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34–648 PDF 2007

S. HRG. 110–128

BOOMERS AND THE BUDGET: WHAT DOES IT

MEAN FOR AMERICA’S SENIORS?

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

WASHINGTON, DC

FEBRUARY 15, 2007

Serial No. 110–2

Printed for the use of the Special Committee on Aging

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 

SPECIAL COMMITTEE ON AGING 

HERB KOHL, Wisconsin, Chairman 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

BILL NELSON, Florida 

HILLARY RODHAM CLINTON, New York 

KEN SALAZAR, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

CLAIRE McCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

GORDON H. SMITH, Oregon 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

MEL MARTINEZ, Florida 

LARRY E. CRAIG, Idaho 

ELIZABETH DOLE, North Carolina 

NORM COLEMAN, Minnesota 

DAVID VITTER, Louisiana 

BOB CORKER, Tennessee 

ARLEN SPECTER, Pennsylvania 

JULIE COHEN, Staff Director 

CATHERINE FINLEY, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Gordon H. Smith ................................................. 1

PANEL OF WITNESSES

Michael Astrue, commissioner, U.S. Social Security Administration, Washington, DC ............................................................................................................. 2

Leslie Norwalk, acting administrator, Centers for Medicaid and Medicare 

Services, U.S. Department of Health and Human Services, Washington, 

DC .......................................................................................................................... 13

Josefina G. Carbonell, assistant secretary for Aging, U.S. Department of 

Health and Human Services, Washington, DC ................................................. 29

Brian Montgomery, assistant secretary for Housing, U.S. Department of 

Housing and Urban Development, Washington, DC ......................................... 46

APPENDIX 

Questions from Senator Smith for Michael Astrue ............................................... 55

Questions from Senator Smith for Leslie Norwalk ............................................... 56

Questions from Senator Smith for Josefina Carbonell ......................................... 60

Questions from Senator Smith for Brian Montgomery ......................................... 61

Testimony submitted by John Erickson, CEO of Erickson Retirement Communities ...................................................................................................................... 64

(III) 

(1)

BOOMERS AND THE BUDGET: WHAT DOES IT 

MEAN FOR AMERICA’S SENIORS? 

THURSDAY, FEBRUARY 15, 2007 

U.S. SENATE, SPECIAL COMMITTEE ON AGING, Washington, DC. 

The committee met, pursuant to notice, at 10:03 a.m., in room 

562, Dirksen Senate Office Building, Hon. Gordon H. Smith (ranking member of the committee) presiding. 

Present: Senator Smith. 

OPENING STATEMENT OF SENATOR GORDON H. SMITH, 

RANKING MEMBER 

Senator SMITH. Good morning, ladies and gentlemen. We welcome you to this hearing of the Senate Special Committee on 

Aging. 

Senator Kohl is the chairman of this Committee, and he and I 

continue to have, as we did in the 109th Congress, a very constructive and bipartisan relationship that continues the tradition of this 

Committee. 

Senator Kohl is delayed because of his need to be in an Appropriations Committee markup and will be here when, and if, he is 

able to make it. 

In addition, we have two scheduled votes, I believe, at 10:30. So 

I would propose that, after my statement, we get everybody’s testimony in. Then we can recess for a brief time and come back for 

Q&A. 

With each new year comes a new budget and a new responsibility for Congress to ensure that our Government and the important programs it supports are sufficiently funded. 

Last week, President Bush released his outline for fiscal year 

2008. I felt it appropriate to convene members of this Committee 

to hear directly from top agency officials on how programs and 

services for seniors will be impacted by the President’s budget. 

Today, we are fortunate to be joined by Commissioner Michael 

Astrue of the Social Security Administration; Acting Administrator 

Leslie Norwalk of the Centers for Medicare and Medicaid Services; 

Assistant Secretary for Aging Josefina G. Carbonell at the Administration on Aging; and Assistant Secretary Brian Montgomery at 

the Department of Housing and Urban Development. 

All our witnesses’ respective agencies are vitally important to 

this discussion, and I look forward to their comments. 

I would like to extend a special thank you to Commissioner 

Astrue, whose first day on the job was this past Monday. He reVerDate 0ct 09 2002 11:54 Aug 28, 2007 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 H:\DOCS\34648.TXT SAGING1 PsN: JOYCE
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minded me he is entitled to a honeymoon of at least a week. 

[Laughter.] 

I appreciate his willingness to make this debut before Congress 

as the new SSA commissioner here before the Aging Committee. 

In my opinion, the Social Security Administration is one of the 

Government’s most important agencies to the well-being of society’s 

most vulnerable. I look forward to speaking with Commissioner 

Astrue about SSA’s funding needs to ensure that the agency continues to provide quality service. 

Along with SSA, the Centers for Medicare and Medicaid Services 

is tasked with running some of the most vital programs for our 

health-care safety net. I am deeply concerned about the impact of 

many of the proposals put forth in the fiscal year 2008 budget related to Medicare and Medicaid. Given that about 92 million Americans receive benefits from these important programs, we should 

think twice before cutting care to those in need solely on the basis 

of reducing costs. 

I am pleased with the President’s request to provide funding for 

the newly created Choices program at the Administration on Aging 

(AoA). America’s baby-boomer population is facing the often tough 

process of planning for their long-term care needs, and the Choices 

program will help them make more informed decisions. 

This is definitely a step in the right direction, but we need to recognize that the budget for the agency as a whole has been cut by 

$28 million from 2007. As AOA is a main source of funds for the 

coordination of local services for the elderly across America, I look 

forward to hearing from the assistant secretary on this and other 

critical resources at AOA. 

