximately the same amount as 
they received in FY1998 because funding for nutrition and 
supportive services did not increase between those years.
    H.R. 4099 differed from the 104th Congress House Committee-
reported bill, which would have gradually eliminated the 1987 
hold harmless requirement over a period of years. Some States 
were concerned about this approach, indicating that without a 
hold harmless provision, they would have lost funds. H.R. 
4099's hold harmless provision may have ameliorated concerns of 
some States that would have lost funds under the 104th Congress 
bill.\9\
---------------------------------------------------------------------------
    \9\ The Senate Committee-approved bill would have taken a different 
approach to changing the formula. It would have based allotments for 
supportive and nutrition services on two factors: a composite measure 
that attempts to capture the relative size of a State's relative 
``elderly in-need'' (EIN) percentage; and, a measure of a State's 
relative total taxabale resources compared to the State's relative EIN.
---------------------------------------------------------------------------

     (d) Targeting of Services to Low-Income Minority Older Persons

    Targeting of services to low-income minority older persons 
continued to be a subject of review during the 105th Congress, 
as it has during past reauthorizations of the Act. Current law 
contains numerous requirements that State and area agencies on 
aging target services to persons in greatest social and 
economic need, with particular attention to low-income minority 
older persons. It also requires that the agencies set specific 
objectives for serving low-income minority older persons and 
that program development, advocacy, and outreach efforts be 
focused on these groups. Service providers are required to meet 
specific objectives set by area agencies for providing services 
to low-income minority older persons, and area agencies are 
required to describe in their area plans how they have met 
these objectives.
    The House bill, as introduced in the 104th Congress, would 
have retained requirements that the Title III program focus on 
older persons who have the greatest social and economic need, 
but would have deleted a number of provisions on specific 
targeting on low-income minority older persons that are in 
current law. These deletions were debated during markup of the 
bill by the EEO Committee; an amendment to the bill that would 
have restored certain targeting requirements contained in 
current law was rejected.
    H.R. 4099 contained targeting provisions that are similar 
to those contained in the 104th Congress House Committee-
reported bill, but also contains other references that were not 
in the Committee-reported bill. It would have required that (1) 
State agencies develop a formula to distribute funds within the 
state, taking into account the geographical distribution of 
older individuals with greatest social or economic need; (2) 
preference be given to providing services to older individuals 
with greatest social and economic need, with particular 
attention to low-income minority older individuals; (3) State 
and area agencies evaluate the need for services by older 
individuals with the greatest social and economic need, with 
particular attention to low-income older individuals; and (4) 
State and area agencies conduct outreach to older individuals 
with the greatest social and economic need, and to low-income 
older individuals.
    The bill did not contain all references to low-income 
minority older individuals that are in current law. Therefore, 
the targeting issue continued to be debated during the 105th 
Congress.

             (e) Cost-Sharing for Services by Older Persons

    One of the most frequent issues to arise in past 
reauthorization legislation has been whether the Act should 
allow mandatory cost sharing for certain social services. Under 
current law and regulations, mandatory fees are prohibited, but 
nutrition and supportive services providers are allowed to 
solicit voluntary contributions from older persons toward the 
costs of services. Older persons may not be denied a service 
because they will not or cannot make a contribution. Funds 
collected through voluntary contributions are to be used to 
expand services. In the past, Congress has resisted any 
attempts to allow Older Americans Act programs to charge fees 
for services.
    H.R. 4099 would have allowed States to apply cost sharing 
to most Title III services on a sliding scale basis. It would 
have prohibited cost sharing for certain services--these are 
information and assistance, outreach, benefits counseling, case 
management, and ombudsman and other protective services. It 
would have prohibited States from imposing cost sharing on 
individuals with low income (as defined by the State, but no 
lower than 125 percent of the Federal poverty level), and would 
have required that incomes of older persons be determined on a 
self-declaration basis. It would have prohibited States from 
denying older persons services because of an inability to pay, 
and would have continued to allow older persons to make 
voluntary contributions for services, as under current law. 
This cost-sharing provision is the same as that in the 104th 
House Committee-approved bill. The Administration's bill for 
the 104th Congress also proposed a new provision on cost-
sharing. It contained some of the same elements as the House 
and Senate-Committee approved bills, but would have also 
exempted nutrition services from cost-sharing.
    State and area agencies on aging have been in favor of a 
policy that would allow them to impose cost sharing for certain 
services, arguing, in part, that such a policy would eliminate 
barriers to coordination with other State-funded services 
programs that do require cost sharing, and would improve 
targeting of services to those most in need. Some 
representatives of aging services programs, such as those 
representing minority/ethnic elderly, have been opposed to cost 
sharing, arguing, in part, that a mandatory cost sharing policy 
would discourage participation by low-income and minority older 
persons and would create a welfare stigma. In the 1987 and 1992 
reauthorizations of the Act, Congress considered, but 
ultimately rejected, proposals to change the current voluntary 
contributions policy.

C. OLDER AMERICANS ACT APPROPRIATIONS, FY1998-FY1999, and FY2000 BUDGET 
                                REQUEST

                           1. FY1999 Funding

    On October 21, 1998, the President signed P.L. 105-277, the 
Omnibus Consolidated Appropriations Act, 1999, completing the 
FY1999 funding cycle. FY1999 funding for programs under the 
Older Americans Act totals $1.456 billion,\10\ $11 million more 
than in FY1998, resulting in less than a 1 percent increase. A 
substantial portion of this increase ($8 million) was for Title 
IV activities, training, research, and discretionary projects 
and programs.
---------------------------------------------------------------------------
    \10\ Programs under the Older Americans Act, with the exception of 
the USDA commodities program, are funded annually under appropriations 
legislation for the Departments of Labor, Health and Human Services, 
and Education and Related Agencies (L-HHS-ED). Funding for the USDA 
commodities program is included in appropriations legislation for 
Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies.
---------------------------------------------------------------------------
    The Administration's FY2000 budget request includes funding 
of $1.632 billion for the OAA programs, a 12 percent increase 
in funding over FY1999. The request includes $125 million for a 
new National Family Caregiver Support program under Title III.
    See Table 1 for FY1998-FY1999 funding and the 
Administration's FY FY2000 funding.

   TABLE 1. OLDER AMERICANS ACT AND ALZHEIMER'S DEMONSTRATION PROGRAM, FY1998-FY1999 FUNDING AND FY2000 BUDGET
                                                     REQUEST
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                      FY2000
                                                                FY1998 approp.   FY1999 Omnibus    President's
                                                                                    approp.          request
----------------------------------------------------------------------------------------------------------------
Title II: Administration on Aging............................         $14.795          $14.795          $16.830
    Federal Council on Aging.................................  ...............  ...............  ...............
    AoA program administration...............................          14.795           14.795           16.830
Title III: Grants for State and Community Programs on Aging..         961.798          952.617         1122.617
    Supportive services and centers..........................         309.500          300.319          310.082
    Preventive health........................................          16.123           16.123           16.123
    Nutrition services.......................................         626.412          626.412          671.412
        Congregate meals.....................................        (374.412)        (374.412)        (374.412)
        Home-delivered meals.................................        (112.000)        (112.000)        (147.000)
        USDA commodities.....................................        (140.000)        (140.000)        (150.000)
        School-based meals/multigenerational activities......  ...............  ...............  ...............
    National Family Caregiver Support........................  ...............  ...............         125.000
    In-home services for the frail elderly...................           9.763            9.763          \1\
    Assistance for special needs.............................  ...............  ...............  ...............
    Supportive activities for caretakers.....................  ...............  ...............         \1\
Title IV: Training, Research, and Discretionary Projects and           10.000           18.000           22.000
 Programs....................................................
    Health Disparities Intervention Grants...................  ...............  ...............          (4.000)
Title V: Community Service Employment........................         440.200          440.200          440.200
Title VI: Grants for Native Americans........................          18.457           18.457           18.457
Title VII: Vulnerable Elder Rights Protection Activities.....       (\2\)           \3\ 12.181           12.181
    Long-term care ombudsman program.........................  ...............          (7.449)       (\4\)
    Elder abuse prevention...................................  ...............          (4.732)       (\4\)
    Elder rights and legal assistance........................  ...............  ...............       (\4\)
    Outreach, counseling, and assistance.....................  ...............  ...............       (\4\)
    Native Americans elder rights program....................  ...............  ...............  ...............
                                                              --------------------------------------------------
      Total--Older Americans Act Programs....................       1,445.250        1,456.250        1,632.285
Alzheimer's Demonstration Grants.............................       \5\ 5.999        \5\ 5.999        \5\ 5.970
----------------------------------------------------------------------------------------------------------------
\1\ The Administration has proposed a National Family Caregiver Support program to replace the authorization of
  appropriations for In-home services for the frail elderly and Supportive activities for caretakers.
\2\ No separate funding provided. The House Appropriations Committee included an unspecified amount for
  ombudsman and elder abuse prevention under supportive services and centers. The conference committee earmarked
  $4.449 for ombudsman services and $4.732 for elder abuse prevention in the supportive services program.
\3\ For FY1999, Title VII activities received a separate appropriation.
\4\ The Administration proposes consolidating funding for the long-term care ombudsman program; the elder abuse
  prevention program; the elder rights and legal assistance program; and the outreach, counseling and assistance
  program.
\5\ The FY1999 Omnibus Consolidated Appropriations Act (P.L. 105-277/H.R. 4328) transferred the administration
  of the program from the Health Resources and Services Administration to AoA. The program is still authorized
  under Section 398 of the Public Health Service Act.

                       2. The Older Americans Act

                            (a) introduction

    The Older Americans Act (OAA) provides funding to State 
agencies on aging and area agencies on aging for a wide range 
of home and community-based services. Although funding under 
the Older Americans Act is small compared to Federal funding 
available under the Medicare and Medicaid programs, many state 
and area agencies have been leaders in the development of a 
system of home and community-based services in their respective 
states and communities.
    The OAA does not focus exclusively on long-term care, but 
development of programs for persons in need of both home and 
community-based and institutional long-term care services has 
been a focus in various amendments to the Act. The purpose of 
Title III is to foster the development of a comprehensive and 
coordinated services system that will provide a continuum of 
care for vulnerable elderly persons and allow them to maintain 
maximum independence and dignity in a home environment. Title 
III specifically authorizes funding for many community-based 
long-term care services, including homemaker/home health aide 
services, adult day care, respite, and chore services. Title 
III funds a variety of other supportive services and nutrition 
services. Home care services have been considered a priority 
service for Title III funding since 1975.
    The amount of funding devoted to home care services under 
Title III represents a small fraction of the amount spent for 
such services under Medicaid and Medicare; however, the Title 
III program has the flexibility to provide home care services 
to impaired older persons without certain restrictions that 
apply under these programs, for example, the skilled care 
requirements under Medicare, and the income and asset tests 
under Medicaid. In some cases, OAA funds may be used to assist 
persons whose Medicare benefits have been exhausted or who are 
ineligible for Medicaid.
    The role of the OAA in providing congregate and home-
delivered meals to the elderly is an important contribution to 
the long-term care system. Recent trends in the nutrition 
program indicate that State and area agencies on aging have 
given increased attention to funding meals for the homebound 
through the Title III program. Currently, the number of meals 
served to older persons in their homes is almost equal to the 
number provided in community settings under the congregate 
nutrition program.
    Congress recognized the growing need for in-home services 
when it amended the OAA to expand in-home services authorized 
under Title III. The Older Americans Act Amendments of 1987 
(P.L. 100-175) added a new Part D to Title III, authorizing 
grants to States for nonmedical in-home services for frail 
older persons. These services include assistance in such areas 
as bathing, dressing, eating, mobility, or performance of daily 
activities such as shopping, cooking, cleaning, or managing 
money. In-home respite services and adult day care for 
families, visiting and telephone reassurance, and minor home 
renovation and repair are additional examples of allowable 
services under Part D.

             (b) growth in the home-delivered meals program

    Congress makes separate appropriations of Title III funds 
for supportive services, congregate and home-delivered 
nutrition services, and in-home services for the frail elderly. 
States receive allotments of these funds according to the 
number of persons age 60 and older in the State as compared to 
all States. Appropriations for Title III in FY1999 is $952 
million. (The Older Americans Act chapter contains detailed 
information on funding.)
    The total number of meals served under the nutrition 
program has increased by 41 percent through the period 1980 
through 1996 (the latest available data). Home-delivered meals 
accounted for the largest share of that growth, increasing by 
227 percent during that period, compared to an actual decline 
of 41 percent in meals served in congregate settings.
    There are a number of reasons for this enormous growth in 
home-delivered meals. Funding for home-delivered nutrition 
services has increased more rapidly than for congregate meal 
services. From 1980 to 1999, funding for home-delivered meals 
increased by 124 percent, compared to an increase of only 39 
percent for the congregate program. In addition, states have 
increasingly transferred funds allotted for congregate meals to 
their home-delivered meals programs in order to meet the 
increasing demand of the growing older population. Persons in 
the oldest age categories are more likely to need more in-home 
services, such as home-delivered meals. Moreover, States' 
efforts to develop comprehensive home and community-based long-
term care systems have had an impact on this growth, as States 
have implemented policies to provide services to enable frail 
older persons to remain in their own homes, rather than in 
institutions. Finally, earlier discharge of elderly patients 
from the hospital has resulted in an increased demand for home-
delivered meals.

                  (c) long-term care ombudsman program

    Another important role the OAA plays in long-term care is 
in the long-term care ombudsman program. The program began as a 
demonstration project in the early 1970's as a part of the 
Federal response to serious quality-of-care concerns in the 
Nation's nursing homes. These demonstration ombudsman programs 
were charged with the responsibility to resolve the complaints 
made by or on behalf of nursing home residents, document 
problems in nursing homes, and test the effectiveness of the 
use of volunteers in responding to complaints. As a result of 
the success of the early programs, Congress established 
statutory authority for the program in the 1978 amendments to 
the OAA.
    Each State is required to establish and operate a long-term 
care ombudsman program. These programs, under the direction of 
a full-time State ombudsman, have responsibilities to (1) 
investigate and resolve complaints made by or on behalf of 
residents of nursing homes and board and care facilities, (2) 
monitor the development and implementation of Federal, State, 
and local laws, regulations, and policies with respect to long-
term care facilities, (3) provide information as appropriate to 
public agencies regarding the problems of residents of long-
term care facilities, and (4) provide for training staff and 
volunteers and promote the development of citizen organizations 
to participate in the ombudsman program.
    The primary role of long-term care ombudsmen is that of 
consumer advocate. However, they are not limited to responding 
to complaints about the quality of care. Problems with public 
entitlements, guardianships, or any number of issues that a 
nursing home resident may encounter are within the jurisdiction 
of the ombudsman. A major objective of the program is to 
establish a regular presence in long-term care facilities, so 
that ombudsman can become well-acquainted with the residents, 
the employees, and the workings of the facility.
    In FY1996, there were about 570 local ombudsmen program 
with about 850 paid staff (full-time equivalents). However, the 
program relies heavily on volunteers to carry out ombudsman 
responsibilities--about 13,000 volunteers assisted paid staff 
in fiscal year 1996.
    In fiscal year 1996, ombudsman investigated 127,000 new 
cases and closed 116,000 cases. These cases involved almost 
180,000 complaints. About 81 percent of complaints involved 
care in nursing facilities, and 19 percent in board and care 
homes and other settings. About two-thirds of complaints 
related to resident care and rights; the remainder had to do 
with other issues, such as facility administration and quality 
of life.
    About $41.5 million was spent on ombudsman activities from 
all sources in FY1996. About 62 percent was from the OAA. 
Nonfederal sources represent a significant portion of total 
ombudsman funding--$15.2 million, representing 37 percent of 
total funds. A small additional amount was supplied by other 
federal sources.
    The 1992 OAA amendments required the Assistant Secretary 
for Aging to evaluate the program. The evaluation, conducted by 
the Institute of Medicine (IOM), concluded that the program 
serves a vital public interest, and that it is understaffed and 
underfunded to carry out its broad and complex responsibilities 
of investigating and resolving complaints of the over 2 million 
elderly residents of nursing homes and board and care 
facilities. The report recommended increased funding to allow 
states to carry out the program as stipulated by law and to 
provide for greater program accountability.


                               Chapter 15



                 SOCIAL, COMMUNITY, AND LEGAL SERVICES

                                OVERVIEW

    Social service programs funded by the Federal Government 
support a broad range of services to older Americans. These 
programs provide funds to operate a variety of community and 
social services including home health programs, legal services, 
education, transportation, and volunteer opportunities for 
older Americans.
    In the 1980's, two basic themes emerged with respect to the 
delivery of social services for the elderly. States were given 
greater discretion in the administration of social services as 
part of ``New Federalism'' initiatives. This shift toward block 
grant funding was accompanied by a general trend toward fiscal 
restraint and retrenchment of the Federal role in human 
services. As a result, the competition for scarce resources 
accelerated between the elderly and other needy groups.
    In addition to cuts accompanying the block grants, the 
1980's brought reduced spending for education, transportation, 
and attempts to eliminate entirely legal services. Older 
Volunteer Programs, by contrast, enjoyed strong support.
    More recently, following the war in the Persian Gulf and 
the continuing changes in Russia, advocates of human service 
programs were hopeful that the reduced pressures to finance 
large defense requirements would result in greater Federal 
resources being devoted to social service programs. Despite the 
changing political climate, the economy and the budget deficit 
have prevented significant policy changes in 1992 and 1993. 
Advocates, however, remain hopeful that the new 
administration's policies and goals will help revitalize 
important social programs.--[Note to Committee staff--this 
paragraph should be rewritten to reflect current 
circumstances.]

                            A. BLOCK GRANTS

                             1. Background

                    (a) Social Services Block Grant

    Social services programs are designed to protect 
individuals from abuse and neglect, help them become self-
sufficient, and reduce the need for institutional care. Social 
services for welfare recipients were not included in the 
original Social Security Act, although it was later argued that 
cash benefits alone would not meet all the needs of the poor. 
Instead, services were provided and funded largely by State and 
local governments and private charitable agencies. The Federal 
Government began funding such programs under the Social 
Security Act in 1956 when Congress authorized a dollar-for-
dollar match of State social services funding; however, this 
matching rate was not sufficient incentive for many States and 
few chose to participate. Between 1962 and 1972, the Federal 
matching amount was increased and several program changes were 
made to encourage increased State spending. By 1972, a limit 
was placed on Federal social services spending because of 
rapidly rising costs. In 1975, a new Title XX was added to the 
Social Security Act which consolidated various Federal social 
services programs and effectively centralized Federal 
administration. Title XX provided 75 percent Federal financing 
for most social services, except family planning which was 90 
percent federally funded.
    In 1981, Congress created the Social Services Block Grant 
(SSBG) as part of the Omnibus Budget Reconciliation Act (OBRA). 
Non-Federal matching requirements were eliminated and Federal 
standards for services, particularly for child day care, also 
were dropped. The block grant allows States to design their own 
mix of services and to establish their own eligibility 
requirements. There is also no federally specified sub-State 
allocation formula.
    The SSBG program is permanently authorized by Title XX of 
the Social Security Act as a ``capped'' entitlement to States. 
Legislation amending Title XX is referred to the House Ways and 
Means Committee and the Senate Finance Committee. The program 
is administered by HHS.
    SSBG provides supportive services for the elderly and 
others. States have wide discretion in the use of SSBG funds as 
long as they comply with the following broad guidelines set by 
Federal law. First, the funds must be directed toward the 
following federally established goals: (1) prevent, reduce, or 
eliminate dependency; (2) prevent neglect, abuse or 
exploitation of children and adults; (3) prevent or reduce 
inappropriate institutional care; (4) secure admission or 
referral for institutional care when other forms of care are 
not appropriate; and (5) provide services to individuals in 
institutions. Second, the SSBG funds may also be used for 
administration, planning, evaluation, and training of social 
services personnel. Finally, SSBG funds may not be used for 
capital purchases or improvements, cash payments to 
individuals, payment of wages to individuals as a social 
service, medical care, social services for residents of 
residential institutions, public education, child day care that 
does not meet State and local standards, or services provided 
by anyone excluded from participation in Medicare and other SSA 
programs. States may transfer up to 10 percent of their SSBG 
allotments to certain Federal block grants for health 
activities and for low-income home energy assistance.
    Welfare reform legislation enacted in the 104th Congress 
(P.L. 104-193) established a new block grant, called Temporary 
Assistance for Needy Families (TANF), to replace the former Aid 
to Families with Dependent Children (AFDC) program. The welfare 
reform law originally allowed States to transfer no more than 
10 percent of their TANF allotments to the SSBG. This will be 
reduced to 4.25 percent, effective in FY2001. These transferred 
funds may be used only for children and families whose income 
is less than 200 percent of the Federal poverty guidelines. 
Moreover, notwithstanding the SSBG prohibition against use of 
funds for cash payments to individuals, these transferred funds 
may be used for vouchers for families who are denied cash 
assistance because of time limits under TANF, or for children 
who are denied cash assistance because they were born into 
families already receiving benefits for another child.
    Some of the diverse activities that block grant funds are 
used for are: child and adult day-care, home-based services for 
the elderly, protective and emergency services for children and 
adults, family planning, transportation, staff training, 
employment services, meal preparation and delivery, and program 
planning.

                   (b) community services block grant

    The Community Services Block Grant (CSBG) is the current 
version of the Community Action Program (CAP), which was the 
centerpiece of the war on poverty of the 1960's. This program 
originally was administered by the Office of Economic 
Opportunity within the Executive Office of the President. In 
1975, the Office of Economic Opportunity was renamed the 
Community Services Administration (CSA) and reestablished as an 
independent agency of the executive branch.
    As the cornerstone of the agency's antipoverty activities, 
the Community Action Program gave seed grants to local, private 
nonprofit or public organizations designated as the official 
antipoverty agency for a community. These community action 
agencies were directed to provide services and activities 
``having a measurable and potentially major'' impact on the 
causes of poverty. During the agency's 1-year history, numerous 
antipoverty programs were initiated and spun off to other 
Federal agencies, including Head Start, legal services, low-
income energy assistance and weatherization.
    Under a mandate to assure greater self-sufficiency for the 
elderly poor, the CSA was instrumental in developing programs 
that assured access for older persons to existing health, 
welfare, employment, housing, legal, consumer, education, and 
other services. Programs designed to meet the needs of the 
elderly poor in local communities were carried out through a 
well-defined advocacy strategy which attempted to better 
integrate services at both the State level and the point of 
delivery.
    In 1981, the Reagan Administration proposed elimination of 
the CSA and the consolidation of its activities with 11 other 
social services programs into a social services block grant as 
part of an overall effort to eliminate categorical programs and 
reduce Federal overhead. The administration proposed to fund 
this new block grant in fiscal year 1982 at about 75 percent of 
the 12 programs' combined spending levels in fiscal year 1981. 
Although the General Accounting Office and a congressional 
oversight committee had criticized the agency as being 
inefficient and poorly administered, many in Congress opposed 
the complete dismantling of this antipoverty program. 
Consequently, the Congress in the Omnibus Budget Reconciliation 
Act of 1981 (P.L. 97-35) abolished the CSA as a separate 
agency, but replaced it with the CSBG to be administered by the 
newly created Office of Community Services within the 
Administration for Children and Families, under the Department 
of Health and Human Services (HHS).
    The CSBG Act requires States to submit an application to 
HHS, promising the State's compliance with certain 
requirements, and a plan showing how this promise will be 
carried out. States must guarantee that legislatures will hold 
hearings each year on the use of funds. States also must agree 
to use block grants to promote self-sufficiency for low-income 
persons, to provide emergency food and nutrition services, to 
coordinate public and private social services programs, and to 
encourage the use of private-sector entities in antipoverty 
activities. However, neither the plan nor the State application 
is subject to the approval of the Secretary. No more than 5 
percent of the funds, or $55,000, whichever is greater, may be 
used for administration.
    Since States had not played a major role in antipoverty 
activities when the CSA existed, the Reconciliation Act of 1981 
offered States the option of not administering the new CSBG 
during fiscal year 1982. Instead, HHS would continue to fund 
existing grant recipients until the States were ready to take 
over the program. States which opted not to administer the 
block grants in 1982 were required to use at least 90 percent 
of their allotment to fund existing community action agencies 
and other prior grant recipients. In the Act, this 90-percent 
pass-through requirement applied only during fiscal year 1982. 
However, in appropriations legislation for fiscal years 1983 
and 1984, Congress extended this provision to ensure program 
continuity and viability.
    In 1984, Congress made the 90-percent pass-through 
requirement permanent and applicable to all States under Public 
Law 98-558. Currently, about 1,134 eligible service providers 
receive funds under the 90-percent pass-through. More than 80 
percent of these entities are community action agencies and the 
remainder include limited purpose agencies, migrant or seasonal 
farmworker organizations, local governments or councils of 
government, and Indian tribes or councils.
    The National Association for State Community Services 
Programs (NASCSP) has released a 50-State survey of programs 
funded by CSBG in 1995. Among the principal findings were: (1) 
91 percent of CSBG funds are received by local agencies 
eligible for the congressionally mandated pass-through; (2) 80 
percent of such eligible agencies are Community Action Agencies 
(CAA's); (3) approximately 71 percent of the funds received by 
CSBG-funded agencies come from Federal programs other than 
CSBG; (4) approximately 14 percent of funds received by CSBG-
funded agencies come from State and local government sources; 
and (5) CSBG money constitutes only 6 percent of the total 
funds received by CSBG-funded agencies.
    Local agencies from 50 States provided detailed information 
about their uses of CSBG funds. Those agencies used CSBG money 
in the following manner: emergency services (22 percent), 
linkages between and among programs (22 percent), nutrition 
programs (11 percent), education (9 percent), employment 
programs (9 percent), income management programs (5 percent), 
housing initiatives (8 percent), self-sufficiency (9 percent), 
health (3 percent), and other (2 percent).

                               2. Issues

              (a) need for community services block grants

    After 2 years of existence, the Reagan Administration 
proposed to terminate the CSBG entirely for fiscal year 1984, 
and to direct States to use other sources of funding for 
antipoverty programs, particularly SSBG dollars. In justifying 
this phaseout and suggesting funding through the SSBG, the 
Administration maintained that States would gain greater 
flexibility because the SSBG suggested fewer restrictions. 
According to the Administration, States then would be able to 
develop the mix of services and activities that were most 
appropriate to the unique social and economic needs of their 
residents.
    However, a 1986 GAO report on the operation of CAA's which 
was funded by the CSBG refuted this claim. Specifically, the 
GAO addressed the Administration's position that: The type of 
programs operated under CSBG duplicated social service programs 
under the SSBG; CAA's can find other Federal and State funds to 
cover administrative activities; and funding under CSBG is not 
essential to the continued operation of CAA's.
    The report found that, in general, CSBG-funded services 
often were short-term and did not duplicate those provided 
under SSBG. Primarily, CSBG funds are used to provide services 
that fulfill unmet local needs and to complement those services 
provided by other agencies. Unmet local needs cited by GAO 
include temporary housing, transportation, and services for the 
elderly. CSBG-funded agencies provided such complementary 
programs as the training of day care personnel for SSBG-funded 
day care programs and temporary shelter for clients awaiting 
more permanent housing financed by other sources. The most 
predominant CSBG-funded services found by GAO were information, 
outreach, and referral, as well as emergency and nutritional 
services.
    GAO also found that CSBG funds often are used for 
administration of other social service programs, which may have 
limitations on the use of their own funds for administrative 
expenses. Consequently, CAAs are not in a position to find 
other Federal and State funds to cover administrative costs. 
According to GAO, the Federal Government in 1984 provided 89 
percent of the total funds received by CAAs in 32 States. The 
remaining 11 percent of the 1984 budgets of reporting CAAs were 
provided by CSBG funds. Several other Federal programs 
including Head Start, the Community Development Block Grant, 
and Low Income Home Energy Assistance, provide substantial CAA 
funding.
    The GAO report also did not support the Administration's 
claims that CSBG funding is nonessential to continued program 
operation. State and local governments are under such fiscal 
duress that they may not be able to replace lost CSBG funds.
    In every budget package submitted to Congress since its 
inception, the Reagan and Bush Administrations proposed phasing 
out the CSBG. The Clinton Administration, however, has 
supported funding for the CSBG, and has signed legislation to 
reauthorize the program twice, in 1994 and in 1998.

                     (b) Elderly Share of Services

                                (1) SSBG

    The role that the Social Services Block Grant plays in 
providing services to the elderly had been a major concern to 
policymakers. Supporters of the SSBG concept have noted that 
social services can be delivered more efficiently and 
effectively due to administrative savings and the 
simplification of Federal requirements. Critics, on the other 
hand, have opposed the block grant approach because of the 
broad discretion allowed to States and the loosening of Federal 
restrictions and targeting provisions that assure a certain 
level of services for groups such as the elderly. In addition, 
critics have noted that reductions in SSBG funding could 
trigger uncertainty and increase competition between the 
elderly and other needy groups for scarce social service 
resources.
    Under Title XX, the extent of program participation on the 
part of the elderly was difficult to determine because programs 
were not age specific. In the past, States have had a great 
deal of flexibility in reporting under the program and, as a 
result, it has been hard to identify the number of elderly 
persons served, as well as the type of services they received. 
The elimination of many of the reporting requirements under 
SSBG made efforts to track services to the elderly very 
difficult. In the past, States had to submit pre-expenditure 
and post-expenditure reports to HHS on their intended and 
actual use of SSBG funds. These reports were not generally 
comparable across States, and their use for national data was 
limited. In 1988, Section 2006 of the SSA was amended to 
require that these reports be submitted annually rather than 
biennially. In addition, a new subsection 2006(c) was added to 
require that certain specified information be included in each 
State's annual report and that HHS establish uniform 
definitions of services for use by States in preparing these 
reports. HHS published final regulations to implement these 
requirements on November 15, 1993.
    These regulations require that the following specific 
information be submitted as a part of each State's annual 
report: (1) The number of individuals who received services 
paid for in whole or in part with funds made available under 
Title XX, showing separately the number of children and adults 
who received such services, and broken down in each case to 
reflect the types of services and circumstances involved; (2) 
the amount spent in providing each type of service, showing 
separately the amount spent per child and adult; (3) the 
criteria applied in determining eligibility for services (such 
as income eligibility guidelines, sliding fee scales, the 
effect of public assistance benefits and any requirements for 
enrollment in school or training programs); and (4) the methods 
by which services were provided, showing separately the 
services provided by public agencies and those provided by 
private agencies, and broken down in each case to reflect the 
types of services and circumstances involved. The new reporting 
requirements also direct the Secretary to establish uniform 
definitions of services for the States to use in their reports. 
All States now have submitted reports to HHS, but these reports 
have not been compiled or analyzed to provide national 
information on individuals served under the SSBG. However, an 
analysis by the Congressional Research Service found that in 
FY1995, states spent approximately 10 percent of their SSBG 
funds for home-based services.
    In addition to these annual reports, another source of data 
on Title XX is from the Voluntary Cooperative Information 
System (VCIS) of the American Public Welfare Association (APWA) 
funded by HHS. This is a voluntary survey conducted by APWA to 
fill in the gap caused by the lack of Federal reporting 
requirements in the past. The most recent VCIS survey published 
in January 1994 covers information for fiscal year 1990. A 
total of 33 State or territorial agencies participated in this 
survey. It must be kept in mind that the VCIS data base is 
incomplete because a number of States were able to provide only 
partial data or their data could not be used due to lack of 
conformity with reporting guidelines. Data from 21 States shows 
that a total of five services accounted for more than half of 
all services provided to adults and the elderly. These services 
are--information and referral services, homemaker/home-
management/chore services, family planning services, protective 
services, and counseling services. (It should be noted that not 
all States included in the analysis were able to provide data 
for every service category.) Data from 14 States shows that 
homemaker/home management/chore services accounted for three-
quarters of all expenditures for adults and the elderly. Again 
not all 14 States were able to provide data for every service 
category.
    In 1990, the American Association of Retired Persons 
released a survey of States regarding the amount of SSBG funds 
being used for services to the elderly. The survey showed that 
44 States use some portion of their SSBG funds to provide 
services to older persons. The percentage of Federal funds used 
for seniors ranged from 0 to 90 percent in 39 States that were 
able to provide age-specific estimates. Most States indicated 
that they have held service levels relatively constant by a 
variety of devices, including appropriating their own funds, 
cutting staff, transferring programs to other funding sources, 
requiring local matching funds, or reducing the frequency of 
services to an individual. The most frequently provided 
services were home-based, adult protective, and case 
management/access. Other uses include family assistance, 
transportation, nutrition/meals, socialization and disabled 
services. All but 3 of the 47 States responding to the survey 
reported that services for older people have suffered from the 
absence of increases in Federal SSBG funding. As a result, 
States have raised the eligibility criteria so that they 
provide fewer and less comprehensive services to fewer people 
and, except with respect to protective services, they serve 
only the very low-income elderly. In addition, some States 
reported that shrinking funds make it necessary to consider the 
costs of services more than the quality of services.
    It seems clear that there is a strong potential for fierce 
competition among competing recipient groups for SSBG dollars. 
Increasing social services needs along with declining support 
dollars portends a trend of continuing political struggle 
between the interests of elderly indigent and those of indigent 
mothers and children. In the coming years, a fiscal squeeze in 
social service programs could have massive political 
reverberations for Congress, the Administration, and State 
governments as policymakers contend with issues of access and 
equity in the allocation of scarce resources.

