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Testimony on Medicaid and Welfare Reform by The Honorable Donna E. Shalala
Secretary
U.S. Department of Health and Human Services

Before the Senate Finance Committee
June 13, 1996

GOOD MORNING:

Mr. Chairman, Senator Moynihan, members of the Committee, it is my distinct pleasure to appear before you today to discuss the Medicaid and welfare reform proposals introduced by Chairman Roth and others on May 22nd.

As the Congress continues to consider ways to reform Medicaid and welfare and pursue a balanced Federal budget, we appreciate the opportunity to state clearly the President's vision for reform in these areas.

The Clinton Administration believes that we must balance the budget by the year 2002 and give more responsibility to the states and local communities. But we must do it in a way that is consistent with the values of our nation. As the President has said time and time again: We can balance the budget and find common ground -- without turning our hacks on our values, our families, and our future :

In Medicaid, we believe we can give the states the flexibility they need, while maintaining a strong federal-state partnership built on a foundation of shared resources, accountability to the taxpayers, and national protections for the most vulnerable Americans. That is why the President has proposed a common sense plan, and that is why he has refused to sign legislation which breaks our promises.

As part of his balanced budget plan, the President has submitted to the Congress a welfare reform bill entitled the "Work First and Personal Responsibility Act of 1996". The President's bill would replace the current welfare system with one that demands responsibility, strengthens families, protects children, and provides states with broad flexibility and the resources they need to get the job done. It is a comprehensive proposal that reflects the common principles held by those in and out of Congress who have worked tirelessly to reform our nation's welfare system. We strongly hope for legislation that builds upon these principles and the recent bipartisan initiatives from the nation's governors and moderate Republicans and Democrats in both houses of Congress.

The President is committed to balancing the budget and enacting real welfare and Medicaid reforms. However, the President has also made it clear that the current strategy of the majority in Congress to link welfare reform to unacceptable changes in Medicaid will leave him no choice but to veto the entire package. We call on Congressional leaders to abandon the "Poison pill" strategy that is designed to provoke a veto. We strongly support the bipartisan efforts of the governors and the Breaux-Chafee and Castle-Tanner groups to reform welfare without gutting Medicaid.

Before I continue, let me note in particular the fine work of Senators Chafee and Breaux and the members of their bipartisan group on both Medicaid and welfare reform. While we have yet to review any details and still have some concerns, I think the willingness of Senators of good will to join together across the aisle to agree on meaningful reforms is an example to us all. The President believes their proposals could very well be the foundation for a broad bipartisan effort in this regard.

Let me begin by discussing Medicaid.

Medicaid

Medicaid provides vitally important health and long-term care coverage for approximately 37 million Americans and their families:

• It provides primary and preventive care for 18 million low- income children;
  
  
• It covers 6 million individuals with disabilities - providing the health, rehabilitation, and long-term care services that would otherwise be unaffordable for these individuals and their families;
  
  
• It covers 4 million senior citizens -- including long-term care benefits that provide financial protection for beneficiaries, spouses, and the adult children of those requiring nursing home care.
  
  
• Finally, it pays the Medicare premium and cost sharing for low income seniors, thus putting the benefits of Medicare within reach.

The Clinton Administration is dedicated to strengthening and improving Medicaid so that it can continue to fulfill the promise of our nation to millions of children, elderly, and disabled Americans and their families. To achieve this goal, this Administration has worked vigorously in partnership with the states to test innovative new approaches to delivering and financing care for Medicaid patients. During our first 3 years in office, this Administration approved 91 major Freedom of Choice waivers and waiver renewals, which allow states to enroll beneficiaries in managed care plans. We have also approved 163 new and renewed Home and Community-Based Services waivers, which enable states to use home care as an alternative to costly nursing home care, and allow people with disabilities to live in their communities. In addition, since January 1993 we have approved 12 statewide Medicaid demonstrations, compared to a total of one such demonstration approved under all previous administrations combined. Some statewide demonstrations expand access to the uninsured, others test new methods for delivering mental health services, and still others implement simplified eligibility requirements.