Last, we are fortunate to have with us today Assistant Secretary 

Montgomery from the Department of Housing and Urban Development. HUD provides critical housing programs and services for the 

elderly, such as a reverse mortgage program and assistance programs for those who need affordable housing. My hope is that the 

assistant secretary will shed some light on the funding needs of 

these important programs. 

So, with that, awaiting our Chairman, I think in the interest of 

time we will go ahead. 

So, Michael, take it away. 

STATEMENT OF MICHAEL ASTRUE, COMMISSIONER, U.S. 

SOCIAL SECURITY ADMINISTRATION, WASHINGTON, DC 

Mr. ASTRUE. Thank you very much, Mr. Chairman. 

Mr. Chairman and members of the Committee, I am very pleased 

to be here today to discuss the impact of past years’ budget allocations on Social Security beneficiaries now and in the future. 

Let me say at the outset that we appreciate your unflagging support for SSA, and I am looking forward to working with you and 

this Committee during my term. 

As I said at my confirmation hearing, my goal is to be a good 

steward of the program for both current and future beneficiaries. 

For current beneficiaries, this role means setting high standards 

for management, performance, service and program integrity, and 

committing to meeting those standards. It also means being painsVerDate 0ct 09 2002 11:54 Aug 28, 2007 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 H:\DOCS\34648.TXT SAGING1 PsN: JOYCE
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taking in making sure the Agency adheres to the law and bestdemonstrated practices of accounting, efficiency and compassion. 

For future beneficiaries, good stewardship means engaging with 

others in the Agency and the executive branch, with members of 

this Committee and other Senators, as well as outside groups and 

experts, to provide unbiased data about all the options for safeguarding the financial stability of the program. 

It is part of our obligation to the American public that we must 

continue the best possible support for older Americans, people with 

disabilities and their families in the coming decades. 

SSA’s mission is to deliver high-quality service to every claimant, 

beneficiary and the American taxpayer. In my written statement, 

I detail the magnitude of those workloads. 

Our traditional workloads are to make Social Security and SSI 

payments, process benefit claims and conduct hearings on appeals 

of SSA decisions. We also issue new and replacement social security cards, process earnings records, issue Social Security statements, and handle transactions through the 800-number service 

centers. 

At the same time, other workloads are growing, not only due to 

demographics, but also because many pieces of new legislation require SSA to undertake additional work. 

For example, the new Medicare prescription drug program required that, among other responsibilities, SSA take applications 

and make eligibility determinations for individuals with limited income and resources who might qualify for extra help with prescription drug coverage. 

In the last 5 years, reductions to the President’s budget requests have totaled $720 million, equivalent to about 8,000 workyears. 

These numbers are not just statistics. They represent a diminished 

level of service. I share your concern about the impact this reduction has had on applicants who filed for disability benefits. 

The Commissioner of Social Security has very little discretion relating to most of the Agency’s expenditures. Almost everything the 

Agency does is mandated by Congress. So, unlike a regulatory 

agency that can prioritize enforcement or a grant-making agency 

that can impose a percentage cut across the board, the Commissioner does not have that flexibility. 

For example, in recent years, SSA has concentrated resources on 

handling initial claims. However, the number of hearings pending, 

as well as processing times at the hearings level, has continued to 

increase since fiscal year 2001. The outlook for fiscal year 2007 is 

even more challenging. 

Unfortunately, funding for SSA’s administrative expenses will be 

$200 million below the President’s budget request. For a time, it 

appeared that the shortfall would be much greater. 

We appreciate the significant increase from fiscal year 2006 levels that was included in House Joint Resolution 20, as it was approved yesterday, I believe, by the Congress. 

We also are greatly relieved that we will not have to resort to 

employee furloughs, which looked like a real possibility. 

However, reductions from the President’s budget for the coming 

year would have a direct effect on SSA’s ability to process key 

workloads. If we had received the President’s budget each year 

4

from fiscal year 2002 through fiscal year 2006, SSA would be in 

much better shape, not only in initial disability claims and hearings backlogs, but also in program integrity work. 

Funding shortfalls have meant substantial reductions in scheduled program integrity activities, which include reviewing whether 

recipients of disability insurance benefits continue to be eligible 

and whether SSI recipients continue to meet income and resource 

criteria for program eligibility. 

We have faced some increasingly difficult decisions. Over time, as 

we worked to keep pace with initial claims and hearings, we reduced spending for program integrity work, and that is a very disturbing trend. This work is tremendously important for safeguarding the trust funds, as well as the Treasury’s general revenue 

funds. Social Security continuing disability reviews save $10 for 

every $1 invested, and SSI redeterminations save $7 for every $1 

spent. 

Accordingly, the President’s budget for fiscal year 2008 includes $213 million for increased program integrity work and proposes a 

comparable adjustment to the discretionary spending caps. My 

written statement details the number of CDRs and redeterminations that we estimate this funding will allow. 

In conclusion, Mr. Chairman, let me express my gratitude to my 

predecessor, Commissioner Barnhart, for her excellent work 

throughout her tenure. I will do everything I can to live up to her 

standard and will be another good steward for the Social Security 

Administration. 

I know that our employees have a deep commitment to finding 

better ways to be more responsive to those who depend on our service and fiscal stewardship. 

Thank you. I will be happy to answer later any questions that 

you or other members of the Committee may have. 

[The prepared statement of Mr. Astrue follows:]

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Senator SMITH. I have just been informed that there will be three 

votes. So what I am going to try to do is ask each of you a question 

and try and get this hearing done. This deserves a lot more time 

than we are being given, but three votes will take 45 minutes to 

an hour, and I know you all have schedules, as well. 

