Copyright 2001 Federal News Service, Inc.  
Federal News Service
March 14, 2001, Wednesday
SECTION: CAPITOL HILL HEARING

LENGTH: 16886 words

HEADLINE: HEARING OF THE HOUSE WAYS AND MEANS COMMITTEE
 
SUBJECT: HEALTH AND WELFARE BUDGET PRIORITIES
 
CHAIRED BY: REPRESENTATIVE BILL THOMAS (R-CA)
 
LOCATION: 1100 LONGWORTH HOUSE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: SECRETARY OF HEALTH AND HUMAN SERVICES TOMMY THOMPSON
 


BODY:
REP. THOMAS: If the secretary would permit, the committee needs to do just a little bit of business prior to receiving the Secretary of Health and Human Services. I'd tell the committee that Section 301(d) of the Congressional Budget Act requires that we transmit to the chairman of the budget the views and estimates of the Committee on Ways and Means on those aspects of the federal budget that are under the jurisdiction of the Ways and Means Committee. And I have a letter which I am ready to submit. It has been reviewed. In fact, it has been co-written by the majority and the minority, and I believe there is no opposition to the letter, and I will yield to my ranking member to make sure that that's the case. The gentleman from New York?

REP. CHARLES RANGEL (D-NY): I ask to be recognized in order to support the chairman's joint letter, as well as to welcome the invitation extended and accepted by the chair to the minority to participate in the drafting of the letter. It's rather awkward to write to the Budget Committee after having passed the substantial tax cut before the budget, but our letter is so good in terms of the things we would want to do and intend to do, that I don't have any objections to the letter.

REP. THOMAS: I thank the gentleman. Then, without objection, the letter on views and estimates will be transmitted to the chairman of the Budget Committee, a friend and colleague down the dais, the gentleman from Iowa, Mr. Nussle. And the motion to reconsider is laid upon the table. (Sounds gavel.)

It's now my pleasure to welcome to the Ways and Means Committee the Health and Human Services secretary, former governor, Tommy Thompson. Governor Thompson, Secretary Thompson, has had a long and distinguished career in both health and welfare, as he presided over a record-setting 14 years as governor of Wisconsin. This hearing marks the beginning of a dialogue between the Bush administration and Congress, and the administration's priorities and Congress's desires in both the health and the welfare areas.

I was pleased to see the Bush administration issue a set of principals focusing on patient's bill of rights. These principles send Congress the right message that we have to have real patient protection legislation that covers all Americans and ensures that individuals get the care that they need. It's our anticipation, based upon an announcement by the president last week, that this committee also will receive principles on Medicare modernization, including prescription drugs. We look forward to that guidance, and working in a bipartisan manner in this committee, to take those principles, translate them into legislation, and move them hopefully to the president's desk this year.

That challenge is pretty formidable. Under current law, as we have seen in terms of the new numbers from the Congressional Budget Office, Medicare spending will more than double over the next 10 years. At the same time, notwithstanding that doubling of costs, the services provided by Medicare are simply not contemporary today with what any individual would expect to receive from a comprehensive health care program.

Secretary Thompson, we want to work with you over the next several weeks to identify the kinds of improvements that we would like to see in the Medicare program. Some of the improvements, I am quite sure that as you put your structure together at Health and Human Services you will be able to implement administratively. We do want to know where there needs to be changes legislatively. But, in short, we want to work with you. We want to move this program forward. It's important to all of us, and our seniors are depending on us. And with that I'd recognize --

REP. RYAN: Mr. Chairman?

REP. THOMAS: The gentleman from Wisconsin.

REP. RYAN: Will the chairman yield for a minute?

REP. THOMAS: I will tell the gentleman that following the ranking member's remarks it's the chair's intention to recognize both the gentlemen from Wisconsin for an opportunity to welcome the former governor.

REP. RYAN: Thank you, Mr. Chairman -- very perceptive.

REP. THOMAS: And with that --

REP. RYAN: But my remarks are longer than your explanation.

REP. THOMAS: And with that I'd call on the gentleman from New York.

REP. RANGEL: Thank you, Mr. Chairman. Secretary Thompson, welcome to our committee. I think our nation is fortunate to have someone of your caliber and experience to be willing to serve in this very sensitive position. There's some sharp differences philosophically that we have in the Congress, but I would think those differences mean that we don't want Americans to get the best possible health care that we can. Some people believe that it is not the federal government's responsibility, that it should be left up to local and state; others believe that you should keep the federal government out of it as much as possible, and let the decisions be made with those closer to their constituents. Nevertheless, as this battle goes on and we have to deal with the budget problems, there are some serious questions as to whether or not the Medicare surplus, as we call it, is adequately protected, or whether it's in a lockbox, whether it's a slush fund, whether it's an emergency fund, whether it is going to be used for a variety of other purposes.

Some feel more strongly than others. Throughout these hearings we hope that we will be able to get your assurances that no matter what legislative decisions we make that we do know that in the next decade we expect the number of beneficiaries to double. We don't want to leave a crisis, a fiscal crisis for those people that are looking for their benefits, and I know you don't. But sometimes bookkeepers and economists have different ways of explaining our fiscal situation. And since you're right in the middle of it, we hope that you will be able to clarify just what the president meant, just what the budget people mean when they say that we don't have anything to worry about with the Medicare surpluses.

We look forward to working with you, and I hope that our differences will not always have to be resolved at this type of hearings. I encourage the chairman to try to get the ability to work out these things without the glare of the television lights, and to do whatever else is necessary to resolve these issues in the benefit of the beneficiaries of this. Welcome to the committee. I look forward to working with you.

REP. THOMAS: I thank the gentleman. And I will call then for a brief introduction. The gentleman from Wisconsin, Mr. Ryan.

REP. PAUL RYAN (R-WI): Thank you, Mr. Chairman. It's very much of a great pleasure to be here to introduce -- help introduce Secretary Thompson. As many of you know, Tommy was the former governor of my state, the state of Wisconsin. I think it's important to reveal a few important points about the kind of accomplishments that Tommy Thompson has had.

He served four consecutive terms as our governor. He was picked by President Bush because of his unique abilities. Time and again as governor he threw out the traditional approaches to government and experimented with innovative ideas. This kind of openness to innovative ideas is going to make him a successful HHS secretary. His innovative W-2 program served as a model for the nation; he drastically reduced the welfare rolls in Wisconsin; his idea to extend health care to working poor families in what we call "badger care"; and to bring the disabled population into the work force through the pathways to independent program, built on the success of welfare reform. These kind of can-do ideas is what we now have at the Department of Health and Human Services, and it's just a distinct honor to be here to introduce the most qualified person in the country for this job. Thank you, I yield.

REP. THOMAS: And the other gentleman from Wisconsin.

REP. GERALD KLECZKA (D-WI): Thank you, Mr. Chairman. My colleague from Wisconsin, Mr. Ryan, took the words right out of my mouth. They weren't as glowing though. But I want to join with the chairman and the ranking member and my colleague from Wisconsin in welcoming you, governor, to the Ways and Means Committee. Wisconsin's loss is the federal government's gain. I am unsure whether or not we still should call you "Tommy." Jay Leno had a couple of things to say about that the other night, and he thought it wasn't the most respectful. So maybe we can try out "Secretary Thompson" -- how does that grab you? Back in Wisconsin no one would know who we are talking about now. But, governor, it's a real pleasure to welcome you.

Paul indicated many of the innovations that you pushed through for the state of Wisconsin. That included a lot of waivers, some of which you got, some which you didn't get. And I enjoyed working with you to ensure that the waivers that we did finally get out of the department. And now under your tenure I am sure the waivers will be much easier to come by.

REP. PETE STARK (D-CA): Would the gentleman yield?

REP. KLECZKA: I'll yield to another Wisconsin -- a former Wisconsinite, Pete Fortney Stark.

REP. THOMAS: The chair is constrained to ask how many others claim roots in Wisconsin -- (laughter) -- prior to the secretaries --

REP. KLECZKA: We have Marcy Kaptur and others coming in -- she went to the University of Wisconsin -- it's going to be a long intro. (Laughter.)

REP. STARK: Mr. Chairman, as a fourth generation Wisconsinite, I too would like to welcome the secretary, and point out that I too, when I was a youngster, as the secretary is, was a Republican of Wisconsin, and I hope as he gets older, as I have, that he'll see the error of the ways and join with us. (Laughter.) Thank you, Mr. Chairman.

REP. KLECZKA: In closing, Mr. Chairman, let me welcome Governor Thompson to the committee. I surely hope that with some of the issues facing us, issues that come out of your department, that we will work in a bipartisan way. There's been a lot of talk about bipartisanship from this new administration. I have yet to see any of it. Hopefully working together we'll see some of it coming out of your agency. So thank you very much, Mr. Chairman.

REP. THOMAS: Mr. Secretary, I stand in awe -- your reputation precedes you. Without uttering a word, you have created one of the biggest bipartisan love-ins this committee has ever seen. (Laughter.) Clearly you are a miracle worker. We welcome you to the committee. Any written statement that you may have will be made a part of the record, and you may address us in any way you see fit. I do want to caution the members of the committee the secretary will return next Tuesday with the secretary of the Treasury as we look at the Social Security trust reports. And so if you aren't able to question into the secretary today, he is anxious to be with us again on Tuesday. And with that, Mr. Secretary, welcome to the committee.

SEC. THOMPSON: (Off mike.)

REP. THOMAS: And you'll need to turn the microphone on -- and it is a very unidirectional microphone, unfortunately.

SEC. THOMPSON: Good Morning, chairman, and thank you so very much for your kind words and introduction. And, Congressman Rangel, thank you for your kind words. And, Congressman Stark, it's great to have somebody with four generations living in Wisconsin. I probably will not become a Democrat, but I thank you for your solicitation. And, Congressman Ryan, thank you for your kind words. And Congressman Kleczka, a friend for a long time, I appreciate that, and we will be bipartisan, and I thank you very much for your kind words and working with you as a legislator and also as a governor, and now hopefully as secretary. I appreciate that.