The flexibility provided by these waivers has allowed states to improve the efficiency with which they provide care. Some states have used the resulting savings to cover additional populations with unmet health care needs. When all of the currently approved demonstrations are implemented, nearly 2.2 million individuals who did not receive Medicaid coverage will be eligible for services.

As part of his balanced budget plan, the President has proposed a carefully designed and balanced approach to Medicaid reform which builds on this experience. His plan preserves the essential elements of Medicaid (title XIX of the Social Security Act) while making important changes that will give states unprecedented flexibility to meet the needs of the people they serve. The President's plan is built upon three core principles: (1) the need for a real, enforceable Federal guarantee of coverage to a congressionally-defined benefit package; (2) appropriately shared Federal and state financing; and (3) quality standards, beneficiary Protections, and accountability.

The President's plan fulfills these principles while contributing Federal savings to the balanced budget plan through reductions in disproportionate share hospital payments and the use of a per capita cap on Federal matching payments that adjusts automatically to changes in state Medicaid enrollment and changes in the economy. The President's plan also provides states far greater flexibility to better manage their programs, pay providers of care, and operate managed care and other arrangements with reasonable Federal requirements to maintain programmatic and fiscal accountability.

As you know, the President strongly opposed the Medicaid proposals passed by Congress last year because they failed to meet his core principles. The Congress repealed the Medicaid program and replaced it with a new "Medigrant" program that did not provide meaningful Federal guarantees of eligibility or benefits. The Congress also put forward a "block-grant" funding mechanism that breached the 30 year Federal commitment with the states to share in changes in state Medicaid spending that left states with the full financial responsibility for providing health care to individuals who would qualify for services in the future due to unanticipated enrollment increases or economic downturns.

Last February, the National Governors' Association approved the outlines of a bipartisan Medicaid reform plan. As I testified before this Committee in March, we believed the governors' plan -- produced through a bipartisan process-- held some promise and we were hopeful that, once more details were known, there would be a real basis for Medicaid reform. The governors clearly worked very hard to move the debate forward. At the same time, however, I discussed the Administration's concerns with some key elements of the governors' plan.

Last month, the Republican majority in both Houses of Congress introduced a revised version of their Medicaid bill, which I will discuss today. Unfortunately, this bill moves us further away from the bipartisan reform envisioned by the governors, and much closer to the Republican legislation that the President vetoed last year. our view is shared by the Democratic governors who were instrumental in crafting the NGA agreement. In a May 29 letter to Senator Roth, four Democratic governors stated that: " The Republicans' Medicaid proposal is far from the NGA agreement and appears to be more like the proposal vetoed by the President last year and rejected by the Governors at our winter meeting .... A ccording to our early calculations, 96 percent of the funding under this new formula is distributed precisely in the same manner as your earlier bills proposed. You have created a block grant for this program with essentially the same language and parameters of the vetoed bill -- a block grant that denies a safety net for our most vulnerable citizens."

Let me be clear: the new Republican bill, like its predecessor, fails to meet the President's basic principles for Medicaid reform. If this bill is sent to the President, I would recommend that he veto it.

I will now discuss why the new Republican Medicaid plan fails to meet each of the President's three core principles.

The Federal Guarantee of Coverage and Benefits

The Federal "guarantee" of coverage and benefits is at the core of the Medicaid program. Unfortunately, the term "guarantee" has been assigned very different meanings in the context of the current Medicaid debate. When we use the term guarantee in the context of a Federal statute like Medicaid, we mean a real guarantee, composed of three interrelated components: definitions of 1) eligibility; 2) benefits, and 3) enforcement.

Eligibility: Let's begin with eligibility. The new Republican bill would deny millions of Americans the Federal guarantee of Medicaid eligibility that they now have under current law. The bill repeals the phase-in of the Federal guarantee of Medicaid coverage for children ages 13 to 18 in families with income below the Federal poverty level -- a bipartisan coverage expansion signed into law by President Bush.

