kaiser commission on O V E R V I E W medicaid and the uninsured The President s FY 2005 Budget Proposal: Overview and Briefing Charts June 2004 1330 G S T R E E T NW, W A S H I N G T O N, DC 20005 P H O N E: 202-347-5270, F A X: 202-347-5274 W W W. K F F. O R G
Overview In February 2004, the President sent his $2 trillion FY 2005 budget proposal to Congress. At its most fundamental, the President s annual budget request to Congress is an outline of the Administration s priorities for the nation, and a statement of how the Administration proposes to pay for them. Priorities outlined in the Administration s FY 2005 budget request focus on the war on terror, homeland security, and the economy, with the federal deficit predicted to reach a record $528 billion this year, marking the third consecutive year in which total government spending significantly outpaces total revenues. The Office of Management and Budget estimates that deficits will continue for some time, totaling $1.8 trillion over the five-year period from FY 2005-2009 (Figures 1-3). Within this larger context, the President s budget proposes to increase defense spending by 7 percent, homeland security by 10 percent and holds the rest of discretionary spending to just 0.5 percent growth. The Administration also proposes to extend the tax cuts enacted in 2001 and 2003, at a total cost over 10 years of $936 billion. This proposal could have a significant effect on the nation s long-term fiscal situation (Figure 4). This set of briefing charts presents information on the President s FY 2005 budget proposal to Congress. It begins with an overview of federal surplus/deficit spending patterns dating back to 1969, and summarizes information on the overall composition of the Administration s budget request. It then presents detailed information on the President s funding proposals for some of the major programs administered by the Department of Health and Human Services (HHS), including Medicare, Medicaid, and the State Children s Health Insurance Program (SCHIP), as well as discretionary public health programs, including those at the National Institutes of Health, the Substance Abuse and Mental Health Services Administration, the Indian Health Service, the Centers for Disease Control and Prevention, and the Health Resources and Services Administration. How the President s FY 2005 Budget Funds Major Health Programs Funding for federal health programs is a major part of the federal budget, representing more than 1 in every 5 federal dollars spent (Figure 5). Total spending on health programs under the Department of Health and Human Services (HHS) proposed in the President s budget is $531 billion. Fifty-five percent of these funds will be spent on Medicare, 34 percent on Medicaid, 10 percent on public health programs, and less than 1 percent on SCHIP (Figure 6). Against the backdrop of the federal deficit, the President s budget proposes no new major changes to health entitlement programs, such as Medicare and Medicaid, and proposes limited new resources for other health programs. Medicare Spending on Medicare in FY 2005 is estimated at $290 billon (Figure 7). The President s budget proposes no major changes to the Medicare program, focusing instead on implementing the Medicare Modernization Act enacted in late 2003 that provides a prescription drug benefit for Medicare beneficiaries starting in 2006. However, federal spending projections on Medicare, estimated by the Office of Management and Budget, 1
differ substantially from the Congressional Budget Office projections and reflect disagreement over the actual costs of the new prescription drug benefit (Figure 8). Medicaid and SCHIP In FY 2005, federal spending on the Medicaid program is estimated to reach $182 billion (Figure 9). The Administration s spending projections for Medicaid assume an 8 percent growth rate for the program through FY 2009. The budget does not propose major legislative changes to the Medicaid program but expresses commitment to a major Medicaid restructuring the Administration made last year (Figure 10). The proposal would have allowed states to accept a cap on federal funding in exchange for a restructuring of people and services covered by the program. The FY 2005 budget expresses support for this approach but says that the Administration will attempt to pursue it on a state-by-state basis through waivers of existing federal Medicaid law. This year s budget also proposes to improve federal oversight of the Medicaid program