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21. Department of Health and Human Services


Highlights of 2002 Funding

  • Provides $156 billion this year and over 10 years for Medicare reform, including an integrated prescription drug plan, and the Immediate Helping Hand program until reform is implemented.

  • Continues the effort to double the National Institutes of Health (NIH's) 1998 funding level in five years by increasing NIH's funding by $2.8 billion over 2001, for a total of $23.1 billion in 2002.

  • Expands the delivery of primary health care services to communities that lack health care access by providing $1,293 million, a $124 million increase, for the Community and Migrant Health Centers Initiative.

  • Increases access to substance abuse treatment services and works to close the treatment gap by providing a $100 million increase for the Substance Abuse and Mental Health Services Administration as part of a broader $111 million initiative.

  • Supports families by funding early interventions for at-risk families, assisting parents in obtaining after-school child care, promoting responsible fatherhood, supporting maternity group homes for teenage mothers, and creating incentives for stronger public private partnerships with charitable organizations.

  • Addresses the neediest health professional services areas by highlighting a reform initiative for the National Health Service Corps grants through targeted legislative and management reforms.

  • Targets areas of health risk by including approximately $400 million for existing activities for innovative health care improvement projects in State and local communities.



The Department of Health and Human Services (HHS) is charged with overseeing several Administration initiatives summarized below. More detailed information on these initiatives can be found in Chapter 12, "Strengthen Families" and Chapter 13, "Invest in Health Care."

Department of Health and Human Services, 11.2% Average Program Level Annual Growth, 1998-2002; 9.3% Average Annual Growth Excluding NIH, 1998-2002

Doubling Resources for the National Institutes of Health (NIH): The 2002 Budget includes a Presidential initiative to double NIH's 1998 funding level by 2003. NIH is working to meet the management challenges that can arise when an agency receives a substantial infusion of resources over a short period of time. NIH is in the process of identifying strategies and policies that could be implemented in 2002 and 2003 and beyond to maximize budgetary and management flexibility in the future. Such strategies could include funding the total costs of an increasing number of new grants in the grant's first year and supporting some one-time activities such as high-priority construction and renovation projects.

Strengthening the Health Care Safety Net: To strengthen the health care safety net for those most in need, the budget recommends a $124 million increase for Community Health Centers. This increase is the first installment for a multi-year initiative to increase the number of community health center sites by 1,200. Community Health Centers, which are a critical component of the American health care safety net, provide health care services to roughly 11 million patients, 4.4 million of whom are uninsured, through a network of over 3,000 community-based health care center sites.

Reforming the National Health Service Corps (NHSC): The NHSC management reform will examine the ratio of scholarships to loan repayments, as well as other set-asides, to provide maximum flexibility in placing NHSC providers. The Administration will also seek to amend the Health Professional Shortage Area definition to reflect other non-physician providers practicing in communities, which will enable the NHSC to more accurately define shortage areas and target placements better. To further avoid overlap in the provision of health care, HHS will enhance its coordination with immigration programs, including the J-1 and H-1C visa programs, which review applications for foreign health care providers practicing in underserved communities. The NHSC initiative will also encourage more health care professionals to participate in the NHSC by making scholarship funds tax free.

Increasing Access to Drug Treatment: The President recommends an additional $111 million to increase the availability of substance abuse treatment services. Included in this amount is $100 million for the Substance Abuse and Mental Health Services Administration to help close the treatment gap. The increase includes $60 million to help States finance treatment to those in need through the Substance Abuse Block Grant, and an additional $40 million will be made available through the Targeted Capacity Expansion grants designed to support a rapid, strategic response to emerging trends in substance abuse.

Supporting the Healthy Communities Innovation Fund Initiative: HHS will allocate approximately $400 million in 2002 funding for existing grant activity for innovations at the local level, including programs to promote comprehensive care through integrated State health care delivery systems for women and children. HHS will increase coordination among these funds to ensure that the best and broadest range of innovative solutions are funded across the country.

Promoting Safe and Stable Families: The budget proposes funding the Promoting Safe and Stable Families program at $505 million in 2002, a $200 million increase over the 2001 level. These additional resources will help States keep children with their biological families, if safe and appropriate, or to place children with adoptive families. The budget also includes a $60 million increase for education and training vouchers to youth who age out of foster care. This initiative, which would be funded through the Independent Living Program, would provide vouchers worth up to $5,000 for education or training to help these young people develop skills to lead independent and productive lives.