                             (2) CSBG Funds

    The proportion of CSBG funds that support services for the 
elderly and the extent to which these services have fluctuated 
as a result of the block grant also remains unclear. When the 
CSBG was implemented, many of the requirements for data 
collection previously mandated and maintained under the 
Community Services Administration were eliminated. States were 
given broad flexibility in deciding the type of information 
they would collect under the grant. As a result of the minimal 
reporting requirements under the CSBG, there is very little 
information available at the Federal level regarding State use 
of CSBG funds.
    The report by NASCSP on State use of fiscal year 1995 CSBG 
funds, discussed above, provides some interesting clues. 
Although the survey was voluntary, all but two jurisdictions 
eligible for CSBG allotments answered all or part of the 
survey. Thus, NASCSP received data on CSBG expenditures broken 
down by program category and number of persons served which 
provides an indication of the impact of CSBG services on the 
elderly. For example, data from 50 States show expenditures for 
employment services, which includes job training and referral 
services for the elderly, accounted for 9 percent of total CSBG 
expenditures in those States. A catchall linkage program 
category supporting a variety of services reaching older 
persons, including transportation services, medical and dental 
care, senior center programs, legal services, homemaker and 
chore services, and information and referrals accounted for 22 
percent of CSBG expenditures. Emergency services such as 
donations of clothing, food, and shelter, low-income energy 
assistance programs and weatherization are provided to the 
needy elderly through CSBG funds, accounting for 22 percent of 
CSBG expenditures in fiscal year 1995. Data submitted by 38 
states indicated that 19 percent of CSBG clients in fiscal year 
1995 were age 55 or older, and 8 percent were older than 70.

                          3. Federal Response

             (a) social services block grant appropriations

    The SSBG program is permanently authorized and States are 
entitled to receive a share of the total according to their 
population size. By fiscal year 1986, an authorization cap of 
$2.7 billion was reached.
    Congress appropriated the full authorized amount of $2.7 
billion for fiscal year 1989 (P.L. 100-436). Effective in 
fiscal year 1990, Congress increased the authorization level 
for the SSBG to $2.8 billion (P.L. 101-239). This full amount 
was appropriated for each fiscal year from 1990 through fiscal 
year 1995.
    In fiscal year 1994, an additional $1 billion for temporary 
SSBG in empowerment zones and enterprise communities was 
appropriated and remains available for expenditure for 10 
years. Each State is entitled to one SSBG grant for each 
qualified enterprise community and two SSBG grants for each 
qualified empowerment zone within the State. Grants to 
enterprise communities generally equal about $3 million while 
grants to empowerment zones generally equal $50 million for 
urban zones and $20 million for rural zones. States must use 
these funds for the first three of the five goals listed above. 
Program options include--skills training, job counseling, 
transportation, housing counseling, financial management and 
business counseling, emergency and transitional shelter and 
programs to promote self-sufficiency for low-income families 
and individuals. The limitations on the use of regular SSBG 
funds do not apply to these program options.
    For fiscal year 1996, Congress appropriated $2.38 billion 
for the SSBG, which was lower than the entitlement ceiling. 
Under welfare reform legislation enacted in August 1996 (P.L. 
104-193), Congress reduced the entitlement ceiling to $2.38 
billion for fiscal years 1997 through 2002. After fiscal year 
2002, the ceiling was scheduled to return to the previous level 
of $2.8 billion. However, for fiscal year 1997, Congress 
actually appropriated $2.5 billion for the SSBG, which was 
higher than the entitlement ceiling established by the welfare 
reform legislation. Congress appropriated $2.3 billion for the 
program in fiscal year 1998 and $1.9 billion in fiscal year 
1999, although the entitlement ceilings for those years was 
$2.38 billion. In addition, transportation legislation enacted 
in 1998 (P.L. 105-178) will reduce the entitlement ceiling to 
$1.7 billion, beginning in fiscal year 2001.

 (b) community services block grant reauthorization and appropriations

    The CSBG Act was established as part of OBRA 81 (P.L. 97-
35), and has subsequently been reauthorized five times: in 1984 
(P.L. 98-558), in 1986 (P.L. 99-425), in 1990 (P.L. 101-501), 
in 1994 (P.L. 103-252), and in 1998 (P.L. 105-277). In addition 
to the CSBG itself, the Act authorizes various discretionary 
activities, including community economic development 
activities, rural community development activities, community 
food and nutrition programs, and the National Youth Sports 
Program.
    In fiscal year 1999, appropriations are as follows: $500 
million for the CSBG; $30 million for community economic 
development; $3.5 million for rural community facilities; $15 
million for national youth sports; and $5 million for community 
food and nutrition. In addition, $10 million has been 
appropriated for a newly authorized Assets for Independence 
program, which will enable low-income individuals to accumulate 
assets in individual development accounts.

                    B. ADULT EDUCATION AND LITERACY

                             1. Background

    State and local governments have long had primary 
responsibility for the development, implementation, and 
administration of primary, secondary, and higher education, as 
well as continuing education programs that benefit students of 
all ages. The role of the Federal Government in education has 
been to ensure equal opportunity, to enhance quality, and to 
address selected national education priorities.
    While many strong arguments exist for the importance of 
formal and informal educational opportunities for older 
persons, such opportunities have traditionally been a low 
priority in education policymaking. Public and private 
resources for the support of education have been directed 
primarily at the establishment and maintenance of programs for 
children and college age students. This is due largely to the 
perception that education is a foundation constructed in the 
early stages of human development.
    Although learning continues throughout one's life in 
experiences with work, family, and friends, formal education 
has traditionally been viewed as a finite activity extending 
only through early adulthood. Thus, it is a relatively new 
notion that the elderly have a need for formal education 
extending beyond the informal, experiential environment. This 
need for structured learning may appeal to ``returning 
students'' who have not completed their formal education, older 
workers who require retraining to keep up with rapid 
technological change, or retirees who desire to expand their 
knowledge and personal development.
    Literacy means more than the ability to read and write. The 
term ``functional illiteracy'' began to be used during the 
1940's and 1950's to describe persons who were incapable of 
understanding written instructions necessary to accomplish 
specific tasks or functions. Definitions of functional literacy 
depend on the specific tasks, skills, or objectives at hand. As 
various experts have defined clusters of needed skills, 
definitions of functional literacy have proliferated. These 
definitions have become more complex as technological 
information has increased. For example, the National Literacy 
Act of 1991 defines literacy as ``an individual's ability to 
read, write, and speak in English, and compute and solve the 
problems at levels of proficiency necessary to function on the 
job and in society, to achieve one's goals, and develop one's 
knowledge and potential.''
    The National Adult Literacy Survey (NALS) conducted in 
1992, tested adults on three different literacy skills (prose, 
document, and quantitative). The study defines literacy as 
``using printed and written information to function in society, 
to achieve one's goals, and to develop one's knowledge and 
potential.'' The report found that adults performing in the 
lowest literacy level were more likely to have fewer years of 
education, to have a physical, mental, or other health problem, 
and to be older, in prison or born outside the United States. 
The survey also underscores low literacy skill's strong 
connection to low economic status.
    Statistics on educational attainment reveal cause for 
concern. According to the Statistical Abstract for the United 
States for 1998, there are an 171 million persons who were 25 
years old and over in 1997; of these, 17.9 percent (31 million) 
attained less than 12 years of school (Table 262). As might be 
expected, there is a heavy concentration of older persons among 
the group of adults who have not graduated from high school. 
According to the Statistical Abstract, in contrast to the 17.9 
percent rate of non-completion of high school for all adults 25 
years old and older, almost twice that proportion, 34.5 
percent, of those 65 years old and older did not graduate from 
high school (Table 50). The use of these data to estimate 
functional literacy rates, however, has the drawback that the 
number of grades completed does not necessarily correspond to 
the actual level of skills of adult individuals.
    In 1990 President Bush and the Nation's Governors adopted 
six national education goals to be achieved by the year 2000. 
One of the six goals is that every adult American will be 
literate and will possess the knowledge and skills necessary to 
compete in a global economy and exercise the rights and 
responsibilities of citizenship.
    In order to accomplish these goals, the President proposed 
a new education strategy, entitled AMERICA 2000. The 102d 
Congress considered a number of alternatives to implement this 
strategy, but reached no final agreement. However, the 103d 
Congress reached agreement, and President Clinton signed the 
Goals 2000: Educate America Act into law (P.L. 103-227) on 
March 31, 1994, thereby enacting into law the national 
educational goals.

                         2. Program Description

    The U.S. Department of Education (ED) is authorized under 
the Adult Education and Family Literacy Act (AEFLA) to make 
grants to states to provide annual educational assistance to 
approximately 4 million adults. These services help adults 
become literate and obtain educational skills needed for 
employment, provide parents with skills necessary for the 
education of their children, and assist adults complete a 
secondary school education. The FY1999 appropriation for 
Federal adult education and literacy programs is $377 million; 
$958 million is the estimated FY1998 contribution from state 
and local sources for these programs. Similar activities were 
previously authorized under the Adult Education Act (AEA) and 
the National Literacy Act of 1991 (NLA), both of which were 
repealed by the AEFLA in 1998.
    Under the AEFLA State Grants program, allocations are made 
to states by formula. States in turn make discretionary grants 
to eligible providers for the provision of adult education 
instruction and services. Adults are defined as those at least 
16 years of age or otherwise beyond the age of compulsory 
school attendance. Adult education includes services or 
instruction below the college level for adults who: are not 
enrolled in secondary school and not required to be enrolled; 
lack mastery of basic educational skills to function 
effectively in society; have not completed high school or the 
equivalent; and are unable to speak, read, or write the English 
language. Adult education services include: adult basic 
education and literacy; adult secondary education and high 
school equivalency; English-as-a-second-language; and 
assistance for parents to improve the educational development 
of their children.
    With certain exceptions, the AEFLA requires state and local 
funds to support at a minimum 25 percent of total expenditures 
for adult education activities. Most states spend more than the 
minimum, and many spend significantly more. For FY1998, the 
Federal appropriation for the State Grant program was $345 
million. The estimated total of Federal, state, and local 
expenditures related to the State Grants Program was $1.3 
billion. Of this amount, states and localities spent an 
estimated $958 million, or 73 percent of all adult education 
expenditures.
    In the latest year for which state enrollment data are 
available from all states (1996), 4.0 million adults 
participated in federally supported adult education and 
literacy programs. Of this total, 1.56 million participated in 
adult basic education programs, 1.56 million in English-as-a-
second-language programs, and 0.93 million in adult secondary 
education activities. The Division of Adult Education and 
Literacy at ED has estimated the adult education target 
population from the 1990 Census to be more than 44 million 
adults, or nearly 27 percent of the adult population.\1\ These 
adults are persons 16 years and older, who have not graduated 
from high school or the equivalent, and who are not currently 
enrolled in school.
---------------------------------------------------------------------------
    \1\ U.S. Department of Education. Office of Vocational and Adult 
Education. Adult Education and Literacy Fact Sheet. Washington, January 
1998.
---------------------------------------------------------------------------

                  3. Legislation in the 105th Congress

    P.L. 105-220, the Workforce Investment Act of 1998 (WIA), 
was signed into law by the President on August 7, 1998. The 
intent of the legislation was to extend, coordinate, and 
consolidate Federal programs for employment and job training, 
adult education and literacy, and vocational rehabilitation. 
Title II of WIA is the Adult Education and Family Literacy Act 
(AEFLA), which repealed the Adult Education Act (AEA) and the 
National Literacy Act of 1991, P.L. 102-73 (NLA), but amended 
and extended major provisions for adult education and literacy 
through FY2003.
    Most of the programs and activities that were authorized by 
the AEA and funded in FY1998 are continued by the AEFLA and 
funded in FY1999. However, the AEFLA significantly augments 
previous AEA requirements through the implementation of a 
performance accountability system, including core indicators of 
performance. This system is to be used to measure program 
effectiveness and progress at the state and local levels and to 
award state incentive grants; performance results are to be 
considered in making local awards. In addition, the AEFLA:
           Expands the purpose of the adult education 
        and literacy programs formerly authorized by the AEA 
        specifically to include assistance for parents to 
        improve the educational development of their children;
           Continues 3 out of 4 programs for adult 
        education that were funded in FY1998, but repeals the 
        Literacy for Incarcerated Individuals program. In 
        addition, it authorizes a fourth program, Incentive 
        Grants, for states exceeding expected levels of 
        performance for specific education and job training 
        programs;
           Authorizes to be appropriated annually from 
        FY1999 through FY2003 such sums as may be necessary for 
        adult education and literacy programs;
           Makes minor changes to the state allocation 
        formula, including a 90 percent hold harmless provision 
        for state grants;
           Terminates the eligibility of for-profit 
        entities for receiving substate awards for conducting 
        adult education and literacy activities;
           Simplifies the provisions for the allocation 
        of funds within states, but authorizes a new 
        reservation of funds (12.5 percent) at the state level 
        for ``state leadership activities'';
           Clarifies that the state administrative 
        agency must be designated consistent with state law, 
        and repeals the AEA requirement for a state advisory 
        council;
           Simplifies the AEA provisions for national 
        programs, and no longer requires the Secretary of 
        Education to estimate the number of illiterate adults 
        in the Nation every 4 years; and
           continues the National Institute for 
        Literacy with only minor changes from the AEA 
        provisions.
    As already noted, the 105th Congress funded adult education 
and literacy programs at a level of $377 million for FY1999, 
under the provisions of P.L. 105-277, the Omnibus Consolidated 
and Emergency Supplemental Appropriations Act, 1999.

           C. THE DOMESTIC VOLUNTEER SERVICE ACT (CHAPTER 15)

                             1. Background

    The purpose of the Domestic Volunteer Service Act of 1973 
(DVSA), ``is to foster and expand voluntary citizen service in 
communities throughout the Nation in activities designed to 
help the poor, the disadvantaged, the vulnerable, and the 
elderly.'' (42 U.S.C. 4950) The Act authorizes four major 
volunteer programs: the Retired and Senior Volunteer Program 
(RSVP), the Foster Grandparent Program, the Senior Companion 
Program, and the Volunteers in Service to America (VISTA) 
program. These programs are administered by the Corporation for 
National and Community Service. The Corporation was created in 
1993 by The National and Community Service Trust Act of 1993 
(P.L. 103-82), which combined two independent federal 
agencies--the Commission on National and Community Service, 
which administered National Community Service Act (NCSA) 
programs, and ACTION, which administered DVSA programs. The 
Corporation is administered by a chief executive officer and a 
bipartisan 15-member board of directors appointed by the 
President and confirmed by the Senate.
    Funding for DVSA programs are contained in the Labor-HHS-ED 
appropriations act. Authorization of appropriations for the 
DVSA programs expired at the end of FY1996, but the programs 
continue to be funded through appropriations legislation for 
Labor-HHS-ED.

                  (A) NATIONAL SENIOR VOLUNTEER CORPS

    Formerly known as the ``Older American Volunteer 
Programs'', the Corps consists primarily of the Foster 
Grandparent Program (FGP), the Senior Companion Program (SCP), 
the Retired and Senior Volunteer Program (RSVP). The premise of 
the Senior Volunteer Corps is that seniors through their skills 
and talents can help meet priority community needs and have an 
impact of national problems of local concern. In all three 
programs, project grants for the Corps' programs are awarded to 
public agencies, such as state, county, and local governments, 
and to private nonprofit organizations. These entities apply to 
the Corporations' state offices for funds to recruit, place, 
and support the senior volunteers.

                  (1) Retired Senior Volunteer Program

    The Retired Senior Volunteer Program (RSVP) was authorized 
in 1969 under the Older Americans Act. In 1971, the program was 
transferred from the Administration on Aging to ACTION and in 
1973 the program was incorporated under Title II of the 
Domestic Volunteer Service Act. RSVP is designed to provide a 
variety of volunteer opportunities for persons 55 years and 
older. Volunteers serve in such areas as youth counseling, 
literacy enhancement, long-term care, refugee assistance, drug 
abuse prevention, consumer education, crime prevention, and 
housing rehabilitation. Although volunteers do not receive 
hourly stipends as under the Foster Grandparent and Senior 
Companion Programs, they receive reimbursement for out-of-
pocket expenses, such as transportation costs.
    In FY1997, 453,300 volunteers served in 751 projects. 
Roughly 86 percent were white, 9 percent were black, 4 percent 
were Hispanic, and 2 percent were Asian/Pacific Islanders or 
American Indian/ Alaskan Natives. Persons under the age of 65 
accounted for 17 percent of the volunteers, those between 65 
and 84 accounted for 74 percent, and those 85 and older 
accounted for 10 percent. Women made up 75 percent of the 
volunteers. For FY1999 $43 million was appropriated.

                     (2) Foster Grandparent Program

    The Foster Grandparent Program (FGP) originated in 1965 as 
a cooperative effort between the Office of Economic Opportunity 
and the Administration on Aging. It was authorized under the 
Older Americans Act in 1969 and 2 years later transferred from 
the Administration on Aging to ACTION. In 1973, the FGP was 
incorporated under Title II of the Domestic Volunteer Service 
Act.
    The FGP provides part-time volunteer opportunities for 
primarily low-income volunteers aged 60 and older. These 
volunteers provide supportive services to children with 
physical, mental, emotional, or social disabilities. Foster 
grandparents are placed with nonprofit sponsoring agencies such 
as schools, hospitals, day-care centers, and institutions for 
the mentally or physically disabled. Volunteers serve 20 hours 
a week and provide care on a one-to-one basis to three or four 
children. A foster grandparent may continue to provide services 
to a mentally retarded person over 21 years of age as long as 
that person was receiving services under the program prior to 
becoming age 21.
    In general, to serve as a foster grandparent, an individual 
must have an income that does not exceed 125 percent of the 
poverty line, or in the case of volunteers living in areas 
determined by the Corporation to be of a higher cost of living, 
not more than 135 percent of the poverty line. Volunteers 
receive stipends of $2.55 an hour. The Domestic Volunteer 
Service Act exempts stipends from taxation and from being 
treated as wages or compensation. In an effort to expand 
volunteer opportunities to all older Americans, the 1986 
amendments to DVSA (P.L. 99-551) permitted non-low-income 
persons to become foster grandparents. The non-low-income 
volunteers are reimbursed for out-of-pocket expenses only.
    The number of active volunteers on June 30, 1997 was 
25,300, of which roughly 48 percent were white, 37 percent were 
black, 10 percent were Hispanic, and 6 percent were Asian/
Pacific Islanders or American Indian/Alaskan Natives. Persons 
under the age of 70 accounted for 31 percent of the volunteers, 
those between 70 and 79 accounted for 51 percent, and those 80 
and older accounted for 18 percent. Women made up 90 percent of 
the volunteers.
    Of the children served by the foster grandparents for 
FY1997, 44 percent were 5 years of age or under, 40 percent 
were between 6 and 12 years of age, and 16 percent were 13 and 
older. Over 70 percent of the volunteers served children in 
four ``volunteer stations.'' The sites were public/private 
schools (33 percent), head start (15 percent), pre-elementary 
day care (14 percent), and residential long term care (10 
percent). Nearly a quarter of the children had learning 
disabilities and nearly a fifth were developmentally delayed or 
disabled. Approximately 10 percent were abused or neglected. 
For FY1999, $93.3 million was appropriated.

                      (3) Senior Companion Program

    The Senior Companion Program (SCP) was authorized in 1973 
by Public Law 93-113 and incorporated under Title II, section 
211(b) of the Domestic Volunteer Service Act of 1973. The 
Omnibus Budget Reconciliation Act of 1981 (P.L. 97-35) amended 
section 211 of the Act to create a separate Part C containing 
the authorization for the Senior Companion Program.
    This program is designed to provide part-time volunteer 
opportunities for primarily low-income volunteers aged 60 years 
and older. These volunteers provide supportive services to 
vulnerable, frail older persons in homes or institutions. Like 
the FGP, the 1986 Amendments (P.L. 99-551) amended SCP to 
permit non-low-income volunteers to participate without a 
stipend, but reimbursed for out-of-pocket expenses. The 
volunteers help homebound, chronically disabled older persons 
to maintain independent living arrangements in their own 
residences. Volunteers also provide services to 
institutionalized older persons and seniors enrolled in 
community health care programs. Senior companions serve 20 
hours a week and receive the same stipend and benefits as 
foster grandparents. To participate in the program, low-income 
volunteers must meet the same income test as for the Foster 
Grandparent Program.
    The number of active volunteers on June 30, 1997 was 
13,900, of which roughly 51 percent were white, 33 percent were 
black, 11 percent were Hispanic, and 6 percent were Asian/
Pacific Islanders or American Indian/Alaskan Natives. Persons 
under the age of 70 accounted for 35 percent of the volunteers, 
those between 70 and 79 accounted for 51 percent, and those 80 
and older accounted for 14 percent. Women made up 85 percent of 
the volunteers.
    Of the clients served by the senior companions for FY1997, 
14 percent were between 22 and 44 years of age, 24 percent were 
between 65 and 74, 36 percent were between 75 and 84, and 26 
percent were 85 and older. Over 50 percent of the volunteers 
served clients in five ``volunteer stations.'' The sites were 
residential long-term care (12 percent), multi-purpose centers 
(12 percent), nursing/convalescent (12 percent), non-profit 
home health care (11 percent), and non-profit area agencies on 
agency (10 percent). Nearly half of the clients were frail 
elderly and nearly 10 percent had Alzheimer's disease. For 
FY1999, $36.6 million was appropriated.

                  (B) VOLUNTEERS IN SERVICE TO AMERICA

    Volunteers in Service to America (VISTA) was originally 
authorized in 1964, conceived as a domestic peace corps for 
volunteers to serve full-time in projects to reduce poverty. 
Today, VISTA still holds this mandate. Volunteers 18 years and 
older serve in community activities to reduce or eliminate 
poverty and poverty-related problems. Activities include 
assisting persons with disabilities, the homeless, the jobless, 
the hungry, and the illiterate or functionally illiterate. 
Other activities include addressing problems related to alcohol 
abuse and drug abuse, and assisting in economic development, 
remedial education, legal and employment counseling, and other 
activities that help communities and individuals become self-
sufficient. Volunteers also serve on Indian reservations, in 
federally assisted migrant worker programs, and in federally 
assisted institutions for the mentally ill and mentally 
retarded.
    Volunteers are expected to work full-time for a minimum of 
1 year. To the maximum extent possible, they live among and at 
the economic level of the people they serve. Volunteers receive 
a living allowance in FY1999 of approximately $8,730, and 
either a lump sum stipend that accrues at the rate of $100 for 
each month of service, or an educational award. In FY1997, 58 
percent of the VISTA members chose the educational award. The 
educational award for a full time term of service (i.e. 1700 
hours in a period of generally 10 to 12 months) is $4,725 and 
half of that amount (approximately $2,362) per part time term 
of service. Although individuals can serve a maximum of three 
terms, they can earn only a maximum of two full or partial 
educational awards. Awards are made at the end of the service 
term in the form of a voucher that must be used within 7 years 
after successful completion of service. Awards are paid 
directly to qualified postsecondary institutions or lenders in 
cases where participants have outstanding loan obligations. 
Awards can be used to repay existing or future qualified 
education loans or to pay for the cost of attending a qualified 
college or graduate school or an approved school/work program. 
Educational awards are taxed as income in the year they are 
used. Members also receive health insurance, child care 
allowances, liability insurance, and eligibility for student 
loan forbearance (i.e., postponement.) Travel and relocation 
expenses can also be paid to members serving somewhere other 
than in their own community.
    In FY1997, 4,468 members completed VISTA service. Based on 
a random sample of members, 57 percent were white, 26 percent 
were African-American, 11 percent were Hispanic, and 6 percent 
were Asian/Pacific Islanders, American Indian or ``other.'' 
Persons under the age of 30 accounted for 45 percent of the 
members, those between 30 and 45 accounted for 33 percent, and 
those 45 and older accounted for 22 percent. Women made up 80 
percent of the volunteers. By statute, the Corporation is 
required to encourage participation of those age 18 to 27 years 
of age and those 55 and older. As of January, 1999, 
approximately 11 percent of the members were 55 and older. For 
FY1999, $73 million was appropriated.

                           D. TRANSPORTATION

                             1. Background

    Transportation is a vital connecting link between home and 
community. For the elderly and nonelderly alike, adequate 
transportation is necessary for the fulfillment of most basic 
needs-maintaining relations with friends and family, commuting 
to work, grocery shopping, and engaging in social and 
recreational activities. Housing, medical, financial, and 
social services are useful only to the extent that 
transportation can make them accessible to those in need.
    Transportation serves both human and economic needs. It can 
enrich an older person's life by expanding opportunities for 
social interaction and community involvement, and it can 
support an individual's capacity for independent living, thus 
reducing or eliminating the need for institutional care.

                          2. Federal Response

    Three strategies have marked the Federal Government's role 
in providing transportation services to the elderly: direct 
provision (funding capital and operating costs for transit 
systems or other transportation services); reimbursement for 
transportation costs; and fare reduction. The major federally-
sponsored transportation programs that provide assistance to 
the elderly and persons with disabilities are administered by 
the Department of Transportation (DOT) and by the Department of 
Health and Human Services (HHS).

               (a) Department of Transportation Programs

    The passage of the 1970 amendments to the Urban Mass 
Transit Act (UMTA) of 1964 (P.L. 98-453) now called the Federal 
Transit Act, which added Section 16 (now known as Section 
5310), marked the beginning of special efforts to plan, design, 
and set aside funds for the purpose of modifying transportation 
facilities to improve access for the elderly and people with 
disabilities. Section 5310 of UMTA declares a national policy 
that the elderly and people with disabilities have the same 
rights as other persons to utilize mass transportation 
facilities and services. Section 5310 also States that special 
efforts shall be made in the planning and design of mass 
transportation facilities and services to assure the 
availability of mass transportation to the elderly and people 
with disabilities, and that all Federal programs offering 
assistance in the field of mass transportation should contain 
provisions implementing this policy. The goal of Section 5310 
programs is to provide assistance in meeting the transportation 
needs of the elderly and people with disabilities where public 
transportation services are unavailable, insufficient, or 
inappropriate. Funding levels have primarily supported the 
purchase of capital equipment for nonprofit and public 
entities.
    Another significant initiative was the enactment of the 
National Mass Transportation Assistance Act of 1974 (P.L. 93-
503) which amended UMTA to provide block grants for mass 
transit funding in urban and nonurban areas nationwide. Under 
the program, block grant money can be used for capital 
operating purchases at the localities' discretion. The Act also 
requires transit authorities to reduce fares by 50 percent for 
the elderly and persons with disabilities during offpeak hours.
    In addition, passage of the Surface Transportation 
Assistance Act (STAA) of 1978 (P.L. 95-549) amended UMTA to 
provide Federal funding under Section 18 (now known as Section 
5311) which supports public transportation program costs, both 
operating and capital, for nonurban areas. The elderly and 
people with disabilities in rural areas benefit significantly 
from Section 5311 projects due to their social and geographical 
isolation and thus greater need for transportation assistance. 
Section 5311 has received annual appropriations of 
approximately $65 to $75 million through 1991. Section 5311 
appropriations have increased significantly for 1992 through 
1998, averaging $117 million annually.
    The STAA of 1982 (P.L. 97-424) established Section 5307 in 
its amendments to the UMTA Act. Section 5307 provides 
assistance to the public in general, but two of its provisions 
are especially important to the elderly and persons with 
disabilities. Section 5307 continues the requirement that 
recipients of Federal mass transit assistance offer half-fares 
to the elderly and people with disabilities during nonpeak 
hours. In addition, every State can choose to transfer funds 
from Section 5307 to the Section 5311 program. Each year, 
between $10 million and $20 million of Section 5307 funds have 
been transferred to the Section 5311 program. State and local 
governments also have the choice of using some of the Federal 
highway funds for transit. In fiscal 1997, flexible highway 
funds of $19.7 million was transferred to Section 5311.
    The Rural Transit Assistance Program (RTAP) was set up to 
provide training, technical assistance, research, and related 
support service for providers of rural public transportation. 
The Federal Transit Administration allocates 85 percent of the 
funds to the States to be used to develop State rural training 
and technical assistance programs. By the end of fiscal year 
1989, all States had approved programs underway. The remaining 
15 percent of the annual appropriation supports a national 
program, which is administered by a consortium led by the 
American Public Works Association and directed by an advisory 
board made up of local providers and State program 
administrators. Funding for RTAP has totaled more than $4 
million annually since fiscal year 1987.
    The DOT programs have been the major force behind mass 
transit construction nationwide and are an important ingredient 
in providing transportation services for older Americans. 
Recognizing the overlapping of funding and services provided by 
the two departments and the need for increased coordination, 
HHS and DOT established an interdepartmental Coordinating 
Council on Human Services Transportation in 1986. The Council 
is charged with coordinating related programs at the Federal 
level and promoting coordination at the State and local levels. 
As part of this effort, a regional demonstration project has 
been funded, and transportation and social services programs in 
all States are being encouraged to develop better mechanisms 
for working together to meet their transportation needs.
    Despite these program initiatives, Federal strategy in 
transportation has been essentially limited to providing seed 
money for local communities to design, implement, and 
administer transportation systems to meet their individual 
needs. In the future, the increasing need for specialized 
services for the elderly and persons with disabilities will 
dictate the range of services available and the fiscal 
responsibility of State and local communities to finance both 
large-scale mass transit systems and smaller neighborhood 
shuttle services.
    With the reauthorization of the STAA (renamed the 
Intermodal Surface Transportation Efficiency Act of 1991, 
ISTEA) in 1991, the importance of transportation was brought to 
the forefront of congressional and aging advocates' agendas. 
ISTEA created the Transit Cooperative Research Program (TCRP), 
the first federally funded cooperative research program 
exclusively for transit. The program is governed by a 25-member 
TCRP Oversight and Project Selection (TOPS) committee jointly 
selected by the Federal Transit Administration, the 
Transportation Research Board (TRB), and the American Public 
Transit Association (APTA). To date, the TOPS Committee has 
selected 32 issues to be researched among which including ADA 
transit service and delivery systems for rural transit, and 
demand forecasting for rural transit.
    The ISTEA reauthorization made changes in the Federal 
Transit Act's Section 5310 program which will benefit older 
people. Funds may now go to private, nonprofit organizations or 
to public bodies which coordinate services. Additionally, funds 
can continue to be used for capital costs or for the costs of 
contracting for services. Equally important, both Sections 5310 
and 5311 have been amended to allow for the provision of home-
delivered meals if the meal delivery services do not conflict 
with the provision of transit services or result in the 
reduction of services to transit passengers. Moreover, both 
sections require local coordination of all federally funded 
services including transportation, similar to language in the 
reauthorized Older Americans Act.
    The Omnibus Transportation Employee Testing Act of 1991 
gives the Federal Transit Administration (FTA) the statutory 
authority to impose testing as a condition of financial 
assistance. It can also require the programs providing 
transportation to the elderly to be covered by Federal testing 
requirements even if they do not receive transit funding. The 
Act requires drug testing of covered employees such as drivers, 
dispatchers, maintenance workers, and supervisors. Alcohol 
tests are to be administered prior to, during, or just after 
the employee performs out-of-service safety-sensitive 
functions. Post accident testing is also required. The Act 
requires employers to report their data annually developing a 
national database of experience with drug and alcohol testing.
    The 102nd Congress enacted a number of significant 
initiatives pertaining to senior transportation. The 
reauthorization of the Surface Transportation Act through 1997 
(H.R. 2950, P.L. 102-240) provided a number of important 
changes for the elderly and disabled. The law, which renamed 
UMTA the Federal Transit Administration FTA), provided a 
substantial increase in funding for programs benefitting 
elderly and disabled persons. Specifically, the law authorized 
the Section 5310 programs at $55 million for fiscal year 1992; 
$70.1 million for fiscal year 1993; $68.7 million for each of 
the fiscal years from 1994 through 1996; and $97.2 million for 
fiscal year 1997. For Section 5311, the bill authorizes $106.1 
million for fiscal year 1992; $151.5 million for fiscal year 
1993; $153.8 million for each of the fiscal years from 1994 
through 1996; and $217.7 million for fiscal year 1997. For the 
Rural Transit Assistance Program, the bill authorizes $5 
million for fiscal year 1992; $7.9 million for fiscal year 
1993; $7.7 million for each of the fiscal years 1994 through 
1996; and $10.9 million for fiscal year 1997.
    Key provisions of Public Law 102-240 included: (1) Allowing 
paratransit agencies to apply for Section 3 (now known as 
Section 5309) capital funding for transportation projects that 
specifically address the needs of elderly and disabled persons; 
(2) establishing a rural transit set-aside of 5.5 percent of 
Section 5309 funds allocated for replacement, rehabilitation, 
purchase of buses and related equipment, and the construction 
of business related facilities; and (3) allowing transit 
service providers receiving assistance under Section 5310 or 
Section 5311 to use vehicles, under certain restrictions, for 
meal delivery service for homebound persons.
    The 105th Congress enacted the Transportation Equity Act 
for the 21st Century (TEA-21, P.L. 103-178). The legislation 
substantially increased total mass transit funding, including 
Section 5310 and 5311, for the fiscal years 1998 through 2003. 
The TEA-21 average annual Section 5310 authorization level is 
$196 million, compared to the previous ISTEA authorization 
level of $156.1 million. The average annual authorization level 
of Section 5311 increased to $76.1 million from the previous 
average annual authorization level of $71.4 million. The TEA-21 
also allows for the use of up to 10 percent of the urbanized 
formula funds (Section 5307) for ADA demand response transit 
service.