So such questions that are not asked by me or colleagues who 

may yet show up, will be submitted to you in writing for your responses. 

How about backlogs? You got a handle on those, Michael? 

Mr. ASTRUE. Well, I am working on it. It really is an important 

priority for me and one of my main interests in coming back to the 

Agency. 

It is going to take a little bit more time to decide what we are 

actually going to do. 

One thing that I have said is there has been an important initiative in the Agency, that is being tested in the Boston region, on a 

number of changes to the disability system. I think the intent of 

the plan was to treat that as a package and then roll it out region 

by region, one or two a year for many years. 

I think that we have to approach the backlog issue with much 

more urgency than that, so what I have indicated is——

Senator SMITH. Do you have the resources? 

Mr. ASTRUE. Well——

Senator SMITH. I mean, I am specifically concerned about disability cases and the transition from paper to electronics. 

Mr. ASTRUE. The resources are a real issue. Let me focus, perhaps, just on one for a moment, which is at the Office of Disability 

Adjudication and Review (ODAR), which handles all of the hearings and appeals. 

The Administrative Law Judges (ALJs)—our numbers stayed 

flat, approximately, over the last 5 years for the case levels. The 

threat of furloughs has meant that we have had a hiring freeze. 

There are severe restrictions on overtime. 

The impact specifically, if I remember the numbers correctly on 

ODAR, is that for support staff for each ALJ—because we try to 

highly leverage the ALJs—5 years ago, it was about 5.2 employees 

per ALJ; that is down to about 4.2. That has, I think, had a serious 

impact on the efficiency of the ALJ work. 

Plus, we have the issue—we have been waiting for some time, 

and I gather that help is maybe imminent—but we haven’t been 

able to get a new roster for ALJs for 10 years. However, if that roster comes out later this year, depending on where the funding is, 

it is going to be difficult to hire the number of ALJs that we would 

need to make a serious dent in that (ODAR) workload. So that is, 

I think, very dependent on the funding. 

At the earlier stage of the process, the funding is important too. 

We may have a little bit more flexibility, through administrative 

changes, to make some impact on those workloads. But clearly, if 

the funding stays bare-bones, it could be very limited in terms of 

what we do, particularly since a lot of the changes that are going 

to be efficient over the long run require technology investments up 

front. 

If you are dealing with furloughs and restrictions on workloads, 

you are clearly dealing with budgets where you are just making 

13

patches in the systems, instead of the larger investments that are 

more efficient in the long run. 

Senator SMITH. I am going to have one other question for you, 

Michael, but it is really a joint question for you and Leslie. 

So, Leslie, why don’t we go to your testimony? 

STATEMENT OF LESLIE NORWALK, ACTING ADMINISTRATOR, 

CENTERS FOR MEDICAID AND MEDICARE SERVICES, U.S. 

DEPARTMENT OF HEALTH AND HUMAN SERVICES, WASHINGTON, DC 

Ms. NORWALK. Senator Smith, I would like to thank you and 

Chairman Kohl for inviting me this morning to discuss the President’s fiscal year 2008 budget proposals. I am honored to share this 

panel with my very distinguished colleagues. 

As you know, CMS is the largest purchaser of health care in the 

world. We will provide coverage under Medicare, Medicaid and 

SCHIP to nearly 100 million beneficiaries in fiscal year 2008. That 

is roughly one in three Americans. 

Combined, Medicare and Medicaid pay about one-third of National health expenditures and account for nearly one-fifth of the 

President’s overall budget. 

This Administration has worked for the past 6 years to efficiently 

and effectively manage Medicare, Medicaid and all programs that 

impact seniors. Together with Congress and our partners, especially those joining me at the table today, we have made great 

strides in improving health-care benefits and quality for millions of 

seniors. 

The new Medicare prescription drug benefit, or Part D, is a great 

example of our collaborative efforts and one that has had a profound impact on seniors’ lives. Just one year into the new benefit, 

more than 90 percent of people with Medicare have drug coverage, 

and that is from Medicare Part D or another source. Beneficiary 

satisfaction is high, and the costs that were projected initially are 

lower, both for beneficiaries and for taxpayers. 

Unprecedented collaboration at the Federal, State and local levels made this initial success possible, and it continues today. We 

continue to work with our partners, including the Administration 

on Aging, to reach additional seniors who could benefit from Part 

D, particularly those who might qualify for the low-income subsidy. 

We have been working diligently to address systems and other 

issues that have arisen, and I am particularly grateful to SSA in 

this regard for its collaboration. 

I recognize many on this Committee are aware of problems encountered with the premium withhold, and I want to assure you 

that we are working closely with SSA to address those problems. 

Medicare Advantage has also been a great success for the Medicare program, providing valuable assistance to millions of seniors. 

On average in 2006, beneficiaries enrolled in Medicare Advantage 

plans saved about $82 a month in out-of-pocket expenses and are 

expected to save even more in 2007. Beneficiaries in all 50 States 

now have access to at least one Medicare Advantage plan. 

Experts have underscored repeatedly in recent years the importance of taking action now to address Medicare’s long-term financial challenges. For example, in its March 2006 report to Congress, 

14

MedPAC cautioned, ‘‘Even if policymakers succeed at moving providers toward greater efficiency, they may still need to make other 

policy changes to help ensure the program’s financing is sustainable into the future.’’ The President’s budget is a first step toward 

doing just that. The President’s budget for Medicare and Medicaid 

focuses on long-term sustainability for both programs. We are committed to modern, comprehensive care for those currently enrolled 

and to ensuring that future generations of seniors have access to 

comparable benefits. 