through new program integrity measures that are estimated to save the federal government $1.5 billion in FY 2005 and $23.5 billion over 10 years (Figure 11). In FY 2005, federal budget authority provided for the State Children s Health Insurance Program (SCHIP) is $4.1 billion, which although higher than the FY 2004 SCHIP funding level is significantly lower than federal funding levels in previous years. These funding levels were established when Congress created SCHIP as part of the Balanced Budget Act of 1997 (Figure 12). Public Health Programs The President s budget proposes only a slight, 0.5% increase in funding for all discretionary, or non-entitlement programs in the federal budget that are unrelated to defense or homeland security (Figure 13). Within this context, the Administration proposes to increase spending for discretionary health programs by just 0.6 percent in nominal terms (Figure 14). The budget proposes to increase total funding for the Food and Drug Administration, the Indian Health Services, the National Institutes of Health, and the Substance Abuse and Mental Health Services Administration, but it proposes to reduce funding for the Centers for Disease Control and Prevention and the Health Resources and Services Administration. Within each of these major HHS agencies, funding levels for individual programs vary, with some proposed increases and some proposed decreases (Figures 15-19). For example, overall funding for CDC would decline by 5.9 percent, but individual programs such as infectious disease and HIV/AIDS, STDs & TB prevention would receive funding increases. Total funding for HRSA would decline by 9 percent, largely due to decreases in funding for the Community Access Program, health professions training grants, and rural health. At the same time, the Administration s budget proposes to double funding for abstinence programs in FY 2005 to over $270 million (Figure 20). Funding for HIV/AIDS In FY 2005, proposed funding for HIV/AIDS is estimated to total $19.8 billion which would represent a 7 percent increase over FY 2004 HIV/AIDS funding levels. Fifty-nine percent of the proposed funding will be spent on HIV/AIDS care while 15 percent is for 2
research and 5 percent is designated for prevention (Figure 21). Slightly more than half of the funding for HIV/AIDS comes from mandatory programs such as Medicaid, Medicare, Social Security Disability Insurance and Supplemental Security Income, and the remainder (47%) is provided through discretionary programs such as the Ryan White CARE Act at HRSA, programs at the CDC and the NIH, and all funding for international activities (Figures 22 and 23). An estimated $2.7 billion is for global HIV/AIDS, including $200 million in contributions to the Global Fund to fight AIDS, TB, and Malaria (Figures 24 and 25). Health Care Tax Credit The President s budget also re-proposes a refundable health care tax credit to help individuals under age 65 purchase health insurance. The refundable tax credit would subsidize part of a health insurance premium, and set at a maximum of $1,000 for individual adult, $500 per child and $3,000 for a family of four. The credit would phase out at incomes of $30,000 for an individual and $60,000 for a family, and would cost the federal government an estimated $70 billion over ten years. The budget also proposes to make premiums for high-deductible health plans tax deductible if the plans qualify for the new Health Savings Accounts created in the Medicare drug law, and to create a new long-term care tax deduction and a tax exemption for individuals who provide in-home care to family members. The Congressional Budget Process The President s budget proposal is just the beginning of the process of developing the federal budget. Congressional action determines the actual funding levels that different programs will receive for FY 2005, and occurs in a number of steps. Congress first develops a budget resolution, which defines the parameters of all subsequent budgetrelated legislation for the year by outlining the overall size of the federal budget and levels of federal spending and revenues for the fiscal year. For discretionary programs, appropriations committees must establish funding levels in appropriations acts. In years in which Congress makes changes to entitlement programs, it must do so by changing the authorizing laws that govern these programs. Data Sources These briefing charts use data from the President s Fiscal Year 2005 Budget, the US Department of Health and Human Services Budget in Brief FY 2005, the Congressional Budget Office s Budget and Economic Outlook, January 2004, and the US Department of the Treasury s 2004 Blue Book, General Explanations of the Administration s Fiscal Year 2005 Revenue. Acknowledgements This overview was prepared by Victoria Wachino and Molly O Malley of the Kaiser Commission on with significant contributions from Alan Schlobohm, Jennifer Kates, Tricia Neuman, and Gary Claxton. 3