          (b) Department of Health and Human Services Programs

    The passage of the OAA of 1965 had a major impact on the 
development of transportation for older persons. Under Title 
III of the Act, States are required to spend an adequate 
proportion of their Title III supportive services funds on 
three categories: access services (transportation and other 
supportive services); in-home, and legal services. In 1996, 2.6 
million one-way assisted transportation trips, and 36.9 million 
non-assisted one-way transportation trips for older persons 
were provided by Title III. In 1996 (the latest year for which 
data are available), $156.8 million, representing about 8 
percent, of Title III expenditures, was spent for 
transportation services. This funding level does not take into 
consideration the mix of State and local resources which also 
fund transportation support services.
    In addition to the Older Americans Act, other programs 
administered by HHS support transportation services for the 
older persons. These include the Social Services Block Grant 
(SSBG) and the Community Services Block Grant (CSBG) programs. 
The Medicaid program supports medically-related transportation.

         3. Issues in Transportation Services for Older Persons

    Transportation in Rural Areas. Lack of transportation for 
the rural elderly stems from several factors. First, the 
dispersion of rural populations over relatively large areas 
complicates the design of a cost-effective, efficient public 
transit system. Second, the incomes of the rural elderly 
generally are insufficient to afford the high fares necessary 
to support a rural transit system. Third, the rising cost of 
operating vehicles and inadequate reimbursement have 
contributed to the decline in the numbers of volunteers willing 
to transport the rural elderly. Fourth, the physical design and 
services features of public transportation, such as high steps, 
narrow seating, and unreliable scheduling, discourage elders' 
participation. Fifth, the rural transit emphasis on general 
public access and employment transportation may adversely 
affect the elderly. If rural transit concentrates on 
transporting workers to jobs, less emphasis may be placed on 
senior transportation to nonessential services.
    Lack of access to transportation in rural areas leads to an 
underutilization of programs specifically designed to serve 
older persons, such as adult education, congregate meal 
programs and health promotion activities. Thus, the problems of 
service delivery to rural elderly are essentially problems of 
accessibility rather than program design.
    Transportation in Suburban Areas. The graying of the 
suburbs is a phenomenon that has only recently received 
attention from policymakers in the aging field. Since their 
growth following World War II, it has been assumed that the 
suburbs consisted mainly of young, upwardly mobile families. 
The decades that have since elapsed have changed entirely the 
profile of the average American suburb, resulting in profound 
implications for social service design and delivery.
    The aging of suburbia can be attributed to two major 
factors. First, migration has contributed to the growth of the 
older suburban population. It is estimated that for every 
person age 65 and older who moves back to the central city, 
three move from the central city to the suburbs. Second, many 
older persons desire to remain in the homes and neighborhoods 
in which they have grown old, i.e., ``aging in place.'' The 
growth of the suburban elderly population is expected to 
continue to increase at an even more rapid rate in the future 
due to the large number of so-called pre-elderly (ages 50-64) 
living in the suburbs.
    The availability of transportation services for the elderly 
suburban dweller is limited. Unlike large cities where dense 
population patterns can facilitate central transit systems, the 
lack of a central downtown precludes development of a 
coordinated mass transit system in most suburbs. The sprawling 
geographical nature of suburbs makes the cost of developing and 
operating mass transportation systems prohibitive. Private taxi 
companies, if they operate in the outlying suburban areas at 
all, are usually very expensive. Further, the trend toward 
retrenchment and fiscal restraint by the Federal Government has 
impacted significantly on the development of transportation 
services. Consequently, Federal support for private transit 
systems designed especially for the elderly suburban dweller is 
almost nonexistent. State and local governments have been 
unable to harness sufficient resources to fund costly 
transportation systems independent of Federal support. 
Alternative revenue sources, such as user fees, are 
insufficient alone to support suburban wide services, and are 
generally viewed as penalizing low-income elderly most in need 
of transportation services in the community.
    The aging of the suburbs has several implications for 
transportation policy and the elderly. The dispersion of older 
persons over a suburban landscape poses a challenge for 
community planners who have specialized in providing services 
to younger, more mobile dwellers. Transportation to and from 
services and/or service providers is a critical need. Community 
programs that serve the needs of elderly persons, such as 
hospitals, senior centers, and convenience stores, must be 
designed with supportive transportation services in mind. In 
addition, service providers must assist in coordinating 
transportation services for their elderly clients. Primary 
transportation systems, or mass transit, must ensure 
accessibility from all perimeters of the suburban community to 
adequately serve the dispersed elderly population. All too 
often, public transit serves commuters' needs primarily. If 
accessibility for the entire community is not possible, then 
service route models should be considered. Service routes are 
deviated fixed-routes that provide transportation between the 
constituents' homes and the services that they need to access 
to maintain their independence.
    Challenges Associated With Some Older Drivers. U.S. 
demographics, the availability of a modern highway system, and 
the lack of extensive mass transportation in some regions of 
the country, will result in many older Americans continuing to 
depend upon the automobile for their basic means of 
transportation. Americans like to drive, and the American 
automobile has become more than a tool for transportation, it 
has become an extension of our personalities and a status 
symbol. Particularly for older persons, the automobile can be a 
symbol of independence, security, and dignity. Establishing 
criteria for determining which of the elderly are safe to drive 
is an extremely complex issue involving States' rights, privacy 
rights, and Federal/State/local funding.
    Older persons, however, constitute an ever growing segment 
of the driving public. The largest increase in this population 
group could come around the year 2010, when large numbers of 
baby boomers reach retirement age. Using 1996 data from the 
Department of Transportation's Fatality Analysis Reporting 
System, the Insurance Institute for Highway Safety (IIHS) 
concluded that while persons 65 years and older represented 13 
percent of the population in 1996, they account for 17 percent 
of motor vehicle deaths. However, IIHS avoided using these data 
to predict any positive relationship between longevity and 
highway deaths.
    Some claim that older drivers are unsafe. They cite 
newspapers stories about older drivers getting lost on the 
highways, driving on sidewalks, striking pedestrians at 
intersections, and driving in oncoming traffic lanes. Indeed, 
some statistics suggest that older drivers have higher rates of 
fatal crashes than any other age group other than young 
drivers. In its analysis, IIHS indicated that:
           Drivers aged 70 and older have more motor 
        vehicle deaths per 100,000 people than other groups 
        except people younger than 25;
           Per mile driven, drivers 75 years and older 
        have higher rates of fatal motor vehicle crashes than 
        drivers in other age groups except teenagers; and
           Per licensed driver, fatal crash rates rise 
        sharply at age 70 and older.
    Statistics suggest that the greatest percentage of these 
accidents may have been caused by an inability to make quick 
decisions, or to react to rapidly changing traffic conditions. 
They involve eye, hand, and foot coordination, the reflexes 
most likely to be impaired with aging. The driving instincts 
and experience of some older drivers may be compromised by 
declining motor skills or cognitive ability.
    Programs to identify and address the problems of elderly 
drivers have been initiated in both the public and private 
sectors. At the Federal level, the National Highway Traffic 
Safety Administration (NHTSA) has studied the problems and may 
use its National Driving Simulator to replicate the most 
hazardous situations for elders. Some States require more 
frequent testing of the skills and abilities of elders behind 
the wheel. Some also provide refresher courses for any drivers 
receiving citations. Unfortunately, there is little uniformity 
in State policies. Some require re-examination every 2 years 
while others allow license renewal through the mail, without 
any examination.
    In the private sector, organizations like the Insurance 
Institute for Highway Safety (IIHS), the American Psychological 
Association (APA), and TransSafety, Inc. have likewise analyzed 
data, looking for common denominators that may cause older 
drivers to be at higher risk. Both APA and TransSafety have 
targeted vision loss (especially the ``useful field of view'') 
as an important risk factor.
    American Association for Retired Persons (AARP) has 
addressed problems experienced by some older drivers. Beginning 
in 1979, AARP has sponsored a course entitled 55 Alive: A 
Mature Driving Program. The course provides eight-hour safe-
driver training which, when satisfactorily completed, entitles 
the participant to receive a certificate, redeemable with some 
insurance companies for a discount. Since its inception, over 
six million people, of all ages, have completed the course.
    Through their research, a number of these organizations 
have identified additional factors that might lead to driving 
hazards. Included among these are:
           Medications that could cause impairment or 
        confusion;
           Reduced reflexes unable to cope with 
        imminent traffic situations;
           Road rage caused by mixing older, slower-
        driving persons with younger, more impetuous drivers.
    Conversely, there are factors that may mitigate the hazards 
to older drivers.
    These include:
           Longer life spans with associated better 
        health;
           Telecommunication advances such as e-mail 
        and video conferencing, that provide social 
        opportunities without requiring the use of automobiles;
           Construction of elder communities, that 
        provide recreation, transportation, and other on-site 
        services; and
           A willingness of some elder drivers to 
        recognize their risks and voluntarily ``turn in'' their 
        keys, or to engage in safer driving habits, such as 
        driving at other than peak traffic hours or only in the 
        daytime.
    Concerns associated with some elder drivers are actually 
components of a larger issue: securing transportation for an 
aging population. Solving the problem may require the 
development of short-term and long-term strategies. A short-
term approach should identify those changes that can be made 
quickly and without extensive disruption to existing 
transportation infrastructure. They might include the following 
activities:
           Assessing key medical problems of older 
        drivers and their potential impact on safety;
           Providing relevant medical information to 
        licensing bureaus;
           Requiring that licensing include tests for 
        hand, foot, and eye coordination (including useful 
        field of view);
           Developing graduated licensing programs 
        (similar to those now applied to new drivers);
           Offering insurance incentives (similar to 
        those provided in the AARP program) to get elders to 
        study their driving habits, capabilities, and 
        difficulties;
           Changing the characteristics of traffic 
        lights and road signs (longer caution lights at 
        intersections and larger letters on traffic signs); and
           Promoting the development of new automotive 
        technologies such as ``night vision,'' to provide time 
        to react to rapidly changing traffic situations in poor 
        light.
    In the long term, Federal and State transportation 
authorities may need to refocus their programs towards the 
needs of older drivers. Approaches could include further 
development and deployment of intelligent vehicles, the 
construction of more comprehensive mass transit systems 
throughout the United States, and individual financial 
incentives (such as Federal/State tax credits or lower fares) 
for using mass transit.

                           E. LEGAL SERVICES

                             1. Background

                   (a) The Legal Services Corporation

    Legislation establishing the Legal Services Corporation 
(LSC) was enacted in 1974. Previously, legal services had been 
a program of the Office of Economic Opportunity, added to the 
Economic Opportunity Act in 1966. Because litigation initiated 
by legal services attorneys often involves local and State 
governments or controversial social issues, legal services 
programs can be subject to unusually strong political 
pressures. In 1971, in an effort to insulate the program from 
those political pressures, the Nixon Administration developed 
legislation creating a separate, independently housed 
corporation.
    The LSC was then established as a private, nonprofit 
corporation headed by an 11 member board of directors, 
nominated by the President and confirmed by the Senate. No more 
than 6 of the 11 board members, as directed in the 
Corporation's incorporating legislation, may be members of the 
same political party as the President. The Corporation does not 
provide legal services directly. Rather, it funds local legal 
aid programs which are referred to by LSC as ``grantees.'' Each 
local legal service program is headed by a board of directors, 
of whom about 60 percent are lawyers admitted to a State bar. 
In 1997, LSC funded 269 local programs. Together they served 
every county in the nation, as well as the U.S. territories.
    Legal services provided through Corporation funds are 
available only in civil matters and to individuals with incomes 
less than 125 percent of the federal poverty guidelines. The 
Corporation places primary emphasis on the provision of routine 
legal services and the majority of LSC-funded activities 
involve routine legal problems of low-income people. Legal 
services cases deal with a variety of issues including: family 
related issues (divorce, separation, child custody, support, 
and adoption); housing issues (primarily landlord-tenant 
disputes in nongovernment subsidized housing); welfare or other 
income maintenance program issues; consumer and finance issues; 
and individual rights (employment, health, juvenile, and 
education). Most cases are resolved outside the courtroom. The 
majority of issues involving the elderly concern government 
benefit programs such as Social Security and Medicare.
    The Corporation funds 23 national and State support 
centers, which provide specialized expertise in various aspects 
of poverty law. Three of these centers are specifically 
involved in issues that confront older people--the National 
Senior Citizens Law Centers, in Los Angeles and Washington, 
D.C.; Legal Counsel for the Elderly, in Washington, D.C.; and 
Legal Services for New York City (branch office of Legal 
Services for the Elderly). LSC also provides funding for law 
school clinics. For the academic year 1992-93, LSC awarded 
$1,228,850 to a total of 22 law school clinics, two of which 
deal primarily with legal issues affecting the elderly. For the 
academic year 1993-94, LSC awarded $1,253,000 to a total of 17 
law school clinics. One of the clinics noted elderly issues as 
a particular area of service.
    Several restrictions on the types of cases legal services 
attorneys may handle were included in the original law and 
several other restrictions have since been added in 
appropriations measures. These include, among others, 
limitations on lobbying, class actions, political activities, 
and prohibitions on the use of Corporation funds to provide 
legal assistance in proceedings that seek nontherapeutic 
abortions or that relate to school desegregation. In addition, 
if a recipient of Corporation funds also receives funds from 
private sources, the latter funds may not be expended for any 
purpose prohibited by the Act. Funds received from public 
sources, however, may be spent ``in accordance with the 
purposes for which they are provided.''
    Under the appropriations statute for fiscal year 1999 (P.L. 
105-277), LSC grantees may not: ``engage in partisan litigation 
related to redistricting; attempt to influence regulatory, 
legislative or adjudicative action at the federal, state or 
local level; attempt to influence oversight proceedings of the 
LSC; initiate or participate in any class action suit; 
represent certain categories of aliens, except that nonfederal 
funds may be used to represent aliens who have been victims of 
domestic violence or child abuse; conduct advocacy training on 
a public policy issue or encourage political activities, 
strikes, or demonstrations; claim or collect attorneys' fees; 
engage in litigation related to abortion; represent federal, 
state or local prisoners; participate in challenges to federal 
or state welfare reforms; represent clients in eviction 
proceedings if they have been evicted from public housing 
because of drug-related activities; or solicit clients.
    In addition, LSC grantees may not file complaints or engage 
in litigation against a defendant unless each plaintiff is 
specifically identified, and a statement of facts is prepared, 
signed by the plaintiffs, kept on file by the grantee, and made 
available to any federal auditor or monitor. LSC grantees must 
establish priorities, and staff must agree in writing not to 
engage in activities outside these priorities.
    Grantees also are required to maintain time-keeping records 
and account for any nonfederal funds received. The 
appropriations law contains extensive audit provisions. The 
Corporation is prohibited from receiving nonfederal funds, and 
grantees are prohibited from receiving non-LSC funds, unless 
the source of funds is told in writing that these funds may not 
be used for any activities prohibited by the Legal Services 
Corporation Act or the appropriations law. However, grantees 
may use non-LSC funds to comment on proposed regulations or 
respond to written requests for information or testimony from 
federal, state, or local agencies or legislative bodies, as 
long as the information is provided only to the requesting 
agency and the request is not solicited by the LSC grantee.

                        (b) Older Americans Act

    Support for legal services under the Older Americans Act 
(OAA) was a subject of interest to both the Congress and the 
Administration on Aging (AOA) for several years preceding the 
1973 amendments to the OAA. There was no specific reference to 
legal services in the initial version of the OAA in 1965, but 
recommendations concerning legal services were made at the 1971 
White House Conference on Aging. Regulations promulgated by the 
AOA in 1973 made legal services eligible for funding under 
Title III of the OAA. Subsequent reauthorizations of the OAA 
contained provisions relating to legal services. In 1975, 
amendments granted legal services priority status. The 1978 
Amendments to the OAA established a funding mechanism and a 
program structure for legal services. The 1981 amendment 
required that area agencies on aging spend ``an adequate 
proportion'' of social service funding for three categories, 
including legal services, as well as access and in-home 
services, and that ``some funds'' be expended for each service. 
The 1984 amendments to the Act retained the priority, but 
changed the term to ``legal assistance'', and required that an 
``adequate proportion'' be spent on ``each'' priority service. 
In addition, area agencies were to annually document funds 
expended for this assistance. The 1987 amendments specified 
that each State unit on aging must designate a ``minimum 
percentage'' of Title III social services funds that area 
agencies on aging must devote to legal assistance and the other 
two priority services. If an area agency expends at least the 
minimum percentage set by the State, it will fulfill the 
adequate proportion requirement. Congress intended the minimum 
percentage to be a floor, not a ceiling, and has encouraged 
area agencies to devote additional funds to each of these 
service areas to meet local needs.
    The 1992 amendments modified the structure of the Title III 
program through a series of changes designed to promote 
services that protect the rights, autonomy, and independence of 
older persons. One of these changes was the shifting of some of 
the separate Title III service components to a newly authorized 
Title VII, Vulnerable Elder Rights Protection Activities. State 
legal assistance development services was one of the programs 
shifted from Title III to Title VII.
    In order to be eligible for Title VII elder rights and 
legal assistance development funds, State agencies must 
establish a program that provides leadership for improving the 
quality and quantity of legal and advocacy assistance as part 
of a comprehensive elder rights system. State agencies are 
required to provide assistance to area agencies on aging and 
other entities in the State that assist older persons in 
understanding their rights and benefiting from services 
available to them. Among other things, State agencies are 
required to establish a focal point for elder rights policy 
review, analysis, and advocacy; develop statewide standards for 
legal service delivery, provide technical assistance to AAAs 
and other legal service providers, provide education and 
training of guardians and representative payees; and promote 
pro bono programs. State agencies are also required to 
establish a position for a State legal assistance developer who 
will provide leadership and coordinate legal assistance 
activities within the State.
    The OAA also requires area agencies to contract with legal 
services providers experienced in delivering legal assistance 
and to involve the private bar in their efforts. If the legal 
assistance grant recipient is not a LSC grantee, coordination 
with LSC-funded programs is required.
    Another mandate under the OAA requires State agencies on 
aging to establish and operate a long-term care ombudsman 
program to investigate and resolve complaints made by, or on 
behalf of, residents of long-term care facilities. The 1981 
amendments to the OAA expanded the scope of the ombudsman 
program to include board and care facilities. The OAA requires 
State agencies to assure that ombudsmen will have adequate 
legal counsel in the implementation of the program and that 
legal representation will be provided. In many States and 
localities, there is a close and mutually supportive 
relationship between State and local ombudsman programs and 
legal services programs.
    The AOA has stressed the importance of such a relationship 
and has provided grants to States designed to further 
ombudsman, legal, and protective services activities for older 
people and to assure coordination of these activities. State 
ombudsman reports and a survey by the AARP conducted in 1987 
indicate that through both formal and informal agreements, 
legal services attorneys and paralegals help ombudsmen secure 
access to the records of residents and facilities, provide 
consultation to ombudsmen on law and regulations affecting 
institutionalized persons, represent clients referred by 
ombudsman programs, and work with ombudsmen and others to 
change policies, laws, and regulations that benefit older 
persons in institutions.
    In other initiatives under the OAA, the AOA began in 1976 
to fund State legal services developer positions--attorneys, 
paralegals, or lay advocates--through each State unit on aging. 
These specialists work in each State to identify interested 
participants, locate funding, initiate training programs, and 
assist in designing projects. They work with legal services 
offices, bar associations, private attorneys, paralegals, 
elderly organizations, law firms, attorneys general, and law 
schools.
    The 1987 amendments to OAA required that beginning in 
fiscal year 1989, the Assistant Secretary collect data on the 
funds expended on each type of service, the number of persons 
who receive such services, and the number of units of services 
provided. Today, OAA funds support over 600 legal programs for 
the elderly in greatest social and economic need.
    In 1990, the Special Committee on Aging surveyed all State 
offices on aging regarding Title III funded legal assistance. 
Key findings of the survey include: (1) 18 percent of States 
contract with law school programs to provide legal assistance 
under Title III-B of the Act and 35 percent contract with 
nonattorney advocacy programs to provide counseling services; 
(2) a majority of States polled (34) designated less than 3 
percent of their Title III-B funds to legal assistance; (3) 
minimum percentage of Title III-B funds allocated by area 
agencies on aging to legal assistance ranged from 11 percent 
down to 1 percent; and (4) only 65 percent of legal services 
developers are employed on a full-time basis and only 38 
percent hold a law degree.)

                    (c) Social Services Block Grant

    Under the block grant program, Federal funds are allocated 
to States which, in turn, either provide services directly or 
contract with public and nonprofit social service agencies to 
provide social services to individuals and families. In 
general, States determine the type of social services to 
provide and for whom they shall be provided. Services may 
include legal aid. Because the Omnibus Budget Reconciliation 
Act of 1981 eliminated much of the reporting requirements 
included in the Title XX program, little information has been 
available on how States have responded to both funding 
reductions and changes in the legislation. As a result, little 
data have been available on the number and age groups of 
persons being served. In 1993, however, Title XX was amended to 
require that certain specified information be included in each 
State's annual report and that HHS establish uniform 
definitions of services for use by States in preparing these 
reports. According to state data for FY1996, a very small 
amount (0.3 percent) of SSBG funds were used for legal 
services.

                               2. Issues

              (a) Need and Availability of Legal Services

    The need for civil legal services for the elderly, 
especially the poor elderly, is undeniable. This is partially 
due to the complex nature of the programs under which the 
elderly are dependent. After retirement, most older Americans 
rely on government-administered benefits and services for their 
entire income and livelihood. For example, many elderly persons 
rely on the Social Security program for income security and on 
the Medicare and Medicaid programs to meet their health care 
needs. These benefit programs are extremely complicated and 
often difficult to understand.
    In addition to problems with government benefits, older 
persons' legal problems typically include consumer fraud, 
property tax exemptions, special property tax assessments, 
guardianships, involuntary commitment to institutions, nursing 
home and probate matters. Legal representation is often 
necessary to help the elderly obtain basic necessities and to 
assure that they receive benefits and services to which they 
are entitled.
    Due to the increasing victimization of seniors by consumer 
fraud artists, on September 24, 1992, the Special Committee on 
Aging convened a hearing entitled ``Consumer Fraud and the 
Elderly: Easy Prey?'' The Committee sought to determine whether 
senior citizens are easy prey for persons that seek to take 
their money. The evidence suggests that seniors are often the 
target of unscrupulous people that will sell just about 
anything to make a dollar. It matters little that the services 
or products that these individuals sell are of little value, 
unnecessary, or at times nonexistent. The purpose of the 
hearing was to provide a forum for discussion of what various 
States are doing to combat consumer fraud that targets the 
elderly, and to examine what the Federal Government might do to 
support these efforts. The hearing focused not only on the 
broad issue of consumer fraud that targets older Americans, but 
more specifically, the areas of living trusts, home repair 
fraud, mail order fraud, and guaranteed giveaway scams. The 
States have generally taken the lead in addressing this kind of 
fraud through law enforcement and prosecution. The hearing 
illustrated, however, that the Federal Government needs to do 
more. The Legal Services Corporation is one of the weapons in 
the Federal arsenal that could be used to combat this type of 
fraud. Legal Services Corporation programs do not necessarily 
specialize in serving older clients but attempt to meet the 
legal needs of the poor, many of whom are elderly. It is 
estimated that approximately 9 million persons over 60 are LSC-
eligible. It is estimated that older clients represent about 11 
percent of the clients served by the legal services program.
    There is no precise way to determine eligibility for legal 
services under the Older Americans Act because, although 
services are to be targeted on those in economic and social 
need, means testing for eligibility is prohibited. 
Nevertheless, a paper developed by several legal support 
centers in 1987 concluded that, in spite of advances in the 
previous 10 years, the need for legal assistance among older 
persons is much greater than available OAA resources can meet. 
The availability of legal representation for low-income older 
persons is determined, in part, by the availability of funding 
for legal services programs. In recent years, there has been a 
trend to cut Federal dollars to local programs that provide 
legal services to the elderly. There is no doubt that older 
persons are finding it more difficult to obtain legal 
assistance. When the Legal Services Corporation was established 
in 1974, its foremost goal was to provide all low-income people 
with at least ``minimum access'' to legal services. This was 
defined as the equivalent of two legal services attorneys for 
every 10,000 poor people. The goal of minimum access was 
achieved in fiscal year 1980 with an appropriation of $300 
million, and in fiscal year 1981, with $321 million. This level 
of funding met only an estimated 20 percent of the poor's legal 
needs. Currently, the LSC is not even funded to provide minimum 
access. In most States, there is only 1 attorney for every 
10,000 poor persons. In contrast, there are approximately 28 
lawyers for every 10,000 persons above the Federal poverty 
line.
    The Private Attorney Involvement (PAI) project under LSC 
requires each LSC grantee to spend at least 12.5 percent of its 
basic field grant to promote the direct delivery of legal 
services by private attorneys, as opposed to LSC staff 
attorneys. The funds have been primarily used to develop pro 
bono panels, with joint sponsorship between a local bar 
association and a LSC grantee. Over 350 programs currently 
exist throughout the country. Data indicates that the PAI 
requirement is an effective means of leveraging funds. A higher 
percentage of cases were closed per $10,000 of PAI dollars than 
with dollars spent supporting staff attorneys.
    It should be noted, however, that these programs have been 
criticized by Legal Services staff attorneys. They claim that 
these programs have been unjustifiably cited to support less 
LSC funding and to the diversion of cases from LSC field 
offices. Cuts in funding have decreased the LSC's ability to 
meet clients' legal needs. Legal services field offices report 
that they have had to scale down their operations and narrow 
their priorities to focus attention on emergency cases, such as 
evictions or loss of means of support. Legal services offices 
must now make hard choices about whom they serve.
    The private bar is an essential component of the legal 
services delivery system for the elderly. The expertise of the 
private bar is considered especially important in areas such as 
will and estates as well as real estate and tax planning. Many 
elderly persons, however, cannot obtain legal services because 
they cannot afford to pay customary legal fees. In addition, a 
substantial portion of the legal problems of the elderly stem 
from their dependence on public benefit programs. The private 
bar generally is unable to undertake representation in these 
matters because it requires familiarity with a complex body of 
law and regulations, and there is a little chance of collecting 
a fee for services provided. Although many have cited the 
capacity of the private bar to meet some of the legal needs of 
the elderly on a full-fee, low-fee, or no-fee basis, the 
potential of the private bar has yet to be fully realized.

                     (b) Legal Services Corporation

                         (1) Board Appointments

    The Legal Services Corporation Act provides that ``[t]he 
Corporation shall have a Board of Directors consisting of 11 
voting members appointed by the President, by and with the 
advice and consent of the Senate, no more than 6 of whom shall 
be of the same political party.'' President Clinton nominated 
11 new Board members, all of whom were confirmed on October 21, 
1993.

