LEGISLATIVE AND BUDGET OUTLOOK FOR 2006

February 6, 2006

Setting a federal agenda in any election year is a daunting challenge.  Attempting it in a highly polarized Congress where control of one or both chambers could be at stake may be, well, homicidal.  Virtually every press conference, briefing and hearing this year will become the stage for a play that closes on election day; every proposal to spend, tax or borrow will be hotly contested, most likely leading to a stalemate—at least until after the campaign signs are taken down.

The task of doing the people's business is made even more difficult by a compressed election-year legislative calendar.  Both chambers have set a target adjournment date of October 6, designed to give lawmakers a month to campaign before election day.   But every month between now and October is punctuated by congressional recesses, leaving fewer than 78 days devoted to legislative business.  

Shaping the 2006 Legislative Agenda

On January 31, President Bush used his State of the Union address to unveil and in some instances dust off a series of legislative proposals he hopes Congress will approve.  His scaled-down blueprint for governing included a renewed call for the development of alternative energy sources, a math and science initiative to bolster America's competitive advantage in the global economy and a set of incremental measures to save on health care costs.   

The pundits may argue over whether the President's address outlined a realistic agenda for getting things done, or set the equivalent of a campaign platform for Republicans running for election.  In either case, one very real issue will dominate virtually every decision made in Washington this year: the federal budget deficit.  As evidence of that, one of the first votes the House took after the President's speech was to approve a $39.7 billion budget bill that cuts spending for Medicare, Medicaid, college student loans and child support enforcement.  (As evidence of just how schizophrenic Washington can be, one day later the Senate approved a $70 billion tax cut bill that would more than erase those savings.)

But that deficit reduction bill was just an opening salvo.  Little more than a week before President Bush addressed Congress and the nation, the White House projected that the deficit will exceed $400 billion for the fiscal year that ends in September, prompting fiscal hawks in Congress to call for more and deeper cuts in federal funding.  To drive home that point, they cite the fact that by mid-March Congress will have to vote to increase the statutory debt limit, currently set at $8.184 trillion—the kind of vote that lawmakers would rather not make in an election year.

Getting Down to Specifics: A Budget Overview

On February 6, President Bush sent Congress his $2.7 trillion budget proposal for fiscal year 2007, a budget, he says, that would cut the deficit in half by 2009.  In it he calls for holding government spending for discretionary programs (other than defense and homeland security) below a nominal freeze that does not allow for inflation.  To that end, the President proposes eliminating or substantially reducing 140 federal programs, producing savings amounting to $14.5 billion, or about 0.005 percent of the budget.   

In reality, the President and Congress are limited in what they can do to stem the flow of red ink.  This year, about two-thirds of the federal budget is taken up by entitlements and payment on the national debt—items that are not easily changed.  Include defense and homeland security in that equation—both would be increased by about five percent by the President—and that leaves only one-sixth of the budget subject to annual review.  In an effort to rein in some of those entitlement costs, however, the President is proposing that Congress take steps to curb Medicare costs.  His budget calls for reducing projected Medicare payments to hospitals and other health care providers by $35.9 billion over the next five years ($105 billion over 10 years), and will seek further increases in Medicare premiums for high-income people, beyond those already scheduled to take effect.  No cuts are proposed for Medicaid.

Incremental Health Care Reforms

Apart from the Iraq war, the issue most on the public's mind is health care.  Spiraling health costs are a big reason for the sluggish growth in the economy, the widespread perception that the middle class is being squeezed and a major contributor to the job cuts felt at Ford and others in the manufacturing sector.  And with medical inflation far outpacing inflation in general, more companies are expected to scale back the health care coverage they offer.

Against that backdrop, President Bush has proposed a series of reforms, some old, some new, for making health care more affordable and efficient.

• Expanding health savings accounts (HSAs). -  Created in 2003, HSAs allow consumers to set aside money tax-free to pay for their health care costs, provided they purchase a high-deductible health insurance policy.  The President proposes making premiums paid for a high-deductible policy deductible from income taxes when purchased by individuals, rather than by their employer.  In addition, an income tax credit would offset payroll taxes paid on premiums paid for their HSA policy.  For those who are unemployed, premiums for the purchase of non-group HSA plans would now be allowed tax-free from an HSA account.

• Eliminating taxes on HSA out-of-pocket spending. -  The budget proposes allowing individuals with HSAs and their employers to make annual contributions to their accounts to cover all out-of-pocket costs, not just their deductible.  The proposal would also provide a credit for payroll taxes paid on HSA contributions made by individuals.