All the members of the committee, I am here today and honored very much and humble to appear before you today to discuss the framework of the president's fiscal year 2002 budget for the Department of Health and Human Services.

Mr. Chairman, the written testimony I have submitted was broader than the jurisdiction of this committee. Since the hearing today is on President Bush's budget framework, I felt it was important to give you an overview of the priorities for the entire department. Today, however, I will focus my remarks on items in the budget that will be coming in front of your committee. I will also say that we have begun to talk about Medicare reform, Mr. Chairman and members. I know all of you have been involved in this issue far longer than I have. We in the administration look forward to working with you and the members of this committee to bring about a true modernization of this vital program.

The department's goal is to build a healthier America, by improving the quality of health care and the quality of life for all American families. President Bush has outlined a very ambitious agenda for the nation, and especially for the Department of Health and Human Services. And we will play a major role.

There are great challenges before us, but I am very confident that we will be able to work together in a bipartisan fashion to successfully meet them. If we are to succeed we must be willing to reexamine the way we do things at the national level. We must no longer be content with the status quo simply because that's how we have always done it.

The HHS budget proposes new and innovative solutions for meeting the challenges that face the nation. Through this budget we will modernize Medicare, including providing access to prescription drugs. We will improve access to quality health care, increase support for America's families, and strengthen the way the department's operations are truly managed. This blueprint reflects the president's commitment to protecting Social Security, Medicare and other priority programs, while continuing to pay down the national debt and providing tax relief for all Americans.

The budget request for HHS for fiscal year 2002 is $471 billion -- an 8 percent increase for all programs; and $55.5 billion for discretionary programs, or a 5.1 percent increase.

Let me now highly some of our major proposals that will be coming before your committee. Of all the issues confronting this department, none has a more direct effect on the well-being of our citizens than the quality of health care. We want to modernize Medicare to make sure that it's the best program possible for our senior citizens, protecting the quality benefits our seniors currently receive, while making sure the program is able to provide quality benefits to future generations as well. I know this is very important, especially to you, Mr. Chairman, and to other members on the Ways and Means Committee. Part of modernizing Medicare is adding a prescription drug benefit, because drugs are such a major component of health care today, from prevention to treatment of illness.

When Medicare was created in 1965, prescription drugs were not the integral part of health care that they are today. Drug coverage was not included as part of the Medicare benefit package. But what was acceptable 35 years ago is simply unacceptable today. It just does not make common sense for a 21st century health care program to exclude a prescription drug benefit.

Many of America's seniors do not have access to prescription drugs today, and a new study released earlier this week shows a growing gap in the number of prescriptions filled for seniors with access to coverage and those without access. That clearly is not because seniors without drug coverage have less of a need for prescriptions. That's why the president has put forward an Immediate Helping Hand prescription drug proposal. This proposal gives immediate financial support to states so that they can provide prescription drug coverage to our neediest citizens.

The president believes comprehensive Medicare reform needs to be enacted at the same time as a prescription drug benefit. The president wants to devote $153 billion over the next 10 years on Medicare modernizations that will help improve the financial health of the program and add prescription benefit for all Medicare beneficiaries.

We will protect Medicare. These improvements and modernizations will strengthen Medicare, and will not be done at the expense of other aspects of the program. As the president said in his budget address, every penny of the Medicare trust fund will be used for Medicare. And let me repeat that: every penny of the Medicare trust fund will be used for Medicare, period.

As we modernize and strengthen Medicare, we must also reform the way its principal agency, HCFA, works. The demands on the Health Care Financing Administration have grown dramatically, and we must ensure that it has the necessary resources to run this all-important Medicare, Medicaid, and SCHIP, the State Children's Health Insurance programs. At the same time, we must recognize that patients, providers, and states have legitimate complaints about the scope and complexity of the regulations and paperwork that govern these programs. As I have said many times, HCFA needs to undergo a thorough examination of its missions, its competing demands, and, yes, its resources. We are currently in the process of undertaking just that kind of comprehensive, aggressive review. For example, HCFA does have a budget of $375 billion, but yet it still does not have a double- entry bookkeeping system. The single-entry bookkeeping system went out in the early 1900s. So it's no understatement to say that the largest health insurance company in the world needs to be modernized. Along those lines, we also need to upgrade the computer system so that everyone will be able to say that we are doing and operating HCFA in the most efficient way possible. A lot of our computer systems were installed in 1970.

We also need to create a concrete schedule on rule changes. instead of just blindsiding participants with new rules that they know little about or nothing about, we should be able to time the rules so everyone is aware of the changes. We should be able to alert everyone, whether it be on a quarterly, semi-annual or annual basis to smooth out the transition.

This administration also is committed to strengthening long-term care in this country. In Wisconsin we created a program called Family Care that allowed the elderly and the disabled to receive the best and greatest number of choices possible for long-term care. I look forward to working with each of you and the states to continue to develop innovative solutions on long-term care.

We also recognize that we have some decisions to make in the coming years about the future of welfare reform and how we go to the next step. The president has offered significant proposals this year, including a $200 million increase to expand the safe and stable families program; and $67 million in new grants for mentoring children of prisoners, to help our youth through the time that their parents are in prison.

The president also has proposed a $400 million after-school care program that will allow families to have access to quality child care, which is so vital to parents being able to remain in the workforce.

Again, I look forward to working with every member of this committee as we begin to explore the future of welfare reform. Mr. Chairman, the budget I bring before you today contains a number of different proposals, but one common thread binds them all together. That is the desire to improve the lives of all the American citizens. All of our proposals are put forward with that one simple goal in mind, and I know that is a goal that all of us share on a bipartisan basis. I look forward to working with each of you to ensure that we develop a budget for this department that effectively serves the national interest and all of our citizens.

Thank you. And now I would be extremely happy to answer any questions that you may have.

REP. THOMAS: I thank the secretary very much. The chair knows we're going to be engaged in a number of long working sessions, and so, rather than engage in any questioning at this time, it's my pleasure to turn the chairman's question time over to the chairman of the Health Subcommittee, the gentlewoman from Connecticut, Ms. Johnson.

REP. NANCY JOHNSON (R-CT): I thank the chairman. And welcome, Secretary Thompson.

SEC. THOMPSON: Thank you.

REP. JOHNSON: It's a pleasure to have someone at the helm of this important agency that's had the breadth of experience that you've had and has shown throughout their career a real sensitivity and responsibility to the impact of public policy on people's lives. And I'm very glad to hear the words that you're saying today about the very comprehensive and aggressive review of the structure of HCFA that you are undertaking.

Indeed, as recently as three weeks ago, I sat with a group of home health providers in my district who were absolutely panicked at a directive from HCFA that would, in fact, close them up in 10 days. Now, luckily the people in Washington -- and we have lots of good people in our employ -- did listen, did respond. We talked about it and we avoided actual closures.

But we do have ways to go down the track of trying to figure out how the sheer complexity of these regulations can be implemented in such difficult circumstances as those home health agencies that serve inner-city neighborhoods. So we must review this, and we're going to have to really work hard at the issue of simplification of the regulations or America will not have the small provider sector on which right now most of our seniors depend. We won't have the little nursing homes. We'll have only chains. That may be good or bad, but I think it's not adequate. We won't have the small practices in the rural areas. We won't have the home health agencies in the rural areas and in the small towns that have done such a wonderful job over many years.

So this issue of reviewing the regulatory structure that we've put in place and making it simpler and less burdensome is an urgent issue, not as sexy as many, but I'm glad that you understand its importance and will take it on with us.

I also want to commend you on your clear commitment to including prescription drugs in Medicare. As you say, they're essential to prevention. They're essential to treatment. We absolutely must do it. We made some pretty good progress last year. But I would like to ask you if your department has begun to think about how to structure premium and cost-sharing levels to encourage participation in the drug benefit program, while at the same time keeping some kind of overall program spending in check.

As we've worked on this issue in the past, we've really struggled with how to structure the program so that a group that has no coverage now, with incomes just above the poverty level, can actually afford to participate in the benefit, and yet we can afford to control the overall cost. So is this particular issue of cost availability, and therefore real access to low-income seniors, something that you're focusing on as you begin your work in prescription drugs?

SEC. THOMPSON: Thank you very much for the question. But first, could I just quickly respond to HCFA? We have some wonderful people at HCFA, and they want to do the right thing. The problem has been is that there's been a lot of new programs, new additional responsibilities placed upon HCFA, and they really have not had the added resources to do so. And I'm not here to complain. I'm here just to state a fact. We have a computer system that's way lacking as far as power and efficiencies to run that program. Most of this was operational in 1970. It's been added to, and we need a new system; a bookkeeping system that's way outdated and it's not been kept up-to- date, and we're making lots of mistakes.

Number three, we pass rules and regulations willy-nilly, and they're very complex. And I'm trying to get them to understand that simpler, just to put the rules out either on a quarterly, semiannual basis, so people will actually be able to respond and understand them instead of -- at any time throughout the year. We're expecting to do that.

We're also trying to change the attitude at HCFA. Instead of trying to find a way to say no, we're trying to convince them that it's just as easy to try and say yes and be flexible and be very much involved. We're going to be coming back to this committee and to other committees in Congress with the results of our examination, and I'm sure that you will be supportive of those changes.

In regards to Medicare, we're just getting started in making those changes. What you've asked is a question that we have not been able to resolve. And I'm looking for, hopefully with suggestions from you, Congresswoman Johnson, who I know has studied this probably much more than I have, and I look for suggestions. But we're trying to put together a statement of principles on what Medicare reform should have in it, and we're talking and working with the White House at the present time. And I will be discussing that with you in the future.

REP. JOHNSON: Thank you. Also let me say that our subcommittee will be holding hearings on the issue of long-term care legislation, and also how we help, through the tax code, people have access to affordable health insurance. I was pleased with the president's comments on that during the campaign, his obvious interest in helping individuals and families that are uninsured get insurance. And we look forward to working with you on adopting those changes that are under this committee's jurisdiction to help this nation reduce the number of uninsured dramatically and to shift the financing of long- term care into the insured structure rather than the pay-as-you-go structure that currently exists under Medicaid.