                (2) Status of Legal Services Corporation

    Few people disagree that provision of legal services to the 
elderly is important and necessary. However, people continue to 
debate how to best provide these services. President Reagan 
repeatedly proposed termination of the federally funded Legal 
Services Corporation and the inclusion of legal services 
activities in a social services block grant. Funds then 
provided to the Corporation, however, were not included in this 
proposal. This block grant approach was consistent with the 
Reagan Administration's goal of consolidating categorical grant 
programs and transferring decisionmaking authority to the 
States. Inclusion of legal services as an eligible activity in 
block grants, it was argued, would give States greater 
flexibility to target funds where the need is greatest and 
allowing States to make funding decisions regarding legal 
services would make the program accountable to elected 
officials.
    The Reagan Administration also revived earlier charges that 
legal services attorneys are more devoted to social activism 
and to seeking collective solutions and reform than to routine 
legal assistance for low-income individuals. These charges 
resparked a controversy surrounding the program at the time of 
its inception as to whether Federal legal aid is being misused 
to promote liberal political causes. The poor often share 
common interests as a class, and many of their problems are 
institutional in nature, requiring institutional change. 
Because legal resources for the poor are a scarce commodity, 
legal services programs have often taken group-oriented case 
selection and litigation strategies as the most efficient way 
to vindicate rights. The use of class action suits against the 
government and businesses to enforce poor peoples' rights has 
angered some officials. Others protest the use of class action 
suits on the basis that the poor can be protected only by 
procedures that treat each poor person as a unique individual, 
not by procedures which weigh group impact. As a result of 
these charges, the ability of legal services attorneys to bring 
class action suits has been severely restricted.
    The Reagan Administration justified proposals to terminate 
the Legal Services Corporation by stating that added pro bono 
efforts by private attorneys could substantially augment legal 
services funding provided by the block grant. It was believed 
that this approach would allow States to choose among a variety 
of service delivery mechanisms, including reimbursement to 
private attorneys, rather than almost exclusive use of full-
time staff attorneys supported by the Corporation.
    Supporters of federally funded legal services programs 
argue that neither State nor local governments nor the private 
bar would be able to fill the gap in services that would be 
created by the abolition of the LSC. They cite the inherent 
conflict of interest and the State's traditional nonrole in 
civil legal services which, they say, makes it unlikely that 
States will provide effective legal services to the poor. Many 
feel that the voluntary efforts of private attorneys cannot be 
relied on, especially when more lucrative work beckons. They 
believe that private lawyers have limited desire and ability to 
do volunteer work. Some feel that, in contrast to the LSC 
lawyers who have expertise in poverty law, private lawyers are 
less likely to have this experience or the interest in dealing 
with the types of problems that poor people encounter.
    Defenders of LSC believe that the need among low-income 
people for civil legal assistance exceeds the level of services 
currently provided by both the Corporation and the private bar. 
Elimination of the Corporation and its funding could further 
impair the need and the right of poor people to have access to 
their government and the justice system. They also contend that 
it is inconsistent to assure low-income people representation 
in criminal matters, but not in civil cases.

                 3. Federal and Private Sector Response

            (a) Legislation--The Legal Services Corporation

    The 1974 LSC Act was reauthorized for the first and only 
time in 1977 for an additional 3 years. Although the 
legislation authorizing the LSC expired at the end of fiscal 
year 1980, the agency has operated under a series of continuing 
resolutions and appropriations bills, which have served both as 
authorizing and funding legislation. The Corporation is allowed 
to submit its own funding requests to Congress. In fiscal year 
1985, Congress began to earmark the funding levels for certain 
activities to ensure that congressional recommendations were 
carried out. In addition to original restrictions, the 
legislation for fiscal year 1987 included language that 
provided that the legislative and administrative advocacy 
provisions in previous appropriations bills and the Legal 
Services Corporation Act of 1974, as amended, shall be the only 
valid law governing lobbying and shall be enforced without 
regulations. This language was included because the Corporation 
published proposed regulations that were believed to go far 
beyond the restrictions on lobbying which are contained in the 
LSC statute.
    For fiscal year 1988, Congress appropriated $305.5 million 
for the LSC. Congress also directed the Corporation to submit 
plans and proposals for the use of funding at the same time it 
submits its budget request to Congress. This was deemed 
necessary because the appropriations committees had encountered 
great difficulty in tracing the funding activities of the 
Corporation and received very little detail from the 
Corporation about its proposed use of the funding request, 
despite repeated requests for this information. The Corporation 
is prohibited from imposing requirements on the governing 
bodies of recipients of LSC grants that are additional to, or 
more restrictive than, provisions already in the LSC statute. 
This provision applies to the procedures of appointment, 
including the political affiliation and length of terms of 
office, and the size, quorum requirements, and committee 
operations of the governing bodies.

                   (b) Activities of the Private Bar

    To counter the effects of cuts in Federal legal services 
and to ease the pressure on overburdened legal services 
agencies, some law firms and corporate legal departments began 
to devote more of their time to the poor on a pro bono basis. 
Such programs are in conformity with the lawyer's code of 
professional responsibility which requires every lawyer to 
support the provisions of legal services to the disadvantaged. 
Although pro bono programs are gaining momentum, there is no 
precise way to determine the number of lawyers actually 
involved in the volunteer work, the number of hours donated, 
and the number of clients served. Most lawyers for the poor say 
that these efforts are not yet enough to fill the gap and that 
a more intensive organized effort is needed to motivate and 
find volunteer attorneys.
    A relatively recent development in the delivery of legal 
services by the private bar has been the introduction of the 
Interest on Lawyers' Trust Accounts (IOLTA) program. This 
program allows attorneys to pool client trust deposits in 
interest bearing accounts. The interest generated from these 
accounts is then channeled to federally funded, bar affiliated, 
and private and nonprofit legal services providers. IOLTA 
programs have grown rapidly. There was one operational program 
in 1983. Today 47 States and the District of Columbia have 
adopted IOLTA programs. An American Bar Association study group 
estimated that if the plan was adopted on a nationwide basis, 
it could produce up to $100 million a year. The California 
IOLTA program specifically allocates funds to those programs 
serving the elderly. Although many of the IOLTA programs are 
voluntary, the ABA passed a resolution at its February 1988 
meeting suggesting that IOLTA programs be mandatory to raise 
funds for charitable purposes.
    Supporters of the IOLTA concept believe that there is no 
cost to anyone with the exception of banks, which participate 
voluntarily. Critics of the plan contend that it is an 
unconstitutional misuse of the money of a paying client who is 
not ordinarily apprised of how the money is spent. Supporters 
point out that attorneys and law firms have traditionally 
pooled their client trust funds, and it is difficult to 
attribute interest to any given client. Prior to IOLTA, the 
banks have been the primary beneficiaries of the income. While 
there is no unanimity at this time among lawyers regarding 
IOLTA, the program appears to have value as a funding 
alternative.
    On June 15, 1998, the Supreme Court issued a decision that 
may affect the extent to which IOLTA funds will be available 
for legal services in the future. These funds represent 
interest earned on sums that are deposited by legal clients 
with attorneys for short periods of time. A substantial amount 
of these funds $57 million in 1997, according to the LSC are 
used to help fund legal services programs. In Phillips v. 
Washington Legal Foundation, the Court ruled that these funds 
are the private property of clients, and returned the case to 
the lower court to determine whether the state (Texas, in this 
case) was required to compensate the clients for ``taking'' 
these funds.
    In 1977, the president of the American Bar Association was 
determined to add the concerns of senior citizens to the ABA's 
roster of public service priorities. He designated a task force 
to examine the status of legal problems and the needs 
confronting the elderly and to determine what role the ABA 
could play. Based on a recommendation of the task force, an 
interdisciplinary Commission on Legal Problems of the Elderly 
was established by the ABA in 1979. The Commission is charged 
with examining six priority areas: the delivery of legal 
services to the elderly; age discrimination; simplification of 
administrative procedures affecting the elderly; long-term 
care; Social Security; and housing. In addition, since 1976, 
the ABA Young Lawyers Division has had a Committee on the 
Delivery of Legal Services to the Elderly.
    The Commission on Legal Problems of the Elderly has 
undertaken many activities to promote the development of legal 
resources for older persons and to involve the private bar in 
responding to the needs of the aged. One such activity was a 
national bar activation project, which provided technical 
assistance to State and local bar associations, law firms, 
corporate counsel, legal service projects, the aging network, 
and others in developing projects for older persons.
    The private bar has also responded to the needs of elderly 
persons in new ways on the State and local levels. A number of 
State and local bar association committees on the elderly have 
been formed. Their activities range from legislative advocacy 
on behalf of seniors and sponsoring pro bono legal services for 
elderly people to providing community legal education for 
seniors. Other State and local projects utilize private 
attorneys to represent elderly clients on a reduced fee or pro 
bono basis. In more than 38 States, handbooks that detail 
seniors' legal rights have been produced either by State and 
area agencies on aging, legal services offices, or bar 
committees. In addition, some bar associations sponsor 
telephone legal advice lines. Since 1982, attorneys in more 
than half the States have had an opportunity to attend 
continuing legal education seminars regarding issues affecting 
elderly people. The emergence of training options for attorneys 
that focus on financial planning for disability and long-term 
care are particularly noteworthy.
    In 1987, the Academy of Elder Law Attorneys was formed. The 
purpose of this organization is to assist attorneys advising 
elderly clients, to promote high technical and ethical 
standards, and to develop awareness of issues affecting the 
elderly.
    A few corporate law departments also have begun to provide 
legal assistance to the elderly. For example, Aetna Life and 
Casualty developed a pro bono legal assistance to the elderly 
program in 1981 through which its attorneys are granted up to 4 
hours a week of time to provide legal help for eligible older 
persons. The Ford Motor Company Office of the General Counsel 
also began a project in 1986 to provide pro bono representation 
to clients referred by the Detroit Senior Citizens Legal Aid 
Project.
    As recognized by the American Bar Association, private bar 
efforts alone fall far short in providing for the legal needs 
of older Americans. The ABA has consistently maintained that 
the most effective approach for providing adequate legal 
representation and advice to needy older persons is through the 
combined efforts of a continuing Legal Services Corporation, an 
effective Older Americans Act program, and the private bar. 
With increased emphasis on private bar involvement, and with 
the necessity of leveraging resources, the opportunity to 
design more comprehensive legal services programs for the 
elderly exists.


                               Chapter 16



                         CRIME AND THE ELDERLY

                            A. VIOLENT CRIME

                             1. Background

    Although violence experienced by all Americans, including 
the elderly, has declined in the United States since 1991, the 
crime rate remains higher than that reported in the early 
1980s. According to the 1997 Uniform Crime Reports (UCR), in 
the United States there is one violent crime every 19 seconds, 
one murder every 29 minutes, one forcible rape every five 
minutes, one robbery every minute, and one aggravated assault 
every 31 seconds.
    Recent polls show that a significant number of older 
Americans continue to fear criminal victimization. A 1997 Time/
CNN/Yankelovich Partners telephone poll found that 50 percent 
of respondents aged 50 to 64 years and 40 percent of those 65 
years and over reported that they were personally worried about 
being victims of crime. A 1997 Princeton Survey Research 
Associates telephone poll found that 70 percent of respondents 
aged 50 to 59 years, 69 percent of those aged 60 to 69 years, 
and 62 percent of those 70 years and over reported concern 
about becoming crime victims.
    The Federal Bureau of Investigation's (FBI's) 1997 UCR 
crime data, released in December 1998, suggest that the fears 
of many of these Americans may be unfounded. UCR statistics 
show that the 1.6 million violent crimes reported in 1997 
declined 3.2 percent from the previous year. In November 1997, 
the Bureau of Justice Statistics (BJS) released a report, 
entitled Criminal Victimization 1996, that presents data from 
the National Crime Victimization Survey, including the rate of 
victimization per 1,000 persons aged 12 years or older. The 
survey data suggest a relatively low victimization rate for 
older Americans, with those aged 50 to 64 years having a 15.7 
rate of victimization for all crimes of violence, and those 65 
years and older having a 4.9 victimization rate. By comparison, 
youth aged 12 to 19 years had a victimization rate for violent 
crime 20 times higher than those age 65 years and older.
    While these data appear to provide encouraging news, 
special problems may arise when an older person falls victim to 
crime. The impact of crime on the lives of older adults may be 
greater than on the other population groups, given their 
vulnerabilities. They are more likely to be injured, take 
longer to recover, and incur greater proportional losses to 
income. About 60 percent of the elderly live in urban areas, 
where crime is more prevalent. Often, the elderly live in 
social isolation, and in many instances they are unable to 
defend themselves against their attackers. Because many seniors 
live on social security and other fixed income, and as 
retirees, may not have health insurance coverage through their 
former place of employment, crime can devastate them 
financially. Crime victimization of the elderly also can wreak 
emotional havoc on them.
    The victimization of the elderly through telemarketing 
fraud remains one of the leading areas of concern in the fight 
to combat crime against older Americans. On February 5, 1998, 
the Senate Appropriations Commerce, Justice, State, and 
Judiciary Subcommittee held a hearing, ``Regarding 
Telemarketing Scams.'' Helen Boosalis, chairperson of the Board 
of Directors of the American Association of Retired Persons 
(AARP), testified that, ``Telemarketing fraud is a major 
concern for AARP because of the severe effects it has on our 
members, who are victimized in disproportionate numbers.'' Two 
years after a 1993 undercover FBI operation found that older 
Americans constituted the single largest group of people 
specifically targeted by fraudulent telemarketers, AARP 
sponsored a major survey of telemarketing fraud victims. Ms. 
Boosalis reported:

          The purpose of the survey was to learn more about how 
        this crime affects older Americans. We found that older 
        people are victimized much more frequently than young 
        people are. More than half of the victims of 
        telemarketing fraud are over age 50, although only 36 
        percent of the population is in this age group. While 
        only 7 percent of the population are age 75 or older, 
        14 percent of victims are in that age bracket.
          AARP's survey found that victims typically are not 
        the socially isolated, ill-informed, confused people 
        described anecdotally. In fact, victims are just as 
        likely to be relatively affluent, well-educated and 
        informed. They are active in their communities and 
        express many of the same attitudes towards 
        telemarketers as do non-victims. * * * Additional AARP 
        qualitative research revealed that though older 
        consumers knew telemarketing fraud was wrong, they 
        found it hard to believe that it was a crime.

Ms. Boosalis stated that AARP had joined with the FBI, the 
National Association of Attorneys General (NAAG), the U.S. 
Postal Inspection Service, and other agencies in December 1996 
to initiate ``Operation Unload,'' a project to alert consumers 
that they might be targeted by illegal telemarketers.''

                       2. Congressional Response

    During the 105th Congress (1997-1998), several bills were 
introduced in both houses of Congress that focused on crime and 
the elderly. Congress enacted the Telemarketing Fraud 
Prevention Act (P.L. 105-184). Introduced on June 10, 1997, the 
measure (H.R. 1847/Goodlatte) passed the House, amended, on 
July 8, 1997, and passed the Senate with an amendment in the 
nature of a substitute on November 9, 1997. Signed into law on 
June 23, 1998, the act enhances penalties for persons convicted 
of telemarketing fraud; provides for the forfeiture of property 
used in the offense, or gained by the offender, in the 
commission of the crime; and clarifies mandatory restitution 
provisions that the offender must meet.
    On July 2, 1998, Senator Judd Gregg introduced the 
Commerce, Justice, State Appropriations bill for FY1999 (S. 
2260). On July 23, Senator Richard Durbin offered an amendment 
(S. Amdt. 3312) to the bill to amend the Violent Crime Control 
and Law Enforcement Act of 1994 (P.L. 103-322) to ensure 
greater protection of elderly women from domestic violence 
under the Violence Against Women Act grant program. Authorized 
by the Violence Against Women Act of 1994 (P.L. 103-322), the 
program provides funding to address the needs and concerns of 
women who have been, or might be, victimized by violence. Grant 
programs also provide technical assistance to state and tribal 
government officials in planning new criminal justice efforts 
in this area. Stating that several research studies have 
concluded that elder abuse is the most underreported crime in 
the family, Senator Durbin remarked:

          Those who perpetrate violence against their family 
        members do not desist because the family member grows 
        older. In fact, in some cases, the abuse may become 
        more severe as the victim ages, becoming more isolated 
        from the community with their removal from the 
        workforce. Other age-related factors, such as increased 
        frailty, may increase a victim's vulnerability. It also 
        is true that older victims' ability to report abuse is 
        frequently confounded by their reliance on their abuser 
        for care or housing.

    The amendment would have made the Violence Against Women 
Act grant program more sensitive to the needs of elderly women 
suffering from domestic violence. Though the Senate approved 
the amendment, it did not appear in the final version of the 
bill included in the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act (P.L. 105-277).
    Like Senator Durbin's amendment, two other bills introduced 
in the 105th Congress would have amended the Violence Against 
Women Act grant program to protect older women. On April 1, 
1998, Representative Carolyn Maloney introduced the Older 
Women's Protection from Violence Act of 1998 (H.R. 3624). The 
bill would have amended the Violence Against Women Act of 1994 
to direct the Attorney General to provide grants to law school 
clinical programs to fund the inclusion of cases, including 
issues of elder abuse, neglect, and exploitation; and to 
develop curricula and provide for the offering of training 
programs regarding such issues for law enforcement officers, 
prosecutors, and relevant federal, state, and local court 
officials. On May 22, 1998, Senator Durbin introduced a 
companion bill (S. 2114).
    On March 19, 1998, Representative John Conyers, ranking 
member of the House Judiciary Committee, introduced an omnibus 
measure, the Violence Against Women Act of 1998 (H.R. 3514), 
containing a provision similar to that in H.R. 3624/S. 2114. 
None of these bills received approval in the respective 
chambers.

                             B. ELDER ABUSE


                             1. Background

    Elder abuse affects hundreds of thousands of older persons 
annually, yet remains largely a hidden problem. The National 
Center on Elder Abuse (NCEA) (within the American Public Human 
Services Association) has identified a number of types of 
abuse: physical, sexual, emotional or psychological abuse, 
financial or material exploitation, abandonment, self-neglect, 
or neglect by another person. According to the Administration 
on Aging (AoA), the most common forms of elder abuse are 
physical and psychological abuse, financial exploitation, and 
neglect.
    The NCEA has been collecting data on reports of domestic 
elder abuse since 1986. Until recently, data on national trends 
in elder abuse have been based on the results of surveys of 
state adult protective services agencies and state agencies on 
aging. However, a groundbreaking study, completed by the NCEA 
in 1998, assessed the incidence of elder abuse nationwide. The 
study was completed in collaboration with Westat, Inc. for the 
Administration for Children and Families, and AoA, in the 
Department of Health and Human Services (HHS).\1\
---------------------------------------------------------------------------
    \1\ The National Elder Abuse Incidence Study. Final Report. 
National Center on Elder Abuse, American Public Human Services 
Association. In collaboration with Westat, Inc. September 1998. http://
www.aoa.gov/abuse/report/
---------------------------------------------------------------------------
    This study found that almost 550 thousand persons aged 60 
and over experienced various forms of abuse, neglect, and/or 
self-neglect in domestic settings in 1996. Based on an estimate 
of unreported incidents, the study concluded that almost four 
to five times more new incidents of elder abuse, neglect, and/
or self-neglect were unreported in 1996. Generally, elder abuse 
is difficult to identify due to the isolation of older persons 
and reluctance of older persons and others to report incidents. 
Underreporting of abuse represents what some researchers have 
called the ``iceberg'' theory, that is, the number of cases 
reported is simply indicative of a much larger societal 
problem. According to this theory, the most visible types of 
abuse and neglect are reported, yet a large number of other, 
less visible forms of abuse go unreported.
    Victims of elder abuse are more likely to be women and 
persons in the oldest age categories. Abusers are more likely 
to be male and most are related to victims. The NCEA study 
indicated that adult children represent the largest category of 
abusers.
    According to AoA, state legislatures in all states have 
enacted some form of legislation that authorizes states to 
provide protective services to vulnerable adults. In about 
three-quarters of the states, these services are provided by 
adult protective service (APS) units in state social services 
agencies; in the remaining states, state agencies on aging 
carry out this function. Most states have laws that require 
certain professionals to report suspected cases of abuse, 
neglect and/or exploitation. In 1996, 23 percent of all 
domestic elder abuse reports came from physicians, and another 
15 percent came from service providers. In addition, family 
members, neighbors, law enforcement, clergy and others made 
reports.

                          2. Federal Programs

    The primary source of federal funds for elder abuse 
prevention activities are the Social Services Block Grant 
(SSBG) and the Older Americans Act (OAA) program. The SSBG 
(along with state funds) support activities of APS units in all 
states. The Older Americans Act supports a number of activities 
including training for APS personnel, law enforcement 
personnel, and others; coordination of state social services 
systems, including the use of hotlines for reporting; technical 
assistance for service providers; and public education 
activities.

                   C. CONSUMER FRAUDS AND DECEPTIONS


                             1. Background

    According to the 1990's national census figures, 70 percent 
of the wealth of our country is owned by persons fifty-five and 
older. In addition, the age 65 and over market is a lucrative 
source of consumers who spend over $60 billion annually. These 
facts, combined with a number of age-related factors such as 
fixed income levels and chronic health conditions, contribute 
to making the elderly prime targets of consumer frauds and 
deceptions. The amount of money being fleeced, primarily from 
those over fifty-five, is immense: $40 billion a year from 
telemarketing scams alone according to the FBI. In addition, 
health fraud is costing the elderly about $25 billion a year in 
phoney health products. Unfortunately, con artists who prey on 
the elderly are extremely effective at defrauding their 
victims. To the poor, they make ``get rich quick'' offers; to 
the rich, they offer investment properties; to the sick, they 
offer health gimmicks and new cures for ailments; to the 
healthy, they offer attractive vacation deals; and to those who 
are fearful of the future, they offer a confusing array of 
useless insurance plans.
    Congress has held numerous hearings in recent years 
addressing consumer fraud and deception among the elderly. In 
1993 the Senate Special Committee on Aging held a hearing 
entitled Health Care Fraud as it Affects the Aging. The hearing 
discussed how health care fraud puts our national health care 
system in a critical condition. The committee cited to a GAO 
report which estimated that 10 percent of the dollars we spend 
on health care in America are stolen through waste, fraud, and 
abuse.
    In March 1996 the Senate Special Committee on Aging held a 
hearing entitled Telescams Exposed: How Telemarketers Target 
the Elderly. The hearing examined the dramatic increase in 
telemarketing fraud targeting senior citizens, and what law 
enforcement is doing to crack down on these schemes. 
Telemarketing scams cost Americans about $40 billion a year, 
and they run the gamut from small fly by-night operators to 
sophisticated organized crime rings.
    Congress and the Federal Trade Commission have also moved 
to crack down on telemarketing fraud by placing restrictions on 
when telemarketers can make calls, and what can and cannot be 
included in their sales pitch. Based on the findings made by 
the committee and others, Congress has also imposed tougher 
penalties on telemarketers who intentionally target senior 
citizens.
    At the end of 1998, the Justice Department completed 2\1/2\ 
years of its Operation Double Barrel, a massive federal and 
state sting operation designed to catch telemarketers who 
fraudulently promise people prizes or other special items in 
return for a fee. The victims, mostly elderly, typically pay by 
credit card, but the prizes never arrive. To stop this illegal 
activity, the FBI and 35 state attorneys general used police 
and senior citizen volunteers to field phone calls from 
unsuspecting, dishonest telemarketers. To date, nearly 1,000 
people have been charged with violating federal or state fraud 
laws, and 150 have been convicted.
    Ironically, as older Americans grow as a cumulative market 
with increasing consumer purchasing power, many elderly live 
close to the poverty line and have little disposable income. 
Consequently, crimes aimed at the pocketbooks of the elderly 
frequently have devastating effects on their victims. Elderly 
consumers are frequently the least able to rebound from being 
victimized.
    While there are several reasons why the elderly are 
disproportionately victimized, the older victims' accessibility 
is a major factor. Since they often spend most of their days at 
home, older consumers are easier to contact by telephone, mail, 
and in person. Additionally, many elderly consumers are 
homebound due to physical illness or disabilities. The 
dishonest telemarketer usually gets an answer when he or she 
telephones an older person. Door-to-door salespeople hawking 
worthless goods are more likely to find someone at home when 
they ring the doorbell of a retired person. Deceptive or 
fraudulent mass mailings are likely to be given more attention 
by retired individuals with more leisure time. In addition, 
older citizens are often trusting and willing to talk to 
strangers, and often lack the skills to end a potentially 
fraudulent phone call.
    Con artists are well organized, sophisticated, and 
effective. Police authorities report that it is not uncommon 
for a con artist, upon leaving one successful location, to 
exchange the addresses of his easiest victims with another con 
artist who is just moving into the area. To avoid being caught, 
con artists usually avoid leaving a paper trail. Whenever 
possible they deal in cash. They avoid written estimates, avoid 
properly drawn contracts, and insist on haste to take advantage 
of a ``today only'' special price. Increasingly, there are con 
artists who operate on a very sophisticated level. New 
technology provides a variety of new ways to defraud consumers. 
Now schemes exist which victimize even the most cautious and 
skeptical among us.
    One scheme frequently used by fraudulent marketeers is the 
so-called ``sweepstakes'' or ``free giveaways'' scheme. A 
consumer receives a postcard which announces that she is 
entitled to claim one or more prizes. The award notice is 
professionally designed to appear legitimate. The postcard 
bears a toll-free telephone number and the consumer is 
instructed that he or she must simply call to claim the prizes. 
Once the toll-free number is accessed, a recording instructs 
the consumer to touch numbers on the telephone which correspond 
with a ``claim number'' which appears on the postcard. 
Ultimately, the consumer receives no prize. What is received is 
a ``telephone bill'' which reflects a substantial charge for 
the call just as if a 900 number had been called. The entry of 
the sequence of numbers that matched the ``claim number'' 
engaged an automated information service for which the consumer 
is charged.
    This problem is best attacked in two ways: (1) 
interdiction, to put these criminals out of business, through 
detection, enforcement, and prosecution; and (2) a continuing 
education program to inform and educate seniors of the scams 
and deceptive practices to which they may be exposed. It is 
paramount that seniors learn they can fight consumer fraud by 
simply tossing out junk mail, hanging up the phone, or closing 
the front door. To this end, there has been increased 
coordination on the federal and state levels, as well as an 
emerging public-private partnership designed to promote public 
awareness among the elderly of consumer fraud scams and how to 
avoid them.
                              SUPPLEMENT 1

     Brief Synopsis of Hearings and Workshops Held in 1997 and 1998

    The Senate Special Committee on Aging, convened 19 
hearings, 6 field hearings, and 8 forums during the 105th 
Congress.

                                hearings

March 6, 1997--Retiring Baby Boomers: Meeting the Challenge
April 10, 1997--Improving Accountability in Medicare Managed 
        Care: The Consumers Need for Better Information
April 29, 1997--Torn Between Two Systems: Improving Chronic 
        Care in Medicare and Medicaid
May 19, 1997--Medicare Payment Reform: Increasing Choice and 
        Equity
June 16, 1997--Shortchanged: Pension Miscalculations
July 28, 1997--JACKPOT: Gaming the Home Health Care System
September 23, 1997--Hearing on Prostate Cancer: The Silent 
        Killer
February 10, 1998--A Starting Point for Reform: Identifying the 
        Goals of Social Security
March 9, 1998--The Cash Crunch: The Financial Challenge of 
        Long-Term Care for the Baby Boomer Generation
March 16, 1998--Equity Predators: Stripping, Flipping and 
        Packing their way to Profits
March 31, 1998--Access to Care: The Impact of the Balanced 
        Budget Act on Medicare Home Health Services
April 22, 1998--The Stock Market and Social Security: The Risks 
        and the Rewards
May 6, 1998--Choosing a Health Plan: Providing Medicare 
        Beneficiaries with the Right Tools
June 2, 1998--Preparing Americans for Retirement: The 
        Roadblocks to Increased Savings
June 8, 1998--The Graying of Nations: Productive Aging Around 
        the World
July 15, 1998--Living Longer, Retiring Earlier: Rethinking the 
        Social Security Retirement Age
July 27 and 28, 1998--Betrayal: The Quality of Care in 
        California Nursing Homes
September 10, 1998--Everyday Heroes: Family Caregivers Face 
        Increasing Challenges in an Aging Nation
September 14, 1998--Crooks Caring for Seniors: The Case for 
        Criminal Background Checks

                             field hearings

August 25, 1997--2010 and Beyond: Preparing Medicare for the 
        Baby Boomers, Sioux City, IA
August 26, 1997--2010 and Beyond: Preparing Social Security for 
        the Baby Boomers, Omaha, NE
January 12 and 13, 1998--The Many Faces of Long-Term Care: 
        Today's Bitter Pill or Tomorrow's Cure, Las Vegas, NV 
        and Reno, NV
February 18, 1998--Preparing for the Retirement of the Baby 
        Boom Generation, Baton Rouge, LA
April 27, 1998--Elder Care Today and Tomorrow, Columbus, OH
June 30, 1998--Preserving America's Future Today, Bala Cynwyd, 
        PA

                                 forums

July 25, 1997--Preparing for the Baby Boomers Retirement: The 
        Role of Employment
June 24, July 8, July 15, and July 22, 1997--Medicaid Managed 
        Care: The Elderly and Others with Special Needs
October 22, 1997--The Risk of Malnutrition in Nursing Homes
May 13, 1998--Transforming Health Care Systems for the 21st 
        Century Issues and Opportunities for Improving Health 
        Care
May 20, 1998--Living Longer, Growing Stronger: The Vital Role 
        of Geriatric Medicine
July 16, 1998--Older Americans and the Worldwide Web: A New 
        Wave of Internet Users
September 10, 1998--Easing the Family Caregiver Burden: 
        Programs Around the Nation
September 18, 1998--Can We Rest in Peace? The Anxiety of 
        Elderly Parents Caring for Baby Boomers with 
        Disabilities

Retiring Baby Boomers: Meeting the Challenges, Washington, DC, March 6, 
            1997, the Honorable Charles Grassley, Presiding

                               witnesses

Gail Wilensky, chair, Physician Payment Review Commission
David M. Walker, partner, Global Managing director, Arthur 
    Andersen LLP
Dallas L. Salisbury, president, Employee Benefit Research 
    Institute; chair, American Savings Education Council; 
    member, National Commission on Retirement Policy
Madelyn Hochstein, president and co-founder, DYG, Inc
Barry Bosworth, senior fellow, Economics Studies, Brookings 
    Institution
Olivia Mitchell, professor of Insurance and Risk Management, 
    Wharton School, University of Pennsylvania
Dr. Robert N. Butler, M.D., professor5 of Geriatrics, director, 
    International Longevity Center, Mount Sinai Medical Center; 
    vice chairman, Alliance for Aging Research
H. James Towey, president, Commission on Aging with Dignity

                                synopsis

    This hearing sought to provide an overview of the mounting 
challenges facing older Americans today. It will look at the 
affects of the impending Baby Boomer retirement on society, the 
public perception of this demographic shift, and ways in which 
to meet this change.

Improving Accountability in Medicare Managed Care: The Consumer's Need 
for Better Information, Washington, DC , April 10, 1997, the Honorable 
                      Charles Grassley, Presiding

                               witnesses

Irvin Stuart, Medicare Beneficiary, Bronx, NY
Diane Archer, executive director, Medicare Rights Center, New 
    York, NY
William Scanlon, director, Health Financing and Systems Issues, 
    General Accounting Office
Helen Darling, manager, Healthcare Strategy and Programs, Xerox 
    Corporation, representing the Institute of Medicine
Margaret Stanley, assistant executive officer, Health Benefits 
    Service, California Public Employees Retirement System 
    CalPERS)

                                synopsis

    This hearing examined how access to information about 
Medicare managed care plans can affect consumer decision 
making. The Committee will seek to determine if standardized 
information should be made available to beneficiaries and, if 
so, what are the best methods for providing the information.

   Torn Between Two Systems: Improving Chronic Care in Medicare and 
   Medicaid, Washington, DC, April 29, 19974, the Honorable Charles 
                          Grassley, Presiding

                               witnesses

Karin von Behren, volunteer, Orange County Alzheimer's 
    Association
Sue Paul, Augusta, ME
Richard Bennett, M.D., executive medical director for long term 
    care, John Hopkins Geriatrics Center
Lucy Nonnenkamp, project director, Medicare Plus II, Kaiser 
    Permanente
Jeanne Laily, vice president, Continuum Services and Chronic 
    Care, Fairview Hospital and Healthcare Services
William Scanlon, director, Health Financing and Systems Issue, 
    Health, Education and Human Services Division, U.S. General 
    Accounting Office
Bruce Bullen, commissioner, Massachusetts Division, of Medical 
    Assistance
Pamela Parker, director, Minnesota Seniors Health Options, St. 
    Paul, MN
Barbara Markham Smith, senior research staff, Center for Health 
    Policy Research, Washington, DC

                                synopsis

    The Committee examined the treatment received by 
chronically ill persons who are eligible for both Medicare and 
Medicaid. The lack of coordination in treating these dual 
eligibles can lead to a deterioration on their quality of life 
and waste scarce health care dollars. The Committee will look 
for ways to restructure the chronic health care delivery system 
in order to better serve persons currently thrown back and 
forth between Medicare and Medicaid.

