Legislative Update – FY 2006 Federal Budget Proposal; President Bush – (FY) 2006 Budget Proposal

To: National Association for the Advancement of Orthotics and Prosthetics

From: Peter Thomas, Dustin May, Emily Niederman

Date: February 17, 2005

Re: Legislative Update – (FY) 2006 Budget Proposal

On Monday, February 7, 2005, President Bush released his fiscal year (FY)
2006 Budget Proposal. The Administration’s $2.57 trillion budget includes
$840.3 billion for annually appropriated discretionary programs and the
remainder in entitlement spending including Social Security, Medicare and
Medicaid.

The Budget Proposal represents a much more austere spending agenda in terms
of domestic programs than the President has recommended in the past and
holds discretionary spending nearly level for the next 5 year period. The
President’s budget suggests an increase in discretionary spending (2.1
percent) that is less than the rate of inflation and would require $137
billion in savings over 10 years from cuts to mandatory programs such as
Medicaid.

While discretionary spending on domestic programs would be limited, defense
programs would see almost a five percent increase over FY 2005 levels for a
total of $419.3 billion. Homeland Security funding also would rise by
almost $1 billion to $32.2 billion under the President’s Budget.

Health and Human Services

Total discretionary spending for the Department of Health and Human Services
(HHS) under the President’s Budget would fall to $67.2 billion, a 1 percent
decrease from FY 2005.

The Centers for Medicare and Medicaid Services (CMS) would receive about
$545.5 billion with Medicaid consuming 35 percent of those dollars, Medicare
62 percent, and the State Children’s Health Insurance Program (SCHIP) one
percent. $142 billion would be committed toward new spending on
market-based health insurance initiatives (primarily through tax credits.)

The President proposes significant cuts to the Medicaid program in his FY
2006 Budget Proposal. Over 10 years federal spending on Medicaid would
decrease by a net $45 billion (gross $60 billion). According to the
President, savings should be found through the reduction of “waste, fraud
and abuse.” These initiatives include curbing the use of Intergovernmental
Transfers (IGT) and Upper Payment Limits (UPL)-that many states use to draw
down additional federal dollars-reducing the reimbursement of prescription
drugs through the Average Sales Price, “closing loopholes” on asset
transfers for long-term care eligibility and limiting the Targeted Case
Management reimbursement to a 50% matching rate rather than the FMAP rate in
each state.

Over 10 years, Medicaid and SCHIP spending on coverage initiatives will
increase by about $15 billion and include initiatives such as outreach
campaigns and demonstration projects under the President’s New Freedom
Initiative.

The New Freedom Initiative Demonstration Projects include “The Money Follows
the Person Rebalancing Demonstration” to cost $1.75 billion over five years.
Grants would pay for people with disabilities to move from institutional
care to at-home care. The federal government would continue to agree to pay
the state a 100% matching rate for the first year if the state agrees to pay
for home and community-based care every year thereafter at the regular
Medicaid matching rate.

The New Freedom Initiative Demonstration projects also include three
separate “Home & Community-Based Care Demonstration Projects” that would
encourage home and community-based services for children and adults with
disabilities. The “Respite for Caregivers of Disabled Adults” demonstration
would test whether respite care, or temporary care, reduces primary
caregiver ‘burn-out.’ This program would cost approximately $134 million
over five years. The “Respite Care for Caregivers of Children with a
Substantial Disability” demonstration would allow states to provide respite
care to caregivers of children with substantial disabilities in an effort to
examine costs and utilization. This program would cost $23 million over five
years. Finally, the “Community Alternative to Children’s Residential
Treatment Facilities” demonstration would allow a limited number of states
to establish HCBS for children in residential psychiatric treatment
facilities. There is no cost estimate for this program.

The President’s Budget also includes new market-based health insurance
coverage initiatives that would cost about $126 billion in funding over 10
years. These initiatives include $74 billion for health insurance tax
credits, $4 billion for grants to states to establish insurance purchasing
pools (Association Health Plans), $28.5 billion for tax incentives for
Health Savings Accounts (HSAs), and $19.2 billion for rebates to small
employers contributing to HSAs.