• Making HSAs more portable. –  Under the budget proposal, employers would have the option to offer workers a portable HSA policy.  Premiums would be tax-free and would not increase because of health status at the time the worker changed jobs or left the labor force.  Employers could contribute to the new employees' portable HSAs no matter where the policy was originally purchased.

• Insurance without borders. -  President Bush proposes to allow individuals to buy health insurance across state lines, preempting the mandated benefits and rules governing insurance in the state in which they reside.

• Association health plans (AHPs). -  The President would allow small businesses to form AHPs, which would preempt state rules governing benefits, pricing and solvency standards.

• Medical liability reform. -  The President once again is calling on Congress to enact medical liability reforms, including reserving punitive damages for egregious cases, limiting non-economic damages, setting time limits on when malpractice suits can be filed and providing that defendants pay judgments in proportion to their fault.  Malpractice reform legislation has passed the House in each of the past three years, but has stalled in the Senate. 

• Community health centers. -  The President proposes to establish 80 new community health centers or clinics in high-poverty counties.

Health Information Technology

Two years ago, the President launched an initiative to make electronic health records (EHRs) available to most Americans by 2014.  A national coordinator was appointed, and $100 million allocated to fund projects harmonizing standards for electronic health information exchange; developing certification standards; addressing privacy and security issues; and developing models for a national web-based health IT system.  For fiscal year 2007 the President proposes to develop nationwide standards to accelerate patient access to EHRs, including a "medical clipboard" that can only be accessed with a patient's consent, electronic medication history and lab test results, and ways to utilize health information tools to monitor disease outbreaks

This year's budget requests $169 million, an increase of $58 million, to continue this initiative.  In FY2007, the request for the Office of the National Coordinator for Health Information Technology includes $116 million, an increase of $55 million, to support strategic planning and coordination and analysis of key technical, economic and other issues related to public and private adoption of Health IT.  The American Health Information Commission was established in 2005 as a federally-chartered commission to help advance the call for EHRs, beginning with the creation of four workgroups charged with producing tangible results in the following priority areas: EHRs, consumer empowerment, chronic care management and biosurveillance.  Those workgroups have identified short-term projects that are expected to produce results within the next two years.

Within the budget for the Agency for Healthcare Research and Quality (AHRQ), $50 million will be made available for health IT, the same as the FY2006 amount.  This investment is aimed at enhancing patient safety, with an emphasis on ambulatory patient care.  AHRQ's investment in hospital safety has already demonstrated the importance of patient safety reporting systems, computerized physician order entry and decision support systems to key stakeholders and policymakers.  But while the use of hospital-based IT is on the rise, the budget document notes that an adoption gap exists in ambulatory care, especially in smaller practices with five or fewer physicians—where 60 percent of doctors continue to practice.  Within the health IT program, AHRQ will provide $29 million for the ambulatory patient safety program with an added $6 million for general patient safety activities.  This program has a five-year goal of measurably improving the safety and quality of care for patients in ambulatory environments using health IT.  AHRQ will examine the best ways to develop, deploy and evaluate the use of electronic health information systems, both the technology and processes around it, by addressing systematic barriers to adoption and creating the evidence base for best practices.  The program will focus on four cross-cutting care domains: medication safety, patient-centered care, medication management and integration of decision support tools.  The program will place special emphasis on the delivery of high quality care from providers in rural, small community, safety net and community health center environments.   

The Centers for Disease Control and Prevention (CDC) will continue to play a role in the health IT initiative; however, specific details are still sketchy.  The budget proposes $102 million for the Biosurveillance initiative, a decrease of $31 million below current funding.  This investment will increase the number of quarantine stations at major ports of entry and extend BioSense, CDC's near real-time human health surveillance system, to additional users in states and metropolitan areas.  The budget request also includes $109 million for public health informatics, building upon efforts to ensure that the disease outbreak detection and reporting systems of public health departments incorporate the common standards that facilitate real-time sharing of key data among public health officials responsible for verifying, investigating and responding to outbreaks.

Approximately $283 million, or 13 percent, of the operations budget for the Centers for Medicare and Medicaid Services (CMS) supports IT activities.  Ongoing maintenance of systems that support claims processing and accounting activities account for the majority ($197 million) of this total, an increase of $26 million.  Another $76 million supports enterprise activities, including the data center and communications, and $10.2 million supports HHS-wide IT priorities, including the Enterprise IT Fund and the Unified Financial Management system.