Medicare Payment Reform: Increasing Choice and Equity, Washington, DC, 
        May 19, 1997, the Honorable Charles Grassley, Presiding

                               witnesses

Hans Running, Medicare Beneficiary
William Scanlon, director, Health Financing and Systems Issue, 
    Health, Education and Human Services Division, U.S. General 
    Accounting Office
Steve Brenton, president and CEO, Association of Iowa Hospitals 
    and Health Systems
Doug Dillon, Medicare Program Executive, Providence Health 
    Plans
Susan Foote, president, Coalition for Fairness in Medicare
David Colby, Ph.D., deputy director, Physician Payment Review 
    Commission
Kenneth Thorpe, Ph.D., professor, Department of Health Systems 
    Management; director, Institute for Health Services 
    Research; Tulane University School of Public Health and 
    Tropical Medicine

                                synopsis

    The Committee examined the current Medicare payment system, 
focusing on managed care payment. People have expressed concern 
that the lack of equity within the system denies many ``low 
payment area'' Medicare beneficiaries the same choice of 
joining a managed care plan that ``high payment area'' 
beneficiaries enjoy. Medicare managed care plans usually offer 
benefits, such as pharmaceuticals and lower co-pays, not 
available to standard fee-for-service enrollees. The Committee 
will look for ways to restructure the current payment system to 
bring equity and choice to all beneficiaries.

 Shortchanged: Pension Miscalculations, Washington, DC June 16, 1997, 
               the Honorable Charles Grassley, Presiding

                               witnesses

Edwin Witgort, retired from Castle Metals
Paul Francione, retired from Pan Am Airlines
Edgar Pauk, deputy director, Legal Services for the Elderly
Allen Engerman, National Center for Retirement Benefits, Inc
Trip Reid, coordinator of Technical Assistance Projects, 
    Pension Rights Center
Thomas Walker, president, Associated Benefits Corporation

                                synopsis

    The Committee sought to expose the problem of pension 
miscalculations. Currently, few people check to make sure the 
pension they receive is correct. The Committee will look for 
ways to expose this hidden problem, educate people on the steps 
they can take to protect themselves, and empower people with 
the tools they need to protect their pension benefits.

  Preparing for the Baby Boomers' Retirement: The Role of Employment, 
                      Washington, DC July 25, 1997

                               witnesses

Alan Reynolds, director of Economic Research at the Hudson 
    Institute
John Rother, director of Legislation and Public Policy for the 
    American Association of Retired Persons
Michael Barth, executive VP of ICF Kaiser International's 
    Consulting Group
Richard Burkhauser, professor of economics at Syracuse 
    University and at the Maxwell School
Colin Gillion, director of Social Security at the International 
    Labor Organizations in Geneva, Switzerland
Scott Bass, Dean of the Graduate School and Vice Provost for 
    Research at the University of Maryland-Baltimore County

                                synopsis

    This forum discussed the possibility that Baby Boomers may 
have to remain in the workforce longer than their parents. Some 
questions addressed were: What impact will older workers have 
on the job market? How will the job market respond to older 
workers? Are Baby Boomers ready to delay retirement from the 
workforce? Will the situation lead to stress between Baby 
Boomers and younger generations?

 Jackpot: Gaming The Home Health Care System, Washington, DC, July 28, 
            1997, the Honorable Charles Grassley, Presiding

                               witnesses

Jeanette G. Garrison, convicted Home Health Care Felon
George F. Grob, Deputy Inspector General for Evaluation and 
    Inspections, Office of the Inspector General, Department of 
    Health and Human Services
Leslie G. Aronovitz, Associate Director, Health Financing and 
    Systems Issues, Health, Education and Human Services 
    Division, U.S. General Accounting Office
Mary L. Ellis, vice president for Medicare, Wellmark, Inc
Bobby P. Jindal, secretary, Louisiana Department of Health and 
    Hospitals

                                synopsis

    The Committee sought to examine the depth of fraud in the 
home health care system, schemes used to defraud the health 
care system, and deficiencies in the current home health care 
systems; and potential solutions available. The committee will 
look for ways to reduce the amount of fraud in home health and 
for ways to get citizens involved in identifying and deterring 
fraud, waste, and abuse in health care.

   Medicaid Managed Care: The Elderly and Others With Special Needs, 
 Washington, DC, June 24, 1997, July 8, 1997, July 15, 1997, and July 
               22, 1997, Ms. Susan Christensen, Presiding

                               witnesses

Tony Young, policy associate, United Cerebral Palsy Association
Alfonso V. Guida, Jr., vice president, National Mental Health 
    Association
Kathleen H. McGinley, assistant director for Governmental 
    Affairs,
Nancy Leonard, Care Manager, Connecticut Community Care on 
    behalf of the Alzheimer's Disease and Related Disorders 
    Association
Donald Minor, client advocate, Caremark on behalf of the 
    National Association of People with AIDS

William J. Scanlon, director, Health Financing and Systems 
    Issue Area, U.S. General Accounting Office
Barbara Markham Smith, Senior Research Staff Scientist, Center 
    for Health Policy Research, The George Washington 
    University
Patricia A. Riley, vice president of Government Programs, 
    Policy and Planning for Allina Health System, Medica Health 
    Plans

William J. Scanlon, director, Health Financing and Systems 
    Issue Area, U.S. General Accounting Office
A. Michael Collins, deputy executive director, Center for 
    Health Program Development and Management, University of 
    Maryland at Baltimore County
John Ware, Jr., senior scientist and director, The Health 
    Institute at New England Medical Center
Trish MacTaggart, director, Quality and Performance Management, 
    Center for Medicaid and State Operations, Health Care 
    Financing Administration

William J. Scanlon, director, Health Financing and Systems 
    Issue Area, U.S. General Accounting Office
Barbara Shipnuck, deputy secretary for Health Care Policy, 
    Finance and Regulation, State of Maryland Department of 
    Health and Mental Hygiene
Peggy L. Bartels, director, Division of Health, Bureau of 
    Health Care Financing, Wisconsin Medicaid Program
Jane Horvath, director Special Initiatives, National Academy 
    for State Health Policy
Stephen A. Somers, president, Center for Health Care 
    Strategies, Inc

                                synopsis

    The Senate Special Committee on Aging held a series of four 
forums: people with special needs, state of the industry, 
quality and outcome measures, and the state of the states, 
designed to examine the ability of managed care programs to 
serve the elderly and others with special needs. The purpose of 
the forums is to give Congress an understanding of these 
challenges as states are seeking more flexibility in mandating 
Medicaid managed care.

 2010 and Beyond: Preparing Medicare for the Baby Boomers, Sioux City, 
     IA, August 25, 1997, the Honorable Charles Grassley, Presiding

                               witnesses

Joseph R. Antos, assistant director for Health and Human 
    Resources, Congressional Budget Office
Merton C. Bernstein, Walter D. Coles Professor of Law Emeritus, 
    Washington University in St. Louis
Robert E. Moffit, Ph.D., deputy director of Domestic Policy 
    Studies, The Heritage Foundation
John C. Goodman, president, National Center for Policy Analysis

2010 and Beyond: Preparing Social Security for the Baby Boomers, Omaha, 
     NE, August 26, 1997, the Honorable Charles Grassley, Presiding

                               witnesses

Stephen C. Goss, deputy chief actuary, Social Security 
    Administration
C. Eugene Steuerle, Ph.D., senior fellow, The Urban Institute
Helen Boosalis, board chair, American Association of Retired 
    Persons
Sylvester J. Schieber, Ph.D., vice president, Watson Wyatt 
    Worldwide

                                synopsis

    The Committee examined the financing challenges facing 
Social Security and Medicare following the year 2010 when the 
large Baby Boom generation begins to retire. The Aging 
Committee helped to start a national dialog on these issues so 
that a national consensus can be formed and implemented well 
before the crisis of program bankruptcy becomes a reality. The 
hearing will seek input from Americans on the future of the two 
vitally important programs.

    Hearing on Prostate Cancer: The Silent Killer, Washington, DC, 
     September 23, 1997, the Honorable Charles Grassley, Presiding


                               witnesses

Hon. Robert Dole, former U.S. Senator from the State of Kansas
Len Dawson, NFL Hall of Fame Quarterback
Mr. and Mrs. Bob Watson, General Manager, New York Yankees
Hon. Robert Miller, Governor, State of Nevada
E. David Crawford, M.D., University of Colorado Health Sciences 
    Center
Col. David G. McLeod, M.D., chief, Urology Service, Walter Reed 
    Army Medical Center
Richard J. Babaian, M.D., the University of Texas
Thomas V. Holohan, M.D., F.A.C.P., Chief Patient Care Services 
    Offices, Veterans Health Administration, Department of 
    Veterans Affairs
Harold Sox, M.D., Dartmouth Medical School

                                synopsis

    The Committee sought to raise public awareness of prostate 
cancer, examine the different screening and treatment options, 
and address the debate over when treatment is appropriate. 
Prostate cancer is the second leading cause of male cancer 
deaths. The American Cancer Society predicts more than 330,000 
new cases will be diagnosed in the United States this year.

The Risk of Malnutrition in Nursing Homes, Washington, DC, October 22, 
            1997, the Honorable Charles Grassley, Presiding


                               Witnesses

L. Gregory Pawlson, M.D., M.P.H. director, Institute for Health 
    Policy Outcomes and Human Values, George Washington 
    University
Jeanie Kayser-Jones, Ph.D., professor, Physiological Nursing 
    and Medical Anthropology, University of California at San 
    Francisco
Ilene Henshaw, family member of Nursing Home Resident
Joseph Malloy, family member of Nursing Home Resident
Eric Tangalos, M.D., Head of Geriatrics, Mayo Clinic
Catherine Hawes, Ph.D., director of Program on Aging and Long-
    Term Care, Research Triangle Institute
Susan Flagge, Training Coordinator, Providence Mount St. 
    Vincent, Seattle, WA
Susan Misiorski, vice president of Nursing, Apple Health Care
Loretta Grover, regional dietitian, Genesis Health Ventures

                                Synopsis

    This forum was designed to examine malnutrition in nursing 
homes and highlight the ``best practices'' to reduce the 
chances for malnutrition to occur. The forum was a balanced and 
constructive discussion about nutrition in nursing homes, with 
particular attention to the causes, extent and consequences of 
malnutrition. The Committee also focused discussion on ways to 
improve nutrition in nursing homes.

  The Many Faces of Long-Term Care: Today's Bitter Pill or Tomorrow's 
Cure, Las Vegas, NV, January 12, 1997, and Reno, NV, January 13, 1997,  
                  the Honorable Harry Reid, Presiding


                               witnesses

Jeanette Takamura, Assistant Secretary for Aging
Charles Bernick, M.D., Department of Internal Medicine Division 
    of Neurology, University of Nevada School of Medicine
Josephine George, Las Vegas resident
Frankie Sue Del Papa, Attorney General, State of Nevada
Carla Sloan, Administrator, Division for Aging Services, 
    Department of Human Resources
Rick Panelli, Chief, Bureau of Licensure and Certification, 
    Nevada State Health Division
Lawrence J. Weiss, Ph.D., Director, Sanford Center for Aging, 
    University of Nevada
Margaret McConnell, R.N., Administrator, Charleston Retirement 
    and Assisted Living
Winthrop Cashdollar, Executive Director of the Nevada Health 
    Care Association
Lea Mason, R.N., Secretary, Home Health Care Association of 
    Nevada
Steven L. Phillips, M.D., C.M.D., Medical Director, Social 
    Health Maintenance Organization, Senior Dimensions, Sierra 
    Health Services, Inc

Hon. James A. Gibbons, A Representative in Congress from the 
    State of Nevada
Jeanette Takamura, Assistant Secretary for Aging
Charles Bernick, M.D., Department of Internal Medicine Division 
    of Neurology, University of Nevada School of Medicine
Carol Hunter, mother of Janet Hunter, A Nursing Home Resident
Frankie Sue Del Papa, Attorney General, State of Nevada
Carla Sloan, Administrator, Division for Aging Services, 
    Department of Human Resources
Rick Panelli, Chief, Bureau of Licensure and Certification, 
    Nevada State Health Division
Lawrence J. Weiss, Ph.D., Director, Sanford Center for Aging, 
    University of Nevada
Wendy Van Curen Simons, Administrator, Park Place, Assisted 
    Living Residential Neighborhood for Seniors
Winthrop Cashdollar, Executive Director of the Nevada Health 
    Care Association
Donna J. Shilinksy, R.N., M.S., Community Care Associates
Steven L. Phillips, M.D., C.M.D., Medical Director, Social 
    Health Maintenance Organization, Senior Dimensions, Sierra 
    Health Services, Inc

                                synopsis

    The Committee examined current issues facing long-term care 
such as patient safety, quality of care, options of care, and 
accountability in the delivery of long-term care. It also took 
a look into the future and discussed how the nation and the 
individual states can ensure that Americans have available and 
affordable quality care.

A Starting Point for Reform: Identifying the Goals of Social Security, 
  Washington, DC, February 10, 1998, the Honorable Charles Grassley, 
                               Presiding


                               witnesses

Ken Apfel, Commissioner, Social Security Administration
Hon. Tim Penny, Fiscal Fellow, CATO Institute, former 
    Representative in Congress from the State of Minnesota
Joseph Perkins, President-elect American Association of Retired 
    Persons
Fidel Vargas, Member, 1994-1995 Advisory Council on Social 
    Security
Jane Ross, Director for Income Security, U.S. General 
    Accounting Office

                                synopsis

    The Committee will identify the core goals that a public 
retirement program should try to achieve and the priority that 
should be given to these goals. By focusing on the objectives 
that Americans expect reform to achieve, the Committee hopes to 
promote an understanding of the different objectives different 
groups advocate in their approaches to social security reform. 
The reform process can advance more effectively if the public 
and policy makers focus first on reaching agreement on the 
goals that must be achieved by the social security system.

Preparing for the Retirement of the Baby Boom Generation, Baton Rouge, 
      LA, February 18, 1998, the Honorable John Breaux, Presiding


                               witnesses

Hon. Ken Apfel, Commission of Social Security
Hon. Nancy-Ann Min DeParle, Administrator Health Care Financing 
    Administration
Jeanette C. Takamura, Assistant Secretary for Aging, Department 
    of Health and Human Services
David M. Walker, Partner, Global Managing Director Arthur 
    Andersen LLP
Kenneth E. Thorpe, Vanselow Professor of Health Policy, and 
    Director, Institute for Health Services Research, Tulane 
    University School of Public Health and Tropical Medicine
Al From, president, Democratic Leadership Council

                                synopsis

    The purpose of the hearing was to raise awareness about 
major challenges facing Social Security and Medicare. The 
rapidly aging population has brought the reform of these 
programs to the top of the national policy agenda.

The Cash Crunch: The Financial Challenge of Long-Term Care for the Baby 
Boomer Generation, Washington, DC, March 9, 1998, the Honorable Charles 
                          Grassley, Presiding


                               witnesses

Donna Harvey, executive director, Hawkeye Valley Area Agency on 
    Aging
Lynda Gormus
William J. Scanlon, Ph.D., director, Health Financing and 
    Systems Issues, General Accounting Office
Mathew Greenwald, Ph.D., Mathew Greenwald and Associates
Samuel Morgante, vice president, Product Development and 
    Government Relations, GE Capital Assurance Company, and 
    chair, Health Insurance Association of America Long-Term 
    Care Committee
JaneMarie Mulvey, Ph.D., director, Economic Research, American 
    Council of Life Insurance
Barbara Stucki, Ph.D., senior research analyst, American 
    Council of Life Insurance
Joshua M. Wiener, Ph.D., principal research associate, The 
    Urban Institute
Roger Auerbach, administrator, Senior and Disabled Services 
    Division, Oregon Department of Human Resources
Alan Lazaroff, M.D., director of Geriatric Medicine, Centura 
    Senior Life Center
Mark J. Schulte, president and chief executive officer, 
    Brookdale Living Communities, Inc

                                synopsis

    The Committee plans to raise awareness of the risk to 
retirement income posed by the need for long term care services 
and to review public and private initiatives that might make 
long-term care more available and affordable for older 
Americans. Of particular interest was the examination of how 
retirement of the baby boomer generation will impact the demand 
for long-term care, the ability of public budgets to provide 
those services, and the projected retirement income of baby 
boomers.

Equity Predators: Stripping, Flipping and Packing Their Way to Profits, 
    Washington, DC, March 16, 1998, the Honorable Charles Grassley, 
                               Presiding


                               Witnesses

Helen Ferguson
Gael Carter
Vireta Jackson Arthur
Jim Dough, former employee of a predatory lender
Gene A. Marsh, professor of law, University of Alabama Law 
    School
Jodie Bernstein, director, Bureau of Consumer Protection, 
    Federal Trade Commission
William J. Brennan, Jr., director, Home Defense Program, 
    Atlanta Legal Aid Society

                                Synopsis

    This hearing focused specifically on predatory lending 
practices and their impact on seniors. The purpose of the 
hearing is to expose these predatory lending practices, to 
educate seniors on how to spot problems before they sign a loan 
or mortgage, and to empower seniors with information sot that 
they can avoid these practices in the future.

Access to Care: The Impact of the Balanced Budget Act on Medicare Home 
Health Services, Washington, DC, March 31, 1998, the Honorable Charles 
                          Grassley, Presiding


                               witnesses

Nancy-Ann Min DeParle, administrator, Health Care Financing 
    Administration
Barbara Markham Smith, senior research staff, Center for Health 
    Policy Research, George Washington University Medical 
    Center
Cindi Slack, executive director, Sioux Valley Hospital Visiting 
    Nurses Association
David J. Martin, administrator and co-owner, Apple Home 
    Healthcare, Inc., and co-owner, Metro Preferred Health 
    Care, Inc
William A. Dombi, vice president, National Association for Home 
    Care
Linda Fanton, administrator/owner, Eastern Iowa Visiting Nurses 
    and Home Health Care
James C. Pateidl, Third vice president, National Association of 
    Surety Bond Producers

                                synopsis

    The Committee examined three important policy changes that 
will impact seniors' access to home health care. The changes 
came through the Balanced Budget Act of 1997 at the urging of 
the Federal Home Care Financing Administration. The Committee 
will explore the effects of these policy changes and urge a 
resolution of the unintended problems that affect seniors' 
access to home health care.

   The Stock Market and Social Security: The Risks and the Rewards, 
    Washington, DC, April 22, 1998, the Honorable Charles Grassley, 
                               Presiding


                               witnesses

Barbara Bovbjerg, associate director, Income Security Issues, 
    General Accounting Office
Bruce MacLaury, chairman, subcommittee on Social Security 
    Reform, Committee for Economic Development
Alicia Munnell, former member, Council of Economic Advisors, 
    Boston College
Olivia S. Mitchell, co-chair, Social Security Advisory Council 
    Technical Panel, Wharton School of the University of 
    Pennsylvania
James Phalen, managing director, Retirement Investment 
    Services; executive vice president, State Street Global 
    Advisors
Louis Enoff, former commissioner, Social Security 
    Administration, Enoff Associates

                                synopsis

    The Committee examined whether the stock market could have 
a role in saving Social Security. The Committee released a 
General Accounting Office (GAO) report that examines the issue 
and heard testimony from experts on which stock investing 
approach would be best.

  Elder Care Today and Tomorrow, Washington, DC, April 27, 1998, the 
                    Honorable John Glenn, Presiding


                               witnesses

Bernadine P. Healy, M.D., dean, The Ohio State University 
    College of Medicine and Public Health
Robert N. Butler, M.D., chairman and CEO, International 
    Longevity Center
Bonnie S. Kantor, SC.D., director, Office of Geriatrics and 
    Gerontology, The Ohio State University College of Medicine 
    and Public Health
Connie M. Schmitt, director, TriHealth SeniorLink
Martin Janis, senior consultant
Matt Ottiger, legislative liaison, Ohio Department of Aging
Cindy Farson, director, Central Ohio Area Agency on Aging

                                synopsis

    This field hearing highlighted successful aging research 
and geriatric training programs in Ohio. It focused on programs 
to provide medical and social support to older Americans in 
their homes and communities.

Choosing A Health Plan: Providing Medicare Beneficiaries With the Right 
  Tools, Washington, DC, May 6, 1998, the Honorable Charles Grassley, 
                               Presiding


                               witnesses

Michael Hash, Deputy Director, Health Care Financing 
    Administration
William J. Scanlon, Director, Health Finance and System Issues 
    Area, General Accounting Office
Susan Kleimann, Ph.D., Kleimann Communications Group, LLC
Geraldine Dallek, MPH project director, Institute for 
    Healthcare Research and Policy, Georgetown University
David S. Abernethy, senior vice president, Public Policy and 
    Regulatory Affairs, HIP Health Plans

                                synopsis

    The Committee listened to how the government plans to give 
Medicare beneficiaries more information to help them sort 
through the increased number of health care options they face. 
The committee released a new General Accounting Office (GAO) 
report on the disenrollment of beneficiaries from Medicare 
managed care plans.

   Transforming Health Care Systems for the 21st Century Issues and 
Opportunities for Improving Health Care, Washington, DC, May 13, 1998, 
               the Honorable Charles Grassley, Presiding


                               witnesses

Andrea S. Gerstenberger, SC.D., Senior Program Officer, 
    California Healthcare Foundation
Richard Bringewatt, president and CEO, National Chronic Care 
    Consortium
Myrl Weinberg, president, National Health Counsel
Susan Denman, M.D., vice president for Medical Affairs, 
    Philadelphia Geriatric Center and Temple University Health 
    System
Gerard Anderson, professor, Johns Hopkins University
Mark Meiners, Ph.D., director, Robert Wood Johnson Foundation 
    Medicare/Medicaid Integration Program

                                synopsis

    Meeting the needs of a growing chronically-ill population 
in the United States will place tremendous strain on our 
current health care financing systems. The five participants in 
this forum outlined a policy framework for identifying the 
problems within our current system, as well as highlighted 
innovative solutions. Four issues drove the discussion: 
demographics, financing, structure of delivery systems and 
regulation.

Living Longer, Growing Stronger: The Vital Role of Geriatric Medicine, 
Washington, DC, May 20, 1998, the Honorable Charles Grassley, Presiding


                               Witnesses

Violet Cosgrove, Older Consumer
John Murphy, M.D., associate professor and residency director, 
    Division of Geriatrics, Department of Family Medicine, 
    Brown University
Susan Klein, HM, DNSC, RN, Bureau of Health Professions, Health 
    Resources and Services Administration
Steven L. Phillips, M.D., C.M.D., senior dimensions
Neeraj Kanwal, M.D., executive medical director, Government 
    Programs Anthem Blue Cross and Blue Shield
Steve L. Anderson, executive director, Donald W. Reynolds 
    Foundation
William L. Minnix, Jr., D. Min., president and chief executive 
    officer, Wesley Woods Center on Aging, Emory University

                                synopsis

    This forum addressed the importance of geriatric medicine 
and the shortage of geriatricians our national faces. Expert 
panelists examined possible solutions to this problem and 
allowed time for audience questions.

    Preparing Americans for Retirement: The Roadblocks to Increased 
Savings, Washington, DC, June 2, 1998, the Honorable Charles Grassley, 
                               Presiding


                               witnesses

Jan Owens
Dennis L. Stone, owner, Western Manufacturing Corporation
Dallas Salisbury, president and chief executive officer, 
    Employer Benefit Research Institute
Sharon Dillon Robinson, dean, Center for Retirement Education, 
    Variable Annuity Life Insurance Company
Olena Berg, assistant secretary, Pension and Welfare Benefits 
    Administration, United States Department of Labor

                                synopsis

    The hearing identified retirement savings barriers for 
individuals and ways to educate individuals about the 
importance of saving. The committee and the subcommittee 
released a new nationwide survey showing why many small 
businesses do not offer their employees retirement savings 
plans and what would encourage them to do so.

The Graying of Nations: Productive Aging Around the World, Washington, 
      DC, June 8, 1998, the Honorable Charles Grassley, Presiding


                               witnesses

Dr. Jeanette Takamura, Assistant Secretary of Aging, Department 
    of Health and Human Services
Richard Hodes, M.D., director, National Institute on Aging
Robert N. Butler, M.D., president and CEO, International 
    Longevity Center
Lady Sally Greengross, director General of Age Concern England 
    and director of the International Longevity Center-UK
Yuzo Okamoto, M.D., professor of Health Science and Welfare 
    Economics, Kobe City College of Nursing
A.H.B. de Bono, M.D., director of the International Institute 
    on Aging-Malta
Francoise Forette, M.D., director of International Longevity 
    Center-France
Alvar Svanborg, M.D., Ph.D., professor emeritus, University of 
    Gothenburg, Sweden and University of Illinois

                                synopsis

    The hearing is the third in a series, prior hearings were 
held in 1977 and 1985, that focuses on the international trend 
of increased life expectancy. This hearing explored 
international programs, policies and research that encourage 
active aging.

Preserving America's Future Today, Bala Cynwyd, PA, June 30, 1998, the 
                   Honorable Rick Santorum, Presiding


                               witnesses

Patricia DeMarco
Joseph P. Sirbak II
Meredith Keiser, Foundation for International Responsibility 
    and Social Trust
Carl Helstrom, Third Millennium
Sam Beard, Economic Security 2000
Michael Tanner, director of Health and Welfare Studies, CATO 
    Institute
Marshall E. Blume, Wharton School of Business, University of 
    Pennsylvania
David Langer, David Langer Company, Inc

                                synopsis

    The Committee hosted field hearings to explore public 
sentiments on Social Security. The purpose was to gather 
information, educate the public on Social Security issues, and 
discuss proposals to fix the program's problems.

    Living Longer, Retiring Earlier: Rethinking the Social Security 
                             Retirement Age


                               witnesses

Barbar D. Bovberj, Associate Director, Income Security Issues, 
    Health, Education, and Human Services Division, U.S. 
    General Accounting Office
David A. Smith, director of Public Policy, American Federation 
    of Labor-Congress of Industrial Organizations (AFL-CIO)
Gary Burtless, Ph.D., senior fellow, Brookins Institution
Donna L. Wagner, Ph.D., director, The Center for Productive 
    Aging, Towson University
Paul R. Huard, vice president of Policy and Communications, 
    National Association of Manufacturers
Carolyn J. Lukensmeyer, executive director, Americans Discuss 
    Social Security Project

                                synopsis

    This hearing explored how an increase in the retirement age 
will affect the solvency of the Social Security system, the 
impact on workers, and how employers may adjust to an increase 
in the number of older workers.

Older Americans and the Worldwide Web: The New Wave of Internet Users, 
    Washington, DC, July 16, 1998, the Honorable Charles Grassley, 
                               Presiding


                               witnesses

Mary Furlong, CEO, ThirdAge Media
Micki Gordon, chairperson, Center for Productive Aging, Jewish 
    Council for the Aging
Herb Ernst, retired professor and Internet User
Jeanne Hurley Simon, chairperson, U.S. National Commission on 
    Libraries and Information Science
Craig D. Spiezle, director, Market Development and Corporate 
    Marketing, Microsoft Corporation
Michael McMullan, deputy director, Center for Beneficiary 
    Health Services, Health Care Financing Administration

                                synopsis

    This forum examined older Americans' increasing use of the 
Internet, including the tremendous possibilities of social 
interaction, cultural enrichment, professional development and 
information about health care choices via the worldwide web.

Betrayal: The Quality of Care in California Nursing Homes, Washington, 
   DC, July 27 and 28, 1998 the Honorable Charles Grassley, Presiding


                               witnesses

Ellen Curzon
John Davis
Leslie Oliva
Kathleen Duncan, certified nurse assistant, activities 
    director, Social Services designee, admissions director
Patricia Lloyd, former licensed vocational nurse
Kathryn Locatell, M.D.,
Florence N., registered nurse

Charlene Harrington, professor, Department of Social and 
    Behavioral Services, University of California
William J. Scanlon, Director, Health Financing and Systems 
    Issues, Health, Education, and Human Services Division, 
    United States General Accounting Office
Andrew M. Kramer, M.D., research director, Center on Aging, 
    University of Colorado, Health Services Center
Michael Hash, Deputy Administrator, Health Care Financing 
    Administration
Sheldon L. Goldberg, president, American Association of Homes 
    and Services for the Aging
Dennis Stone, M.D., on behalf of the California Association of 
    Health Facilities
Paul R. Willging, executive vice president, American Health 
    Care Association

                                synopsis

    This hearing addressed the quality of care in California 
Nursing homes. The first day of the hearing included testimony 
from the family members of former nursing home residents and 
nursing home employees. The second day of the hearing featured 
the release of a General Accounting Office (GAO) reported 
requested by the Committee.

  Everyday Heroes: Family Caregivers Face Increasing Challenges in an 
Aging Nation, Washington, DC, September 10, 1998, the Honorable Charles 
                          Grassley, Presiding


                               witnesses

Former First Lady Rosalynn Carter, president, Rosalynn Carter 
    Institute
Gail Gibson Hunt, executive director, National Alliance for 
    Caregiving
Peter S. Arno, professor, Albert Einstein College of Medicine
Carol Levine, director, Families and Health Care Project, 
    United Hospital Fund
Mary S. Mittelman, Alzheimer's Disease Center, New York 
    University Medical School
Dr. David Levy, chairman and chief executive officer, Franklin 
    Health Inc., Upper Saddle River, NJ, and Carol Weinrod, 
    registered nurse, Franklin Health
Myrl Weinberg, president, National Health Council

                                synopsis

    This hearing sought to define family caregivers and explore 
the challenges they face.

    Easing the Family Caregiver Burden: Programs Around the Nation, 
                  Washington, DC, September 10, 1998,


                               witnesses

Susan R. Friedman, executive director, The Grotta Foundation
Kathleen A. Kelly, executive director, Family Caregiver 
    Alliance
Susan Reinhard, RN, Ph.D., deputy commissioner, New Jersey 
    Department of Health and Senior Services
Bentley Lipscomb, secretary, Department of Elder Affairs
Richard Browdie, secretary of Aging, Department of Aging
Leah Eskenazi, manager of Senior and Community Programs, Legacy 
    Health Systems
Connie Ford, RN, MPA, vice president, Product Development and 
    Services, Adultcare

                                synopsis

    This forum will focus on how to strengthen and increase 
programs for family caregivers. Currently, more than 25 million 
Americans care for an aging or ailing family member. The 
personal and financial contributions made by these individuals 
is enormous, and with a growing number of older Americans, that 
contribution only will increase.

  Crooks Caring for Seniors: The Case for Criminal Background Checks, 
  Washington, DC, September 14, 1998 the Honorable Charles Grassley, 
                               Presiding


                               witnesses

Richard A. Meyer
Claudia Stine, director of Ombudsman Services
Thomas D. Roslewicz, Deputy Inspector General for Audit 
    Services, Office of the Inspector General, Department of 
    Health and Human Services
Kim Schmett, director, Iowa Department of Inspections and 
    Appeals
Lee Bitler, director of Human Resources, Country Meadow, Inc
Richard Reichard, executive director, National Lutheran Home 
    for the Aged; on behalf of the American Association for 
    Homes and Services for the Aging
Melissa Putnam, certified nurse aide, Beverly Manor; on behalf 
    of the Service Employees International Union

                                synopsis

    This hearing explored the need for a national system to 
check the criminal backgrounds of nursing home workers.