Creating After School Certificates: The President's Budget creates a new $400 million after school certificate program within the Child Care and Development Block Grant, raising total funding to $2.2 billion. The new program would provide grants to States to assist parents in obtaining after-school childcare with a high-quality educational focus.

Promoting Responsible Fatherhood: The budget provides $64 million in 2002 ($315 million over five years) to strengthen the role of fathers in the lives of families. This initiative will provide competitive grants to faith-based and community organizations that help unemployed or low-income fathers and their families avoid or leave cash welfare, as well as to programs that promote successful parenting and strengthen marriage. The initiative also funds projects of national significance.

Supporting Maternity Group Homes: The budget recommends providing $33 million in 2002 for maternity group homes, which are community-based, adult-supervised group homes or apartment clusters for teenage mothers and their children. The homes provide safe, stable, nurturing environments for teenage mothers and their children who cannot live with their own families because of abuse, neglect, or other extenuating circumstances.

Encouraging Compassion and Charitable Giving: The President proposes three initiatives to ensure that the Federal Government plays a larger role in providing support to charitable organizations. A compassion capital fund will provide start-up capital and operating funds totaling $67 million in 2002 to qualified charitable organizations that wish to expand or emulate model programs. In addition, a $22 million national fund will support and promote research on "best practices" among charitable organizations in 2002. Also, to encourage States to create state tax credits for contributions to designated charities, the budget will propose legislation to allow States to use Federal Temporary Assistance for Needy Families funds to offset revenue losses.

Providing an Immediate Helping Hand (IHH): As prescription drugs have become an integral part of modern medicine, private health insurance in the United States has changed to incorporate adequate prescription drug insurance. Yet Medicare still does not provide coverage for most drugs as part of its benefit package. As a result, about three in 10 Medicare beneficiaries have no insurance coverage for prescription drugs.

To renew the promise made to our seniors 35 years ago, the President will propose to enact the IHH prescription drug proposal. The IHH proposal provides for immediate funding to States to allow for interim prescription drug coverage for those beneficiaries who need it most. This immediate assistance will give States the temporary financial support they need to protect beneficiaries with limited incomes or very high drug expenses and no other alternative for drug coverage until Medicare reform is achieved.

The IHH proposal will cover the full cost of drugs for individual Medicare beneficiaries with incomes up to $11,600 who are not eligible for Medicaid or a comprehensive private retiree benefit, and for married couples with incomes up to $15,700 (135 percent of poverty) who do not have access to coverage. These beneficiaries would receive comprehensive drug insurance for no premium, and would pay a nominal charge for prescriptions. The proposal would also cover part of the drug costs for individual Medicare beneficiaries with incomes up to $15,000 and married couples with incomes up to $20,300 (175 percent of poverty). These beneficiaries would receive subsidies for at least 50 percent of the premium of high-quality drug coverage. The IHH proposal would also provide catastrophic drug coverage for all Medicare beneficiaries, giving them financial security against the risk of very high out-of-pocket prescription expenditures.

The IHH proposal would begin immediately. Unlike other plans, IHH builds on coverage that is available in over half the States, and under consideration in almost all States. No other proposal would provide interim access to drug coverage for up to 9.5 million of the most vulnerable Medicare beneficiaries until Medicare reform can be enacted. This would minimize the temporary burden on States. IHH is 100 percent federally funded, with flexibility in how States can choose to establish or enhance drug coverage.

Redirected Resources

To moderate the large discretionary funding increases that HHS has received in recent years and to build a budget that is sustainable over time, the budget would include targeted reductions in several programs.

Health Professions: The budget recommends a reduction to Health Professions' funding, which provides training grants to institutions. These training grants were created almost forty years ago when a physician shortage was looming. Today a physician shortage no longer exists. Moreover, the Federal role is questionable in this area given that these professions are well-paid and that market forces are much more influential in determining supply. To reflect changing priorities, the budget will recommend focusing resources on the Health Professions' grants that address current health workforce supply challenges, such as the impending nursing shortage and improving diversity in the health professions.

Community Access Program: The budget recommends eliminating the $125 million relatively new, categorical Community Access Program. The Administration supports policies for integrating health care services and giving States greater flexibility to merge and align health care delivery through existing channels, such as Medicaid waivers, the State Children's Health Insurance Program (S-CHIP), and the Community Health Centers Integrated Services Delivery Initiative. Further, Community Health Centers and Medicaid are effective and proven mechanisms for improving access to care and health insurance coverage for the uninsured.