Truly, with 40 cents of every federal dollar now going to people over 65, there is simply no way that we can guarantee Social Security benefits, Medicare benefits and a pay-as-you-go long-term care system when the number of retirees doubles with the retirement of the baby- boom generation. So those are issues we also will be looking forward to working with you on, Secretary Thompson. And thanks so much for being with us today.

SEC. THOMPSON: Thank you very much. And to quickly respond to the uninsured, I think the best opportunity for us is to look at ways to allow the (S-CHIP?) program to be more flexible. There's a lot of innovation at the state level that's helping expand and give more people coverage of the uninsured. And I would love to work with you on it.

REP. THOMAS: Does the gentleman from New York, the ranking member, wish to inquire?

REP. RANGEL: Thank you, Mr. Chairman. And thank you again, Mr. Secretary. Thank you for your emphasis on every penny of Medicare money will be spent on Medicare. Now, to get clarification of that, it's my understanding that there's an estimate of $526 billion in the Medicare surplus. Does that agree with your figures?

SEC. THOMPSON: That is correct, although, as I understand it, CBO has got a scoring of $388 billion for the surplus.

REP. RANGEL: And when we talk about the Medicare surplus, we're talking about the payroll tax of Part A, right?

SEC. THOMPSON: The payroll tax in Part A, yes.

REP. RANGEL: Yes.

SEC. THOMPSON: That's the one that has the surplus Part B is a 75/25 percent split, as you know full well.

REP. RANGEL: So when you talk about every cent being paid for Medicare, you're talking about being paid for the Part A part of Medicare, for which the payroll tax is being paid.

SEC. THOMPSON: That is correct.

REP. RANGEL: And so when we hear that people from the administration, it's referring to this $526 billion Medicare surplus, calling it a contingency reserve fund or, quote, "additional-need contingency purpose and further debt reduction," that's not your opinion or that's not your thinking and that's not, in your opinion, the administration's thinking about every penny being used for Medicare.

SEC. THOMPSON: The $526 (billion) -- the law is quite clear. And I don't know anybody that's asking to change the law. The law says that money that goes into the trust fund is a credit to the trust fund plus interest, and it's going to be used for Medicare. And this administration believes in that. This administration also believes further that the $842 billion contingency fund, if Medicare needs more money, that the $842 billion should be used for the prescription drugs and for Medicare reform if we can get to that point.

REP. RANGEL: But this surplus, whether it's the CBO or what -- it's going to use for hospitals --

SEC. THOMPSON: The $526 billion --

REP. RANGEL: For hospitals.

SEC. THOMPSON: -- is a credit to the Medicare trust fund and will be used for Medicare completely.

REP. RANGEL: Okay.

SEC. THOMPSON: Part A only.

REP. RANGEL: Part A only. Well, we've got to keep saying it till we make certain that we're reading from the same page. Now, as far as the Helping Hand prescription drug program, it's my understanding that it's means-tested and that a widow with $16,000 annual income will not be eligible. Could you tell me -- strike that question. Could you give me any idea as to what level of income would cut off a person from receiving benefits under the administration's proposed prescription drug program?

SEC. THOMPSON: No, I cannot, because we want to leave that flexibility up to the states. There's 26 states that have already passed prescription drug proposals in America. We're asking for the Helping Hand proposal of $12 billion a year, $48 billion over four years, in which that would be able to be added to what the states are already doing. And it would also mean that two-thirds of the American seniors already have prescription drug coverage.

We want to make sure we can immediately get to the rest of the seniors in America and provide some help for prescription drugs. And then we hope that we're going to be able to come back and get Medicare reform with prescription drugs for all seniors, Congressman.

REP. RANGEL: You mean that we will have different income eligibilities in different states for different senior citizens?

SEC. THOMPSON: I didn't hear that, Congressman.

REP. RANGEL: You mean that we will have different income eligibilities --

SEC. THOMPSON: The eligibility will be 170 percent of poverty on the Helping Hand.

REP. RANGEL: I'm trying to find out at what income -- you say that's left up to the state. I want to find out --

SEC. THOMPSON: It's left up to the state. It's up to 170 percent of poverty. But this is the Helping Hand. This is to cover those most in need right now that need prescription drug coverage while we're working on a Medicare reform inclusive of prescription drug and Medicare reform that will help all seniors.

REP. RANGEL: Would there be a national income cutoff period, a national -- forgetting the states -- that at some point you're not eligible for this relief? In the proposal that you're working on to present to the Congress, will there be an income level that we will know, as members of the Congress, that if you make this income, you will not be eligible for the proposed package, whether it's 175 percent of poverty or whether it's left up to the states? Is it possible, as a national secretary, to tell us, notwithstanding you want input from the states, at what income level would we know that you're not entitled to Helping Hand relief for prescription drugs?

SEC. THOMPSON: Well, the Helping Hand right now is proposed for the seniors most in need.

REP. RANGEL: I understand that. You're talking about poor people. I understand that. It's means-tested for poor people. But I'm trying to find out, what level do you call poor?

SEC. THOMPSON: One hundred seventy percent of poverty.

REP. RANGEL: And how does that work out in dollars and cents?

SEC. THOMPSON: I'm not exactly sure.

REP. RANGEL: Can you give us just a guesstimate as to what you -- I cannot go to my district --

SEC. THOMPSON: This is just --

REP. RANGEL: -- and tell them that if you have 175 percent of poverty that you'll be able to get relief. I want to know whether it's $14,000, $24,000. What do you consider to be 175 percent of poverty? Maybe a staffer could help you out on this.

SEC. THOMPSON: I'm sure they can, but I'm not exactly sure of the dollar amount. But I can tell you it's only --

REP. RANGEL: Just a guesstimate. I want to find out, if you make $20,000, can your staffer say we can go home and say, "Forget about it; they're not talking about you"? If you make $15,000, can we say, "Well, maybe you're in the range"?

SEC. THOMPSON: It's $20,300, up to 175 percent of poverty.

REP. RANGEL: So if you make up to $20,000, you should be eligible for some type of relief.

SEC. THOMPSON: Yes, but that's only temporary. We're hoping --

REP. RANGEL: I know.

SEC. THOMPSON: -- that we're going to come back with Medicare and cover everybody.

REP. RANGEL: Until you can get -- and then that will be total inclusion --

SEC. THOMPSON: That is correction.

REP. RANGEL: -- in the Medicare program.

SEC. THOMPSON: That is correct.

REP. RANGEL: My time is expired, but they probably want to ask what would the income be for a single person.

REP. THOMAS: I thank the gentleman. The chair wants to make sure -- because I can pick up the drift of the questions -- a number of them may be more appropriate when we deal with the Medicare trustees report on Tuesday. But I want all of us to remember that Medicare is funded not only from the Part A trust fund which is a payroll tax, called the HI trust fund; but it's also funded from the general fund, with a premium -- paid 75 cents on the dollar by the taxpayer, 25 cents on the dollar by the recipient.

The argument that the Part A trust fund should be reserved only for one particular segment of Medicare is to belie the recent history of the Congress and the past administration. In 1997, Medicare was funded 66 percent out of Part A and 33 percent out of Part B. The Clinton administration was successful in transferring one of the fastest growing programs in cost of Medicare, the home health care program, from Part A to Part B, funded out of the general fund. Now this year the split between part A and Part B is about 60 percent Part A and about 40 percent Part B. By the end of the decade it's going to be basically a 50-50 split if the current trends continue.

The argument that Part A should be reserved for some historical argument as to what Part A was reserved for, and not available to benefit and improve all of Medicare, is simply to ignore the recent history of the recent administration's willingness to transfer. In fact, that transfer was one of the primary reasons the so-called solvency of Part A was extended a number of years, when in fact the costs were simply transferred from the payroll fund to the general fund. This transfer of costs from the payroll fund to the general fund probably is a falsity that we ought to forget about -- and this is an editorial comment by the chair -- and we really ought to talk about combining A and B so that we can get an honest evaluation of the total cost of the program, since from its inception it's been shared both from the payroll tax and from the general fund. And the chair would recognize the gentleman --

REP. RANGEL: Mr. Chairman, just on that issue, so that -- I appreciate your philosophical view about what we should do in the future, but nothing that you said should be interpreted as not segregating the payroll tax as being protected as being for Part A. Is that correct?

REP. THOMAS: Quite the contrary. What occurred in the Clinton administration was that they took a program that was funded out of Part A and shifted it over to Part B. So that if the argument is that we need to keep Part A sacrosanct in some way, then we'll simply shift another program funded by Part A over to the general fund. Then we keep the myth alive that the Part A trust fund is for one purpose, and the general fund is for another. It seems to me that what occurred in the last administration is something that should be repeated in this administration, but that we should look at the Medicare funding program more holistically rather than some artificial separation which is split and broken any time someone feels they want to conveniently say the Part A trust fund has more solvency in it.

REP. RANGEL: Well --

REP. THOMAS: Shifting a program from A to B does not reduce the taxpayer obligation to funding those programs; it is in fact a budgetary sleight of hand.

REP. RANGEL: Mr. Chairman, you have joined the issue as to whether or not the administration is talking about protecting and not spending one cent out of the Medicare surplus. We believe that that's Part A; and obviously you believe it could be merged into general revenue funds. And so at least the secretary should know that that's going to be a major political discussion.

REP. THOMAS: I'd tell the gentleman to underscore that. If in fact there is a surplus in one fund, and the rest of it is general fund entitlement, and therefore you don't worry about whether or not there's adequate funds -- if there is money available to assist us in building a better prescription drug program for our beneficiaries, the argument as to whether those funds to build a better program comes out of Part A or Part B is not as worthy a subject of discussion in the chairman's opinion as it is how good is the prescription drug program that we are going to be putting together for our seniors. And with that I'd recognize the gentleman from Illinois.

REP. CRANE: I thank the gentleman for yielding. Mr. Secretary, given the uncertainty about and the recent surge in drug prices, how confident can we be about future projections relating to the costs of the Medicare prescription drug benefit?