 Can We Rest In Peace? The Anxiety of Elderly Parents Caring for Baby 
 Boomers With Disabilities, Washington, DC, September 18, 1998, Jackie 
         Golden, Joseph P. Kennedy Foundation Fellow, Presiding


                               witnesses

Lorraine Sheehan, chairperson, Governmental Affairs Committee, 
    The Arc
James Cumberpatch, parent
David Braddock, Ph.D., professor of Human Development, and 
    head, Department of Disability and Human Development, 
    University of Illinois
Thomas Nerney, co-director, National Program Office on Self-
    Determination, Institute on Disability, University of New 
    Hampshire
Sue Swenson, Commissioner, Administration on Developmental 
    Disabilities, Administration for Children and Families, 
    U.S. Department of Health and Human Services
Diane Coughlin, director, Developmental Disabilities 
    Administration

                                synopsis

    This forum examined the hardships faced by aging parents of 
baby boomers with disabilities. The Committee will explore 
better ways to manage care, to use public resources and to 
improve the circumstances of the individuals with disabilities.
                              SUPPLEMENT 2

                        Committee Staff Members

                   Theodore L. Totman, Staff Director
                    Patricia Hameister, Chief Clerk

                                Majority

                   Gina Falconio, Professional Staff
                   Lauren Fuller, Chief Investigator
                      Jill Gerber, Press Secretary
                   Hope Hegstrom, Professional Staff
                  Joanne Ivancic, Deputy Investigator
                   Rebecca Jones, Professional Staff
                 Meredith Levenson, Professional Staff
                      Tim Reagan, Staff Assistant
                  Cecil Swamidoss, Deputy Investigator
                           Tom Walsh, Counsel
                       Jocelyn Ward, GPO Printer

                                Minority

               Michelle Prejean, Minority Staff Director
                Elizabeth Golden, Deputy Press Secretary
                   Jill Greenlee, Professional Staff
                   Sarah Walter, Legislative Director
                   Kristy Tillman, Professional Staff
                  Kenyattah Robinson, Press Assistant
                              SUPPLEMENT 3



                           PUBLICATIONS LIST

                              ----------                              


   HOW TO ORDER COPIES OF COMMITTEE HEARINGS, REPORTS, AND COMMITTEE 
                                 PRINTS

    The Special Committee on Aging, under the direction of its 
Chairman, publishes committee prints, reports, and 
transcriptions of its hearings each year. These documents are 
listed chronologically by year, beginning with reports and 
committee prints, and followed by hearings.
    Copies of committee publications are available from the 
committee and from the Government Printing Office. The date of 
publication and the number of copies you would like generally 
determine which office you should contact in requesting a 
publication.
    The following are guidelines for ordering copies of 
committee publications:
  --Single copies of publications printed after January 1992 
        can be obtained from the committee.
  --Any publication printed before January 1992 should be 
        ordered from the Government Printing Office.
  --If you would like more than one copy of a publication, they 
        should be ordered from the Government Printing Office.
   *If the committee supply has been exhausted--as indicated by 
        an asterisk--contact the Government Printing Office for 
        a copy of the publication. If all supplies have been 
        exhausted--contact your local Federal ``Depository 
        Library,'' which should have received a printed or 
        microformed copy of the publication.
    While a single copy of a publication is available from the 
committee free of charge, the Government Printing Office 
charges for publications.

                  ADDRESSES FOR REQUESTING PUBLICATIONS
Documents                                   Superintendent of Documents
Special Committee on Aging                  Government Printing Office
SD-G31, U.S. Senate                         Washington, D.C. 20402
Washington, D.C. 20510-6400                 (202) 512-1800
(202) 224-5364


                                REPORTS

Developments in Aging, 1959 to 1963, Report No. 8, February 
    1963.*
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is important that you first read the instructions on page 1.
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Developments in Aging, 1963 and 1964, Report No. 124, March 
    1965.*
Developments in Aging, 1965, Report No. 1073, March 1966.*
Developments in Aging, 1966, Report No. 169, April 1967.*
Developments in Aging, 1967, Report No. 1098, April 1968.*
Developments in Aging, 1968, Report No. 91-119, April 1969.*
Developments in Aging, 1969, Report No. 91-875, May 1970.*
Developments in Aging, 1970, Report No. 92-46, March 1971.*
Developments in Aging: 1971 and January-March 1972, Report No. 
    92-784, May 1972.*
Developments in Aging: 1972 and January-March 1973, Report No. 
    93-147, May 1973.*
Developments in Aging: 1973 and January-March 1974, Report No. 
    93-846, May 1974.*
Developments in Aging: 1974 and January-April 1975, Report No. 
    94-250, June 1975.*
Developments in Aging: 1975 and January-May 1976--Part 1, 
    Report No. 94-998, June 1976.*
Developments in Aging: 1975 and January-May 1976--Part 2, 
    Report No. 94-998, June 1976.*
Developments in Aging: 1976--Part 1, Report No. 95-88, April 
    1977.*
Developments in Aging: 1976--Part 2, Report No. 95-88, April 
    1977.*
Developments in Aging: 1977--Part 1, Report No. 95-771, April 
    1978.*
Developments in Aging: 1977--Part 2, Report No. 95-771, April 
    1978.*
Developments in Aging: 1978--Part 1, Report No. 96-55, March 
    1979.*
Developments in Aging: 1978--Part 2, Report No. 96-55, March 
    1979.*
Developments in Aging: 1979--Part 1, Report No. 96-613, 
    February 1980.*
Developments in Aging: 1979--Part 2, Report No. 96-613, 
    February 1980.*
Developments in Aging: 1980--Part 1, Report No. 97-62, May 
    1981.*
Developments in Aging: 1980--Part 2, Report No. 97-62, May 
    1981.*
Developments in Aging: 1981--Volume 1, Report No. 97-314, March 
    1982.*
Developments in Aging: 1981--Volume 2, Report No. 97-314, March 
    1982.*
Developments in Aging: 1982--Volume 1, Report No. 98-13, 
    February 1983.*
Developments in Aging: 1982--Volume 2, Report No. 98-13, 
    February 1983.*
Developments in Aging: 1983--Volume 1, Report No. 98-360, 
    February 1984.*
Developments in Aging: 1983--Volume 2, Report No. 98-360, 
    February 1984.*
Developments in Aging: 1984--Volume 1, Report No. 99-5, 
    February 1985..*
Developments in Aging: 1984--Volume 2, Report No. 99-5, 
    February 1985.*
Developments in Aging: 1985--Volume 1, Report No. 99-242, 
    February 1986.
Developments in Aging: 1985--Volume 2--Appendixes, Report No. 
    99-242, February 1986.*
Developments in Aging: 1985--Volume 3--America in Transition: 
    An Aging Society.*
Developments in Aging: 1986--Volume 1, Report No. 100-9, 
    February 1987.*
Developments in Aging: 1986--Volume 2, Appendixes, Report No. 
    100-9, February 1987.*
Developments in Aging: 1986--Volume 3--America in Transition: 
    An Aging Society, Report No. 100-9, February 1987.*
Developments in Aging: 1987--Volume 1, Report No. 100-291, 
    February 1988.
Developments in Aging: 1987--Volume 2--Appendixes, Report No. 
    100-291, February 1988.*
Developments in Aging: 1987--Volume 3--The Long-Term Care 
    Challenge, Report No. 100-291, February 1988.*
Developments in Aging: 1988--Volume 1--Report No. 101-4, 
    February 1989.*
Developments in Aging: 1988--Volume 2--Appendixes, Report No. 
    101-4, February 1989.*
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is important that you first read the instructions on page 1.
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Developments in Aging: 1989--Volume 1--Report No. 101-249, 
    February 1990.*
Developments in Aging: 1989--Volume 2--Appendixes, Report No. 
    101-249, February 1990.*
Developments in Aging: 1990--Volume 1--Report No. 102-28, 
    February 1991.*
Developments in Aging: 1990--Volume 2--Appendixes, Report No. 
    102-28, February 1991.*
Developments in Aging: 1991--Volume 1--Report No. 102-261, 
    February 1992.*
Developments in Aging: 1991--Volume 2--Appendixes, Report No. 
    102-261.*
Developments in Aging: 1992--Volume 1--Report No. 103-40, April 
    1993.*
Developments in Aging: 1992--Volume 2--Appendixes, Report No. 
    103-40, April 1993.*
Developments in Aging: 1993--Volume 1--Report No. 103-403, 
    September 1994.*
Developments in Aging: 1993--Volume 2--Appendixes, Report No. 
    103-403, September 1994.*
Developments in Aging: 1996--Volume 1--Report No. 105-36, June 
    24, 1997.*
Developments in Aging: 1996--Volume 2--Report No. 105-36, June 
    24, 1997.*
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    Note: When requesting or ordering publications in this listing, it 
is important that you first read the instructions on page 1.
---------------------------------------------------------------------------
Developments in Aging: 1996--Volume 3--Report No. 105-36, April 
    30, 1998.*
                            COMMITTEE PRINTS


                                  1961

Comparison of Health Insurance Proposals for Older Persons, 
    1961, committee print, April 1961.*
The 1961 White House Conference on Aging, basic policy 
    statements and recommendations, committee print, May 1961.*
New Population Facts on Older Americans, 1960, committee print, 
    May 1961.*
Basic Facts on the Health and Economic Status of Older 
    Americans, staff report, committee print, June 1961.*
Health and Economic Conditions of the American Aged, committee 
    print, June 1961.*
State Action To Implement Medical Programs for the Aged, 
    committee print, June 1961.*
A Constant Purchasing Power Bond: A Proposal for Protecting 
    Retirement Income, committee print, August 1961.*
Mental Illness Among Older Americans, committee print, 
    September 1961.*

                                  1962

Comparison of Health Insurance Proposals for Older Persons, 
    1961-62, committee print, May 1962.*
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is important that you first read the instructions on page 1.
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Background Facts on the Financing of the Health Care of the 
    Aged, committee print, excerpts from the report of the 
    Division of Program Research, Social Security 
    Administration, Department of Health, Education, and 
    Welfare, May 1962.*
Statistics on Older People: Some Current Facts About the 
    Nation's Older People, June 1962.*
Performance of the States: 18 Months of Experience With the 
    Medical Assistance for the Aged (Kerr-Mills) Program, 
    committee print, June 1962.*
Housing for the Elderly, committee print, August 1962.*
Some Current Facts About the Nation's Older People, October 
    1962.*

                                  1963

A Compilation of Materials Relevant to the Message of the 
    President of the United States on Our Nation's Senior 
    Citizens, committee print, June 1963.*
Medical Assistance for the Aged: The Kerr-Mills Program, 1960-
    63, committee print, October 1963.*

                                  1964

Blue Cross and Private Health Insurance Coverage of Older 
    Americans, committee print, July 1964.*
Increasing Employment Opportunities for the Elderly--
    Recommendations and Comment, committee print, August 1964.*
Services for Senior Citizens--Recommendations and Comment, 
    Report No. 1542, September 1964.*
Major Federal Legislative and Executive Actions Affecting 
    Senior Citizens, 1963-64, committee print, October 1964.*

                                  1965

Frauds and Deceptions Affecting the Elderly--Investigations, 
    Findings, and Recommendations: 1964, committee print, 
    January 1965.*
Extending Private Pension Coverage, committee print, June 
    1965.*
Health Insurance and Related Provisions of Public Law 89-97, 
    The Social Security Amendments of 1965, committee print, 
    October 1965.*
Major Federal Legislative and Executive Actions Affecting 
    Senior Citizens, 1965, committee print, November 1965.*

                                  1966

Services to the Elderly on Public Assistance, committee print, 
    March 1966.*
The War on Poverty As It Affects Older Americans, Report No. 
    1287, June 1966.*
Needs for Services Revealed by Operation Medicare Alert, 
    committee print, October 1966.*
Tax Consequences of Contributions to Needy Older Relatives, 
    Report No. 1721, October 1966.*
Detection and Prevention of Chronic Disease Utilizing 
    Multiphasic Health Screening Techniques, committee print, 
    December 1966.*

                                  1967

Reduction of Retirement Benefits Due to Social Security 
    Increases, committee print, August 1967.*

                                  1969

Economics of Aging: Toward a Full Share in Abundance, committee 
    print, March 1969.* \1\
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    \1\ Working paper incorporated as an appendix to the hearing.

    Note: When requesting or ordering publications in this listing, it 
is important that you first read the instructions on page 1.
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Homeownership Aspects of the Economics of Aging, working paper, 
    factsheet, July 1969.* \1\
Health Aspects of the Economics of Aging, committee print, July 
    1969 (revised).* \1\
Social Security for the Aged: International Perspectives, 
    committee print, August 1969.* \1\
Employment Aspects of the Economics of Aging, committee print, 
    December 1969.* \1\

                                  1970

Pension Aspects of the Economics of Aging: Present and Future 
    Roles of Private Pensions, committee print, January 1970.* 
    \1\
The Stake of Today's Workers in Retirement Security, committee 
    print, April 1970.* \1\
Legal Problems Affecting Older Americans, committee print, 
    August 1970.* \1\
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is important that you first read the instructions on page 1.
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Income Tax Overpayments by the Elderly, Report No. 91-1464, 
    December 1970.*
Older Americans and Transportation: A Crisis in Mobility, 
    Report No. 91-1520, December 1970.*
Economics of Aging: Toward a Full Share in Abundance, Report 
    No. 91-1548, December 1970.*

                                  1971

Medicare, Medicaid Cutbacks in California, working paper, 
    factsheet, May 10, 1971.* 
The Nation's Stake in the Employment of Middle-Aged and Older 
    Persons, committee print, July 1971.*
The Administration on Aging--Or a Successor?, committee print, 
    October 1971.*
Alternatives to Nursing Home Care: A Proposal, committee print, 
    October 1971.*
Mental Health Care and the Elderly: Shortcomings in Public 
    Policy, Report No. 92-433, November 1971.*
The Multiple Hazards of Age and Race: The Situation of Aged 
    Blacks in the United States, Report No. 92-450, November 
    1971.*
Advisory Council on the Elderly American Indian, committee 
    print, November 1971.*
Elderly Cubans in Exile, committee print, November 1971.*
A Pre-White House Conference on Aging: Summary of Developments 
    and Data, Report No. 92-505, November 1971.*
Research and Training in Gerontology, committee print, November 
    1971.*
Making Services for the Elderly Work: Some Lessons From the 
    British Experience, committee print, November 1971.*
1971 White House Conference on Aging, a report to the delegates 
    from the conference sections and special concerns sessions, 
    Document No. 92-53, December 1971.*

                                  1972

Home Health Services in the United States, committee print, 
    April 1972.*
Proposals To Eliminate Legal Barriers Affecting Elderly 
    Mexican-Americans, committee print, May 1972.*
Cancelled Careers: The Impact of Reduction-in-Force Policies on 
    Middle-Aged Federal Employees, committee print, May 1972.*
Action on Aging Legislation in 92d Congress, committee print, 
    October 1972.*
Legislative History of the Older Americans Comprehensive 
    Services Amendments of 1972, joint committee print, 
    prepared by the Subcommittee on Aging of the Committee on 
    Labor and Public Welfare and the Special Committee on 
    Aging, December 1972.*

                                  1973

The Rise and Threatened Fall of Service Programs for the 
    Elderly, committee print, March 1973.*
Housing for the Elderly: A Status Report, committee print, 
    April 1973.*
Older Americans Comprehensive Services Amendments of 1973, 
    committee print, June 1973.*
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is important that you first read the instructions on page 1.
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Home Health Services in the United States: A Working Paper on 
    Current Status, committee print, July 1973.*
Economics of Aging: Toward a Full Share in Abundance, index to 
    hearings and report, committee print, July 1973.*
Research on Aging Act, 1973, Report No. 93-299, committee 
    print, July 1973.*
Post-White House Conference on Aging Reports, 1973, joint 
    committee print, prepared by the Subcommittee on Aging of 
    the Committee on Labor and Public Welfare and the Special 
    Committee on Aging, September 1973.*
Improving the Age Discrimination Law, committee print, 
    September 1973.*

                                  1974

The Proposed Fiscal 1975 Budget: What It Means for Older 
    Americans, committee print, February 1974.*
Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, February 1974.*
Developments and Trends in State Programs and Services for the 
    Elderly, committee print, November 1974.*
Nursing Home Care in the United States: Failure in Public 
    Policy:*
    Introductory Report, Report No. 93-1420, November 1974.*
    Supporting Paper No. 1, ``The Litany of Nursing Home Abuses 
            and an Examination of the Roots of Controversy,'' 
            committee print, December 1974.*
    Supporting Paper No. 2, ``Drugs in Nursing Homes: Misuse, 
            High Costs, and Kickbacks,'' committee print, 
            January 1975.*
    Supporting Paper No. 3, ``Doctors in Nursing Homes: The 
            Shunned Responsibility,'' committee print, February 
            1975.*
    Supporting Paper No. 4, ``Nurses in Nursing Homes: The 
            Heavy Burden (the Reliance on Untrained and 
            Unlicensed Personnel),'' committee print, April 
            1975.*
    Supporting Paper No. 5, ``The Continuing Chronicle of 
            Nursing Home Fires,'' committee print, August 
            1975.*
    Supporting Paper No. 6, ``What Can Be Done in Nursing 
            Homes: Positive Aspects in Long-Term Care,'' 
            committee print, September 1975.*
    Supporting Paper No. 7, ``The Role of Nursing Homes in 
            Caring for Discharged Mental Patients (and the 
            Birth of a For-Profit Boarding Home Industry),'' 
            committee print, March 1976.*
Private Health Insurance Supplementary to Medicare, committee 
    print, December 1974.*

                                  1975

Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, January 1975.*
Senior Opportunities and Services (Directory of Programs), 
    committee print, February 1975.*
Action on Aging Legislation in 93d Congress, committee print, 
    February 1975.*
The Proposed Fiscal 1976 Budget: What It Means for Older 
    Americans, committee print, February 1975.*
Future Directions in Social Security, Unresolved Issues: An 
    Interim Staff Report, committee print, March 1975.*
Women and Social Security: Adapting to a New Era, working 
    paper, committee print, October 1975.*
Congregate Housing for Older Adults, Report No. 94-478, 
    November 1975.*
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is important that you first read the instructions on page 1.
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                                  1976

Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, January 1976.*
The Proposed Fiscal 1977 Budget: What It Means for Older 
    Americans, committee print, February 1976.*
Fraud and Abuse Among Clinical Laboratories, Report No. 94-944, 
    June 1976.*
Recession's Continuing Victim: The Older Worker, committee 
    print, July 1976.*
Fraud and Abuse Among Practitioners Participating in the 
    Medicaid Program, committee print, August 1976.*
Adult Day Facilities for Treatment, Health Care, and Related 
    Services, committee print, September 1976.*
Termination of Social Security Coverage: The Impact on State 
    and Local Government Employees, committee print, September 
    1976.*
Witness Index and Research Reference, committee print, November 
    1976.*
Action on Aging Legislation in 94th Congress, committee print, 
    November 1976.*
Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, December 1976.*

                                  1977

The Proposed Fiscal 1978 Budget: What It Means for Older 
    Americans, committee print, March 1977.*
Kickbacks Among Medicaid Providers, Report No. 95-320, June 
    1977.*
Protective Services for the Elderly, committee print, July 
    1977.*
The Next Steps in Combating Age Discrimination in Employment: 
    With Special Reference to Mandatory Retirement Policy, 
    committee print, August 1977.*
Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, December 1977.*

                                  1978

The Proposed Fiscal 1979 Budget: What It Means for Older 
    Americans, committee print, February 1978.*
Paperwork and the Older Americans Act: Problems of Implementing 
    Accountability, committee print, June 1978.*
Single Room Occupancy: A Need for National Concern, committee 
    print, June 1978.*
Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, December 1978.*
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is important that you first read the instructions on page 1.
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Action on Aging Legislation in the 95th Congress, committee 
    print, December 1978.*

                                  1979

The Proposed Fiscal 1980 Budget: What It Means for Older 
    Americans, committee print, February 1979.*
Energy Assistance Programs and Pricing Policies in the 50 
    States To Benefit Elderly, Disabled, or Low-Income 
    Households, committee print, October 1979.*
Witness Index and Research Reference, committee print, November 
    1979.*

                                  1980

Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, January 1980.*
The Proposed Fiscal 1981 Budget: What It Means for Older 
    Americans, committee print, February 1980.*
Emerging Options for Work and Retirement Policy (An Analysis of 
    Major Income and Employment Issues With an Agenda for 
    Research Priorities), committee print, June 1980.*
Summary of Recommendations and Surveys on Social Security and 
    Pension Policies, committee print, October 1980.*
Innovative Developments in Aging: State Level, committee print, 
    October 1980.*
State Offices on Aging: History and Statutory Authority, 
    committee print, December 1980.*
Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, December 1980.*
State and Local Government Terminations of Social Security 
    Coverage, committee print, December 1980.*

                                  1981

The Proposed Fiscal Year 1982 Budget: What It Means for Older 
    Americans, committee print, April 1981.*
Action on Aging Legislation in the 96th Congress, committee 
    print, April 1981.*
Energy and the Aged, committee print, August 1981.*
1981 Federal Income Tax Legislation: How It Affects Older 
    Americans and Those Planning for Retirement, committee 
    print, August 1981.*
Omnibus Budget Reconciliation Act of 1981, Public Law 97-35, 
    committee print, September 1981.*
Toward a National Older Worker Policy, committee print, 
    September 1981.*
Crime and the Elderly--What You Can Do, committee print, 
    September 1981.*
Social Security in Europe: The Impact of an Aging Population, 
    committee print, December 1981.*
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is important that you first read the instructions on page 1.
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Background Materials Relating to Office of Inspector General, 
    Department of Health and Human Services Efforts To Combat 
    Fraud, Waste, and Abuse, committee print, December 1981.*
Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, December 1981.*
A Guide to Individual Retirement Accounts (IRA's), committee 
    print, December 1981, stock No. 052-070-05666-5.*

                                  1982

Social Security Disability: Past, Present, and Future, 
    committee print, March 1982.*
The Proposed Fiscal Year 1983 Budget: What It Means for Older 
    Americans, committee print, March 1982.*
Linkages Between Private Pensions and Social Security Reform, 
    committee print, April 1982.*
Health Care Expenditures for the Elderly: How Much Protection 
    Does Medicare Provide?, committee print, April 1982.*
Turning Home Equity Into Income for Older Homeowners, committee 
    print, July 1982.*
Aging and the Work Force: Human Resource Strategies, committee 
    print, August 1982.*
Fraud, Waste, and Abuse in the Medicare Pacemaker Industry, 
    committee print, September 1982.*
Congressional Action on the Fiscal Year 1983 Budget: What It 
    Means for Older Americans, committee print, November 1982.*
Equal Employment Opportunity Commission Enforcement of the Age 
    Discrimination in Employment Act: 1979 to 1982, committee 
    print, November 1982.*
Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, December 1982.*

                                  1983

Consumer Frauds and Elderly Persons: A Growing Problem, 
    committee print, February 1983.*
Action on Aging Legislation in the 97th Congress, committee 
    print, March 1983.*
Prospects for Medicare's Hospital Insurance Trust Fund, 
    committee print, March 1983.*
The Proposed Fiscal Year 1984 Budget: What It Means for Older 
    Americans, committee print, March 1983.*
You and Your Medicines: Guidelines for Older Americans, 
    committee print, June 1983.*
Heat Stress and Older Americans: Problems and Solutions, 
    committee print, July 1983.*
Current Developments in Prospective Reimbursement Systems for 
    Financing Hospital Care, committee print, October 1983.*
Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, December 1983.*

                                  1984

Medicare: Paying the Physician--History, Issues, and Options, 
    committee print, March 1984.*
Older Americans and the Federal Budget: Past, Present, and 
    Future, committee print, April 1984.*
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is important that you first read the instructions on page 1.
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Medicare and the Health Cost of Older Americans: The Extent and 
    Effects of Cost Sharing, committee print, April 1984.*
The Supplemental Security Income Program: A 10-Year Overview, 
    committee print, May 1984.*
Long-Term Care in Western Europe and Canada: Implications for 
    the United States, committee print, July 1984.*
Turning Home Equity Into Income for Older Americans, committee 
    print, July 1984.*
The Employee Retirement Income Security Act of 1974: The First 
    Decade, committee print, August 1984.*
The Costs of Employing Older Workers, committee print, 
    September 1984.*
Rural and Small-City Elderly, committee print, September 1984.*
Section 202 Housing for the Elderly and Handicapped: A National 
    Survey, committee print, December 1984.*
Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, December 1984.*

                                  1985

Health and Extended Worklife, committee print, February 1985.*
Personnel Practices for an Aging Workforce: Private-Sector 
    Examples, committee print, February 1985.*
10th Anniversary of the Employee Retirement Income Security Act 
    of 1974, committee print, April 1985.*
Publications list, committee print, April 1985.*
Compilation of the Older Americans Act of 1965 and Related 
    Provisions of Law, committee print, Serial No. 99-A, June 
    1985.*
America In Transition: An Aging Society, 1984-85 Edition, 
    committee print, Serial No. 99-B, June 1985.*
Fifty Years of Social Security: Past Achievements and Future 
    Challenges, committee print, Serial No. 99-C, August 1985.*
How Older Americans Live: An Analysis of Census Data, committee 
    print, Serial No. 99-D, October 1985.*
Congressional Briefing on the 50th Anniversary of Social 
    Security, committee print, Serial No. 99-E, August 1985.*

                                  1986

Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, Serial No. 99-F, January 1986.*
The Cost of Mandating Pension Accruals for Older Workers, 
    committee print, Serial No. 99-G, February 1986.*
The Impact of Gramm-Rudman-Hollings on Programs Serving Older 
    Americans: Fiscal Year 1986, committee print, Serial No. 
    99-H, February 1986.*
Alternative Budgets for Fiscal Year 1987: Impact on Older 
    Americans, committee print, Serial No. 99-I, May 1986.*
Nursing Home Care: The Unfinished Agenda, committee print, 
    Serial No. 99-J, May 1986.*
Hazards in Reuse of Disposable Dialysis Devices, committee 
    print, Serial No. 99-K, October 1986.*
The Health Status and Health Care Needs of Older Americans, 
    committee print, Serial No. 99-L, October 1986.*
A Matter of Choice: Planning Ahead for Health Care Decisions, 
    committee print, Serial No. 99-M, December 1986.*
Hazards in Reuse of Disposable Dialysis Devices--Appendix, 
    committee print, Serial No. 99-N, December 1986.*

                                  1987

Helping Older Americans To Avoid Overpayment of Income Taxes, 
    committee print, Serial No. 100-A.*
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is important that you first read the instructions on page 1.
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Publications List, committee print, March 1987, Serial No. 100-
    B.*
Older Americans Act Amendments of 1987: A Summary of 
    Provisions, committee print, December 1987, Serial No. 100-
    C.*

                                  1988

Helping Older Americans To Avoid Overpayment of Income Taxes, 
    committee print, January 1988, Serial No. 100-D.*
Publications List, committee print, February 1988, Serial No. 
    100-E.*
Compilation of the Domestic Volunteer Service Act of 1973, 
    April 1988, Serial No. 100-F.*
The President's Fiscal Year 1989 Budget Proposal: How it Would 
    Affect Programs for Older Americans, committee print, April 
    1988, Serial No. 100-G.*
Home Care at the Crossroads, committee print, April 1988, 
    Serial No. 100-H.*
Health Insurance and the Uninsured: Background and Analysis, 
    joint committee print, May 1988, Serial No. 100-I.*
Legislative Agenda for an Aging Society: 1988 and Beyond, joint 
    committee print, June 1988, Serial No. 100-J.*
Medicare Physician Reimbursement: Issues and Options, committee 
    print, September 1988, Serial No. 100-L.*
Medicare's New Prescription Drug Coverage: A Big Step Forward, 
    But Problems Still Exist, committee print, October 1988, 
    Serial No. 100-M.*
Rural Health Care Challenge, committee print, October 1988, 
    Serial No. 100-N.*
Insuring the Uninsured: Options and Analysis, joint committee 
    print, December 1988, Serial No. 100-O.*
Costs and Effects of Extending Health Insurance Coverage, joint 
    committee print, December 1988, Serial No. 100-P.*
EEOC Headquarters Officials Punish District Director for 
    Exposing Headquarters Mismanagement, committee print, 
    December 1988, Serial No. 100-Q.*

                                  1989

Protecting Older Americans Against Overpayment of Income Taxes, 
    committee print, Serial No. 101-A, January 1989.*
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is important that you first read the instructions on page 1.
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Compilation of the Older Americans Act of 1965, As Amended 
    Through December 31, 1988, joint committee print, Serial 
    No. 101-B, March 1989.*
Publications List, Serial No. 101-C.*
Prescription Drug Prices: Are We Getting Our Money's Worth? 
    August 1989, Serial No. 101-D.*
Aging America: Trends and Projections, September 1989, Serial 
    No. 101-E.*

                                  1990

Skyrocketing Prescription Drug Prices: Turning a Bad Deal Into 
    a Fair Deal, January 1990, Serial No. 101-F.*
Protecting Older Americans Against Overpayment of Income Taxes, 
    January 1990, Serial No. 101-G.*
Untie the Elderly: Quality Care Without Restraints, February 
    1990, Serial No. 101-H.*
Reauthorization of the Older Americans Act, February 1990, 
    Serial No. 101-I, M, N, R.*
Aging America: Trends and Projections (Annotated) February 
    1990, Serial No. 101-J.*
President Bush's Proposed Fiscal Year 1991 Budget for Aging 
    Programs, March 1990, Serial No. 101-K.*
A Guide to Purchasing Medigap and Long-Term Care Insurance, 
    April 1990, Serial No. 101-L.*
Understanding Medicare: A Guide for Children of Aging Parents, 
    July 1990, Serial No. 101-O.*
New Research on Aging: Changing Long-Term Care Needs by the 
    21st Century, July 19, 1990, Serial No. 101-P.*
A Guide to Purchasing Medigap and Long-Term Care Insurance, 
    (Annotated), August 1990, Serial No. 101-Q.*

                                  1991

Understanding Medicare: A Guide for Children of Aging Parents, 
    January 1991, Serial No. 101-T.*
Disabled Yet Denied: Bureaucratic Injustice in the Disability 
    Determination System, December 1990, Serial No. 101-U.*
Protecting Older Americans Against Overpayment of Income Taxes, 
    January 1991, Serial No. 102-A.*
An Ounce of Prevention: Health Care Guide for Older Americans 
    January 1991, Serial No. 102-B.*
Reauthorization of the Older Americans Act, March 1991, 102-C.*
Older Americans Act: 25 Years of Achievement, July 1991, Serial 
    No. 102-D.*
The Drug Manufacturing Industry: A Prescription for Profits, 
    September 1991, 102-F.*
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is important that you first read instructions on page 1.
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Getting the Most From Federal Programs: Social Security, 
    Supplemental Security Income, Medicare, August 1991, Serial 
    No. 102-G.*
An Advocate's Guide to Laws and Programs Addressing Elder 
    Abuse, October 1991, Serial No. 102-I.*
Lifelong Learning for an Aging Society, December 1991, Serial 
    No. 102-J.* (See 102-R.)