Figure 1 Baseline Federal Surplus/Deficit in Current Dollars, FY 1969-2009 $400 Billions of Dollars Actual OMB Estimate $200 $3 (1969) $236 (2000) 2004-2009 Deficit -$1,798 (OMB) $0 -$200 -$400 -$600 -$290 (1992) 2004 Est. -$528 1970 1975 1980 1985 1990 1995 2000 2005 2009 2009 Est. -$211 FISCAL YEAR SOURCE: OMB FY05 Budget, February 2004 (Actual Historical Tables, Table 1.3; Baseline estimates Analytic Perspectives, Table 24-1). Figure 2 Baseline Federal Surplus/Deficit in Constant Dollars, FY 1969-2009 $300 $200 $100 Constant (2000) Billions of Dollars $15 (1969) $236 (2000) $0 -$100 -$176 (2009) -$200 -$300 -$400 -$500 -$341 (1992) -$488 (2004) OMB Estimate 2004-2009 1970 1975 1980 1985 1990 1995 2000 2005 2009 FISCAL YEAR SOURCE: OMB, FY05 Budget, February 2004 (Actual Historical Tables, Table 1.3; Baseline estimates Analytic Perspectives, Table 24-1, data in current dollars divided by composite deflator in Historical Tables, Table 1.3). 4
Figure 3 Baseline Federal Surplus/Deficit as a Percent of GDP, FY 1969-2009 3% 2% 1% Percent of GDP 0.3% (1969) 2.4% (2000) 0% -1% -2% 1970 1975 1980 1985 1990 1995 2000 2005 2009-1.4% (2009) -3% -4% -5% -6% -6.0% (1983) -4.6% (2004) OMB Estimate 2004-2009 FISCAL YEAR SOURCE: OMB, FY05 Budget, February 2004 (Actual Historical Tables, Table 1.3; Baseline estimates Analytic Perspectives, Table 24-1, data divided by GDP from FY05 Budget of the United States, Table S-1, p. 365). Figure 4 Projected Federal Budget Surpluses/Deficits, With and Without Extension of Expiring Tax Cuts FY 2004-2014 With tax cuts expiring as scheduled With tax cuts made permanent $100 Billions of Dollars $0 $13 billion surplus -$100 -$200 -$300 -$400 -$500 $343 billion deficit 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 SOURCE: CBO, The Budget and Economic Outlook, Table 1-3, January 2004 FISCAL YEAR 5
Figure 5 Composition of Spending in the President s FY 2005 Budget Defense Discretionary 18% Social Security 22% Medicare 12% Nondefense Discretionary 20% Net Interest 7% Other 13% Medicaid and SCHIP 8% Total Outlays= $2.4 trillion SOURCE: OMB, Fiscal Year 2005 Budget, February 2004. Figure 6 Funding Proposed for HHS Health Programs in Bush Administration s FY 2005 Budget HRSA 12% CDC 8% SCHIP 1% Medicare 55% Medicaid 34% Health Discretionary Programs 10% NIH 55% IHS 6% FDA 3% SAMHSA 7% CMS-PM 5% OS-DM 5% Total = $531 Billion Total = $52 Billion Notes: Totals do not include funding for the Administration on Children and Families, the Administration on Aging and Program Support Center. AHRQ funding is entirely through transfers from other HHS agencies SOURCE: HHS, Budget in Brief FY 2005, February 2004. 6
$450 $300 Figure 7 Projected Spending on Medicare FY 2004-2009 Billions of Dollars $246 $266 $8 Medicare Spending Related to New Drug Law Other Medicare $418 $393 $372 $60 $336 $58 $56 $290 $43 $18 $150 $0 2003 2004 2005 2006 2007 2008 2009 FISCAL YEAR SOURCE: OMB, FY05 Budget of the U.S. Government, Table S-12 Figure 8 CBO and OMB Estimates of the Impact of the 2003 Medicare Prescription Drug Act on Federal Spending Over 10 Years Billions of Dollars CBO OMB $395 $534 2004-2013 SOURCE: OMB, FY05 Budget of the U.S. Government, Table S-13 7
Figure 9 Projections of Federal Medicaid Spending, FY 2004 2009 Billions of Dollars $177 $182 $192 $208 $226 $246 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 NOTE: Projections do not reflect baseline spending but reflect Bush Administration s policies including program integrity savings totaling $9.65 billion over 5 years. SOURCE: OMB, FY2005 Historical Tables, February 2004. Figure 10 Medicaid Proposals in Administration s FY 2005 Budget Expresses general support for Administration s 2003 proposal to restructure and cap federal funding and suggests Administration will pursue capped funding through waivers Does not propose to extend $20 billion in federal fiscal relief to states, which expires in June Proposes program integrity savings of $1.5 billion in FY 2005 and $23.5 billion between FY 2005 and 2014; House and Senate budget resolutions include similar savings Small Medicaid proposals (TMA extension, eliminating higher matching rate for administration) No changes to SCHIP proposed 8