SEC. THOMPSON: You know congressman as well as anybody does, that I don't know how secure we can be. The cost of drugs are escalating at an alarming rate, and new drugs are coming on the market each and every day. The bill that was introduced by Chairman Thomas last year was scored by CBO at $160 billion over 10 years. This year it's being scored at $213 billion, or a $60 billion increase.

We think that where we are going to save some money, Congressman Crane, is through the efficiencies hopefully that we will be able to put into a Medicare reform proposal with a prescription drug component.

REP. CRANE: Medicare spending is mandatory. Is there any way the Bush tax cut can be threatening to the Medicare program as we know it today?

SEC. THOMPSON: I don't see how it can be, because the underlying law, the Medicare law that every person who reaches age 65 is going to be covered by Medicare, all the money that goes into the trust fund is credited to the Medicare trust fund. And any money that goes out of the trust fund has to repaid, plus interest, and to be used for Medicare. And I don't know anybody in Congress -- and I know for sure in the administration -- is looking at ways to change that law. So the law is sacrosanct. The law is there to protect and make sure that every Medicare recipient will be covered, and that the money going into the trust fund will be credited to the trust fund, and will be used only for Medicare dollars.

REP. CRANE: How much smaller will the surplus have to be for Medicare reform to be at risk?

SEC. THOMPSON: How much smaller will --?

REP. CRANE: Would the surplus, the projected surplus have to be for Medicare reform to be at risk?

SEC. THOMPSON: Well, Medicare reform is very important to this administration, and we are going to be working extremely hard with you and with this committee to try to get a bipartisan Medicare reform proposal passed, which includes a prescription drug component for all seniors in America.

REP. CRANE: My concern on that issue stems from some of the uncertainty of the state of the economy right now and the fact that we keep getting reevaluations of what projected surpluses may be looking down the road. I mean, they've been escalating, but they could be dropping very dramatically within a short period of time.

SEC. THOMPSON: I understand that the figures are still holding, according to OMB dollars. I talked to the director just yesterday, and he felt very comfortable with his figures that he put forth in the blueprint, and I asked him if there was any change, and he said no.

REP. CRANE: Can you explain to me how the administration arrived at the $153 billion figure for Medicare reform?

SEC. THOMPSON: First off, the $153 billion, $48 billion, $12 billion a year, is set aside for Helping Hand. And the balance was figures that OMB was able to receive from the actuarial division of the operating division of HCFA, and it's numbers that they had projected. I know that CBO has scored it higher than $153 billion, but we feel that there are some savings, especially in the Breaux- Frist bill, which Congressman Thomas worked on last year. If you were able to open it up for purchasing and for competition the out-year figures would have a savings of one percent, and that one percent savings would be enough, we think, with the $153 billion, with the Medicare reform to pay for the prescription drugs.

REP. CRANE: And with respect to Medicare, what do you believe are the biggest challenges to reforming the program?

SEC. THOMPSON: The biggest challenges to what?

REP. CRANE: The biggest challenges to reforming the program.

SEC. THOMPSON: One of the biggest problems are -- is to be able to get bipartisan support. I think, you know, that the Breaux-Frist proposal or what the Medicare commission came up with is a good starting point, and I think you need choices, and competition is good. I think you need prescription drugs. And that's where we are starting out, Congressman Crane, and we are going to be soliciting ideas from this committee on a bipartisan basis to try to incorporate a bipartisan proposal that we can introduce and hopefully get passed this year.

REP. CRANE: We thank you and we look forward to working with you towards that goal. And with that I yield back the balance of my time.

REP. THOMAS: I thank the gentleman. The gentleman's time is expired.

Does the gentleman from Florida wish to inquire?

REP. SHAW: Yes, Mr. Chairman. And Mr. Secretary, I would like to just for a moment to reflect on welfare reform, of which your tracks are all through the works of this committee. I recall back when we were in the infant stage of drawing the welfare reform bill, and meeting with you and some of the other governors in order to try to formulate a welfare reform plan that really reflected the teamwork that was going to be necessary between the federal government and the state government, recognizing the governors of this country as partners, not as just servants of the federal government, to distribute the monies in the ways that we might direct. I remember a comment that you made at one of the meetings in which you said how refreshing it was to come to Washington and not to have to kiss the rings of Congress. And I replied that that was probably not all you were kissing before the -- (laughter) -- in coming to the Congress.

But I think it shows the tremendous success that we can obtain when we do recognize the wisdom and the experience of this nation's governors in formulating the legislation. And I think that same thought would move over towards prescription drugs and some of the other things that we have, so that we are not trying to micromanage these systems as they go to the states. And I think in that regard that we could not have a better secretary than you with your background -- not only as a governor, but also as a governor who has worked closely with the Congress in formulating legislation.

One thing that I would like to just express by way of concern -- I am very concerned that we not only reflect on the tremendous problems that seniors have with meeting their bills; but I would hope through all of this that we do recognize that the next generation and the generation to follow them also has to be considered in whatever we do -- not necessarily in expanding Medicare to apply to them, but also being sure that we don't treat them differently as they become seniors. It concerns me greatly that many of the plans that we have seen for Social Security reform would treat the next generation not quite as kindly as we are treating today's seniors, and therefore creating another notch. I hope we can avoid that, and I hope we can recognize that these people that are paying into the system aren't taxed twice for their benefits and then their benefits lessened. And that's of great concern to me in trying to reform Social Security, and I would hope that it would be of great concern also to the administration in putting together the prescription drug bill which is so vitally necessary, particularly that first step of the Helping Hand that you are referring to of those in greatest need and those who have the greatest burden.

SEC. THOMPSON: Thank you so very much, congressman, and thank you for your kind words. And I'd also like to congratulate you for your leadership on the welfare reform proposal, because I know full well how hard you worked, and I know that we would not have been able to have been as successful without your leadership, and I applaud you for that.

And in regards to Medicare, we want to be able to be as cost effective and efficient as we possibly can in developing Medicare reform. We think there are some efficiencies to be built in, and we think choice is one of those that we should look at. Prescription drugs is very difficult, especially when you are trying to include it in Medicare reform, because it's very difficult to gauge the expenses and the overall cost of prescription drugs, evidenced by the fact that this past year the bill that was introduced and passed in the House went from $160 billion to $213 billion in a short period of time. So we have to be cognizant of that, and we have to work together, hopefully on a bipartisan basis, to accomplish what everybody wants to accomplish -- Medicare reform with prescription drugs included.

REP. SHAW: Thank you, Mr. Secretary.

REP. THOMAS: I thank the gentleman. Does the gentleman, the ranking member on the Health Subcommittee, currently but not historically from California, wish to inquire?

REP. STARK: Yes, Mr. Chairman, thank you. Mr. Secretary, just to review this for a moment, you have been asked several times if the $526 billion surplus is currently in the Part A trust fund. And you have suggested that that would only be spent for Medicare -- right? I just want to go through this again. Can you envision any of the Part A trust fund $526 billion being spent for a prescription drug benefit?

SEC. THOMPSON: We are hoping that the $153 billion that we set aside is going to be utilized for that, and we are hoping that that will be enough. If it is not, we are hoping that the extra money and the contingency fund between the 526 and the 842 would be used for that, Congressman Stark.

REP. STARK: And about Part B benefits? Would you see any of Part B benefits being spent, as you envision it, out of the $526 Medicare Part A trust fund?

SEC. THOMPSON: It's my understanding that there is a 75/25 percent split, and that the 25 percent is paid on a monthly premium of approximately $50 a month; and the 75 percent is paid out of the general fund. That's the way it's been, and I don't anticipate that changing. The only way it could change is if Congress decided to do so, and I don't think Congress is going to do that.

REP. STARK: I think you hit -- in other words two -- let me say it then again in a different way. The $526 billion in the Part A trust fund appears in the budget figure on page 185 as part of the contingency fund; in other word, in the 842 billion, 526 billion of that is the Part A trust fund?

SEC. THOMPSON: That is correct.

REP. STARK: And the way the budget is outlined here, actually that contingency fund could be spent for defense or roads, or a whole host of things, as the budget outlines it, not as law allows, but as the budget outlines it? That contingency fund has been alluded to by other programs than Medicare -- is that not correct?

SEC. THOMPSON: That is correct, Congressman Stark, but it's also, if I could just expand -- but it's also true, is it not, that everything that's taken out of the Medicare trust fund has got to be repaid with interest, and it's a credit to the Medicare trust fund, and it's there for anybody to be used for -- but it will only be used for Medicare when it's needed.

REP. STARK: Okay. I -- but for it to be used to pay for a Part B benefit or a drug benefit, or commingled, or -- if that's the right word -- as the chairman has suggested, there would have to be some law change or legislative -- is it your intention to ask us for legislation to -- at this point -- to commingle the trust funds or to use the Medicare Part A 526 billion for anything other than basically the current hospital benefits?

SEC. THOMPSON: It's not my intention to do that at all, and it's a -- and I don't know anybody else that's advocating that either, Congressman Stark.

REP. STARK: So it -- and my worry is this, Mr. Secretary, and I am sure you would agree with me: If we did use the Part A revenues, that 526 billion, to offset the aggregate Medicare benefit, or deficit I mean, we would in effect shorten the trust fund from 20 years to 2004, to about three years. You understand that using that 526 billion in the Part A side or for more drugs would pretty much collapse the security we have now. Now, that's not to say we don't have to find money for Part B. There are even some Democrats who might say we may have to some day to have people pay more, either in taxes or premiums. But, nonetheless, I just want to make sure we are all on the same page, that we treated the Part A trust fund somewhat differently than Social Security. Social Security was put up here as a special surplus, but we are using that in the budget illustration here. We are using the Medicare trust fund as a contingency plan -- while you and I understand it's protected by law, it's buried in these figures and in the -- to the extent the budget is an illustrative document it's being used by -- as a potential for several other programs, and it would take a change in law to do that.

SEC. THOMPSON: It would take a change in law, and I don't anticipate that happening. It's $526 billion. And if in fact it's a credit to he Medicare trust fund, and if any money is taken out of there, it has to be repaid, plus interest. And the administration is going to adhere to that. And I can't imagine anybody willing to change the law, Congressman Stark.