                                  1992

Protecting Older Americans Against Overpayment of Income Taxes, 
    January 1992, Serial No. 102-K.*
Taste, Smell, and the Elderly: Physiological Influences on 
    Nutrition, December 1991, Serial No. 102-L.*
State-by-State Analysis of Fire Safety in Nursing Facilities, 
    April 1992, Serial No. 102-M.*
Common Beliefs About the Rural Elderly: Myth or Fact? July 
    1992, Serial No. 102-N.*
A Status Report: Accessibility and Affordability of 
    Prescription Drugs for Older Americans, August 1992, Serial 
    No. 102-O.*
Consumers' Guide for Planning Ahead: The Health Care Power of 
    Attorney and the Living Will, August 1992, Serial No. 102-
    P.*
A Status Report: Accessibility and Affordability of 
    Prescription Drugs for Older Americans (Annotated), August 
    1992, Serial No. 102-Q.*
Lifelong Learning for An Aging Society (Annotated), October 
    1992, Serial No. 102-R.*
Prescription Drug Programs for Older Americans, November 1992, 
    Serial No. 102-S.*

                                  1993

Protecting Older Americans Against Overpayment of Income Taxes, 
    January 1993, Serial No. 103-A.*
Earning a Failing Grade: A Report Card on 1992 Drug 
    Manufacturer Price Inflation, February 1993, Serial No. 
    103-B.*
Prescription Drug Programs for Older Americans (Annotated), 
    February 1993, Serial No. 103-C.*
Compilation of the Older Americans Act of 1965 and the Native 
    American Programs Act of 1974, August 1993, Serial No. 103-
    D.

                                  1994

Protecting Older Americans Against Overpayment of Income Taxes, 
    January 1994, Serial No. 104-A.
A Report on 1993 Pharmaceutical Price Inflation: Drug Prices 
    for Older Americans Still Increasing Faster Than Inflation, 
    February 1994, Serial No. 104-B.
Publications List, committee print, December 1994.*

                                  1996

Protecting Older Americans Against Overpayment of Income Taxes, 
    February 1996, Serial No. 104-C.
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is important that you first read the instructions on page 1.
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Publications List, committee print, December 1996.*

                                  1997

Protecting Older Americans Against Overpayment of Income Taxes, 
    February 1997, Serial No. 105-A.
Publications List, committee print, October 1997.
                                HEARINGS