Legislative and administrative changes proposed for the Medicare program would slow the projected annual average growth over 

the next 5 years from 6.5 percent to 5.6 percent per year. Our Medicaid proposals would slow the growth rate from 7.3 percent to 7.1 

percent over that same time period. 

In addition to the budget’s reform initiatives, we have implemented many provisions of the Deficit Reduction Act signed into 

law last year. 

These reforms represent the most important changes in 15 years 

to end the long-standing Medicaid bias toward institutional care. 

While institutional care may be the best choice for many, provisions in the DRA, like cash and counseling and Money-Follows-thePerson, are helping to make home and community-based services 

a real option for Medicaid beneficiaries, particularly those who are 

dual-eligible. 

Finally, I want to acknowledge the letter that three members of 

this Committee and seven other Senators sent to the President on 

Tuesday offering to work together to pass legislation that would: 

ensure that all Americans have affordable, quality, private healthcare coverage, while protecting Government programs; modernize 

Federal tax rules for health coverage; create more opportunities 

and incentives for States to design solutions for their citizens; take 

steps to create a culture of wellness through prevention strategies, 

rather than perpetuating our current emphasis on sick care; encourage more cost-effective, chronic and compassionate end-of-life 

care; and improve access on information on price and quality of 

services. 

CMS is committed, with Congress, to continue improvements to 

Medicare, Medicaid, SCHIP reauthorization and initiatives like affordable choices that ensure all Americans have access to affordable, quality, private health insurance. Through innovation and 

modernization, we can make all of these programs stronger for today’s seniors and future generations. 

I thank you, Senator. I am happy to take whatever questions you 

have now and certainly answer those that you want to submit for 

the record. 

[The prepared statement of Ms. Norwalk follows:]

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Senator SMITH. Thank you, Leslie. 

As you might recall, you and I met with Michael’s predecessor, 

and we discussed the enormous transition difficulties in implementation on Medicare Part D. I expressed to you then, and I express 

to you now, the frustration that many feel, and I have certainly 

felt, that beneficiaries are bearing the financial brunt of the Government’s inability to correctly withhold Part D premiums from 

their Social Security checks, and so they come with a one-lump 

sum recoupment. 

During our meeting, I urged that CMS and SSA figure out how 

to implement a solution that permits beneficiaries the option to 

have retroactively owed premiums deducted from their checks in 

installments, rather than the harsh, one-lump sum. 

To date, your agencies have not found a solution, and I continue 

to hear complaints from seniors about this. I am wondering why 

your agencies can’t pull this together, and what you can do to 

smooth this out. 

Ms. NORWALK. Well, we agree that there have certainly been 

issues in the past over premium withhold, and we find if even one 

beneficiary has a problem, that is regrettable. We have much work 

to do to ensure that we can reduce those numbers from one month 

to the next. We have made some great progress. 

As to your specific point about gradually repaying those payments that were not properly withheld to begin with, Mike and I, 

in fact, had a discussion earlier this week to discuss just that. 

Our initial proposal or initial discussions with Social Security in 

2005 focused more specifically on paying gradually over time—paying a single month’s premium over several months, and we thought 

that didn’t make sense. 

Certainly, we did not anticipate the sorts of problems that we 

have been having with premium withhold, and I think gradually 

repaying payments that would be overpayments are a different 

issue. 

While Mike and I talked about that from a policy perspective, I 

think that that makes some sense. It is one of the things that we 

have been working with the prescription drug plans to allow those 

beneficiaries who need to repay over a certain amount of time to 

do that on a gradual basis and appreciate the ease it would be for 

those beneficiaries to have those taken out of their Social Security 

checks on a gradual basis rather than a lump sum. 

Now, I can’t speak specifically to the systems implications it has 

for Social Security, but I am quite sure that they would not be insignificant. 

Senator SMITH. No problem, though, is it, Michael? 

Mr. ASTRUE. Well——[Laughter.] 

That is partly up to the Congress. I think that certainly whatever decision Acting Administrator Norwalk makes, we will implement as quickly and as effectively as we can. 

I do want to acknowledge that, with this era of budget reductions, one of the areas of the agency that has really been taking 

a hit, and it has been very hard, has been the systems area. The 

exact amount of time and money that the systems adjustments will 

require, once we know what any change in policy is, I can’t provide 

27

right now, because we don’t know what it would be. But we will 

certainly try to do our best as quickly as possible. 

I will say that I certainly have felt, right from the get-go, that 

CMS has been trying very hard to address this issue. When I was 

going through the confirmation process, out of respect for the Senate and for Commissioner Barnhart, I walled myself off from the 

executive branch. 

But Mark McClellan, in his last week, and Leslie did ask the 

White House for me to make an exception, in essence, so they could 

sit down, particularly while Mark was still on board, to talk 

through what the experience had been and what we can do better 

and that type of thing. 

So I think there is a genuine commitment to trying to do this 

better. I had the first level briefing from my staff on this, and so 

I do know that there has been substantial improvement. 

But nobody is fooling him- or herself in thinking that we are 

where we need to be, because we are not. We are going to continue 

to try very hard to get to where we need to be. 

Senator SMITH. Well, thank you. It is an urgency, and we do 

need to find a solution. The sooner we do, the better service we are 

going to provide to seniors on cutting through all the complexity of 

Part D. 

Leslie, anybody on the Finance Committee especially knows the 

tremendous demographic and financial pressures that Medicare 

and Medicaid will be under. Yet balanced against the need for sustainability of these programs is just the harsh reality that the 

President’s budget proposes cutting $75.6 billion from Medicare. I 

don’t know how that squares with efficiencies in actually delivering 

the same care or improved care to seniors. 