REP. STARK: Then just one final question if --

REP. THOMAS: The gentleman's time has expired.

REP. STARK: -- why -- why would it be buried here in the contingencies and not set up to make old people like me more comfortable, alongside the Social Security surplus? Why wouldn't we illustrate it in the budget and take the AARP and the senior citizens everybody -- why wouldn't you just set it up there as $526 billion Part A trust funds and leave it up there and not commingle it in those contingencies? Is that -- politically that's a little scary.

SEC. THOMPSON: I don't know why it was done that way. I am Secretary of Health and Human Services, Congressman Stark, and all I know is what the law --

REP. STARK: I don't either. Okay --

SEC. THOMPSON: I read the law, and the law is very clear. It is there for Medicare, and it's going to be there for Medicare, and that's the administration's position.

REP. STARK: Mr. Chairman, could I just thank him for one other thing?

REP. THOMAS: Sure.

REP. STARK: Thank you. I wanted -- I do notice that you have made a statement that we do need in HCFA and the management of this operation some more resources. I know this committee doesn't make towhead decision, but many of us feel that we have loaded an awful lot of work, whether you like the way HCFA is running or not. It is overburdened and needs some resources, and there are a lot of people there that you are going to depend on, and we are, and I wanted to thank you for recognizing that we ought to let them have a little increase in their overhead to handle the increased burden. And, Mr. Chairman, I hope we can work towards that with the secretary.

SEC. THOMPSON: Congressman Stark, thank you for your comments, but you are absolutely correct we are going to have to put some new resources into HCFA and modernize it if we expect them to be able to improve. The computer system is outdated and anybody that knows a computer system that was installed in 1970 and today is very underutilized and not --

REP. STARK: It's probably so antique that even I could run it.

SEC. THOMPSON: Thank you.

REP. THOMAS: Does the gentleman from New York wish to inquire?

REP. HOUGHTON: Yes, thank you, Mr. Chairman. Mr. Secretary, great to have you here. Thank you very much for doing this job and sharing your knowledge and your wisdom with us all.

I'd like to shift the focus just a little bit away from health and HCFA and Medicare to the younger people. You know, there is an awful lot of talk these days about education in this country emphasizing younger people. But when I take a look at the budget figures here, despite the statements made, the strengthening families and younger people, I don't know what difference is going to come out of your program than happened in the past. All of the younger people are squeezed out. It's the older people who have the demands. And when you take a look at your -- at the compounding effect of some of the mandatory outlays, I don't know where the money -- I don't know where the emphasis is. What's different with your program?

SEC. THOMPSON: What we are hopeful is different is -- are you talking about Medicare reform?

REP. HOUGHTON: I'm talking about the younger people reforms. You have there a whole series of things about strengthening the family --

SEC. THOMPSON: Oh, okay.

REP. HOUGHTON: There is a safe and stable families program --

SEC. THOMPSON: Fine.

REP. HOUGHTON: -- there's after-school programs.

SEC. THOMPSON: What we are trying to do, congressman, is we are trying to be more on the edge of prevention rather than intervention after the problem has already started. We are trying to take a fresh look at the families -- of families after school we are trying to find ways in which children after school will be able to use the extra dollars which will be block-granted to states to be able to assist them -- some for education, some for after-school security, other school activities. We are trying to put aside $67 million to counsel children who have one or both parents imprisoned, and so that children will be taken care of.

We're trying to put together $64 million to make sure that children that are in foster care or adoption are taken care of faster and better than they have been in the past. We're putting aside $33 million for maternity group homes, to especially single mothers who need help and to be able to be protected. We're putting aside $124 million for community health centers across America so that we can double the number of community health centers and double the number of individuals, especially minorities. They're going to be able to get health care. That's what we're trying to do.

We're putting a bigger emphasis in the federal government and in the Department of Health & Human Services to be preventive, to try and develop programs that are going to be more supportive of the families, especially the children, so that they can be helped before they get into trouble or before they get into an unhealthy kind of situation. That's what the emphasis is going to be on, Congressman.

REP. HOUGHTON: Thanks very much. Thank you, Mr. Chairman.

REP. THOMAS: I thank the gentleman. Does the gentleman from California, the chairman of the Human Resources Committee, wish to inquire?

REP. WALLY HERGER (R-CA): Thank you very much, Mr. Chairman. And Mr. Secretary, even though I'm not from Wisconsin -- I have my roots in California -- I join in the enthusiastic welcome --

SEC. THOMPSON: Thank you.

REP. HERGER: -- to this committee. And I'm looking very much forward to working with you on issues that will come before the Human Resources Subcommittee, which I have the privilege of chairing. And as you know, next year we will be reauthorizing TANF, the Temporary Assistance to Needy Families program that was created under the 1996 welfare reform law, which replaced the former troubled AFDC system.

And I'm hopeful and would like to extend an invitation that you'll not only testify before this committee, but also work with us in coming up with the very best policies that we can in order to take welfare reform to the next level, and would certainly appreciate any comments you might -- again, reauthorization isn't till next year. We'll be having hearings this year. I know you have a lot other on your plate right now, but any general comments you might have on that.

SEC. THOMPSON: Well, first, thank you very much, Congressman, for your chairmanship and your leadership. I appreciate it.

As you know, TANF is not going to be reauthorized until next year, and so we really haven't put that much emphasis at the department on TANF reauthorization yet. We'll be looking at that later on this summer and early fall. And I would appreciate the opportunity to come in front of your committee and testify, and also appreciate the opportunity to work with you and Congressman Shaw and anybody else that wants to work on this issue.

I think the next step in welfare reform has got to be how do we make sure especially welfare mothers are able to stay in their jobs and be able to use the educational system to be promoted and to be able to use the educational system to get ahead and keep the family together? And those are going to be issues that I've got many ideas on that I'd like to come back in front of you after I've had an opportunity to study them a little bit more, flesh them out a little bit better, and give you the opportunity to hear them, but also to ask you for your advice as well.

REP. HERGER: Well, I appreciate that very much. And again, maybe later this summer, and particularly as we get into next year, I'll be looking forward to working with you. Thank you. Thank you, Mr. Chairman.

SEC. THOMPSON: Thank you very much, Congressman.

REP. THOMAS: I thank the gentleman. Does the gentleman from California, Mr. Matsui, wish to inquire?

REP. ROBERT MATSUI (D-CA): Thank you, Mr. Chairman. Thank you very much, Mr. Secretary, for being here today. We appreciate it. And congratulations on your appointment.

SEC. THOMPSON: Thank you.

REP. MATSUI: Certainly we look forward to working with you. I just want to follow up on a question that Chairman Herger asked. I want to talk about Medicare in a moment. But one of the other things that was very critical to the success of the '96 bill, which I wasn't particularly in favor of -- in fact, I opposed it -- is the fact that the earned-income tax credit was greatly expanded so that many of those women that went into the workforce, even at minimum-wage levels, were able to obviously have that supplement to the EITC.

And it's my hope that you would be very strongly in support of continuing the current program. And perhaps in future times, if, in fact, it's warranted and after your review, that we can look at it, perhaps even to expand it, because I think the extension of the health care, Medicaid, and also obviously the EITC, has put many people in a position now where they can work and actually earn a living and say, "This is much better in terms of my financial needs than the welfare program was." I just make that observation.

SEC. THOMPSON: If I could quickly respond --

REP. MATSUI: Please do, yes.

SEC. THOMPSON: Congressman, I agree with you.

REP. MATSUI: I appreciate that.

SEC. THOMPSON: In fact, I agree with you enthusiastically, because I was able to get through an increase in the earned-income tax credit at the state level.

REP. MATSUI: Right.

SEC. THOMPSON: So in Wisconsin you get a federal earned-income tax credit plus a very nice upper, in the state, earned-income tax credit. And it is extremely helpful and it's an integral part of welfare reform. And I appreciate your support.

REP. MATSUI: And I appreciate your involvement in that as well, because I think you actually were, because of the success of your program, had a lot to do with the passage of the legislation. And obviously, with the current position you're in now, you can undoubtedly help continue that progress. And there will be opportunities later to talk about this, but if there should be a dip in the economy, unemployment should go up, which all of us hope not to happen, certainly we would hope that we'll be able to keep the programs that are attended to, those that are on welfare, such as training programs and others, and obviously continue the benefits as well. And I know that will be a challenge for all of us, given our constraints.

I just want to follow up on what Mr. Rangel and Mr. Stark talked about in terms of Part A and Part B.

SEC. THOMPSON: Sure.

REP. MATSUI: And I think you were pretty clear, but I want to make sure I understand it. There will be no attempt from your perspective that any of the funds in the contingency funds committed to Medicare under Part A, through the payroll tax, will be used anything but for Part A. Is that my understanding? And I think you were very clear, but I want to make sure that I understand it as well.

SEC. THOMPSON: The Medicare money is going to be used strictly for Medicare. Every penny of it is going to be used for Medicare --

REP. MATSUI: I understand that. But Part B of Medicare is Medicare as well, and that's why -- and you may not have intended to create this confusion in my mind, but if you would say your intent is to keep it for Part A, I would feel much more comfortable when you say Medicare or Medicare Part A and Part B. And I just want to make sure --

SEC. THOMPSON: I intend to keep it for Part A.

REP. MATSUI: That's great. Okay.

SEC. THOMPSON: The only people that can change it, to the best of my knowledge, are people that are on --

REP. MATSUI: I understand. But your recommendation is --

SEC. THOMPSON: My recommendation is to keep it.

REP. MATSUI: So it would not have any diminution in terms of the life of the Medicare program. Now, in terms of the prescription drug part of it -- and maybe I misunderstood -- is it your understanding that there might be an effort, through the contingency fund, if the balance of whatever it was --

SEC. THOMPSON: Eight hundred forty-two billion dollars is the contingency fund, less $526 (billion) for Medicare.

REP. MATSUI: Right. So you have $316 for prescription drugs and whatever other contingencies there are. If, in fact, prescription drugs should cost more than that over a period of time, is it your intent, then, to perhaps go into the Part A fund for that?