In addition, the new Republican bill repeals the Federal standard for defining disability and replaces it with language that could mean 50 separate state definitions. This has the effect of making Medicaid coverage and benefits for those with disabilities uncertain and variable across the nation. For example, some states could use restricted definitions of disability that result in very limited coverage for those whose needs are pronounced and among the most costly. In fact, States might be forced to narrow their definitions of disability in order to cope with lower Federal funding levels. In such situations, narrow state definitions of disability could preclude individuals with HIV, certain physical disabilities, or mental illness from receiving critically needed services under Medicaid. We should not turn back the clock on those with disabilities by permitting 50 different state definitions for purposes of Medicaid coverage.

The new Republican bill also eliminates the current law requirement that Medicaid be provided for one year to persons who leave welfare in order to join the workforce. By eliminating this guarantee, the Republican proposal could discourage individuals from leaving welfare and set back our efforts to reform the welfare system.

Finally, the new Republican bill gives states the authority to impose additional eligibility limits based on age, residence, employment or immigration status, or more restrictive definitions of assets and income. This provision will enable states, if financially necessary, to restrict eligibility even among those people who supposedly are "guaranteed" coverage.

Benefits: Eligibility is only one component of the guarantee. The next question is "eligibility for what?", which brings us to benefits. The new Republican bill "guarantees" some benefits for those populations who are "guaranteed" eligibility. But this guarantee is hollow. Many loopholes make it essentially meaningless.

One loophole in the "guarantee of benefits" relates to the adequacy of the benefits. Current Medicaid law and regulations already give states substantial flexibility in defining the amount, duration, and scope of benefits, and states have used this flexibility to tailor Medicaid packages to their unique circumstances. This latitude is tempered by a very reasonable constraint -- benefits must be "sufficient to reasonably achieve their purpose." The Republican bill removes this sensible provision, giving states complete flexibility on amount, duration, and scope. Thus, states could "guarantee" coverage for hospital and physician services, but -- if forced to do so -could limit this coverage to unreasonably low levels such as 3 days of hospital care and one physician visit per year. This type of guarantee is meaningless for persons who truly need medical care.

Another loophole in this "guarantee" is the new elimination of current law standards of comparability and "statewideness" of services. Without these standards, some states could offer different coverage and benefit packages in different parts of the state, or to different groups based on their age or diagnosis. Eliminating requirements for comparability and statewideness leaves states free to discriminate against persons who live in certain areas, who have specific diseases (such as AIDS), or who lack political clout (such as children).

The new Republican bill also severely curtails the treatment services which must be provided under the Early and Periodic, Screening, Diagnosis, and Treatment (EPSDT) program. Under the Republican bill, children must be screened for a range of health problems, but treatment is only required for dental, hearing, and vision problems. If a child is diagnosed with any other medical problem, they are not guaranteed treatment. Therefore, an asthmatic child would not be guaranteed coverage for treatment, such as asthma- controlling drugs or inhalers. Diagnosis without treatment is bad medical care and a wasteful use of taxpayers, dollars.

Enforcement: The third essential component of the Federal guarantee is enforcement. Implicit in the concept of defined populations and defined benefits is the notion of a meaningful enforcement mechanism. A Federal cause of action for beneficiaries assures that those seeking a remedy for the deprivation of medical care receive the same due process rights everywhere in the United States. The new Republican bill requires states to provide a state right of action, but eliminates the Federal right of action for individuals and providers who assert that a state is violating Federal Medicaid laws. The only access to Federal court for such claims would be if the Secretary brings the action to Federal court on behalf of the individual or if the individual petitioned the U.S. Supreme Court for review of a decision of a state's highest court. By denying beneficiaries access to the Federal courts, the Republican bill eliminates individuals' guarantee to enforceable Federal benefits. Thus, Medicaid would confer a Federal right to benefits but lack a Federal enforcement mechanism - a virtually unprecedented situation.

Provider suits against states have caused great problems for the states. Under the Administration's plan, the Boren Amendment and related provider payment provisions would be repealed, thereby eliminating these causes of action by providers. Thus, the Administration's plan resolves states' concern about their exposure to providers, suits in Federal court, and does not undermine beneficiaries, ability to enforce their Federal guarantee to coverage and benefits.