Where does the $76 billion or $75.6 billion come from? 

Ms. NORWALK. Well, it is, of course, that is a 10-year projection. 

One of the things that we start with for sources of information is 

MedPAC. Starting with MedPAC, augmented certainly with our Office of the Actuary, as well as work that has been done, watching 

what we hear from the private market, MedPAC tells us there are 

a number of questions in determining whether or not current payments are adequate and what changes would be expected to come 

in the coming year. 

They have a number of indicators that they look at across each 

of the sectors, including beneficiary access, capacity and supply, access to capital, payments and costs, volume, quality, as well as 

economy-wide productivity and input prices. These are things that 

help guide not just MedPAC but certainly the agency in determining how to put together its budget. 

One of the things that MedPAC said in its executive summary 

in the report to Congress last March was focusing, in fact, on this 

efficiency and the productivity gains that they think that providers 

should be able to make, particularly institutional providers. As I 

noted in my opening statement, this is particularly important given 

the sustainability of the program. 

One of the comments that MedPAC makes is strategies to address Medicare’s long-term sustainability, including constraining 

payment rates for health-care providers, rationalizing benefits, increasing the program’s financing, encouraging greater efficiency 

28

from health-care providers. Increasing efficiency is the most desirable because it would enable Medicare to do more with its resources. 

In many of their recommendations in the report from last March, 

they focus on the productivity across the entire sector. If you look 

at our budget, productivity, as accounted for by the Bureau of 

Labor Statistics for this year, I think it is for 2007, is anticipated 

to be 1.3 percent. 

So, you will see many of our recommendations are things like 

market basket minus half of that number, or .65. So, for example, 

the hospital sector would be getting an increase in payments of 

3.25 percent for fiscal year 2008. 

If you look at our proposals over time, you will see that most of 

them have those sorts of productivity adjustments to the market 

basket going forward. There are a few exceptions to that, and we 

also looked at what MedPAC said in most other areas. MedPAC 

really focuses on a single year. We are looking longer-term. 

But we looked at, for example, skilled nursing facilities and home 

health facilities. MedPAC, looking at those factors I mentioned at 

the outset, such as access to capital, quality, volume, the ability for 

beneficiaries to see those particular provider types, recommended 

for those two facility types just flat rates, no market basket increase at all. 

So a lot of our discussion in putting that budget together, we 

looked very closely at what we are seeing in the markets, the ability for beneficiaries to actually get these services, margins and the 

like, and we paid very close attention to them across the board. 

Senator SMITH. So you are representing the Administration’s 

view that a cut of nearly $76 billion from a current service level 

basis will not be felt by seniors. 

Ms. NORWALK. Well, we do watch from one year to the next. We 

do want to ensure that seniors continue to have access to these 

services and they continue to have quality improvements. 

In many of the different provider types, we have seen explosive 

growth in the number of providers that are providing services in 

any number of these industries. We have not seen them falling off 

over time. We have seen healthy margins in many of these industries. 

Moreover, we are looking at historically what has been happening over time, for example, in the hospital industry. The updates that have been provided historically over the past 20 years 

are about 63 percent of the market basket. We are proposing an 

83 percent of market basket, so it is actually greater than historical 

reimbursement rates in that particular sector. 

So we look at each of those sectors specifically, and absolutely 

are concerned that seniors have access to these services on an ongoing basis. 

Senator SMITH. Well, I could talk to you all day on this, but the 

vote has started and I do want to get in our other witnesses and 

their testimony. 

So, Josefina Carbonell, thank you for being here. If you can abbreviate it, all of your testimony will be put into the record. 

29

STATEMENT OF JOSEFINA G. CARBONELL, ASSISTANT SECRETARY FOR AGING, U.S. DEPARTMENT OF HEALTH AND 

HUMAN SERVICES, WASHINGTON, DC 

Ms. CARBONELL. Thank you, Senator Smith, Chairman Kohl, 

members of the Committee, thank you for this wonderful opportunity to discuss the Administration on Aging’s priorities and, our 

budget request for FY 2008. 

We are witnessing sweeping transformations in this country. 

Every seven seconds today, and for the next 20 years, someone in 

America will turn 60. 

The framers of the Older Americans Act programs anticipated 

the aging of our population and charted out a vision for a national 

aging services network of public and private organizations focused 

on a common mission to ensure the dignity and independence of 

older Americans. 

The Act charged this network with the responsibility to promote 

the development of a comprehensive and coordinated system of 

home- and community-based services that will enable our seniors 

to remain independent in their own homes and communities for as 

long as possible. 

The Act and the services network is one of our Nation’s great 

success stories. The network has built the foundation of our Nation’s systems of home- and community-based care, and it reaches 

into every community and serves over 8 million seniors and almost 

1 million family caregivers each year. 

The network has also fulfilled the intent of the Act to use the 

Federal investments to leverage other funds and to integrate services. For every dollar we invest in the Act, the network leverages 

about 3 additional dollars in public and private support. Today, the 

network is managing a total of about $4 billion in funding, making 

it the largest provider of home- and community-based services in 

the Nation. 

The network has been playing a major role in the transformation 

of Medicare, and this has been most visible in our partnership with 

the Centers for Medicare and Medicaid Service (CMS) to provide 

community-level education, outreach and personalized assistance to 

millions of seniors during the campaign. The network supported 

over 84 percent of the 49,000 events that were held at the community level. 