DEPARTMENT OF HEALTH AND HUMAN SERVICES

For the programs that make up the Labor-HHS-Education appropriations bill, the President's budget proposes $138.3 billion, a decrease of $3.8 billion, or 2.7 percent, below current funding levels.  Consistent with the President's goal to cut the deficit in half by 2009, that portion of the budget administered by the Department of Health and Human Services (HHS) totals $61.2 billion, a reduction of $1.5 billion, all of which is drawn from discretionary programs.

Budget Highlights

Food and Drug Administration. – The fiscal year 2007 budget request for FDA is $1.9 billion, an increase of $71 million over current funding levels.  The budget includes increases totaling $126 million to protect the nation against the threat of an influenza pandemic as well as resources to safeguard the food supply against intentional and accidental risks, promote drug safety, and ensure that medical devices are safe and effective.  Also included in the budget is a $6 million investment in what is dubbed "the critical path to personalized medicine," an effort aimed at fostering more efficient, less expensive clinical trials.  This initiative would enable FDA to approve prescription drugs for individual groups of people, rather than drugs to treat whole populations.  By approving drugs tailored to the individual molecular traits unique to individuals, health professionals would be able to prescribe safer, more effective medical products.  These increases are partially offset by $55 million in management and administrative savings. 

Health Resources and Services Administration. -  The fiscal year 2006 budget proposes $6.3 billion for HRSA, a net decrease of $252 million below current funding levels.  A total of $1.9 billion is requested for community health centers, an increase of $181 million over the current funding level, and enough to treat an added 1.2 million individuals through 300 new or expanded sites in medically underserved communities.    Maternal and child health block grants would be held to the current funding level of $693 million, enough, the budget states, to provide gap-filling prenatal health services to more than 2.3 million women, and primary and preventive care to more than 26.8 million infants and children.  The budget also includes funding for Healthy Start ($102 million), nurse training ($150 million), the sickle cell demonstration program ($2 million), and scholarships for disadvantaged students ($10 million).  Those program levels would be offset by cuts in the following -

                                                                                      (in millions)

            Health professions training                                     -$99

            Children's hospital GME                                       -$198

            Rural health                                                          -$133

            EMS for children                                                  -$ 20

            Newborn hearing screening                                   -$ 10

            Poison control                                                      -$ 10

 

Centers for Disease Control and Prevention. -  The President's budget proposes a program level of $8.2 billion for CDC, a net decrease of $179 million below the current level.  This request supports implementation of ongoing pandemic flu preparedness activities; increased funding for a new domestic HIV/AIDS initiative; improvements in childhood immunizations; and expansion of the Strategic National Stockpile.  These increases are offset by eliminating the preventive health services block grant (-$99 million), and reductions in anthrax research (-$15 million), biosurveillance (-$31 million), chronic disease prevention and health promotion (-$20 million), birth defects, disability and health (-$14 million), and construction at the CDC campus (-$129 million).  In addition, the budget proposes to eliminate support for several categorical disease programs, including Alzheimer's disease, epilepsy, Cooley's Anemia, lupus, Tourette's Syndrome and pfiesteria. 

National Institutes of Health. -  The President proposes $28.6 billion for NIH, nominally freezing NIH at the FY2006 funding level and about $63 million below the FY2005 level.  Taking into account that biomedical research inflation is at 3.7 percent in FY2006 and is projected to be 3.5 percent in FY2007, the reduction runs even deeper.  Of the total requested, $1.9 billion is proposed for biodefense research, a net increase of $110 million, or 6.2 percent, over FY2006 funding.  NIH proposes to create a $160 million fund within the Office of the Director to devote to the advanced development of biodefense measures that are priority Project BioShield acquisition  targets.  Also included in the request is $35 million to expand international and domestic pandemic flu research; $443 million to continue support for the NIH Roadmap; $15 million to foster support for new research investigators; and $361 million for a new clinical and translational science award program.  The proposed budget will support 37,671 research project grants, or 656 fewer grants than currently estimated for this year.  NIH estimates the budget will fund 9,337 new and competing grants, or 275 more than this year, at an average cost of $350,000 per grant.  No increases will be provided for inflation.

Substance Abuse and Mental Health Services Administration. -  The President's budget proposes $3.3 billion for SAMHSA, a net decrease of $67 million below current appropriations.  Funding for the substance abuse and mental health block grant programs is held steady at $1.7 billion and $428 million, respectively.  Substance abuse programs of regional or national significance would be reduced by $36 million, while regional and national mental health programs would be cut by $35 million.  The budget also proposes to maintain funding for activities authorized under the Garrett Lee Smith Act, supporting state-wide early intervention and prevention strategies in schools, higher education institutions, juvenile justice programs, foster care and other youth support organizations.  A new $3 million suicide prevention program is proposed, focused on the American Indian and Alaska Native youth population.