On balance, when we assess the three components required to make any guarantee real -- the definitions of eligibility, benefits, and enforcement -- we find that the so-called "guarantee" of Medicaid coverage and benefits contained in the new Republican bill is neither real nor enforceable for beneficiaries. This is not about whether the governors can be trusted. They can be trusted, which is why our proposal offers states unprecedented flexibility in program management and why we have worked with so many states on their innovative demonstrations. The issue is whether an individual, regardless of where he or she lives, is guaranteed meaningful coverage.

Financing

The President's second principle for Medicaid reform is an appropriate financing structure -- namely, one that maintains the Federal-state partnership that has been at the heart of the Medicaid program for 30 years. Under this partnership, Federal dollars follow the people, meaning that the Federal government shares responsibility with the states for increased costs associated with increases in enrollment. As with the Federal guarantee of coverage and benefits, the new Republican bill falls far short of meeting this principle.

This newest financing structure is simply the MediGrant II block grant formula, dressed up with a tiny embellishment to pay lip service to the governors' principles that funding must automatically adjust for enrollment.

To demonstrate this point, I will walk through each component of the financing structure of the new Republican bill.

Base Allotment: The first component of the Republican funding system is called the base allotment. These allotments, which account for an average of 96 percent of total Federal spending over the 6 year period are distributed to states based on a formula that includes factors such as "needs-based amounts" and "program need". Given this structure, at first it might appear that each state's base allotment is determined based on its actual need, including enrollment growth and caseload changes.

However, the base allotment is not what it seems. Only 5 percent of this 96 percent of funding is actually distributed based on need. The remaining 91 percent is distributed to states based on annual caps. Under this system, states' allotments are determined through the use of "floors" and "ceilings", rather than by the results of the needs-based formula. Each year, between 44 and 49 states' allotments are determined through a floor or ceiling. For these states, the new Republican bill is a block grant with a new name.

Furthermore, even the 5 percent "needs-based" funding does not truly reflect the financial need of states in their Medicaid programs. This is because it is determined by the number of poor people in a state rather than Medicaid enrollment growth. As a result, if the number of Medicaid enrollees in a state increases but the number of poor people does not, the state's base allotment would not increase.

Umbrella Fund: The second component of the financing structure is called the "umbrella fund", and it consists of supplemental Federal money that is to be distributed to states with high enrollment growth. But if the Republican umbrella is the states' only protection against the costs of high enrollment growth, the states are going to get drenched. The entire umbrella fund accounts for only 3 percent of all CBO estimated Federal Medicaid spending; thus, it could provide only a fraction of what states would need in times of recession. In addition, it covers enrollment increases only for the year of the increase -not for any later years during which the new enrollees continue to receive Medicaid. Thus, if a state suffered a three-year recession that caused its Medicaid enrollment to rise, it could get umbrella funds for new enrollees for their first year, but could be forced to bear the entire cost of these enrollees for any later years during which they remained on Medicaid.

Assume that the recession begins in year 2. This recession causes a dramatic increase in the state's enrollment, which triggers an umbrella payment to assist the state in covering the costs of these new enrollees. In year three, however, the state's enrollment remains at the same level as in year two, but this time there is no umbrella payment, because these payments are based only on changes in enrollment from the previous year, not total enrollment. Thus, the state is forced to bear the cost of the much higher enrollment with the same amount of Federal assistance as it received in year one.

Pools for Undocumented Aliens and Indians: The final component of the financing structure is $4.3 billion to assist states in providing care for undocumented aliens and Native Americans. The first pool is allocated across the 15 states with the highest numbers of undocumented aliens. The second pool is allocated among all states that have Indian-funded health facilities or programs.

Changes in FMAP and Taxes and Donations Laws

In addition to replacing the current financing partnership with a block grant to states, the new Republican bill also includes two changes in the way states finance their share of Medicaid costs. It increases the rate of Federal contribution to Medicaid (known as the FMAP) for many states, thereby reducing the amount of funds necessary to collect Federal matching funds. It also repeals the restrictions on states' use of provider tax and donation financing mechanisms.