The modernization of the programs under the Older Americans 

Act is my number-one priority. I am guided in this effort by the 

President’s New Freedom Initiative, by input from our consumers 

and key stakeholders, and through our network’s innovations in rebalancing State and local systems of care. 

Senator Smith, as you well know, it was the aging network in 

your own home State of Oregon that led the way for the rest of the 

Nation over 15 years ago when it successfully redirected Medicaid 

funding for long-term care and created a more balanced system 

where half of all public funding for long-term care is spent on costefficient home- and community-based care. 

All of us have heard from consumers, both older and younger 

alike, that they want to remain at home. But our system is still 

biased in favor of expensive institutional care. People find it very 

difficult to learn about and access lower-cost alternatives. 

30

We have implemented several projects in this area for the last 

five years to help modernize our programs and improve their efficiencies so we can help seniors remain at home. Of particular note, 

I want to call attention to the map that we have on display. 

We are very proud of the investments that we have done jointly 

with the Centers for Medicare and Medicaid Services in establishing our aging and disability resource centers. They were designed to really help States make it easier for consumers to learn 

about and access services through a one-stop-shop kind of entry 

point to long-term care. We are currently supporting over 100 local 

ADRC projects in 43 States. 

We launched the ‘‘Own Your Own Future Campaign,’’ together 

with CMS, the National Governors Association and others, to educate individuals on the importance of planning ahead for one’s 

long-term care. To date, we have reached nearly 4 million consumers in nine States. 

We are also working with the Centers for Disease Control and 

Prevention (CDC) in 20 States to deploy evidence-based prevention 

programs at the community level that have proven to be effective 

in reducing the risk of disease, disability and injury among the elderly. 

We are using consumer-directed models of care to put consumers 

in the driver’s seat when it comes to making decisions about the 

type of care they receive and the manner in which they receive it. 

I was thrilled to see this Committee and the rest of Congress for 

how, in a bipartisan effort, they embraced the key elements of the 

modernization and efficiency agenda in the reauthorization of the 

Older Americans Act in 2006. 

Our priority for the FY 2008 budget is to maintain our core programs, improve the flexibility to the States and local communities 

and further strengthen the efficiency and modernize the way that 

we do business for consumers. 

Data has shown that the services we are providing are effective 

at helping people to remain at home longer and to participate more 

fully in community life. Overall, our core programs are very customer-friendly, but, most importantly, our data show that customer 

satisfaction rates exceed 85 percent for all of our key programs. 

Our FY 2008 budget also includes $28 million for our Choices for 

Independence demonstration. This request will allow us to move 

forward and evaluate our modernization efforts so we can document their impact on the health and well-being of older people, and 

on Medicare and Medicaid costs. 

In closing, I would like to note that, under the leadership of 

President Bush, we have initiated the modernization and improved 

efficiency of health and long-term care in the United States, in 

partnership with many of the Members on this Committee. 

Last year, the President stated, we’ve got to have an interesting 

debate in health care in America. I guess if I had to summarize 

how I view it, I would say there is a choice between having the government make decisions or consumers make decisions. I stand on 

the side of encouraging consumers. Health care policy ought to be 

aimed at bolstering the consumer empowering individuals to be responsible for their care decisions. 

31

That is the key strategy we are using to modernize and prepare 

our programs for the challenges of the 21st century and to do it in 

a fiscally responsible manner. We are putting our consumers front 

and center. 

Thank you for the opportunity to participate today. I have appreciated the Committee’s support for all our programs in the past and 

look forward to continuing to work with you in the future. I would 

be happy to answer any questions. 

[The prepared statement of Ms. Carbonell follows:]

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Senator SMITH. Thank you very much, Josefina. I will have some 

questions for you in written form. 

Brian, can you give us the abbreviated version? 

STATEMENT OF BRIAN MONTGOMERY, ASSISTANT SECRETARY FOR HOUSING, U.S. DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT, WASHINGTON, DC 

Mr. MONTGOMERY. Yes, sir. You saw me crossing as she was 

writing. [Laughter.] 

I want to thank you for the opportunity to——

Senator SMITH. We will include it all in the record, though. 

Mr. MONTGOMERY. OK. Thank you, Senator. 

I also want to thank Chairman Kohl for the opportunity to address HUD’s efforts in this area. 

Let me be clear with one fact: The senior population today represents a greater portion of the overall population than at any time 

in our history. I want to add that that number is not on the decline. As such, the housing needs of seniors are ever-increasing and 

ever-expanding. 

Not only does the baby-boomer generation have strength in numbers, but many also have considerable wealth and are active participants in the democratic process. They are living longer and 

more active lives than previous generations. Many have the resources to manage their own retirement. They have an undeniable 

common voice. 

Unfortunately, however, the resources necessary to answer the 

needs of the growing senior population are not always available. In 

an effort to better illustrate this need, let me provide you with 

some senior housing statistics. 

Of the 21.8 million households headed by seniors in 2001, 80 percent were homeowners and 20 percent were renters. Approximately 

73 percent of senior homeowners own their homes free and clear. 

The median net worth of elderly households in 2000 was almost 

$189,000, compared to $55,000 for the total population. 

Now, 80 percent of seniors being homeowners may sound good, 

but the remaining 20 percent, or 4.3 million, are renters. We simply are not producing the necessary affordable housing at a pace 

that adequately reflects their needs. 

Our own data from 2003 estimates that there are over 1 million 

senior renters experiencing worst-case housing need, generally defined as people without housing assistance paying more than half 

of their income for housing or living in severely substandard housing. In short, this Nation is facing a shortage of housing assistance 

for low-income senior citizens. 