SEC. THOMPSON: No.

REP. MATSUI: In other words, you would look for other sources of funding, either --

SEC. THOMPSON: It's my understanding, Congressman, that's what we would do.

REP. MATSUI: You know what? If I may make a recommendation -- I know my time is running out, and it may not even be in your position to do this, but perhaps OMB should re-examine the budgetary lines that they speak of this. I think a lot of folks, including the seniors, as Mr. Stark said, would feel much more comfortable if that $526 billion was in the category with Social Security, because contingency funds -- it could lead to a situation where we could, you know, make observations that this could be used for the missile defense system or something of that nature. And I think, even for the administration, it would make more sense to put it in a category that really, really defines it as for Part A and Part A only, because obviously that's where you, as the secretary, is coming from. So I really think it makes --

SEC. THOMPSON: That's where I'm coming from, but I'm coming as the secretary of Health & Human Services. I'm telling you my position.

REP. MATSUI: And I appreciate that; I really do. Thank you, Mr. Chairman.

REP. THOMAS: I thank the gentleman. Does the gentleman from Louisiana wish to inquire?

REP. JIM MCCRERY (R-LA): Yes, thank you, Mr. Chairman. Welcome, Mr. Secretary. Just on this Part A/Part B stuff, you know, there might be some people out in the United States watching on C-SPAN, and they don't really understand Part B and Part A, and I don't think it really matters to them. What matters to them is that we deliver them a quality health care program that provides them some health and financial security in their old age. So I hope, when we get into Medicare reform, we won't get bogged down in all this technical mumbo- jumbo and instead try to create a program that works for the elderly in this country.

Having said that -- and I hope we get off of this now, Part A and Part B stuff -- let's talk about costs for just a minute, because I'm concerned about the escalating cost of health care. In fact, your own actuaries at HCFA have recently written that, as a percentage of our gross domestic product, health care expenditures will rise from approximately 13.1 percent in 2000 to 15.9 percent in 2010. Drug spending is going to increase, they estimate, at about 14 percent a year.

Those figures, particularly coupled with the looming retirement of the baby boomers, are frightening figures not only in terms of the resources that will go toward health care generally in the country, but obviously the budgetary effects here at the federal level. So I hope that as you go through these exercises of Medicare reform and maybe even general health care reform, you'll keep an eye out for these looming costs to the country and to the federal budget.

One of the cost drivers, Mr. Secretary, I'm convinced, in the health care system is medical malpractice, not only in the direct costs of premiums for insurance that doctors and hospitals have to purchase and in the awards that they have to pay, but also the indirect costs, the defensive medicine, if you will, that has to be practiced, at least in the minds of physicians and hospitals to prevent being sued.

You are, I know, working right now trying to perfect a patient's bill of rights. And while the goals of that legislation are laudable, I fear that the implementation of such will increase costs in the health care system and they will increase costs substantially if we don't put reasonable caps on damages in that legislation. And I was wondering if the administration has developed a position yet on caps on damages in the patient's bill of rights and if they would accept and favor attaching to that legislation general medical malpractice reform for the entire health care system.

SEC. THOMPSON: Well, there's no question that this administration is very concerned, as you are, Congressman McCrery, about runaway litigation costs. In the patient bill of rights, the president has spoken very eloquently about the need to hold down on litigation and to make sure that every person has their rights protected, has a way to defend those rights, but at the same time, hold down.

But the administration has not taken, at this point in time, a position on the limits. They've discussed it, but they haven't come to a conclusion on that. I know there's many different proposals being bandied around, but the administration has not chosen anyone at this point in time. They're working very hard and diligently, especially in the White House, to develop a proposal that will not allow for litigation runaway costs.

REP. MCCRERY: What about general medical malpractice reform?

SEC. THOMPSON: The administration has not taken a position as far as putting it in the patient bill of rights, and I think that's what your question was. And I doubt very much if a general malpractice reform proposal will be in the patient bill of rights. I haven't heard that being discussed.

REP. MCCRERY: Is the administration in favor of medical malpractice reform?

SEC. THOMPSON: The administration is certainly concerned about the cost factors, and medical malpractice is one of those.

REP. MCCRERY: Well, Mr. Secretary, if you're concerned about the cost factors, I would urge the administration to quickly adopt a position in favor of medical malpractice reform. And if we are able to attach such to the patient bill of rights, I would urge the administration to support that effort.

SEC. THOMPSON: Thank you very much, Congressman. I appreciate that, and I will carry that to the appropriate people.

REP. MCCRERY: Thank you.

REP. THOMAS: Does the gentleman from Pennsylvania wish to inquire? Mr. Coyne.

REP. WILLIAM COYNE (D-PA): Thank you, Mr. Chairman. Welcome, Mr. Secretary, and thank you for your testimony. Mr. Secretary, a report was recently published by the Institute of Medicine, and it finds that there is a great need for information technology in our health care system overall, and it points out that our health care system has safety and quality problems because it relies on outdated systems of work.

The University of Pittsburgh Medical Center, which is in the district that I represent, is investing more than $500 million over five years on information technology. And those initiatives are designed to drastically improve patient care and outcomes as well, while reducing the overall cost of health care in the country.

I would like to be able to submit some questions for the record to you about the specific recommendations in the Institute's report and would appreciate it if you could respond to those questions.

SEC. THOMPSON: Absolutely, congressman, I'd be more than happy to. And it's an area that I am very concerned about and very interested in. And, as you know, the Institute on Medicine also suggested that we develop 15 systems on how to diagnose and provide the treatment for 15 different types of illnesses that would be sort of uniform throughout America. I think that's a very good step forward, and we should explore that, and we will.

I also compliment your hospital for investing in computers and new information techniques. That's what we would like to do, and encourage you to also allow us to do that at the Department of Health and Human Services. We have over 200 different computer systems in the department, most of which cannot communicate with one another. And even on the Humphrey Floor, Humphrey Building, there are different computers from the fifth floor, the sixth floor and the seventh floor, which doesn't make any sense to me, if you want to run an efficient operation. So I'm throwing that out. I agree with you wholeheartedly and enthusiastically. I only hope that when I come back and suggest that maybe we should upgrade the computer systems at HCFA and the department that you would also be willing to support that as well.

REP. COYNE: Well, I'd be very happy to be able to support it. Thank you.

SEC. THOMPSON: Thank you very much, congressman.

Would the gentleman from Michigan, Mr. Camp, wish to inquire?

REP. CAMP: I do. Thank you, Mr. Chairman. And welcome, Mr. Secretary. In 1995 and '96 I served on the Human Resources Subcommittee, and worked with you and other governors on legislation that dramatically transformed the American welfare system. And since then we have seen welfare case loads decline, poverty is down, child support collection is up, teen pregnancy is down. And I think, more importantly than some of those statistics that go along with those trends are that the focus of the welfare system has literally been transformed from one that just determined eligibility and cut checks to one that really is delivering a comprehensive package of both employment and family support assistance, based on a recipient- specific need. And I just wanted to say that as we look forward to the reauthorization of the '96 law I want to work with you, particularly on trying to continue the flexibility provided in the 1996 legislation, and to ensure that the states continue to have the ability and flexibility to continue to create innovative programs that will enhance low-income -- enhance the efforts to assist low-income families.

There are a couple of other items in the budget that I want to support, and one is the adoption tax credit, which I want to say does the president's plan to increase it from 5,000 to 7,500 make it permanent? There's over 100,000 children nationwide and while parents don't need financial incentives, adoption can be very expensive, and this will help a great deal. So I want to work with you on that.

And then, lastly, I also want to mention the safe and stable families program, which there will be additional resources provided in the president's budget for that very valuable program which really helps keep children with their families, if it's safe and appropriate, or will help provide for adoption, if that's the appropriate avenue as well. And I think the additional effort to help the children of families with prisoners is really commendable. So I look forward to working with you, and thank you for coming to the committee.

SEC. THOMPSON: Thank you so very much, congressman. And thank you also for your courtesy when I was coming in front of your committee, and your support and help on welfare reform. I am passionate about it. We have got some things to do. We can improve it considerably, and I want to work with you on that.

With regards to adoptions, the credit is I think good. And we have a lot of children out there that need to be adopted, and this administration is very concerned about them, and wants to do everything we possibly can.

And the safe family budget has gone up from $305 million to $505 million -- a $200 million increase, which is a tremendous increase. But the president wants to go up to a billion dollars. He wants to make sure that we go in and help families stay together, and be able to provide the kind of services that they need. And I am looking forward to working with you on that. And the prison -- the counseling for children with parents in prison is very important to me. It's a subject that I got very much involved in when I was back being governor of the state of Wisconsin, and I'll be looking forward to working with you.

REP. CAMP: Thank you very much. Thank you, Mr. Chairman.

REP. THOMAS: Does the gentleman from Michigan wish to inquire, Mr. Levin?

SEN. LEVIN: Thank you, Mr. Chairman. Welcome, Mr. Secretary. Let me -- Mr. Secretary, let me just take a minute. We have gone over this a few times, but I think it's so important, because I was looking at page 185 of the budget presentation. You have said here, I think in clear terms, what your position is -- Medicare money is only for Medicare, Part A only for Part A. And the clear result of that is on this table, S1, the president's 10-year plan, when you take 526, which is Part A from 842, the figure for contingencies, it reduces this contingency fund or the rainy day fund, as I subtract it to $316 billion. And that's why we are suggesting that there be complete clarity by OMB. I think the issue was discussed yesterday in the Senate, and there was an effort to essentially move the 316 up to the line under the Social Security surplus. So I take it it is clear what your feeling is or your belief is -- Medicare money is only for Medicare, and Part A is only for Part A. Is that correct? You're unequivocal about that?

SEC. THOMPSON: That's correct. But it's also true that I don't see how you can just segregate Part A from Part B. We want to overhaul all of Medicare and make it much more efficient, and include prescription drugs. And that includes a complete overhaul of Medicare Part A and Part B.