While these proposals are appealing to many states, they raise significant concerns. Specifically, the proposed changes to the FMAP will raise the Federal share of national Medicaid spending from 57 percent to 63 percent. In addition, the FMAP changes could encourage states to reduce their contributions to the program, resulting in even deeper reductions in total Medicaid spending than this bill suggests. The new Republican bill will reduce total Federal spending on Medicaid by $72 billion over 6 years. But total reductions in Medicaid spending could be far greater. The Center for Budget and Policy Priorities estimates that states could reduce their own spending on Medicaid by about $185 billion over 6 years without decreasing the amount of Federal funds for which they are eligible. Thus, the new Republican bill could lead to a total reduction of approximately $257 billion in Medicaid spending over the next 6 years.

Defining and revising the appropriate Federal and state contributions and spending levels through matching formula or other means always will be one of the most difficult issues to settle in any Medicaid reform plan. There is no question that these matters merit careful attention in the long-term. The President's plan proposes to gain advice from an intergovernmental advisory commission on the appropriate relationship between Federal and state funding before the Congress proceeds to change the current distribution.

The new Republican bill also would permit unconstrained use of provider tax and donation financing approaches for the "state" share of Medicaid. These are the same financing approaches that were widely used by some states in the early 1990s to increase their Federal Medicaid payments without actually increasing state Medicaid spending.

During the late 1980s and early 1990s, many states took advantage of these types of financing mechanisms, costing the Federal government billions of dollars and helping to drive annual Medicaid spending growth rates to well over 20 percent. Congress responded in a bipartisan fashion by limiting the provider tax schemes and completely outlawing the donations schemes. Now, the Republican bill seeks to remove these restrictions that were passed with overwhelming bipartisan support just a few years ago. Without these restrictions, states would be free to finance significant portions of the state share without contributing any real state dollars, leading to substantially lower support overall for the Medicaid program.

In summary, the new Republican bill fails to meet the President's second principle for Medicaid reform -- a financing structure that maintains the Federal-state partnership that has been at the heart of the Medicaid program for 30 years. Neither does it meet the financing principles agreed to on a bipartisan basis by the governors. The governors' proposal reflected a willingness to assume a greater responsibility for the management of the Medicaid program, but only if they had a strong financial partner to help meet the costs. The NGA proposal was designed to provide this Federal-state partnership, and was based on a funding mechanism that protected states from the full costs associated with actual changes in enrollment. The money was supposed to follow the people, in order to protect states from unexpected, uncontrollable enrollment increases. When the latest Republican proposal was released, it did not take the Democratic Governors long to realize that the centerpiece of their deal was no longer part of the mix.

Protecting beneficiaries, families, and taxpayers

This brings me to the President's third principle for Medicaid reform: protections for beneficiaries, families, and taxpayers. Once again, the new Republican bill fails to meet the President's principle.

The new Republican bill would repeal title XIX and create a new title for the Medicaid program. This has the effect of seriously compromising the framework for quality standards, beneficiary and family financial protections that limit families, out-of-pocket costs, and program accountability.

Out-of-Pocket Costs: This bill reduces or eliminates many long- standing family and beneficiary protections. For example, it would permit states to require adult children of Medicaid beneficiaries to contribute to the cost of their care, except for long-term care. In addition, the bill grants states broad discretion to impose cost- sharing requirements on Medicaid beneficiaries. It imposes minimal cost-sharing limits only for certain services to children and pregnant women below poverty, leaving other women, children, and most disabled and elderly fully exposed to potentially serious financial consequences. This lack of limits on cost-sharing is another factor which effectively undermines these persons' "guarantee" of eligibility and benefits.

In addition, while the bill retains current law provisions designed to protect spouses and other relatives of nursing home patients from excessive liability for the cost of care, repeal of the more general cost sharing protections significantly minimize these protections. For example, nursing home residents who have spent down their income to become eligible for Medicaid could be charged any level of cost-sharing to help pay for long term care services. In addition, services included in the nursing home benefit could be reduced, leaving the spouses or children of nursing home residents to bear the full cost of these services. Furthermore, states could charge elderly or disabled persons any level of premium, which could be set so high as to effectively exclude them from the program.