Medicaid Integrity: The Administration is taking initial steps to further address the Medicaid "upper payment limit" loophole. The loophole has allowed States to draw down billions of dollars in Federal reimbursement for hospitals and nursing homes without any assurances that these payments were used for their intended purpose. Last year, the 106th Congress took initial steps to curb the financing abuses associated with the regulatory loophole by requiring the Health Care Financing Administration (HCFA) to publish a final rule on Medicaid upper payment limits. The final rule, however, only partially addressed the problem, allowing some States to continue the current practice for years and to expand some loophole arrangements through the creation of a higher upper payment limit for non-State government-operated hospitals. Building on recent congressional and regulatory actions, the Administration proposes to prohibit new hospital loophole plans approved after December 31, 2000 from receiving the higher upper payment limit proposed in the final rule.

Potential Reforms

Over the years, HHS has evolved into a sprawling, loosely organized bureaucracy as program after program has been added to the inventory of HHS activities. There have been more than 20 new programmatic activities added at HHS in the past two years alone. HHS spending now amounts to over 20 percent of the entire Federal budget, with over 300 discrete program activities and more than 750 annual performance goals. Needless to say, without strong centralized control and coordination, some HHS activities overlap, duplicate each other, and even work at cross-purposes. Below are just a few specific areas that must be examined and addressed. In addition to these, HHS will undertake a thorough examination across the entire Department to ensure a streamlined, rationalized budget and program structure that will operate in the best interests of the nation's health and welfare.

Increasing State Flexibility in Public Health Grants: Excluding NIH, which awards more than 40,000 grants per year, HHS manages more than 70 discrete public health grant activities totaling almost $9 billion. States are eligible to receive directly at least 75 percent of these funds. Approximately $4 billion (44 percent) is awarded directly to States through formula grants, and almost $3 billion goes directly to States through four block grants. The Administration is considering increasing State flexibility to address its public health needs through expanded transfer authorities and other mechanisms to remove barriers to effective targeting of public health resources at the State and local level.

Rationalizing the HHS-Wide Research Agenda: Besides NIH, eight other HHS agencies supported over $1.2 billion of public health, health services and policy research in 2001. In light of the initiative to double funding for NIH, there is an opportunity now to examine the HHS health research portfolio to streamline management of the research agenda, identify any overlap in funding for similar research, and set priorities. Over the coming year, HHS will examine these issues closely and develop recommendations for reforming the Department's health research activities. In particular, HHS will prioritize its research agenda to focus on activities where the Federal mission and interests are clear, and focus less on research that is more traditionally and appropriately supported by universities and other research institutions. In addition, the Administration plans to assess other areas of Federally-supported research to determine if funding of this research may need greater emphasis in the future as the doubling of NIH initiative is achieved.

Reforming HFCA: Concerns about HCFA's management capabilities have been raised in several General Accounting Office reports, including the High Risk Series: An Update (January 2001) and Financial Management: Billions in Improper Payments Continue to Require Attention (October 2000). HCFA management reform is an Administration priority. HCFA will undertake a major effort to modernize and streamline its operations to more effectively manage current programs and implement new legislation. In particular, HCFA's role in a modernized Medicare program needs to be carefully considered. The Administration intends to consider fundamental changes in HCFA's mission and structure as part of this effort.

Reforming Medicaid and S-CHIP: The Administration will encourage the purchase of private health insurance through health care tax credits and other proposals. The Administration will also focus over the next few months on Medicaid and S-CHIP and recommend reforms that will improve the way these programs provide health care coverage to the poor and near-poor. After consulting with the States, the Administration will develop ideas to increase State flexibility and ensure that Medicaid and S-CHIP are being effectively used to promote health insurance coverage. The review of these programs will emphasize giving States the flexibility to use private insurance, when possible, and to coordinate with employment-based insurance for those who have access to it. Also, the Administration will work with the States to build a systematic approach to monitoring, stabilizing, and improving insurance coverage through reforms of these programs.

Strengthening Management to Improve Efficiency: The budget will propose steps to streamline HHS' decentralized approach to departmental management with the goal of enhancing coordination, eliminating costly duplication of efforts, and developing unified approaches to several of the key management challenges facing the agency. For example, the Department will move toward a unified financial management system to streamline accounting operations throughout the Department and consolidate Department level financial reporting. HHS will also promote a Department-wide information technology (IT) system design, to find efficiencies in the Department's current internal IT spending base of $1.5 billion. Additionally, the Department will also review opportunities for managing and consolidating similar programs.

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