SEN. LEVIN: But that doesn't mean, as I understand your previous statement, that you would use Part A monies for a prescription drug benefit?

SEC. THOMPSON: It does not.

SEN. LEVIN: All right, let me just ask you quickly to switch to an area that you care so much about and you have been instrumental in its development, and that is TANF. Transitional Medicaid you know for so many people -- and the data aren't clear for all the states -- for so many people they have not accessed transitional Medicaid. So you have a large percentage -- some think as much as 50 percent -- after a short period of time when they leave TANF, or are receiving partial payments from it, who have no health care. I take it your vitally concerned about that?

SEC. THOMPSON: I'm very concerned about it, because I think that's one of the -- there are four things that really prevent a person from leaving the system to go in and get a job, and one is health coverage, day care, transportation and training. Those are the four things. And you have to, in order to really develop a good program, you have to be willing to support those four items.

SEN. LEVIN: Good. Let me just ask you then about training. Have you reached a conclusion whether you favor in the reauthorization process full funding for TANF?

SEC. THOMPSON: I have, but that doesn't mean that OMB has, congressman. (Laughter.) I have found that since I have been out here that OMB is much more powerful than a secretary -- (laughter) -- so I have learned quickly that I am no longer a governor, sir. (Laughter.)

SEN. LEVIN: Okay, because -- I mean, you know the figures -- you worked on this.

SEC. THOMPSON: Yes, I do.

SEN. LEVIN: For so many people who have moved from welfare to work, which was a critical part of welfare reform, and one I very much favored, there are -- and we don't know the percentages in most states -- but huge numbers have moved from welfare to work and remain at the same income levels as when they were on AFDC or TANF. So the training -- retraining, the upgrading part of it, is critical.

SEC. THOMPSON: It's critical.

SEN. LEVIN: Okay, quickly -- you know the contingency fund does expire this year.

SEC. THOMPSON: That's correct.

SEN. LEVIN: And I hope that we could have some discussions about it, because if there is a recession, we can't wait till next year in terms of the contingency fund, or at least arguably so. So I would hope that we could engage in some discussions on the human resources committee, under Mr. Herger and Mr. Cardin, to look at this issue, and not necessarily wait till next year. And I hope we don't wait till next year on any of the welfare TANF reauthorization issues, because it's so critical, these issues we've talked about -- health care, training, upgrading, as well as the contingency fund -- need a lot of attention before next year.

SEC. THOMPSON: Congressman, I agree with you. I don't know what more I could say except that I agree with you. I only wish that we could move a little bit faster so that I could get my assistant secretaries and the deputy in so that I could spread out the work. I'm still the only one at the department, and it would be nice if I had some assistance so that somebody else could take on some of these responsibilities. But saying that I am not being critical, I'm just telling you, yes, I agree with you, and we are looking at welfare reform. But there are a lot of other issues that we are also looking at at the same time, sir.

SEN. LEVIN: Thank you.

REP. THOMAS: Does the gentleman from Minnesota, Mr. Ramstad, wish to inquire?

REP. RAMSTAD: Thank you, Mr. Chairman. Mr. Secretary, as your neighbor from Minnesota, I know what an outstanding governor you were.

SEC. THOMPSON: Thank you.

REP. RAMSTAD: And I know you'll be an equally outstanding secretary. People in Minnesota, like people in Wisconsin, appreciate your direct, no-nonsense bipartisan approach to governing, and I am looking forward to working with you. Also, Governor Ventura and I want to thank you for your recent decision to approve two technical changes in Minnesota's Medicaid program. Because of that decision you made, Minnesota's special needs children who are eligible for Medicaid will find it easier to get both medical and rehabilitative services through their schools. And this is a big deal for kids with physical and developmental disabilities, to have their special needs addressed during the school day. So, thank you for getting -- making that happen. And I hope, Mr. Secretary, you are just as successful in helping us right the wrongs that have been done and are currently being done to Minnesota's seniors and Minnesota providers through the arcane, unfair Medicare reimbursement formula. Minnesota's seniors are being cheated. Minnesota providers are being cheated, because we have had a history of cost-deficient health care in Minnesota, keeping our costs over the last decade at three percent below the national average. As a result, the reimbursement levels, as you know, are less than in less efficient states and counties.

Just in the couple of minutes that we have, how do you believe this problem of the Medicare reimbursement formula and inequalities, how can they be rectified within the context of comprehensive Medicare reform?

SEC. THOMPSON: Well, first off, I want to thank you for your leadership in Minnesota, and thank you also for pushing hard on those waivers. We are going to change the way waivers are handled in the department. They are going to be much more streamlined, and I've got a lot of ideas on how to do that. And I also know that your governor was in to see me already on the waiver that you're talking about, and we are already discussing it. And so hopefully we can make some good headway in regards to that.

In regards to the reimbursement formulas, you know better than I do that formulas in Congress are the most divisive thing there is, because it basically depends upon how much money you can get. I don't think you can solve the inequitable situation in one state by taking from another state. You are going to have to find additional money in order to make sure that all -- that the state that is getting more is held harmless, so that you are going to be able to build up a more equitable distribution of dollars in states like Minnesota, and also states like Wisconsin.

REP. RAMSTAD: Mr. Secretary, do you favor scrapping the AAPCC formula and going to a different reimbursement system?

SEC. THOMPSON: I am not ready to scrap it until I see what the replacement is, but we are looking at that, and we are looking at ways in which we can make it more efficient and more equitable.

REP. RAMSTAD: Well, and those are the needs, to make it more efficient, more equitable. And I appreciate your recognition of that, of the incredible inequities in the current system, and like the chairman I know you are committed to working in a bipartisan way to try to change that.

The other question I wanted to ask you -- I noticed from the budget, from the president's budget, an increase in drug and alcohol treatment by $100 million. I couldn't help but think of former President Richard Nixon when he first declared war on drugs back in the '70s -- he directed 60 percent of the federal dollars in the war on drugs to treatment. Today we are at 16 percent. So any increase is helpful, and soon I will reintroduce my legislation, which had 95 bipartisan co-sponsors last year, including the chairman, the former chairman, of the House Budget Committee, to provide parity for substance abuse treatment, people in the health plans who are being discriminated against, who can't get access to treatment, even though the policy ostensibly provides such treatment. I hope you will be willing to work with me on that legislation.

SEC. THOMPSON: I want to work with you, congressman, and I appreciate the opportunity and the invitation. So let me know when you are going to have a meeting, and I'll be more than happy to try and make myself available.

REP. RAMSTAD: Well, I appreciate that can-do spirit that governed Wisconsin so well for your terms in office, and it's refreshing to see you in this important position. I really don't believe the president could have chosen anybody more qualified to head the department, governor, and --

SEC. THOMPSON: I don't know about that, but I thank you very much.

REP. RAMSTAD: Well, even my governor agrees with that, so that's a pretty good recommendation from Governor Ventura -- he's happy you're here --

SEC. THOMPSON: Jesse and I get along just fine. When anybody's that big, I listen to them very intently. (Laughter.)

REP. RAMSTAD: Me too. Thank you, Mr. Secretary.

REP. THOMAS: Does the gentleman from Eastern Wisconsin, Mr. Cardin, wish to inquire?

REP. CARDIN: Thank you, Mr. Chairman. I am glad you finally recognized the importance of Maryland to our country.

Governor Thompson, first let me tell you I am very encouraged by your statements here and your record on the human resource issues. I am the ranking Democrat on the subcommittee that will deal with TANF and human resources, and working with Mr. Herger. And I must tell you that I am one of those now that feel maybe you should slow down on getting an assistant secretary, because I like what you say. I want you to stay directly involved on these issues. We need you, because we want to come out with a strong bipartisan product on the next tier or the next level of what welfare reform is all about.

And I appreciate the fact that many of these battles will be fought next year when we come up with the reauthorization legislation for welfare. But there's some important issues that we are going to have to deal with this year, and one of them may very well be the fight with OMB or with the budget people to make sure that the resources are in the budget, so that we can continue to maintain the federal partnership in dealing with welfare with our states. So I think we may need to deal with TANF this year in order to make sure we have the resources available.

Let me just mention one area that is in the president's budget that concerns me, and I would hope that you would take a look at this, and that is to allow the states to use their TANF money to finance the state deductibility for charitable gifts. I am one of those who believes that we should give tax preferences to charitable gifts and the federal and state level. But it shouldn't come at the cost of poverty funds that are so desperately needed to deal with poverty issues in our country. I would hope that you would take a look at that, and perhaps we can find a better way to finance that rather than using TANF funds.

Let me also point out that, as Mr. Levin pointed out, we do have the issue on supplemental funds to the states that needs to be dealt with in this Congress, in this year, because that expires and affects many of our states -- not the state of Maryland, that I represent, but many of the states are directly affected.

SEC. THOMPSON: I think 17.

REP. CARDIN: Seventeen states. I think we need to take a look at that. It's not in the president's budget. And we need to see whether we can find the resources to make sure we do in fact finance those supplemental funds, reauthorize those supplemental funds. So I hope we could work together this year in order to accomplish that.

Let me mention two other issues that have been in our sub- committee that have enjoyed very strong bipartisan support in this Congress, that has been passed by the House by lop-sided votes. One you are directly familiar with: to give the states the ability to pass through child support funds to the families. Wisconsin is the model for the nation. You had the opportunity to do that. No other state can do it without paying both -- losing both the state share and the federal share. I would hope that you would help us in seeing that legislation through so all states have the ability to pass through child support to the families without having to repay the federal share.

SEC. THOMPSON: I was lucky getting a waiver for that, congressman, and that was something that I felt strongly about. So I don't know how I can divorce myself from my prior position and now say it's not a good idea. I think it's an excellent idea, and should be more widely utilized.

REP. CARDIN: I thank you. And we will have some legislation in this session in a bipartisan way, and I expect it will enjoy some strong support. We just need to get it through.

SEC. THOMPSON: Thank you.

REP. CARDIN: And enact it into law.

As connected to that, Mrs. Johnson and I came up with a fatherhood initiative, which you have in your -- which is in the president's budget --

SEC. THOMPSON: Right.