Agency for Healthcare Research and Quality. -  The budget proposes $319 million for AHRQ, the same as this year's funding level.  Focus will be on health costs, quality and outcomes, including $84 million for patient safety and $15 million for comparative effectiveness research.  An estimated $50 million will be devoted to information technology investments, with an emphasis on ambulatory patient care.  Within the health IT budget, AHRQ would provide $29 million for the ambulatory patient safety program, with an added $6 million in general patient safety.  

Centers for Medicare and Medicaid Services. –  The President's budget calls for substantial savings in the Medicare program in an attempt to rein in growing costs.  His budget proposes a legislative package that would save $2.5 billion in FY2007 and $35.9 billion over the next five years.  Most of the proposed savings follow the recommendations of the Medicare Payment Advisory Commission (MedPAC), including a zero percent payment update for skilled nursing facilities, home health agencies and inpatient rehabilitation facilities.  The proposal also calls for an update of the market basket minus 0.45 percent for hospitals, and a reduction for hospice and ambulance services by 0.4 percent for 2007 – 2009.  No changes are proposed for physician payments; under current law, those payments will be cut more than four percent in 2007.  In the meantime, CMS will continue to work to expand pay-for-performance initiatives.  Consistent with other consumer-driven initiatives the administration is proposing, the budget calls for Congress to offer the option of opening health savings accounts to Medicare beneficiaries.  

Administration for Children and Families. -  The President's budget request for discretionary programs administered by ACF is $13.8 billion, a net reduction of $940 million in discretionary funding.  Increases totaling $54 million for abstinence education and faith-based initiatives are more than offset by reductions in community services block grants (-$630 million) and low-income heating and energy assistance to the poor (-$198 million).

Administration on Aging. -  The President proposes $1.3 billion for AoA, a reduction of $28 million below current funding.  The request includes $712 million for nutrition services; $351 million for home and community-based support services and centers; $160 million for the National Family Caregiver Support program, and $26 million for grants to Native Americans.  The budget proposes to eliminate support for the Alzheimer's disease state demonstration grant program, currently funded at $12 million.  The budget document notes that most states have received funding for one or more demonstrations that tested and implemented successful approaches to serving Alzheimer patients.  The lessons learned and models developed are ready to be integrated into ongoing service programs, according to the budget.  

DEPARTMENT OF EDUCATION

For fiscal year 2007, the President is proposing $54.4 billion in discretionary appropriations for the Department of Education, a decrease of $3.1 billion, or 5.5 percent below current funding levels.  This accounts for about 8.2 percent of the national investment in education.  Following are highlights of the President's proposal.

Elementary and Secondary Education. – The budget proposes $12.7 billion for Title I grants to local education agencies, maintaining the program at the FY2006 level.  An additional $200 million is requested to launch a school improvement program to help states expand their support for local educational agencies and schools that have been targeted for improvement.  The budget also continues the Reading Is Fundamental Program at $25.0 million and Ready-to-Learn at $24.3 million.  With regards to Ready-to-Learn, the Department is requiring that all new children's programming content be informed by scientifically based research in reading and early literacy.  Programming grantees must conduct rigorous evaluations using experimental design.  Lastly, the Department has made three smaller competitive awards, rather than a single large award.  The Ready-to-Teach program, funded at $10.9 million in fiscal year 2006, would be eliminated under the President's proposal, as would 41 other categorical programs, totaling $3.5 billion.  Among them, the Safe and Drug-free schools program (-$346.5 million), educational technology grants (-$272.3 million), and TRIO programs (-$456.3 million).

Special Education. -  The President's budget proposes $11.7 billion for special education programs, an increase of $44 million over current funding levels.  The bulk of this program, $11.5 billion, is awarded through formula grants to states, providing an average $1,599 each for an estimated 6.9 million children.

Higher Education. -  The budget includes $14.5 billion for student assistance programs, including $12.7 billion for Pell grants and $980.3 million for work-study programs.  For Title III-Aid for Institutional Development, the President proposes $417.0 million, slightly less than current funding, including $238.1 million for historically black colleges and universities, $94.9 million for Hispanic-serving institutions and $23.5 million for tribally controlled colleges and universities.