Figure 11 Federal Medicaid Program Integrity Savings Projections, FY 2005 2009 Billions of Dollars $1.5 $1.7 $1.9 $2.1 $2.3 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 SOURCE: OMB, FY2005 Budget, February 2004. Figure 12 Federal SCHIP Budget Authority FY 2002 2005 Billions of Dollars $5.9 $5.4 $4.1 $3.2 FY 2002 FY 2003 FY 2004 FY 2005 SOURCE: OMB, FY2005 Budget, Analytical Perspectives, February 2004. 9
Figure 13 Increase Proposed in FY 2005 Budget for Major Categories of Discretionary Spending Percent Change in Budget Authority By Category, FY05 vs. FY04 9.7% 7.1% 0.5% Homeland Security Defense All Other FY05 Total Funding = $30 Billion FY05 Total Funding= $402 Billion FY05 Total Funding = $386 Billion SOURCE: OMB, FY05 Budget of the U.S. Government, Table S-2 Figure 14 Funding Increases Proposed for Discretionary HHS Health Programs, FY 2002 - FY 2005 14.2% 10.5% 2.5% 0.6% FY 2002 FY 2003 FY 2004 FY 2005 Proposed NOTE: HHS Discretionary Health Programs include FDA, HRSA, CDC, NIH, SAMHSA, AHRQ, CMS, Indian Health Service, Office of Secretary, Public Health Emergency Fund SOURCE: HHS, Budget in Brief FY 2005, FY 2004 and FY 2003. 10
Figure 15 Impact of Proposed FY 2005 Budget on Selected HHS Programs Indian Health Service $2.9 billion 1.5% National Institutes of Health $28.6 billion 2.6% Food and Drug Administration $1.4 billion 7.9% NOTE: Funding for FDA includes budget authority only, additional FDA funding is also proposed thru user fees. SOURCE: HHS, Budget in Brief FY 2005, February 2004. Figure 16 Impact of FY 2005 Budget Substance Abuse & Mental Health Services Total SAMHSA Funding Selected SAMHSA Programs 23.4% 6% SAMHSA $3.4 billion Drug Abuse Prevention $196 million -1.5% 3.9% Drug Children s Mental Treatment Health Services $517 million $106 million SOURCE: HHS, Budget in Brief FY 2005, February 2004. 11
Figure 17 Impact of FY 2005 Budget Indian Health Service Total IHS Funding Selected IHS Programs 1.5% 4.7% 2.9% IHS $2.9 billion SOURCE: HHS, Budget in Brief FY 2005, February 2004. Preventive Health $112 million -9.3% Indian Health Facilities $360 million Clinical Services $2.7 billion Figure 18 Impact of FY 2005 Budget Centers for Disease Control and Prevention Total CDC Funding CDC $4.2 billion Infectious Disease Control $401 million 8.7% Selected CDC Programs HIV/AIDS, STDs & TB Prevention $1.1 billion 0.2% -5.9% SOURCE: HHS, Budget in Brief FY 2005, February 2004. -34.3% Public Health Improvement $113 million -68.8% Buildings and Facilities $81 million 12
Figure 19 Impact of FY 2005 Budget Health Resources & Services Administration Programs Total HRSA Funding Selected HRSA Programs -90% -96% Community Access Program: $10 million Health Professionals Grants: $11 million -9% HRSA $6 Billion -64% Children s GME: $303 million Maternal and Child Health block grant: $730 million Ryan White HIV/AIDS: $2.1 billion Community Health Centers: $1.8 billion National Health Service Corps: $205 million Rural Health: $52 million 0% 0% 2% 14% 21% SOURCE: HHS, Budget in Brief FY 2005, February 2004. Figure 20 Total Federal Funding Proposed for Abstinence Programs Doubled in FY 2005 Millions of dollars $272 million Community-Based Abstinence Education $186 $137 million $74 $50 $50 $13 $0 $26 FY 2004 FY 2005 $10 Abstinence Education State Grants National Abstinence Education Campaign Office of Population Affairs/Adolescent Family Life SOURCE: HHS, Budget in Brief FY 2005, February 2004. 13
Figure 21 Federal Funding for HIV/AIDS by Category, FY 2005 Budget Research 15% Prevention 5% Care 59% Includes Medicaid ($5.7B) Medicare ($2.9B) International 12% Cash & Housing Assistance 9% Total = $19.8 Billion Note: Excluded from the International category is $366 million in international research funding ($355 million at NIH that is included in the Research category and $11 million at CDC that is included in the Prevention category). If international research is shifted to the International category, international activities would comprise 14% of the total HIV/AIDS budget. SOURCES: OMB, FY 2005 Budget; Kaiser Family Foundation, Fact Sheet: Federal Funding for HIV/AIDS: The FY 2005 Budget Request, February 2004. Figure 22 Federal Funding for HIV/AIDS, Total & Discretionary Accounts, FY 2005 Budget FEHB SSI 2% 2% SSDI 5% Medicare 15% Medicaid 29% Discretionary Programs 47% Total = $19.8 Billion Research 33% Other Care 29% Prevention 10% International 25% Housing Assistance 3% Discretionary = $9.3 Billion Note: Excluded from the International category is $366 million in international research funding ($355 million at NIH that is included in the Research category and $11 million at CDC that is included in the Prevention category). SOURCES: OMB, FY 2005 Budget; Kaiser Family Foundation, Fact Sheet: Federal Funding for HIV/AIDS: The FY 2005 Budget Request, February 2004 14