Now, in a highly competitive budget environment, we are pursuing creative and innovative ways to address the housing population facing the elderly, and that would include the low-income 

renters and also many seniors who are considered house-rich but 

cash-poor. 

Harvard University’s ‘‘State of the Nation’s Housing’’ report in 

2002 found that 8.4 million of the Nation’s 21 million elderly have 

incomes of less than $10,500. Now, the median income for a resident in a HUD Section 202 project is only $9,480 a year. 

47

As you may know, HUD’s Section 202 program provides an important resource to address the housing needs of low- and very lowincome seniors. However, consider this alarming fact. AARP estimates that there are 10 seniors waiting for each Section 202 unit 

that becomes available. 

The bottom line here is that in order to meet the need we have 

to be able to build more units, and we have to be able to build 

them faster. 

Since the inception of the Section 202 program, there have been 

roughly 400,000 units funded, or an average of 8,300 per year. 

Now, in order to meet the need as identified in a Commission on 

Affordable Housing study, we would need to produce more than 

56,000 units per year over the next 13 years. 

Well, in order to help reach these goals, we need to find creative 

and resourceful ways to increase production. As such, the fiscal 

year 2008 budget proposes an innovative demonstration program 

aimed at increasing the production of Section 202 units. 

We developed this program for a number of reasons. Chief among 

them, of course, is the sheer growth of the population in question. 

Additionally, the cost of construction is ever-increasing, as is the 

need to renew rental assistance contracts on these projects. That 

need for renewal in itself will continue to erode the funding available to produce additional units. 

Now, this demonstration project will seek to utilize low-income 

housing tax credits and other housing resources, such as tax-exempt bond financing, home program funds and even private grants, 

to help expand production under the current 202 program. It is our 

goal to take the positives from the housing tax credit and 202 program and produce vastly more units with strong senior services 

components. 

Finally, for seniors who have accumulated assets in their home, 

we have the Home Equity Conversion Mortgage, or HECM, for 

short, also known as a reverse mortgage. It is designed to enable 

senior homeowners to convert the equity in their homes into taxfree income. 

Now, since fiscal year 2000, when we insured just 6,600 loans, 

the HECM program has been experiencing double-digit growth 

each year. In fiscal year 2005, we endorsed 43,000 loans, representing a 14-percent increase over the prior year. In fiscal year 

2006, volume really exploded. It increased by 77 percent to more 

than 76,000 loans. Endorsements continue to accelerate with nearly 35,000 so far this fiscal year, which puts us on a pace to insure 

about 90,000 loans. 

We are also proposing legislative changes that would enhance 

this very important program, which includes eliminating the current cap altogether and offering a home purchase alternative. 

Senator SMITH. Brian, I apologize, but——

Mr. MONTGOMERY. Yes, sir. 

Senator SMITH [continuing]. This pink slip is about to get red. 

[Laughter.] 

Mr. MONTGOMERY. Thank you, sir. 

[The prepared statement of Mr. Montgomery follows:]

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Senator SMITH. We will put it all in the record. 

I thank our witnesses. I thank you all for your attendance. I 

apologize that the leadership doesn’t check with me on the voting 

schedule. [Laughter.] 

So, with that, we are adjourned. 

[Whereupon, at 10:44 a.m., the committee was adjourned.] 

(55)

A P P E N D I X 

QUESTIONS FROM SENATOR SMITH FOR MICHAEL ASTRUE

Question. With respect to your FY 2008 request for SSA administrative resources, 

what assurances can you provide me that SSA will be adequately funded to effectively meet its many obligations? 

Answer. SSA’s budget is based on the level of resources needed to improve service 

delivery and fiscal stewardship, and the requisite staffing to accomplish both. The 

budget is aligned with the performance goals in the Agency Strategic Plan, demonstrating the resources required to maintain service and improve productivity. 

SSA’s first and foremost priority is service. This budget request allows SSA to 

generally maintain service, increase our program integrity efforts, and continue to 

meet Medicare prescription drug program responsibilities. However, there will be 

some growth in certain pending workloads in fiscal year (FY) 2008. SSA will also 

continue to improve the way it does business with investments in technology, such 

as the Electronic Disability (eDib) project. Given significant reductions to our budget 

requests over the last 6 years, it is critical that Congress fully fund the FY 2008 

President’s request for SSA. 

Question. We’re in a very tight budget environment—what things can you do to 

advocate for adequate funding for SSA? 

Answer. I have been reviewing SSA’s workloads as Congress requested at my confirmation hearing and plan to present to the Congress my planned changes for the 

disability program as well as the resource needs to make sure the budget will be 

funded to prepare for the initial retirement wave of baby boomers. 

I can assure you that I will continue to inform the Congress and the American 

public about the need for adequate funding for SSA’s administrative expenses by 

demonstrating the direct relationship among resources, performance and service to 

the public. Adequate funding will enable us to reduce the backlogs for initial disability claims and hearings. Funding at the President’s budget level would also 

allow the Agency to fund program integrity activities, such as continuing disability 

reviews and Supplemental Security Income redeterminations, at a more appropriate 

level. 

I expect to work closely with this committee as well as our authorizers and appropriators to fully inform you and the public about the importance of these issues. 

Question. What is the agency’s view of the success of this transition? 

Answer. Let me be clear that I am very concerned about the disability backlogs, 

and I have been reviewing the situation as Congress requested at my confirmation 

hearing. I plan to present my planned changes to revise the disability program to 

Congress soon. I am in the process of making some changes and in the near future 

will be prepared to brief staff of the committee about the changes that will be made. 