The President’s budget also incorporates language that encourages
flexibility for Governors in implementing their Medicaid programs in a
“budget neutral” manner. Many interest groups interpret this language to
mean that the President is supporting a cap on federal Medicaid spending as
the terms “flexibility” and “budget neutral” have historically been tied to
such proposals.

Other HHS Programs Impacting People with Disabilities

The Centers for Disease Control and Prevention (CDC) would receive $4.04
billion in FY 2006, down from the $4.5 billion appropriated in FY 2005.
Many CDC programs critical for people with disabilities, including the
Chronic Disease Prevention Program, Birth Defects/Developmental
Disabilities/Disability and Health, and the CDC Injury Control program, were
cut completely from the budget. Though this is clearly not a good precedent
for these programs in the upcoming appropriations cycle, we do expect
Congress to restore some or all of the funding for these programs in FY
2006.
The Agency for Healthcare Research and Quality (AHRQ) is slated to receive
level funding of $318.7 million in the FY 2006 budget. This amount is
almost $15.0 million above the Administration’s FY 2005 request and the
comparable funding level for FY 2004. Although the AHRQ funding level
increased in FY 2005, funding for project earmarked for the Medicare reform
bill has lowered the budgets for other AHRQ programs in general. The agency
was established in 1990 to promote improvements in clinical practice and
patient care outcomes, promote improvements in the financing, organization,
and delivery of health care services, and increase access to quality care.
AHRQ is also the federal agency charged to produce and disseminate
scientific and policy-relevant information about the cost, quality, access,
and medical effectiveness of health care.

Department of Education

Vocational Rehabilitation State Grants would receive a 3.1 percent increase
for a total of $2.7 billion in funding under the President’s Budget. These
grants fund vocational rehabilitation in each state. But included in the
fine print of the budget document is a proposal to restructure the VR
program, along with eight other Labor-related programs. The proposal seeks
to grant Governors the flexibility to pool funds under a number of
employment-related state grant programs, including vocational
rehabilitation. This is a major development that will receive great
scrutiny over the coming months.

Assistive Technology state grants were funded at $15 million under the
President’s Budget Proposal. This is 50 percent less than Congress
appropriated for this program in FY 2005. Under this program, grants are
made to States to establish or expand alternative financing programs to
increase access to assistive technology for people with disabilities. The
Assistive Technology Act was reauthorized by the 108th Congress and excluded
the sunset provision in the original bill, granting this law a permanent
authorization.

The National Institute on Disability and Rehabilitation Research (NIDRR) was
level funded under the President’s FY 2006 budget at $108 million. NIDRR is
charged with supporting a coordinated program of rehabilitation research and
related activities.

The President’s budget zero-funded the Projects with Industry program,
although the Bush budget has proposed similar treatment to this program in
prior years and Congress has level-funded the PWI program in each of the
last two years.

Separate funding for Supported Employment State Grants was eliminated under
the FY 2006 President’s Budget Proposal. The President proposed to
eliminate funding in his FY 2005 Budget Proposal as well; however, Congress
funded this program at $37 million in FY 2005. Similar to “Projects with
Industry,” VR funds have been used to continue to fund these programs. The
Supported Employment program assists persons who may be considered too
severely disabled to benefit from vocational rehabilitation services by
providing the ongoing support need to eventually obtain competitive
employment. Short-term vocational rehabilitation services are augmented
with extended services provided by State and local organizations. Federal
funds are distributed on the basis of population.

Conclusion

The FY 2006 budget is one of the most austere budget proposals to come from
any Administration in many years. It is difficult to imagine a sector of
the population that is more adversely impacted by the cuts and spending
limits placed on a wide swath of programs than that of the disability
community. It will be an extremely challenging year for those who rely on
disability-related programs to simply to tread water.

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