Quality Assurance Requirements for Managed Care: In addition, the new Republican bill makes no mention of quality assurance requirements or monitoring responsibilities for Medicaid managed care. This is a serious concern since Medicaid managed care enrollment is increasing so dramatically. About one-third of beneficiaries now are in managed care, a 140 percent increase in enrollment over the past three years. The President's plan recognizes the need for updating managed care quality standards. It replaces some outdated approaches with a quality improvement program that must include appropriate standards for Medicaid-contracting health plans and data analysis that tracks utilization and outcomes.

Fiscal Accountability: Finally, we recognize that the Federal government finances well over half of Medicaid spending nationwide, at a cost to Federal taxpayers which is growing to more than $100 billion a year. The Federal government has a responsibility to those taxpayers to ensure that these funds are spent efficiently and appropriately.

Fulfilling this responsibility requires imposing a minimal amount of reporting and monitoring requirements on states. There are ways, similar to the approach taken in the President's plan, that would provide states with expanded flexibility in management and operation of their Medicaid programs, while ensuring accountability for funds at the same time. Unfortunately, the new Republican bill, includes no quality assurance requirements or monitoring responsibilities for Medicaid managed care, and it contains no mechanism to ensure that changes in benefits and cost-sharing do not jeopardize the sufficiency of coverage. Thus, under the Republican bill, the Federal government will finance a greater percentage of the Medicaid program, but taxpayers will have fewer assurances that their money is being well spent.

In summary, like its predecessor last fall, the new Republican bill fails to meet the President's third principle -protecting beneficiaries, families, and taxpayers.

Let me conclude on Medicaid by focusing on one fundamental structural issue -- whether we approach the task of Medicaid reform by making changes in the current title XIX of the Social Security Act, or by repealing that program and replacing it with a new title. We support reform, not repeal, of title XIX. The potential unintended consequences of repealing and replacing this program are staggering -- for states, beneficiaries, providers, and the Federal government, especially when you consider that it would reopen thirty years of settled litigation. The Congress can address many of the most pressing concerns about any Medicaid reform plan by amending the current law.

We in the Administration believe that Medicaid must be financed through a Federal-state partnership that ensures Federal funding and provides a real, enforceable guarantee of coverage for a defined package of health and long-term care benefits. The President's plan proposes unprecedented flexibility for the states to operate their programs, pay providers, and use managed care and other delivery arrangements, while retaining and revising key standards related to quality and beneficiary financial protections. The President's proposal would achieve those objectives in a way that would also help to balance the budget by 2002.

Welfare Reform

Mr. Chairman, I would now like to turn to welfare reform. As we have worked to enhance state flexibility under Medicaid in the absence of national reform legislation, the Administration has also worked with states to transform their welfare systems to require work, promote parental responsibility, and protect children.

Over the last three years, within the framework of the Family Support Act, we have worked with governors and other state and local elected officials to give 39 states flexibility to design welfare reform strategies that meet their specific needs. These efforts are directly affecting approximately 10 million recipients throughout the country, or 75 percent of all welfare recipients nationwide. States, led by governors of both parties, .are now demanding and supporting work; time-limiting assistance; requiring teens to stay in school and live at home; strengthening child support enforcement; and strengthening families.

The President also has worked with the Congress to expand the Earned Income Tax Credit to help make work pay more than welfare. This program, which President Ronald Reagan said was the most pro- family, pro-work initiative undertaken by the United States in the last generation, means that, in 1994, millions of families with children with incomes under $28,000 paid less in income tax than they would have if the laws hadn't been changed in 1993.

The efforts we have taken at both the Federal and state levels have begun to pay off. Welfare caseloads have declined by 1.3 million since January of 1993 -- a decline of about 9 percent. A larger percentage of those still on the rolls are engaged in work and related activities. Food Stamp rolls have gone down. Teen birth rates have gone down. At the same time, child support collections have gone up, as the Administration has worked to improve state collection efforts, the IRS's offset of income tax refunds, and the ability of the Federal government to make Federal employees accountable for the support they owe their children.