Figure 23 Major Domestic Discretionary HIV/AIDS Funding, FY 2004- FY 2005 HOPWA $294.8M SAMHSA $171M VA $402M Other * $269M Total = $6.82B Ryan White $2.045B (ADAP $749M) CDC $788.2M (NCHSTP* $695.5M) NIH $2.850B ($323.5M international) HOPWA $295M SAMHSA $173M VA $412M Other * $270M Total = $6.95B Ryan White $2.080B (ADAP $784M) CDC $790M (NCHSTP* $696M) NIH 2.930B ($355M international) FY 2004 FY 2005 Note: Other includes: Indian Health Service; DHHS, Agency for Health Care Research and Quality; DHHS, Office of the Secretary; Departments of Defense, Justice, Labor, and Education. Not included is funding through the Federal Employees Health Benefits (FEHB) Plan which is not a discretionary program. *National Center for HIV, STD, and TB Prevention. SOURCES: OMB, FY 2005 Budget; FY 2004 Consolidated Appropriations Bills and Conference Reports; DHHS, Office of Budget, February 2004. Figure 24 Funding for Global HIV/AIDS, FY 2004 - FY 2005 Total = $2.2B USAID $549.5M Total = $2.7B USAID $540M GAI 1 $488.1M NIH $323.5M Global Fund 3 $546.7M CDC GAP 2 $291.9M GAI 1 $1,450M CDC Research $11M CDC GAP 2 $142.8M NIH CDC Research $11M $355M Other 4 $40M Global Fund 3 $200M Other 4 $2M FY 2004 FY 2005 Notes: 1. GAI = Global AIDS Initiative at the Department of State; 2. Decrease at CDC s Global AIDS Program (GAP) between FY 2004 & FY 2005 reflects a shift in funding for the International Mother to Child HIV Prevention Initiative from GAP to GAI; 3. Global Fund grants support country projects that address HIV/AIDS, Tuberculosis, & Malaria. Approximately 60% of grants awarded to date have been for HIV/AIDS. The figures above include total commitments and are not adjusted to reflect the proportion of grants awarded for HIV/AIDS; 4. Other: in FY 2004, Foreign Military Financing, DoD, DOL, and USDA; in FY 2005, represents Foreign Military Financing. SOURCES: OMB, FY 2005 Budget; FY 2004 Consolidated Appropriations Bills and Conference Reports; DHHS, Office of Budget, February 2004; Congressional Research Service, RS21181,HIV/AIDS International Programs: Appropriations, FY2002 - FY2005, February 2004. 15
Figure 25 U.S. Contributions to the Global Fund to Fight AIDS, TB, & Malaria, FY 2001-FY 2005 Millions of Dollars $547 $348 $175 $200 $100 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 Note: Global Fund grants support country projects that address HIV/AIDS, Tuberculosis, & Malaria. Approximately 60% of grants awarded to date have been for HIV/AIDS. The figures above include total commitments and are not adjusted to reflect the proportion of grants awarded for HIV/AIDS. SOURCES: OMB, FY 2005 Budget; Congressional Research Service, RS21181,HIV/AIDS International Programs: Appropriations, FY2002 - FY2005, February 2004; FY 2003 and FY 2004 Consolidated Appropriations Bills and Conference Reports; Global Fund, Pledges and Contributions. Available at: www.theglobalfund.org/en/files/pledges&contributions.xls. Figure 26 The President s Health Care-Related Tax Proposals, FY 2005 FY 2014 $140 $120 Billions of Dollars $3.8 Exemption for Home Caretakers of Family Members $100 $21.4 Long-term Care Tax Deduction $80 $24.8 High Deductible Insurance Premiums Tax Deduction $60 $40 $70.1 Health Insurance Tax Credit $20 $0 Total = $120 Billion SOURCE: Department of the Treasury, 2004 Blue Book General Explanations of the Administration s Fiscal Year 2005 Revenue Proposals, February 2004. 16
kaiser commission Additional copies of this publication (#7115) are available on the Kaiser Family Foundation website at www.kff.org. The Kaiser Commission on provides information and analysis on health care coverage and access for the low-income population, with a special focus on Medicaid s role and coverage of the uninsured. Begun in 1991 and based in the Kaiser Family Foundation s Washington, DC office, the Commission is the largest operating program of the Foundation. The Commission s work is conducted by Foundation staff under the guidance of a bipartisan group of national leaders and experts in health care and public policy.