Retirement Income of the Aging:*
    Part 1. Washington, D.C., July 12 and 13, 1961.
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is important that you first read the instructions on page 1.
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    Part 2. St. Petersburg, Fla., November 6, 1961. *
    Part 3. Port Charlotte, Fla., November 7, 1961.*
    Part 4. Sarasota, Fla., November 8, 1961.*
    Part 5. Springfield, Mass., November 29, 1961.*
    Part 6. St. Joseph, Mo., December 11, 1961.*
    Part 7. Hannibal, Mo., December 13, 1961.*
    Part 8. Cape Girardeau, Mo., December 15, 1961.*
    Part 9. Daytona Beach, Fla., February 14, 1962.*
    Part 10. Fort Lauderdale, Fla., February 15, 1962.*
Housing Problems of the Elderly:*
    Part 1. Washington, D.C., August 22 and 23, 1961.*
    Part 2. Newark, N.J., October 16, 1961.*
    Part 3. Philadelphia, Pa., October 18, 1961.*
    Part 4. Scranton, Pa., November 14, 1961.*
    Part 5. St. Louis, Mo., December 8, 1961.*
Problems of the Aging:*
    Part 1. Washington, D.C., August 23 and 24, 1961.*
    Part 2. Trenton, N.J., October 23, 1961.*
    Part 3. Los Angeles, Calif., October 24, 1961.*
    Part 4. Las Vegas, Nev., October 25, 1961.*
    Part 5. Eugene, Oreg., November 8, 1961.*
    Part 6. Pocatello, Idaho, November 13, 1961.*
    Part 7. Boise, Idaho, November 15, 1961.*
    Part 8. Spokane, Wash., November 17, 1961.*
    Part 9. Honolulu, Hawaii, November 27, 1961.*
    Part 10. Lihue, Hawaii, November 29, 1961.*
    Part 11. Wailuku, Hawaii, November 30, 1961.*
    Part 12. Hilo, Hawaii, December 1, 1961.*
    Part 13. Kansas City, Mo., December 6, 1961.*
Nursing Homes:*
    Part 1. Portland, Oreg., November 6, 1961.
    Part 2. Walla Walla, Wash., November 10, 1961.
    Part 3. Hartford, Conn., November 20, 1961.
    Part 4. Boston, Mass., December 1, 1961.
    Part 5. Minneapolis, Minn., December 4, 1961.
    Part 6. Springfield, Mo., December 12, 1961.
Relocation of Elderly People:*
    Part 1. Washington, D.C., October 22 and 23, 1962.
    Part 2. Newark, N.J., October 26, 1962.
    Part 3. Camden, N.J., October 29, 1962.
    Part 4. Portland, Oreg., December 3, 1962.
Relocation of Elderly People--Continued
    Part 5. Los Angeles, Calif., December 5, 1962.
    Part 6. San Francisco, Calif., December 7, 1962.
Frauds and Quackery Affecting the Older Citizen:*
    Part 1. Washington, D.C., January 15, 1963.
    Part 2. Washington, D.C., January 16, 1963.
    Part 3. Washington, D.C., January 17, 1963.
Housing Problems of the Elderly:*
    Part 1. Washington, D.C., December 11, 1963.
    Part 2. Los Angeles, Calif., January 9, 1964.
    Part 3. San Francisco, Calif., January 11, 1964.
Long-Term Institutional Care for the Aged, Washington, D.C., 
    December 17 and 18, 1963.*
Increasing Employment Opportunities for the Elderly:*
    Part 1. Washington, D.C., December 19, 1963.
    Part 2. Los Angeles, Calif., January 10, 1964.
    Part 3. San Francisco, Calif., January 13, 1964.
Health Frauds and Quackery:*
    Part 1. San Francisco, Calif., January 13, 1964.
    Part 2. Washington, D.C., March 9, 1964.
    Part 3. Washington, D.C., March 10, 1964.
    Part 4A. Washington, D.C., April 6, 1964 (morning).
    Part 4B. Washington, D.C., April 6, 1964 (afternoon).
Services for Senior Citizens:*
    Part 1. Washington, D.C., January 16, 1964.
    Part 2. Boston, Mass., January 20, 1964.
    Part 3. Providence, R.I., January 21, 1964.
    Part 4. Saginaw, Mich., March 2, 1964.
Blue Cross and Other Private Health Insurance for the Elderly:*
    Part 1. Washington, D.C., April 27, 1964.
    Part 2. Washington, D.C., April 28, 1964.
    Part 3. Washington, D.C., April 29, 1964.
    Part 4A. Appendix.
    Part 4B. Appendix.
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Deceptive or Misleading Methods in Health Insurance Sales, 
    Washington, D.C., May 4, 1964.*
Nursing Homes and Related Long-Term Care Services:*
    Part 1. Washington, D.C., May 5, 1964.
    Part 2. Washington, D.C., May 6, 1964.
    Part 3. Washington, D.C., May 7, 1964.
Interstate Mail Order Land Sales:*
    Part 1. Washington, D.C., May 18, 1964.
    Part 2. Washington, D.C., May 19, 1964.
    Part 3. Washington, D.C., May 20, 1964.
Preneed Burial Service, Washington, D.C., May 19, 1964.*
Conditions and Problems in the Nation's Nursing Homes:*
    Part 1. Indianapolis, Ind., February 11, 1965.
    Part 2. Cleveland, Ohio, February 15, 1965.
    Part 3. Los Angeles, Calif., February 17, 1965.
    Part 4. Denver, Colo., February 23, 1965.
Conditions and Problems in the Nation's Nursing Homes--
    Continued
    Part 5. New York, N.Y., August 2 and 3, 1965.
    Part 6. Boston, Mass., August 9, 1965.
    Part 7. Portland, Maine, August 13, 1965.
Extending Private Pension Coverage:*
    Part 1. Washington, D.C., March 4, 1965.
    Part 2. Washington, D.C., March 5 and 10, 1965.
The War on Poverty As It Affects Older Americans:*
    Part 1. Washington, D.C., June 16 and 17, 1965.
    Part 2. Newark, N.J., July 10, 1965.
    Part 3. Washington, D.C., January 19 and 20, 1966.
Services to the Elderly on Public Assistance:*
    Part 1. Washington, D.C., August 18 and 19, 1965.
    Part 2. Appendix.
Needs for Services Revealed by Operation Medicare Alert, 
    Washington, D.C., June 2, 1966.*
Tax Consequences of Contributions to Needy Older Relatives, 
    Washington, D.C., June 15, 1966.*
Detection and Prevention of Chronic Disease Utilizing 
    Multiphasic Health Screening Techniques, Washington, D.C., 
    September 20, 21, and 22, 1966.*
Consumer Interests of the Elderly:*
    Part 1. Washington, D.C., January 17 and 18, 1967.
    Part 2. Tampa, Fla., February 3, 1967.
Reduction of Retirement Benefits Due to Social Security 
    Increases, Washington, D.C., April 24 and 25, 1967.*
Retirement and the Individual:*
    Part 1. Washington, D.C., June 7 and 8, 1967.
    Part 2. Ann Arbor, Mich., July 26, 1967.
Costs and Delivery of Health Services to Older Americans:*
    Part 1. Washington, D.C., June 22 and 23, 1967.
    Part 2. New York, N.Y., October 19, 1967.
    Part 3. Los Angeles, Calif., October 16, 1968.
Rent Supplement Assistance to the Elderly, Washington, D.C., 
    July 11, 1967.*
Long-Range Program and Research Needs in Aging and Related 
    Fields, Washington, D.C., December 5 and 6, 1967.*
Hearing Loss, Hearing Aids, and the Elderly, Washington, D.C., 
    July 18 and 19, 1968.*
Usefulness of the Model Cities Program to the Elderly:*
    Part 1. Washington, D.C., July 23, 1968.
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is important that you first read the instructions on page 1.
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    Part 2. Seattle, Wash., October 14, 1968.
    Part 3. Ogden, Utah, October 24, 1968.
    Part 4. Syracuse, N.Y., December 9, 1968.
    Part 5. Atlanta, Ga., December 11, 1968.
    Part 6. Boston, Mass., July 11, 1969.
    Part 7. Washington, D.C., October 14 and 15, 1969.
Adequacy of Services for Older Workers, Washington, D.C., July 
    24, 25, and 29, 1968.*
Availability and Usefulness of Federal Programs and Services to 
    Elderly Mexican-Americans: *
    Part 1. Los Angeles, Calif., December 17, 1968.
    Part 2. El Paso, Tex., December 18, 1968.
    Part 3. San Antonio, Tex., December 19, 1968.
    Part 4. Washington, D.C., January 14 and 15, 1969.
    Part 5. Washington, D.C., November 20 and 21, 1969.
Economics of Aging: Toward a Full Share in Abundance:*
    Part 1. Washington, D.C., survey hearing, April 29 and 30, 
            1969.
    Part 2. Ann Arbor, Mich., consumer aspects, June 9, 1969.
    Part 3. Washington, D.C., health aspects, July 17 and 18, 
            1969.
    Part 4. Washington, D.C., homeownership aspects, July 31 
            and August 1, 1969.
    Part 5. Paramus, N.J., central suburban area, August 14, 
            1969.
    Part 6. Cape May, N.J., retirement community, August 15, 
            1969.
    Part 7. Washington, D.C., international perspectives, 
            August 25, 1969.
    Part 8. Washington, D.C., national organizations, October 
            29, 1969.
    Part 9. Washington, D.C., employment aspects, December 18 
            and 19, 1969.
    Part 10A. Washington, D.C., pension aspects, February 17, 
            1970.
    Part 10B. Washington, D.C., pension aspects, February 18, 
            1970.
    Part 11. Washington, D.C., concluding hearing, May 4, 5, 
            and 6, 1970.
The Federal Role in Encouraging Preretirement Counseling and 
    New Work Lifetime Patterns, Washington, D.C., July 25, 
    1969.*
Trends in Long-Term Care:*
    Part 1. Washington, D.C., July 30, 1969.
    Part 2. St. Petersburg, Fla., January 9, 1970.
    Part 3. Hartford, Conn., January 15, 1970.
    Part 4. Washington, D.C. (Marietta, Ohio, fire), February 
            9, 1970.
    Part 5. Washington, D.C. (Marietta, Ohio, fire), February 
            10, 1970.
    Part 6. San Francisco, Calif., February 12, 1970.
    Part 7. Salt Lake City, Utah, February 13, 1970.
    Part 8. Washington, D.C., May 7, 1970.
    Part 9. Washington, D.C. (Salmonella), August 19, 1970.
    Part 10. Washington, D.C. (Salmonella), December 14, 1970.
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    Part 11. Washington, D.C., December 17, 1970.
    Part 12. Chicago, Ill., April 2, 1971.
    Part 13. Chicago, Ill., April 3, 1971.
    Part 14. Washington, D.C., June 15, 1971.
    Part 15. Chicago, Ill., September 14, 1971.
    Part 16. Washington, D.C., September 29, 1971.
    Part 17. Washington, D.C., October 14, 1971.
Trends in Long-Term Care--Continued
    Part 18. Washington, D.C., October 28, 1971.
    Part 19A. Minneapolis-St. Paul, Minn., November 29, 1971.
    Part 19B. Minneapolis-St. Paul, Minn., November 29, 1971.
    Part 20. Washington, D.C., August 10, 1972.
    Part 21. Washington, D.C., October 10, 1973.
    Part 22. Washington, D.C., October 11, 1973.
    Part 23. New York, N.Y., January 21, 1975.
    Part 24. New York, N.Y., February 4, 1975.
    Part 25. Washington, D.C., February 19, 1975.
    Part 26. Washington, D.C., December 9, 1975.
    Part 27. New York, N.Y., March 19, 1976.
Older Americans in Rural Areas:*
    Part 1. Des Moines, Iowa, September 8, 1969.
    Part 2. Majestic-Freeburn, Ky., September 12, 1969.
    Part 3. Fleming, Ky., September 12, 1969.
    Part 4. New Albany, Ind., September 16, 1969.
    Part 5. Greenwood, Miss., October 9, 1969.
    Part 6. Little Rock, Ark., October 10, 1969.
    Part 7. Emmett, Idaho, February 24, 1970.
    Part 8. Boise, Idaho, February 24, 1970.
    Part 9. Washington, D.C., May 26, 1970.
    Part 10. Washington, D.C., June 2, 1970.
    Part 11. Dogbone-Charleston, W. Va., October 27, 1970.
    Part 12. Wallace-Clarksburg, W. Va., October 28, 1970.
Income Tax Overpayments by the Elderly, Washington, D.C., April 
    15, 1970.*
Sources of Community Support for Federal Programs Serving Older 
    Americans:*
    Part 1. Ocean Grove, N.J., April 18, 1970.
    Part 2. Washington, D.C., June 8 and 9, 1970.
Legal Problems Affecting Older Americans:*
    Part 1. St. Louis, Mo., August 11, 1970.
    Part 2. Boston, Mass., April 30, 1971.
Evaluation of Administration on Aging and Conduct of White 
    House Conference on Aging:*
    Part 1. Washington, D.C., March 25, 1971.
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    Part 2. Washington, D.C., March 29, 1971.
    Part 3. Washington, D.C., March 30, 1971.
    Part 4. Washington, D.C., March 31, 1971.
    Part 5. Washington, D.C., April 27, 1971.
    Part 6. Orlando, Fla., May 10, 1971.
    Part 7. Des Moines, Iowa, May 13, 1971.
    Part 8. Boise, Idaho, May 28, 1971.
    Part 9. Casper, Wyo., August 13, 1971.
    Part 10. Washington, D.C., February 3, 1972.
Cutbacks in Medicare and Medicaid Coverage:*
    Part 1. Los Angeles, Calif., May 10, 1971.
    Part 2. Woonsocket, R.I., June 14, 1971.
    Part 3. Providence, R.I., September 20, 1971.
Unemployment Among Older Workers: *
    Part 1. South Bend, Ind., June 4, 1971.
    Part 2. Roanoke, Ala., August 10, 1971.
    Part 3. Miami, Fla., August 11, 1971.
    Part 4. Pocatello, Idaho, August 27, 1971.
Adequacy of Federal Response to Housing Needs of Older 
    Americans:*
    Part 1. Washington, D.C., August 2, 1971.
    Part 2. Washington, D.C., August 3, 1971.
    Part 3. Washington, D.C., August 4, 1971.
    Part 4. Washington, D.C., October 28, 1971.
    Part 5. Washington, D.C., October 29, 1971.
    Part 6. Washington, D.C., July 31, 1972.
    Part 7. Washington, D.C., August 1, 1972.
    Part 8. Washington, D.C., August 2, 1972.
    Part 9. Boston, Mass., October 2, 1972.
    Part 10. Trenton, N.J., January 17, 1974.
    Part 11. Atlantic City, N.J., January 18, 1974.
    Part 12. East Orange, N.J., January 19, 1974.
    Part 13. Washington, D.C., October 7, 1975.
    Part 14. Washington, D.C., October 8, 1975.
Flammable Fabrics and Other Fire Hazards to Older Americans, 
    Washington, D.C., October 12, 1971.*
A Barrier-Free Environment for the Elderly and the 
    Handicapped:*
    Part 1. Washington, D.C., October 18, 1971.
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    Part 2. Washington, D.C., October 19, 1971.
    Part 3. Washington, D.C., October 20, 1971.
Death With Dignity: An Inquiry Into Related Public Issues:*
    Part 1. Washington, D.C., August 7, 1972.
    Part 2. Washington, D.C., August 8, 1972.
    Part 3. Washington, D.C., August 9, 1972.
Future Directions in Social Security:*
    Part 1. Washington, D.C., January 15, 1973.
    Part 2. Washington, D.C., January 22, 1973.
    Part 3. Washington, D.C., January 23, 1973.
    Part 4. Washington, D.C., July 25, 1973.
    Part 5. Washington, D.C., July 26, 1973.
    Part 6. Twin Falls, Idaho, May 16, 1974.
    Part 7. Washington, D.C., July 15, 1974.
    Part 8. Washington, D.C., July 16, 1974.
    Part 9. Washington, D.C., March 18, 1975.
    Part 10. Washington, D.C., March 19, 1975.
    Part 11. Washington, D.C., March 20, 1975.
    Part 12. Washington, D.C., May 1, 1975.
    Part 13. San Francisco, Calif., May 15, 1975.
    Part 14. Los Angeles, Calif., May 16, 1975.
    Part 15. Des Moines, Iowa, May 19, 1975.
    Part 16. Newark, N.J., June 30, 1975.
    Part 17. Toms River, N.J., September 8, 1975.
    Part 18. Washington, D.C., October 22, 1975.
Future Directions in Social Security--Continued
    Part 19. Washington, D.C., October 23, 1975.
    Part 20. Portland, Oreg., November 24, 1975.
    Part 21. Portland, Oreg., November 25, 1975.
    Part 22. Nashville, Tenn., December 6, 1975.
    Part 23. Boston, Mass., December 19, 1975.
    Part 24. Providence, R.I., January 26, 1976.
    Part 25. Memphis, Tenn., February 13, 1976.
Fire Safety in Highrise Buildings for the Elderly:*
    Part 1. Washington, D.C., February 27, 1973.
    Part 2. Washington, D.C., February 28, 1973.
Barriers to Health Care for Older Americans:*
    Part 1. Washington, D.C., March 5, 1973.
    Part 2. Washington, D.C., March 6, 1973.
    Part 3. Livermore Falls, Maine, April 23, 1973.
    Part 4. Springfield, Ill., May 16, 1973.
    Part 5. Washington, D.C., July 11, 1973.
    Part 6. Washington, D.C., July 12, 1973.
    Part 7. Coeur d'Alene, Idaho, August 4, 1973.
    Part 8. Washington, D.C., March 12, 1974.
    Part 9. Washington, D.C., March 13, 1974.
    Part 10. Price, Utah, April 20, 1974.
    Part 11. Albuquerque, N. Mex., May 25, 1974.
    Part 12. Santa Fe, N. Mex., May 25, 1974.
    Part 13. Washington, D.C., June 25, 1974.
    Part 14. Washington, D.C., June 26, 1974.
    Part 15. Washington, D.C., July 9, 1974.
    Part 16. Washington, D.C., July 17, 1974.
Training Needs in Gerontology:*
    Part 1. Washington, D.C., June 19, 1973.
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    Part 2. Washington, D.C., June 21, 1973.
    Part 3. Washington, D.C., March 7, 1975.
Hearing Aids and the Older American:*
    Part 1. Washington, D.C., September 10, 1973.
    Part 2. Washington, D.C., September 11, 1973.
Transportation and the Elderly: Problems and Progress:*
    Part 1. Washington, D.C., February 25, 1974.
    Part 2. Washington, D.C., February 27, 1974.
    Part 3. Washington, D.C., February 28, 1974.
    Part 4. Washington, D.C., April 9, 1974.
    Part 5. Washington, D.C., July 29, 1975.
    Part 6. Washington, D.C., July 12, 1977.
Improving Legal Representation for Older Americans:*
    Part 1. Los Angeles, Calif., June 14, 1974.
    Part 2. Boston, Mass., August 30, 1976.
    Part 3. Washington, D.C., September 28, 1976.
    Part 4. Washington, D.C., September 29, 1976.
Establishing a National Institute on Aging, Washington, D.C., 
    August 1, 1974.*
The Impact of Rising Energy Costs on Older Americans:*
    Part 1. Washington, D.C., September 24, 1974.
The Impact of Rising Energy Costs on Older Americans--Continued
    Part 2. Washington, D.C., September 25, 1974.
    Part 3. Washington, D.C., November 7, 1975.
    Part 4. Washington, D.C., April 5, 1977.
    Part 5. Washington, D.C., April 7, 1977.
    Part 6. Washington, D.C., June 28, 1977.
    Part 7. Missoula, Mont., February 14, 1979.
The Older Americans Act and the Rural Elderly, Washington, 
    D.C., April 28, 1975.*
Examination of Proposed Section 202 Housing Regulations:*
    Part 1. Washington, D.C., June 6, 1975.
    Part 2. Washington, D.C., June 26, 1975.
The Recession and the Older Worker, Chicago, Ill., August 14, 
    1975.*
Medicare and Medicaid Frauds:*
    Part 1. Washington, D.C., September 26, 1975.
    Part 2. Washington, D.C., November 13, 1975.
    Part 3. Washington, D.C., December 5, 1975.
    Part 4. Washington, D.C., February 16, 1976.
    Part 5. Washington, D.C., August 30, 1976.
    Part 6. Washington, D.C., August 31, 1976.
    Part 7. Washington, D.C., November 17, 1976.
    Part 8. Washington, D.C., March 8, 1977.
    Part 9. Washington, D.C., March 9, 1977.
Mental Health and the Elderly, Washington, D.C., September 29, 
    1975.*
Proprietary Home Health Care (joint hearing with House Select 
    Committee on Aging), Washington, D.C., October 28, 1975.*
Proposed USDA Food Stamp Cutbacks for the Elderly, Washington, 
    D.C., November 3, 1975.*
The Tragedy of Nursing Home Fires: The Need for a National 
    Commitment for Safety (joint hearing with House Select 
    Committee on Aging), Washington, D.C., June 3, 1976.*
The Nation's Rural Elderly:*
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is important that you first read the instructions on page 1.
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    Part 1. Winterset, Iowa, August 16, 1976.
    Part 2. Ottumwa, Iowa, August 16, 1976.
    Part 3. Gretna, Nebr., August 17, 1976.
    Part 4. Ida Grove, Iowa, August 17, 1976.
    Part 5. Sioux Falls, S. Dak., August 18, 1976.
    Part 6. Rockford, Iowa, August 18, 1976.
    Part 7. Denver, Colo., March 23, 1977.
    Part 8. Flagstaff, Ariz., November 5, 1977.
    Part 9. Tucson, Ariz., November 7, 1977.
    Part 10. Terre Haute, Ind., November 11, 1977.
    Part 11. Phoenix, Ariz., November 12, 1977.
    Part 12. Roswell, N. Mex., November 18, 1977.
    Part 13. Taos, N. Mex., November 19, 1977.
    Part 14. Albuquerque, N. Mex., November 21, 1977.
    Part 15. Pensacola, Fla., November 21, 1977.
    Part 16. Gainesville, Fla., November 22, 1977.
    Part 17. Champaign, Ill., December 13, 1977.
Medicine and Aging: An Assessment of Opportunities and Neglect, 
    New York, N.Y., October 13, 1976.*
Effectiveness of Food Stamps for Older Americans:*
    Part 1. Washington, D.C., April 18, 1977.
    Part 2. Washington, D.C., April 19, 1977.
Health Care for Older Americans: The ``Alternatives'' Issue:*
    Part 1. Washington, D.C., May 16, 1977.
    Part 2. Washington, D.C., May 17, 1977.
    Part 3. Washington, D.C., June 15, 1977.
    Part 4. Cleveland, Ohio, July 6, 1977.
    Part 5. Washington, D.C., September 21, 1977.
    Part 6. Holyoke, Mass., October 12, 1977.
    Part 7. Tallahassee, Fla., November 23, 1977.
    Part 8. Washington, D.C., April 17, 1978.
Senior Centers and the Older Americans Act, Washington, D.C., 
    October 20, 1977.*
The Graying of Nations: Implications, Washington, D.C., 
    November 10, 1977.*
Tax Forms and Tax Equity for Older Americans, Washington, D.C., 
    February 24, 1978.*
Medi-Gap: Private Health Insurance Supplements to Medicare:*
    Part 1. Washington, D.C., May 16, 1978.
    Part 2. Washington, D.C., June 29, 1978.
Retirement, Work, and Lifelong Learning:*
    Part 1. Washington, D.C., July 17, 1978.
    Part 2. Washington, D.C., July 18, 1978.
    Part 3. Washington, D.C., July 19, 1978.
    Part 4. Washington, D.C., September 8, 1978.
Medicaid Anti-Fraud Programs: The Role of State Fraud Control 
    Units, Washington, D.C., July 25, 1978.*
Vision Impairment Among Older Americans, Washington, D.C., 
    August 3, 1978.*
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The Federal-State Effort in Long-Term Care for Older Americans: 
    Nursing Homes and ``Alternatives,'' Chicago, Ill., August 
    30, 1978.*
Condominiums and the Older Purchaser:*
    Part 1. Hallandale, Fla., November 28, 1978.
    Part 2. West Palm Beach, Fla., November 29, 1978.
Older Americans in the Nation's Neighborhoods:*
    Part 1. Washington, D.C., December 1, 1978.
    Part 2. Oakland, Calif., December 4, 1978.
Commodities and Nutrition Program for the Elderly, Missoula, 
    Mont., February 14, 1979.*
The Effect of Food Stamp Cutbacks on Older Americans, 
    Washington, D.C., April 11, 1979.*
Home Care Services for Older Americans: Planning for the 
    Future, Washington, D.C., May 7 and 21, 1979.*
Federal Paperwork Burdens, With Emphasis on Medicare (joint 
    hearing with Subcommittee on Federal Spending Practices and 
    Open Government of the Senate Committee on Governmental 
    Affairs), St. Petersburg, Fla., August 6, 1979.*
Abuse of the Medicare Home Health Program, Miami, Fla., August 
    28, 1979.*
Occupational Health Hazards of Older Workers in New Mexico, 
    Grants, N. Mex., August 30, 1979.*
Energy Assistance for the Elderly:*
    Part 1. Akron, Ohio, August 30, 1979.
    Part 2. Washington, D.C., September 13, 1979.
    Part 3. Pennsauken, N.J., May 23, 1980.
    Part 4. Washington, D.C., July 25, 1980.
Regulations To Implement the Comprehensive Older Americans Act 
    Amendments of 1978:*
    Part 1. Washington, D.C., October 18, 1979.
    Part 2. Washington, D.C., March 24, 1980.
Medicare Reimbursement for Elderly Participation in Health 
    Maintenance Organizations and Health Benefit Plans, 
    Philadelphia, Pa., October 29, 1979.*
Energy and the Aged: A Challenge to the Quality of Life in a 
    Time of Declining Energy Availability, Washington, D.C., 
    November 26, 1979.*
Adapting Social Security to a Changing Work Force, Washington, 
    D.C., November 28, 1979.*
Aging and Mental Health: Overcoming Barriers to Service:*
    Part 1. Little Rock, Ark., April 4, 1980.
    Part 2. Washington, D.C., May 22, 1980.
Rural Elderly--The Isolated Population: A Look at Services in 
    the 80's, Las Vegas, N. Mex., April 11, 1980.*
Work After 65: Options for the 80's:*
    Part 1. Washington, D.C., April 24, 1980.
    Part 2. Washington, D.C., May 13, 1980.*
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is important that you first read the instructions on page 1.
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    Part 3. Orlando, Fla., July 9, 1980.
How Old Is ``Old''? The Effects of Aging on Learning and 
    Working, Washington, D.C., April 30, 1980.*
Minority Elderly: Economics and Housing in the 80's, 
    Philadelphia, Pa., May 7, 1980.*
Maine's Rural Elderly: Independence Without Isolation, Bangor, 
    Maine, June 9, 1980.*
Elder Abuse (joint hearing with House Select Committee on 
    Aging), Washington, D.C., June 11, 1980.*
Crime and the Elderly: What Your Community Can Do, Albuquerque, 
    N. Mex., June 23, 1980.*
Possible Abuse and Maladministration of Home Rehabilitation 
    Programs for the Elderly, Santa Fe, N. Mex., October 8, 
    1980, and Washington, D.C., December 19, 1980.*
Energy Equity and the Elderly in the 80's:*
    Part 1. Boston, Mass., October 24, 1980.
    Part 2. St. Petersburg, Fla., October 28, 1980.
Retirement Benefits: Are They Fair and Are They Enough?, Fort 
    Leavenworth, Kans., November 8, 1980.*
Social Security: What Changes Are Necessary?:*
    Part 1. Washington, D.C., November 21, 1980.
    Part 2. Washington, D.C., December 2, 1980.
    Part 3. Washington, D.C., December 3, 1980.
    Part 4. Washington, D.C., December 4, 1980.
Home Health Care: Future Policy (joint hearing with Senate 
    Committee on Labor and Human Resources), Princeton, N.J., 
    November 23, 1980.*
Impact of Federal Estate Tax Policies on Rural Women, 
    Washington, D.C., February 4, 1981.*
Impact of Federal Budget Proposals on Older Americans:*
    Part 1. Washington, D.C., March 20, 1981.
    Part 2. Washington, D.C., March 27, 1981.
    Part 3. Philadelphia, Pa., April 10, 1981.
Energy and the Aged, Washington, D.C., April 9, 1981.*
Older Americans Act, Washington, D.C., April 27, 1981.*
Social Security Reform: Effect on Work and Income After Age 65, 
    Rogers, Ark., May 18, 1981.*
Social Security Oversight:*
    Part 1 (Short-Term Financing Issues). Washington, D.C., 
            June 16, 1981.
    Part 2 (Early Retirement). Washington, D.C., June 18, 1981.
    Part 3 (Cost-of-Living Adjustments). Washington, D.C., June 
            24, 1981.
Medicare Reimbursement to Competitive Medical Plans, 
    Washington, D.C., July 29, 1981.*
Rural Access to Elderly Programs, Sioux Falls, S. Dak., August 
    3, 1981.*
Frauds Against the Elderly, Harrisburg, Pa., August 4, 1981.*
The Social Security System: Averting the Crisis, Evanston, 
    Ill., August 10, 1981.*
Social Security Reform and Retirement Income Policy, 
    Washington, D.C., September 16, 1981.*
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is important that you first read the instructions on page 1.
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Older Americans Fighting the Fear of Crime, Washington, D.C., 
    September 22, 1981.*
Employment: An Option for All Ages, Rock Island, Ill., and 
    Davenport, Iowa, October 12, 1981.*
Older Workers: The Federal Role in Promoting Employment 
    Opportunities, Washington, D.C., October, 29, 1981.*
Rural Health Care for the Elderly: New Paths for the Future, 
    Grand Forks, N. Dak., November 14, 1981.*
Oversight of HHS Inspector General's Effort To Combat Fraud, 
    Waste and Abuse (joint hearing with the Senate Finance 
    Committee), Washington, D.C., December 9, 1981.*
Alternative Approaches To Housing Older Americans, Hartford, 
    Conn., February 1, 1982.*
Energy and the Aged: The Widening Gap, Erie, Pa., February 19, 
    1982.*
Hunger, Nutrition, Older Americans: The Impact of the Fiscal 
    Year 1983 Budget, Washington, D.C., February 25, 1982.*
Problems Associated With the Medicare Reimbursement System for 
    Hospitals, Washington, D.C., March 10, 1982.*
Impact of the Federal Budget on the Future of Services for 
    Older Americans (joint hearing with House Select Committee 
    on Aging), Washington, D.C., April 1, 1982.*
Health Care for the Elderly: What's in the Future for Long-Term 
    Care?, Bismarck, N. Dak., April 6, 1982.*
The Impact of the Administration's Housing Proposals on Older 
    Americans, Washington, D.C., April 23, 1982.*
Rural Older Americans: Unanswered Questions, Washington, D.C., 
    May 19, 1982.*
The Hospice Alternative, Pittsburgh, Pa., May 24, 1982.*
Nursing Home Survey and Certification: Assuring Quality Care, 
    Washington, D.C., July 15, 1982.*
Opportunities in Home Equity Conversion for the Elderly, 
    Washington, D.C., July 20, 1982.*
Long-Term Health Care for the Elderly, Newark, N.J., July 26, 
    1982.*
Fraud, Waste, and Abuse in the Medicare Pacemaker Industry, 
    Washington, D.C., September 10, 1982.*
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Social Security Disability: The Effects of the Accelerated 
    Review (joint hearing with Subcommittee on Civil Service, 
    Post Office, and General Services of the Senate Committee 
    on Governmental Affairs), Fort Smith, Ark., November 19, 
    1982.*
Quality Assurance Under Prospective Reimbursement Programs, 
    Washington, D.C., February 4, 1983.*
Combating Frauds Against the Elderly, Washington, D.C., March 
    1, 1983.*
Energy and the Aged: The Impact of Natural Gas Deregulation, 
    Washington, D.C., March 17, 1983.*
Social Security Reviews of the Mentally Disabled, Washington, 
    D.C., April 7, 8, 1983.*
The Future of Medicare, Washington, D.C., April 13, 1983.*
Life Care Communities: Promises and Problems, Washington, D.C., 
    May 25, 1983.*
Drug Use and Misuse: A Growing Concern for Older Americans 
    (joint hearing with the Subcommittee on Health and Long-
    Term Care of the House Select Committee on Aging), 
    Washington, D.C., June 28, 1983.*
Community Alternatives to Institutional Care, Harrisburg, Pa., 
    July 6, 1983.*
Crime Against the Elderly, Los Angeles, Calif., July 6, 1983.*
Home Fire Deaths: A Preventable Tragedy, Washington, D.C., July 
    28, 1983.*
The Role of Nursing Homes in Today's Society, Sioux Falls, S. 
    Dak., August 29, 1983.*
Endless Night, Endless Mourning: Living With Alzheimer's, New 
    York, N.Y., September 12, 1983.*
Controlling Health Care Costs: State, Local, and Private Sector 
    Initiatives, Washington, D.C., October 26, 1983.*
Social Security: How Well Is It Serving the Public? Washington, 
    D.C., November 29, 1983.*
The Crisis in Medicare: Proposals for Reform, Sioux City, Iowa, 
    December 13, 1983.*
Social Security Disability Reviews: The Human Costs:*
    Part 1. Chicago, Ill., February 16, 1984.
    Part 2. Dallas, Tex., February 17, 1984.
    Part 3. Hot Springs, Ark., March 24, 1984.
Meeting the Present and Future Needs for Long-Term Care, Jersey 
    City, N.J., February 27, 1984.*
Energy and the Aged: Strategies for Improving the Federal 
    Weatherization Program, Washington, D.C., March 2, 1984.*
Medicare: Physician Payment Options, Washington, D.C., March 
    16, 1984.*
Reauthorization of the Older Americans Act, 1984 (joint hearing 
    with the Subcommittee on Aging of the Senate Committee on 
    Labor and Human Resources), Washington, D.C., March 20, 
    1984.*
Long-Term Care: A Look at Home and Community-Based Services, 
    Granite City, Ill., April 13, 1984.*
Medicare: Present Problems--Future Options, Wichita, Kans., 
    April 20, 1984.*
Sheltering America's Aged: Options for Housing and Services, 
    Boston, Mass., April 23, 1984.*
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important that you first read the instructions on page 1.
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Protecting Medicare and Medicaid Patients from Sanctioned 
    Health Practitioners, Washington, D.C., May 1, 1984.*
A 10th Anniversary Review of the SSI Program, Washington, D.C., 
    May 17, 1984.*
Long-Term Needs of the Elderly: A Federal-State-Private 
    Partnership, Seattle, Wash., July 10, 1984.*
Low-Cost Housing for the Elderly: Surplus Lands and Private-
    Sector Initiatives, Sacramento, Calif., August 13, 1984.*
The Crisis in Medicare: Exploring the Choices, Rock Island, 
    Ill., August 20, 1984.*
The Cost of Caring for the Chronically Ill.: The Case for 
    Insurance, Washington, D.C., September 21, 1984.*
Discrimination Against the Poor and Disabled in Nursing Homes, 
    Washington, D.C., October 1, 1984.*
Women In Our Aging Society, Columbus, Ohio, October 8, 1984.*
Healthy Elderly Americans: A Federal, State, and Personal 
    Partnership, Albuquerque, N. Mex., October 12, 1984.*
Living Between the Cracks: America's Chronic Homeless, 
    Philadelphia, Pa., December 12, 1984.*
Unnecessary Surgery: Double Jeopardy for Older Americans, 
    Washington, DC, March 14, 1985, Serial No. 99-1.*
Rural Health Care in Oklahoma, Oklahoma City, OK, April 9, 
    1985, Serial No. 99-2.*
Prospects for Better Health for Older Women, Toledo, OH, April 
    15, 1985, Serial No. 99-3.*
Pacemakers Revisited: A Saga of Benign Neglect, Washington, DC, 
    May 10, 1985, Serial No. 99-4.*
The Pension Gamble: Who Wins? Who Loses? Washington, DC, June 
    14, 1985, Serial No. 99-5.*
Americans At Risk: The Case of the Medically Uninsured, 
    Washington, DC, June 27, 1985, Serial No. 99-6.*
The Graying of Nations II, New York, NY, July 12, 1985, Serial 
    No. 99-7.*
The Closing of Social Security Field Offices, Pittsburgh, PA, 
    September 9, 1985, Serial No. 99-8.*
Quality of Care Under Medicare's Prospective Payment System, 
    Volume I, Serial Nos. 99-9, 10, 11.*
    Medicare DRG's: Challenges for Quality Care, Washington, 
            DC, September 26, 1985.*
    Medicare DRG's: Challenges for Post-Hospital Care, 
            Washington, DC, October 24, 1985.*
    Medicare DRG's: The Government's Role in Ensuring Quality 
            Care, Washington, DC, November 12, 1985.*
Quality of Care Under Medicare's Prospective Payment System, 
    Volume II--Appendix, Serial Nos. 99-9, 10, 11.*
Challenges for Women: Taking Charge, Taking Care, Cincinnati, 
    OH, November 18, 1985, Serial No. 99-12.*
The Relationship Between Nutrition, Aging, and Health: A 
    Personal and Social Challenge, Albuquerque, NM, December 
    14, 1985, Serial No. 99-13.*
The Effects of PPS on Quality of Care for Medicare Patients, 
    Los Angeles, CA, January 7, 1986, Serial No. 99-14.*
Gramm-Rudman-Hollings: The Impact on the Elderly, Washington, 
    DC, February 21, 1986, Serial No. 99-15.*
Disposable Dialysis Devices: Is Reuse Abuse? Washington, DC, 
    March 6, 1986, Serial No. 99-16.*
Employment Opportunities for Women: Today and Tomorrow, 
    Cleveland, OH, April 21, 1986, Serial No. 99-17.*
The Erosion of the Medicare Home Health Care Benefit, Newark, 
    NJ, April 21, 1986, Serial No. 99-18.*
Nursing Home Care: The Unfinished Agenda, Washington, DC, May 
    21, 1986, Serial No. 99-19.*
Medicare: Oversight on Payment Delays, Jacksonville, FL, May 
    23, 1986, Serial No. 99-20.*
Working Americans: Equality at Any Age, Washington, DC, June 
    19, 1986, Serial No. 99-21.*
The Older Americans Act and Its Application to Native 
    Americans, Oklahoma City, OK, June 28, 1986, Serial No. 99-
    22.*
Providing a Comprehensive and Compassionate Long-Term Health 
    Care Program for America's Senior Citizens, New Haven, CT, 
    July 7, 1986, Serial No. 99-23.*
The Crisis in Home Health Care: Greater Need, Less Care, 
    Philadelphia, PA, July 28, 1986, Serial No. 99-24.*
Retiree Health Benefits: The Fair Weather Promise? Washington, 
    DC, August 7, 1986, Serial No. 99-25.*
Health Care for Older Americans: Insuring Against Catastrophic 
    Loss, Serial No. 99-26.*
    Part 1. Fort Smith, AR, August 27, 1986.
    Part 2. Little Rock, AR, August 28, 1986.
Continuum of Health Care for Indian Elders, Santa Fe, NM, 
    September 3, 1986, Serial No. 99-27.*
Catastrophic Health Care Costs, Washington, DC, January 26, 
    1987, Serial No. 100-1.*
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Catastrophic Health Costs: Broad Problems Demanding Equally 
    Broad Solutions (joint hearing with House Select Committee 
    on Aging), Washington, DC, Serial No. 100-2.*
Proposed Fiscal Year 1988 Budget: What it Means to Older 
    Americans, Washington, DC, March 13, 1987, Serial No. 100-
    3.*
The Catastrophic State of Catastrophic Health Care Coverage, 
    Birmingham, AL, April 16, 1987, Serial No. 100-4.*
Home Care: The Agony of Indifference, Washington, DC, April 27, 
    1987, Serial No. 100-5.*
Outpatient Hospital Costs, St. Petersburg, FL, June 27, 1987, 
    Serial No. 100-6.*
Developing a Consumer Price Index for the Elderly, Washington, 
    DC, June 29, 1987, Serial No. 100-7.*
Reauthorization of the Older Americans Act, Casselberry, FL, 
    July 2, 1987, Serial No. 100-8.*
Prescription Drugs and the Elderly: The High Cost of Growing 
    Old, Washington, DC, July 20, 1987, Serial No. 100-9.*
The Medicare Home Care Benefit: Access and Quality, Lakewood, 
    NJ, August 3, 1987, Serial No. 100-10.*
Housing the Elderly, A Broken Promise?
    Reno, NV, August 17, 1987.
    Las Vegas, NV, August 18, 1987, Serial No. 100-11.*
Prescription Drug Costs: The Growing Burden for Older 
    Americans, Little Rock, AR, August 27, 1987, Serial No. 
    100-12.*
2 Years of the Age Discrimination in Employment Act: Success or 
    Failure? Washington, DC, September 10, 1987, Serial No. 
    100-13.*
Examining the Medicare Part B Premium Increase, Washington, DC, 
    November 2, 1987, Serial No. 100-14.*
Medicare Payments for Home Health Services, Portland, ME (joint 
    hearing with the Senate Finance Committee), November 16, 
    1987, Serial No. 100-15.*
Long-Term Care: From Housing and Health to Human Services, 
    Minneapolis, MN, January 5, 1988, 100-16.*
The Social Security Notch: Justice or Injustice? Washington, 
    DC, February 22, 1988, Serial No. 100-17.*
Adverse Drug Reactions: Are Safeguards Adequate for the 
    Elderly? Washington, DC, March 25, 1988, Serial No. 100-
    18.*
Vanishing Nurses: Diminishing Care, Philadelphia, PA, April 6, 
    1988, Serial No. 100-19.*
Adult Day Health Care: A Vital Component of Long-Term Care, 
    Washington, DC, April 18, 1988, Serial No. 100-20.*
Advances in Aging Research, Washington, DC, May 11, 1988, 
    Serial No. 100-21.*
Kickbacks in Cataract Surgery, Philadelphia, PA, May 23, 1988, 
    Serial No. 100-22.*
The Rural Health Care Challenge:
    Part 1--Rural Hospitals, Washington, DC, June 13, 1988.*
    Part 2--Rural Health Care Personnel, Washington, DC, July 
            11, 1988, Serial No. 100-23.*
The EEOC's Performance in Enforcing the Age Discrimination in 
    Employment Act, Washington, DC, June 23 and 24, 1988, 
    Serial No. 100-24.*
The American Indian Elderly: The Forgotten Population, Pine 
    Ridge, SD, July 21, 1988, Serial No. 100-25.*
Rural Health Care Delivery in Arkansas: Impact on the Elderly, 
    Pine Bluff, AR, August 30, 1988, Serial No. 100-26.*
Cost-of-Living Adjustments and the CPI: A Question of Fairness, 
    Washington, DC, October 5, 1988, Serial No. 100-27.*
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Board and Care: A Failure in Public Policy (joint hearing with 
    House Aging), Washington, DC, March 9, 1989, Serial No. 
    101-1.*
SSA's Toll-Free Telephone System: Service or Disservice? 
    Washington, DC, April 10, 1989, Serial No. 101-2.*
Intergenerational Educational Partnerships: A Lifetime of 
    Talent To Share, April 24, 1989, Boca Raton, FL, Serial No. 
    101-3.*
Federal Implementation of OBRA 1987 Nursing Home Reform 
    Provisions, Washington, DC, May 18, 1989, Serial No. 101-
    4.*
SSA's Representative Payee Program: Safeguarding Beneficiaries 
    From Abuse, June 6, 1989, Washington, DC, Serial No. 101-
    5.*
Prescription Drug Prices: Are We Getting Our Money's Worth? 
    July 18, 1989, Washington, DC, Serial No. 101-6.* (This 
    hearing was incorporated with Serial No. 101-14).
Access to Care for the Elderly, Aberdeen, SD, August 7, 1989, 
    Serial No. 101-7.*
Long-Term Care in Rural America: A Family and Health Policy 
    Challenge, August 22, 1989, Little Rock, AR (joint with 
    Pepper Commission), Serial No. 101-8.*
Health Care for the Rural Elderly: Innovative Approaches To 
    Providing Community Services and Care (joint hearing with 
    House Aging), September 18, 1989, Bangor, ME, Serial No. 
    101-9.*
The Older Workers Benefit Protection Act--S. 1511 and the Age 
    Discrimination in Employment Act Amendments of 1989--S. 
    1293 (joint hearing with Senate Labor and Human Resources), 
    September 27, 1989, Washington, DC, Serial No. 101-10.*
Medicare Coverage of Catastrophic Health Care Costs: What Do 
    Seniors Need, and What Do Seniors Want? Las Vegas, NV, 
    October 10, 1989, Serial No. 101-11.*
The Shadow Caregivers: American Families and Long-Term Care, 
    November 13, 1989, Philadelphia, PA, Serial No. 101-12.*
Our Nation's Elderly: Hidden Victims of the Drug War? 
    Washington, DC, November 15, 1989, Serial No. 101-13.*
Skyrocketing Prescription Drug Prices:
        Part 1--Are We Getting Our Money's Worth? July 18, 
        1989.
        Part 2--Turning a Bad Deal Into a Fair Deal, November 
        16, 1989, Washington, DC, Serial No. 101-14.*
Medigap Insurance: Cost, Confusion, and Criminality, December 
    11, 1989, Madison, WI, Serial No. 101-15.*
Rising Medigap Premiums: Symptom of a Failing System? January 
    8, 1990, Harrisburg, PA, Serial No. 101-16.*
Medigap Policies: Filling Gaps or Emptying Pockets? March 7, 
    1990, Washington, DC, Serial No. 101-17.*
Aging in Place: Community-Based Care for Older Virginians, 
    April 11, 1990, Charlottesville, VA, Serial No. 101-18.*
Respite Care in New Jersey, April 16, 1990, Lakewood, NJ, 
    Serial No. 101-19.*
New Directions for SSA: Revitalizing Service, May 18, 1990, 
    Washington, DC, Serial No. 101-20.*
Rural Health Care for the Elderly, May 29, 1990, Sioux Falls, 
    SD, Serial No. 101-21.*
Retirement and Health Planning, May 30, 1990, St. Petersburg, 
    FL, Serial No. 101-22.*
Hospice and Respite Care, June 18, 1990, Elizabeth, NJ, Serial 
    No. 101-23.*
Disabled Yet Denied: Bureaucratic Injustice, July 17, 1990, 
    Washington, DC, Serial No. 101-24.*
Defining the Frontier: A Policy Challenge, July 23, 1990, 
    Casper, WY, Serial No. 101-25.*
Crimes Against the Elderly: Let's Fight Back, August 21-22, 
    1990, Reno and Las Vegas, NV, Serial No. 101-26.*
Long-Term Care for the Nineties: A Spotlight on Rural America, 
    August 21, 1990, Little Rock, AR, Serial No. 101-27.*
Improving Access to Primary Health Care, August 28, 1990, 
    Albuquerque, NM, Serial No. 101-28.*
Profiles in Aging America: Meeting the Health Care Needs of the 
    Nation's Black Elderly, September 28, 1990, Washington, DC, 
    Serial No. 101-29.*
Resident Assessment: The Springboard to Quality of Care and 
    Quality of Life for Nursing Home Residents, October 22, 
    1990, Washington, DC, Serial No. 101-30.*
Elderly Nutrition: Policy Issues for the 102nd Congress, 
    February 15, 1991 (joint workshop with the Senate Committee 
    on Agriculture, Nutrition and Forestry), Washington, DC, 
    Serial No. 102-1.*
Medicare HMO's and Quality Assurance: Unfulfilled Promises, 
    March 13, 1991, Washington, DC, Serial No. 102-2.*
Respite Care: Rest for the Weary, April 23, 1991, Washington, 
    DC, Serial No. 102-3.*
Who Lives, Who Dies, Who Decides: The Ethics of Health Care 
    Rationing: June 19, 1991, Washington, DC, Serial No. 102-
    4.*
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Elder Abuse and Neglect: Prevention and Intervention, June 29, 
    1991, Birmingham, AL, Serial No. 102-5.*
Reducing the Use of Chemical Restraints in Nursing Homes, July 
    22, 1991, Washington, DC, Serial No. 102-6.*
Low-Income Medicare Beneficiaries: Have They Been Forgotten? 
    July 24, 1991, Washington, DC, Serial No. 102-7.*
Linking Medical Education and Training to Rural America: 
    Obstacles and Opportunities, July 29, 1991, Washington, DC, 
    Serial No. 102-8.*
Forever Young: Music and Aging, August 1, 1991, Washington, DC, 
    Serial No. 102-9.*
Older Women and Employment: Facts and Myths, August 2, 1991, 
    Washington, DC, Serial No. 102-10.*
Crimes Committed Against the Elderly, August 6, 1991, 
    Lafayette, LA, Serial No. 102-11.*
A Health Care Challenge: Reaching and Serving the Rural Black 
    Elderly, August 28, 1991, Helena, AR, Serial No. 102-12.*
Medicare Fraud and Abuse: A Neglected Emergency? October 2, 
    1991, Washington, DC, Serial No. 102-13.*
Preventive Health Care for the Native American Elderly, 
    November 13, 1991, Washington, DC, Serial No. 102-14.*
Cutting Health Care Costs: Experiences in France, Germany, and 
    Japan, November 19, 1991 (joint hearing with Senate 
    Committee on Governmental Affairs), Serial No. 102-15.*
Health Care Reform: The Time Has Come, Serial No. 102-16.*
    February 10, Fort Smith, AR, Long-Term Care and 
            Prescription Drug Costs.
    February 11, 1992, Jonesboro, AR, Skyrocketing Health Care 
            Costs and the Impact on Individuals and Businesses.
    February 12, El Dorado, AR, Answers to the Health Care 
            Dilemma.
Continuing Long-Term Care Services, February 10, 1992, 
    Lauderhill, FL, Serial No. 102-17.*
Elderly Left Out in the Cold? The Effects of Housing and Fuel 
    Assistance Cuts on Senior Citizens, March 3, 1992, 
    Washington, DC, Serial No. 102-18.*
Medicare Balance Billing Limits: Has the Promise Been 
    Fulfilled? April 7, 1992, Washington, DC, Serial No. 102-
    19.*
Skyrocketing Prescription Drug Costs: Effects on Senior 
    Citizens, April 15, 1992, Lewiston, ME, Serial No. 102-20.*
The Effects of Escalating Drug Costs on the Elderly, April 22, 
    1992, Macon and Atlanta, GA, Serial No. 102-21.*
Roundtable Discussion on Guardianship, June 2, 1992, 
    Washington, DC, Serial No. 102-22.*
Aging Artfully: Health Benefits of Art and Dance, June 18, 
    1992, Washington, DC, Serial No. 102-23.*
Grandparents as Parents: Raising a Second Generation, July 29, 
    1992, Washington, DC, Serial No. 102-24.*
Consumer Fraud and the Elderly: Easy Prey? September, 24, 1992, 
    Washington, DC, Serial No. 102-25.*
Roundtable Discussion on Intergenerational Mentoring, November 
    12, 1992, Washington, DC, Serial No. 102-26.*
The Federal Government's Investment in New Drug Research and 
    Development: Are We Getting Our Money's Worth? February 24, 
    1993, Washington, DC, Serial No. 103-1.*
Prescription Drug Prices: Out-Pricing Older Americans, April 
    14, 1993, Bangor, ME, Serial No. 103-2.*
Workshop on Innovative Approaches to Guardianship, April 16, 
    1993, Washington, DC, Serial No. 103-3.*
Controlling Health Care Costs: The Long-Term Care Factor, April 
    20, 1993, Washington, DC, Serial No. 103-4.*
Workshop on Cataract Surgery: Guidelines and Outcomes, April 
    21, 1993, Washington, DC, Serial No. 103-5.*
Workshop on Rural Health and Health Reform, May 3, 1993, 
    Washington, DC, Serial No. 103-6.*
Preventive Health: An Ounce of Prevention Saves a Pound of 
    Cure, May 6, 1993, Washington, DC, Serial No. 103-7.*
How Secure Is Your Retirement: Investments, Planning, and 
    Fraud, May 25, 1993, Washington, DC, Serial No. 103-8.*
The Aging Network: Linking Older Americans to Home and 
    Community-Based Care, June 8, 1993, Washington, DC, Serial 
    No. 103-9.*
Mental Health and the Aging, July 15, 1993, Washington, DC, 
    Serial No. 103-10.*
Health Care Fraud as It Affects the Aging, August 13, 1993, 
    Racine, WI, Serial No. 103-11.*
The Hearing Aid Marketplace: Is the Consumer Adequately 
    Protected? Washington, DC, September 15, 1993, Serial No. 
    103-12.*
Improving Income Security for Older Women in Retirement: 
    Current Issues and Legislative Reform Proposals, September 
    23, 1993, Washington, DC, Serial No. 103-13.*
Long-Term Care Provisions in the President's Health Care Reform 
    Plan, November 12, 1993, Madison, WI, Serial No. 103-14.*
Pharmaceutical Marketplace Reform: Is Competition the Right 
    Prescription? November 16, 1993, Washington, DC, Serial No. 
    103-15.* 
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    Note: When requesting or ordering publications in this listing, it 
is important that you first read the instructions on page 1.
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Home Care and Community-Based Services: Overcoming Barriers to 
    Access, March 30, 1994, Kalispell, MT, Serial No. 103-16.*
Medicare Fraud: An Abuse, April 11, 1994, Miami, FL, Serial No. 
    103-17.*
Health Care Reform: The Long-Term Care Factor, Washington, DC, 
    April 12, 1994, Serial No. 103-18.*
Elder Abuse and Violence Against Midlife and Older Women, May 
    4, 1994, Washington, DC, Serial No. 103-19.*
Long-Term Care, May 9, 1994, Milwaukee, WI, Serial No. 103-20.*
Health Care Reform: Implications for Seniors, May 18, 1994, 
    Lansing, MI, Serial No. 103-21.*
Fighting Family Violence: Response of the Health Care System, 
    June 20, 1994, Bangor, ME, Serial No. 103-22.*
Uninsured Bank Products: Risky Business for Seniors, September 
    29, 1994, Washington, DC, Serial No. 103-23.*
Problems in the Social Security Disability Programs: The 
    Disabling of America, March 2, 1995, Washington, DC, Serial 
    No. 104-1.
Gaming the Health Care System: Trends in Health Care Fraud, 
    March 21, 1995, Washington, DC, Serial No. 104-2.
Society's Secret Shame: Elder Abuse and Family Violence, April 
    11, 1995, Portland, ME, Serial No. 104-3.
Planning Ahead Future Directions in Private Financing of Long-
    Term Care, May 11, 1995, Washington, DC, Serial No. 104-4.
Breakthroughs in Brain Research: A National Strategy to Save 
    Billions in Health Care Costs, June 27, 1995, Washington, 
    DC, Serial No. 104-5.
Federal Oversight of Medicare HMOS: Assuring Beneficiary 
    Protection, August 3, 1995, Washington, DC, Serial No. 104-
    6.
Medicaid Reform: Quality of Care in Nursing Homes at Risk, 
    October 26, 1995, Washington, DC, Serial No. 104-7.
Health Care Fraud: Milking Medicare and Medicaid, November 2, 
    1995, Washington, DC, Serial No. 104-8.
Hearing on Mental Illness Among the Elderly, February 28, 1996, 
    Washington, DC, Serial No. 104-9.
Telescams Exposed: How Telemarketers Target the Elderly, March 
    6, 1996, Washington, DC, Serial No. 104-10.
Hearing on Adverse Drug Reactions in the Elderly, March 28, 
    1996, Washington, DC, Serial No. 104-11.
Alzheimer's Disease in a Changing Health Care System: Falling 
    Through the Cracks, April 23, 1996, Washington, DC, Serial 
    No. 104-12
The National Shortage of Geriatricians: Meeting the Needs of 
    our Aging Population, May 14, 1996, Washington, DC, Serial 
    No. 104-13.
Stranded on Disability: Federal Disability Programs Failing 
    Disabled Workers, June 5, 1996, Washington, DC, Serial No. 
    104-14.
Forum on Nutrition and the Elderly: Savings for Medicare, June 
    20, 1996, Washington, DC, Serial No. 104-15.
Suicide and the Elderly: A Population At Risk, July 30, 1996, 
    Washington, DC, Serial No. 104-16.
Social Security Reform Options: Preparing for the 21st Century, 
    September 24, 1996, Washington, DC, Serial No. 104-17.
Investing in Medical Research: Saving Health Care and Human 
    Costs, September 26, 1996, Washington, DC, Serial No. 104-
    18.
Business Meeting, January 29, 1997, Washington, DC, Serial No. 
    105-1.*
Retiring Baby Boomers: Meeting the Challenges, March 6, 1997, 
    Washington, DC, Serial No. 105-2.*
Improving Accountability in Medicare Managed Care: The 
    Consumer's Need for Better Information, April 10, 1997, 
    Washington, DC, Serial No. 105-3.
Torn Between Two Systems: Improving Chronic Care in Medicare 
    and Medicaid, April 29, 1997, Washington, DC, Serial No. 
    105-4.*
Medicare Payment Reform: Increasing Choice and Equity, May 19, 
    1997, Washington, DC, Serial No. 105-5.
Shortchanged: Pension Miscalculations, June 16, 1997, 
    Washington, DC, Serial No. 105-6.
Preparing for the Baby Boomers' Retirement: The Role of 
    Employment, July 25, 1997, Washington, DC, Serial No. 105-
    7.
Jackpot: Gaming the Home Health Care System, July 28, 1997, 
    Washington, DC, Serial No. 105-8.
Medicaid Managed Care: The Elderly and Others With Special 
    Needs, June 24, July 8, July 15, July 22, 1997, Washington, 
    DC, Serial No. 105-9.
2010 and Beyond: Preparing Medicare for the Baby Boomers, 
    August 25, 1997, Sioux City, IA, Serial No. 105-10.
2010 and Beyond: Preparing Social Security for the Baby 
    Boomers, August 26, 1997, Washington, DC, Serial No. 105-
    11.
Hearing on Prostate Cancer: The Silent Killer, September 23, 
    1997, Washington, DC, Serial No. 105-12.
The Risk of Malnutrition in Nursing Homes, October 22, 1997, 
    Washington, DC, Serial No. 105-13.
The Many Faces of Long-Term Care: Today's Bitter Pill or 
    Tomorrow's Cure, January 12, 1998, Las Vegas, NV and 
    January 13, 1998, Reno, NV, Serial No. 105-14.
A Starting Point for Reform: Identifying the Goals of Social 
    Security, February 10, 1998, Washington, DC, Serial No. 
    105-15.
Preparing for the Retirement of the Baby Boom Generation, 
    February 18, 1998, Baton Rouge, LA, Serial No. 105-16.
The Cash Crunch: The Financial Challenge of Long-Term Care for 
    the Baby Boomer Generation, March 9, 1998, Washington, DC, 
    Serial No. 105-17.
Equity Predators: Stripping, Flipping and Packing Their Way to 
    Profits, March 16, 1998, Washington, DC, Serial No. 105-18.
Access to Care: The Impact of the Balanced Budget Act on 
    Medicare Home Health Services, March 31, 1998, Washington, 
    DC, Serial No. 105-19.
The Stock Market and Social Security: The Risks and the 
    Rewards, April 22, 1998, Washington, DC, Serial No. 105-20.
Elder Care Today and Tomorrow, April 27, 1998, Washington, DC, 
    Serial No. 105-21.
Choosing a Health Plan: Providing Medicare Beneficiaries With 
    The Right Tools, May 6, 1998, Washington, DC, Serial No. 
    105-22.
Transforming Health Care Systems for the 21st Century Issues 
    and Opportunities 21st Century Issues and Opportunities for 
    Improving Health Care, May 13, 1998, Washington, DC, Serial 
    No. 105-23.
Living Longer, Growing Stronger: The Vital Role of Geriatric 
    Medicine, May 20, 1998, Washington, DC, Serial No. 105-24.
Preparing Americans For Retirement: The Roadblocks to Increased 
    Savings, June 2, 1998, Washington, DC, Serial No. 105-25.
The Graying of Nations: Productive Aging Around the World, June 
    8, 1998, Washington, DC, Serial No. 105-26.
Preserving America's Future Today, June 30, 1998, Bala Cynwyd, 
    PA, Serial No. 105-27.
Living Longer, Retiring Earlier: Rethinking the Social Security 
    Retirement Age, July 15, 1998, Washington, DC, Serial No. 
    105-28.
Older Americans and the Worldwide Web: The New Wave of Internet 
    Users, July 16, 1998, Washington, DC, Serial No. 105-29.
Betrayal: The Quality of Care in California Nursing Homes, July 
    27 and 28, 1998, Washington, DC, Serial No. 105-30.
Everyday Heroes: Family Caregivers Face Increasing Challenges 
    in an Aging Nation, September 10, 1998, Washington, DC, 
    Serial No. 105-31.
Easing the Family Caregiver Burden: Programs Around the Nation, 
    September 10, 1998, Washington, DC, Serial No. 105-32.
Crooks Caring for Seniors: The Case for Criminal Background 
    Checks, September 14, 1998, Washington, DC, Serial No. 105-
    33.
Can We Rest In Peace? The Anxiety of Elderly Parents Caring for 
    Baby Boomers with Disabilities, September 18, 1998, 
    Washington, DC, Serial No. 105-34.
  

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