We continue to move ahead. On May 10, the President directed the Department of Health and Human Services to implement an initiative to strengthen parental responsibility among teen parents. This initiative builds on the belief -- which I'm confident is shared by this committee, Congress, and the states -- that encouraging parental responsibility must remain a bipartisan imperative.

The President's initiative includes four actions: requiring all states to submit plans for requiring teen mothers to stay in school and prepare for employment; cutting through red tape to allow states to reward teen mothers who finish high school, in addition to sanctioning those who don't; requiring all states to have teen mothers who have dropped out of school return to school and sign personal responsibility plans; and challenging all states to require minor mothers to live with a responsible adult. With these actions, we're focusing on one of the key components of welfare reform: parental responsibility. And we're putting young mothers on the right path, toward employment and self-sufficiency.

The Need for Legislative Action

While we've made great progress on welfare reform through welfare reform waivers, executive actions, and other initiatives, we still need national welfare reform legislation. As part of his balanced budget plan, the President has proposed a comprehensive welfare reform proposal that would require work, promote parental responsibility, and protect children. The President has made it clear that if Congress sends him a clean welfare reform bill that follows these fundamental principles, he will sign it. However, the President has also made it clear that real welfare reform should not be impeded by attaching harmful proposals to it, such as the elimination of guaranteed health coverage for poor children, pregnant women, and people with disabilities.

Fortunately, we have begun to approach bipartisan consensus on a framework for welfare reform legislation based on these fundamental principles. We believe that the governors have moved the debate forward and increased the likelihood that Republicans and Democrats will produce bipartisan solutions to reforming our welfare system. Senators Chafee and Breaux and their colleagues have also moved us much closer to that goal, and, as I said earlier, we greatly appreciate the great amount of time and outstanding leadership they have committed to this process. We are pleased that the Chairman's bill, S. 1795, reflects some of the significant progress that has been made on welfare reform since the President was forced to veto HR 4.

It is now up to this Administration and this Congress to build on the spirit of these efforts to reach our mutual goals: flexibility for the states; incentives for AFDC recipients to move from welfare to work; increased parental responsibility; and protections for our most precious resource, our children.

The New Republican Bill (S. 1795)

As I mentioned, the Chairman's new bill, S. 1795, makes important improvements to the H.R. 4 conference bill. It incorporates a number of key changes recommended by the Administration and contained in the NGA and the Breaux-Chafee proposals. These are steps in the right direction, and we would urge the Committee to build on this bipartisan ground. However, the bill does not address several issues that are of concern to the Administration, particularly in providing the resources and incentives to protect children, ensure accountability, and move people from welfare to work. And, instead of stand-alone welfare legislation the Administration has repeatedly requested, the new bill continues to link welfare reform with unacceptable Medicaid changes.

We appreciate the steps the Chairman has taken to provide additional protections for children and families in the new Republican bill. The important modifications you have made to H.R. 4 move the legislation much closer to the President's vision of true welfare reform. We are particularly pleased that S. 1795: - reflects an understanding of the child care resources states will need in implementing welfare reform by adding $4 billion for child care above the level in the conference report for H.R. 4. These proposals improve upon H.R. 4, which did not provide child care resources needed for those required to move from welfare to work and low-income working families at-risk of welfare dependency.

• adopts several provisions from last year's Senate-passed bill -- including exemptions from the time limit; a true state option on implementing a family cap; and requirements that teen mothers live at home and stay in school.
  
  
• remains the annual spending cap on Food Stamps, which will preserve the program's ability to expand during periods of economic recession and help families when are most in need.
  
  
• no longer includes the provisions for a child nutrition block grant demonstration proposed in H.R. 4, which would have undermined the program's ability to respond automatically to economic changes and maintain national nutrition standards.
  
  
• recognizes the importance of child support enforcement to welfare reform and includes all of the major proposals for child support enforcement reform in the President's bill.
  
  
• retains the safety net for abused and neglected children, adopted children and children in foster care by continuing critical federal entitlement programs for them.
  
  
• removes the two-tiered benefit system for low income disabled children, and ensures full benefits for all eligible children under the SSI program.