REP. CARDIN: -- to provide some additional funds for fatherhood initiatives. We all know the states can use their TANF money to deal with noncustodial parents; but we think it's important to highlight that we haven't done enough with the noncustodial parent.

SEC. THOMPSON: We really have. Congressman, we really haven't, and it's really a failure in the current provisions, and I compliment you and Congresswoman Johnson for your leadership on that, and I am very pleased that we took some of your bill and put it in this blueprint budget for the future, because I think we haven't done enough for fatherhood, and we have got to get more of the noncustodial parents back into the family unit, and things will be much better if we are able to accomplish that.

REP. CARDIN: And I guess my last point is that -- again, I appreciate everything you're saying -- I think welfare will be a major issue this year, that we can't wait until next year, as Mr. Levin has said. Your suggestion that we look at how particularly women are succeeding in the workplace that have left welfare, and they have the educational resources available to them so that they can move up the employment ladder, is a matter that we really need to refine this year to see how we can make sure that is part of TANF reauthorization.

SEC. THOMPSON: It's not only education, it's training.

REP. CARDIN: Absolutely.

SEC. THOMPSON: Both go hand in hand, and it's very important.

REP. CARDIN: Thank you.

SEC. THOMPSON: Thank you, congressman.

REP. THOMAS: I thank the gentleman. Does the gentle woman from Western Wisconsin (sic) wish to inquire? (Laughter.)

REP. DUNN: You bet. Welcome, Mr. Secretary. We sat opposite each other about six years ago when you came to testify on welfare reform. It was very helpful then, and I am glad that I am not on the top level, but I am very happy that you are the secretary.

I just wanted to support Ben Cardin's last point. Many of us have stayed in touch with welfare moms and dads through the years since we passed that reform bill, and we would be happy to give you some of the information. And one of the points that Mr. Cardin made on education is one that I hear over and over again, education and training.

SEC. THOMPSON: Thank you very much.

REP. DUNN: And I have a couple of questions on health care. The Health Insurance Portability and Accountability Act, the HIPA Act, I know that your folks are doing a review of the regulation on that act. There are some of us who are concerned. And in fact all but one of the members of the delegation from Washington State, my state, signed a letter to you because our constituents have some concerns. We like where the administration is going on administrative simplification, but the implementation of the regulations is concerning us. Specifically we are concerned about the two-year compliance rule for standardization of electronic transactions, and also the piecemeal release of different sets of regulations over time. I'd like to submit some detailed questions to you that your folks can answer, but I wonder if you can give us a sense of where your review is taking you.

SEC. THOMPSON: Well, I can give you an overall sense, but I can't answer your specific questions, I'm sorry, congresswoman. And I'd appreciate you submitting the questions -- we'll be more than happy to answer them in a very diligent fashion.

We are taking a look at all the rules and regulations in the department, and we want to try and find a way that we can make the rules and regulations at the Department of Health and Human Services much more easily understood and therefore able to be followed. And we are trying also to take into consideration some of the questions you are having and trying to find better ways. And I am not being critical of anybody in the past or anything in the present. We just want to make sure that our rules and regulations are much more responsive and much more easily understood.

REP. DUNN: That's great. And as our folks are doing their best to prepare for the new regulations, if they are put out in piecemeal fashion they might spend a lot of money preparing for one set that would be later influenced by another set. So that's what we find we are running into.

SEC. THOMPSON: One of the things that really irritated me as a governor is that they put out rules and regulations, you know, and you never knew -- and all of a sudden you'd be operating, and a rule comes out, and if you didn't see it right away or didn't adhere to it right away you could be penalized. We're trying to put them out on a very uniform basis. And so that states and providers are going to be able to see these rules -- maybe on a quarterly basis, maybe on a semi- annual basis -- so that they have more lead time to be able to get ready for them and to be able to put their systems in place, so they are going to be able to comply with them.

REP. DUNN: That would be great. Well, we welcome the results of your review.

On children's hospital graduate medical education programs, a couple of years ago Congresswoman Johnson and I sent an authorization --sent a letter supporting the authorization of funds for this. Last year the Congress provided $235 million for the program. I am a supporter of increasing those dollars. But we are hearing some rumors that OMB is coming out with a cut in support, and I wonder if you know about that or what your thoughts are on it.

SEC. THOMPSON: Well, I know about it. At this point in time we're still working on that budget and it will be coming out in April, and I am not at liberty to discuss it right now, because we are still negotiating on that item and a couple of other items with OMB.

REP. DUNN: Great. Well, I hope that you will put in a pitch for them to increase that program, because we really do need to be training those physicians who deal directly with children.

SEC. THOMPSON: Thank you.

REP. DUNN: I wanted also to ask you a question about HCFA. Our concern is the coding that HCFA is using and the payment process. The Institute of Medicine recently issued a report regarding the lack of transparency, simplicity and efficiency, and also access by users of that coding system to do some improving in it. I am interested in updating this process, and we want to make sure that the appropriate code and payment are assigned to the proper task. We are hopeful that you will work with us on this issue, so that the Institute of Medicine's concerns are adequately addressed, and so that we can make sure that Medicare beneficiaries do have access to the very best clinical laboratory services.

SEC. THOMPSON: You know I will. I can't tell you how eager I am to reform and allow HCFA to be able to perform their services. We have some great people at HCFA that really want to be able to do the job that Congress has asked them to do. They're pretty much handcuffed with a lot of the procedures put in place, with arcane and archaic equipment, and we need all the help we can get. And if you've got any suggestions, we'll be more than happy to work with you and take into consideration your suggestions.

REP. DUNN: Great. Thank you, Mr. Secretary, and we look forward to the announcement of the new head of HCFA. Thank you, Mr. Chairman.

REP. THOMAS: Does the gentleman from Washington, Mr. McDermott, wish to inquire?

REP. MCDERMOTT: Thank you, Mr. Chairman. Governor, we talked in the Budget Committee about the whole issue of Medicare, and I've been thinking about it since and gone over the numbers, and I'd like to maybe in a simple-minded way ask a question, because I feel like I'm at the county fair and I don't know where the money is.

On page 14 of the budget it says there is a $645 billion deficit in Medicare in the next 10 years. And you I understand earlier in this committee hearing have said that there would be $526 billion in surplus, and I think in Part A. And you said that that's going to be spent on Medicare -- not being specific about whether it's going to be spent on Part A or Part B. So if you take that $536 that is in this deficit, and put it there, you have it partially filled that $645 billion deficit. Then I see in the budget that there's $153 billion more to be used for modernization and whatever --

SEC. THOMPSON: And prescription drugs.

REP. MCDERMOTT: And so if I put that in, and you add that, you get a full glass of water. You've got the 645, give or take a few billion, which is close enough for government work perhaps. But the question that I have is: Where do you come up with whatever you intend to spend on a prescription drug benefit? What that included in this that's already there, or is that new money coming from somewhere else? Because I've looked through the book and I can't make out in my own mind whether this 526 plus 153 includes the drug benefit money, or is it coming from somewhere else. And I'd really like to hear your explanation.

SEC. THOMPSON: Well, let me try to explain where I'm at, and hopefully it's where the administration is at.

REP. MCDERMOTT: I hope they're with you too -- (laughter) -- your job will be easier.

SEC. THOMPSON: This chart that you are looking at on page 14 includes both Part A and Part B.

REP. MCDERMOTT: Yes, I understand that.

SEC. THOMPSON: There was a very elegant dissertation by Chairman Thomas earlier on in the hearing, and he's right on, that says that Part B has got a deficit of one trillion 200 billion dollars. And Part A has a surplus of $526 billion. Combining those two you have a deficit of the $645 billion. But as you aptly pointed out last week in the Budget Committee, and educated me very intently on Part B -- is a subsidy, and 75 percent of the federal government; 25 percent from the policyholder, and that that continues. And so Part A has got the surplus; Part B has got a deficit -- if you call it a deficit. You call it a subsidy of 75/25 -- that's different nomenclature, but pretty much the same thing.

REP. MCDERMOTT: It's still money.

SEC. THOMPSON: It's still money. And the $153 dollars is separate. That is money that the president put in his budget for reforming Medicare, making it more competitive, more efficient, and also a prescription drug component. Now, if there is need of extra money, it is my understanding that the extra money for the prescription drugs would be the difference between the 842 and the 526, which is the surplus -- contingency fund -- part of that contingency, around $300 billion -- less than that -- would come to subsidize and help fund the prescription drug, Congressman McDermott.

REP. MCDERMOTT: So what you are saying is that the money -- the 645 is a combined figure of a much larger deficit in Part B, and a surplus in Part A, and that gives you the 645? That's correct, right?

SEC. THOMPSON: That's my --

REP. MCDERMOTT: That you still owe. Now, the 526, is that money counted from the surplus in Part A?

SEC. THOMPSON: Yes.

REP. MCDERMOTT: That is? But haven't you already counted it over here when you subtracted it from the total deficit to give you 645? It seems to me you subtracted it twice.

SEC. THOMPSON: No, it's not my understanding it's subtracted at all. They're saying it's $526 billion in Chapter A, and there's a deficit of one trillion, 200 billion in Chapter B, Title B.

REP. MCDERMOTT: But when you combine them --

REP. THOMAS: (Sounds gavel.) Go ahead. You get one more shot. Your time is expired.

REP. MCDERMOTT: I'm sorry?

REP. THOMAS: Your time is expired, but if you want to have one more conversation.

REP. MCDERMOTT: Maybe we'll talk about this as we get down the road a little bit -- someplace in --

REP. THOMAS: He is coming back next Tuesday.

It's the chair's intention to conclude this hearing. We reached Mr. Collins and Mr. Kleczka, and it's the chair's intention that when we reconvene next Tuesday, with the secretary of the Treasury and the Secretary of Health and Human Services once again, that we will questioning at that point.

We have two votes on the floor. Mr. Secretary, it's a pleasure having you with us, and we look forward to seeing you along with the secretary of the Treasury next Tuesday. The committee stands adjourned. (Sounds gavel.)

END

LOAD-DATE: March 15, 2001