While we applaud the inclusion of many of the provisions endorsed by numerous Democratic and Republican senators and governors, the new Republican bill still fails to include other provisions that have earned bipartisan endorsement.

For example, S. 1795 incorporates almost all of the cuts that were in the bill the President vetoed -- a total of $51 billion (excluding Medicaid) over 6 years under CBO's new baseline. These cuts are far greater than those proposed by the NGA or the Administration. The cuts in Food Stamps and benefits to legal immigrants are particularly deep. In addition, unlike the Administration's bill, the Republican bill would also allow states to substantially reduce their own spending on programs serving low income families, compounding the impact on poor children and families.

We are particularly concerned that S. 1795 actually decreases state flexibility by prohibiting states from providing a safety net for children -- by not allowing them to use block grant funds to provide non-cash assistance or vouchers for children in families who are subject to the 5 year time limit. No such prohibition was contained in H.R. 4 and it is difficult to understand why the leadership has moved in this direction.

Further, the new Republican bill does not maintain the guarantee for medical assistance for all those currently eligible or those who reach the five year time limit. And, as I mentioned previously, S. 1795 fails to continue transitional Medicaid coverage for families leaving welfare for work.

In addition, S. 1795 also fails to provide adequate protection for states in the event of economic downturns. The contingency fund is set at too low a level and does not allow for further expansions (above the $2 billion cap) during poor economic conditions and periods of increased need.

The new Republican bill also makes deep cuts in the Food Stamp program, which take the form of a reduction in benefits to families with high shelter costs and a four month time limit to childless adults who are not give a work slot. It would also permit states to replace the Food Stamp Program with a block grant, jeopardizing the nutrition and health of millions of children, working families, and the elderly.

S. 1795 includes no changes to the unduly harsh and uncompromising immigration provisions that were contained in the H.R. 4 Conference bill. While the Administration supports strengthening requirements on the sponsors of immigrants for SSI, Food Stamps, and AFDC, S. 1795 requires a permanent SSI and Food Stamps ban for virtually all legal immigrants and a 5-year ban on all other Federal programs, including Medicaid, for new immigrants. There are no exemptions for immigrants who become disabled after entering the country, families with children, or for individuals who have been working for a few years and lose their job. The proposal also unfairly shifts costs to states with high numbers of immigrants.

Another concern is the transfer authority to the Social Services Block Grant (SSBG) in the proposed cash assistance block grant. Transfers to SSBG could result in the substitution of Federal dollars for state dollars in a range of state social services activities, potentially reducing or even eliminating the effective state maintenance of effort levels required for the cash block grant.

The Breaux-Chafee proposal addresses many of the Administration concerns and would strengthen state accountability efforts, welfare to work measures and protections for children. It provides one of many foundations upon which this Committee should build to reach our mutual goals: flexibility for the states; incentives for AFDC recipients to move from welfare to work; increased parental responsibility; and protections for children.

The American people want Congress to pass a bill that the President can sign -- that honors our values and ensures fiscal integrity. They want a bill that promotes work and responsibility, but also protects children. They want a bill that supports families who play by the rules and rewards those who work hard to support themselves. They want a bill that ensures accountability for use of taxpayer funds. In short, they want real welfare reform.

Mr. Chairman, let me restate the Administration's commitment to enact bipartisan welfare reform legislation. I know the President shares my hope that, with the leadership of this committee, the bipartisan cooperation that existed in 1988 will surface again to address the critical issue of welfare reform this year.

CONCLUSION

The last time I testified before this committee, I was encouraged that the governors, bipartisan efforts appeared to be moving us toward a solution that could meet the President's principles. Since that time, the Breaux-Chafee group in particular has worked hard to build on the balanced approach envisioned in the NGA Medicaid and welfare agreements. I can assure you that this Administration stands ready to work with the members of this committee and the entire Congress to enact both a balanced budget and Medicaid and welfare reform legislation. we are confident that we can reform the welfare system to promote work and responsibility and protect children, and design a reformed Medicaid program that will meet the needs of beneficiaries, states, and taxpayers. We look forward to working in a bipartisan way to enact both Medicaid and welfare reform legislation of which we can all be proud.