With regard to the transition to eDib, while we are not completely finished with 

the process of converting from paper disability files to fully electronic ones, we consider this transition to be quite successful. As of January 4, 2007, all the SSA field 

offices and the State Disability Determination Services (DDS) in the nation have 

been certified to work in the fully electronic process, and currently hearing offices 

in 40 States and territories have been certified for fully electronic processing (the 

hearing office in Eugene, Oregon is scheduled for certification in May 2007). This 

means that these components are working solely with electronic folders for most 

new claims with a very small number of claims excluded from that process. We 

eliminated the labor-intensive process we had previously which required our field 

offices to prepare paper folders and mail them to the DDS for processing. With the 

new system, there are no mail costs, no mail time, and no possibility of folders getting lost. We anticipate that, over time, the electronic folder will result in reduced 

storage, mail and shipping costs; and will offer greater portability of folders to components throughout the country. While eDib is not implemented at all levels of the 

Agency yet, next year we plan to expand it to the Appeals Council. 

56

The success of any project—even a technology-driven one such as the eDib 

project—requires a learning curve for the people who use it and depends on how 

well those people accept, embrace, and use it. With eDib, we asked our employees 

to move from a traditional, paper-based system to a fully electronic one. We invested 

significant time and energy to ensure that this aspect of the project would be a success. We shared information about eDib well in advance of actual implementation, 

spent considerable amount of time with classroom and on-the-job training, and continually followed up with refresher training. We also set up a special ‘‘Help Desk’’ 

for users to call with problems and suggested changes. 

Question. What’s being done to fix the problem? 

Answer. With regard to the situation you describe in Oregon, I am pleased to be 

able to tell you that, currently, the disability processing time for the DDS and field 

office in Oregon is 1 to 2 weeks better than the national average. Although there 

has been a learning curve, SSA anticipates a return to pre-eDib production levels 

in FY 2008 and expects continued improvement in future years. 

Whenever we encounter a systems problem, we immediately involve a highly-specialized technical support team to trouble shoot and solve it. And if necessary, we 

call in vendors if we find that the problem is related to vendor code, software, or 

telecommunication lines. Technical problems rarely last more than a few minutes, 

and any impact to processing electronic cases is minimal. On a proactive basis, we 

monitor hardware, software, network traffic, and systems performance around the 

clock and make adjustments as necessary. 

eDib provides a secure, centralized Web-based repository of medical and other documents associated with disability claims. It is a complex system that integrates 150 

unique software and hardware products, as well as interfaces with numerous SSA 

and external systems. As you might imagine, we occasionally have technical issues 

which cause slowness and/or problems for the eDib system. However, the eDib system is available and working correctly a high percentage of the time. Specifically, 

we have maintained over a 99 percent availability rate since the beginning of FY 

2007. 

QUESTIONS FROM SENATOR SMITH FOR LESLIE NORWALK

Question 1—Part D income-sensitive premiums 

The President’s Fiscal Year 2008 budget includes a proposal to index Medicare 

Part D premiums to a beneficiary’s income. Congress enacted a similar change to 

Medicare Part B premiums in the Medicare Modernization Act. However, in Medicare Part B there is a single premium amount that was adjusted for all beneficiaries. Medicare Part D consists of numerous prescription drug plans, each with 

their own premium that reflects a policy’s scope of benefits. 

Question 1. Considering the complexity of Medicare Part D’s premium structure 

in comparison to Part B, and given your agencies inability to correctly withhold 

those amounts, how does CMS expect to administer an income-sensitive premium 

structure without burdening beneficiaries? 

Answer. CMS, working with the Social Security Administration and key stakeholders (plans, pharmacies, etc.), has made tremendous strides to resolve administrative issues encountered in the first year of the program and to lay the groundwork for continued improvements in 2007 and beyond. Those steps have clearly paid 

off, with a 97% acceptance rate for transactions between CMS and SSA in 2007. We 

are confident that the lessons learned and improved processes will allow us to design the income-related premium provision in a way that will be most efficient and 

administrable for affected parties. 

Follow-Up: 

Question a. How much money will CMS raise by eliminating the inflation adjustment for the Part B premium increase? 

Answer. If the President’s fiscal year (FY) 2008 Budget proposal to eliminate the 

inflation adjustment for the Part B premium increase were to be implemented, the 

Centers for Medicare & Medicaid Services (CMS) Office of the Actuary (OACT) estimates that, over 5 years (FY 2008—FY 2012), Medicare will save $4.13 billion and, 

over ten years (FY 2008—FY 2017), $12.1 billion will be saved. 

Under current law, beneficiaries filing an individual tax return with incomes 

greater than $80,000 and beneficiaries filing joint tax returns with incomes greater 

than $160,000 will pay a greater share of their costs for Medicare Part B on a sliding scale that increases as their income increases. The threshold dollar amounts to 

determine whether the income-related premium applies to the beneficiary and the 

amount by which the subsidy is reduced would be adjusted for inflation taking into 

consideration the consumer price index for urban consumers. Under the FY 2008 

57

proposal, the annual indexing of income thresholds for reduced Part B premium 

subsidies would be eliminated beginning on January 1, 2008. 

Question b. In 2020, what percentage of beneficiaries does CMS expect to be within that category? 

Answer. The current Centers for Medicare & Medicaid Services (CMS) Office of 

the Actuary (OACT) estimates are projected to 2017 and data is not immediately 

available for a projected period that extends to 2020. For FY 2017, OACT estimates 

that under the proposal 9.6 percent of the approximately 52 million beneficiaries 

will be affected by the elimination of the inflation adjustment versus the 6.3 percent 

that would be affected under current law. Therefore, 3.3 percent more of the estimated 52 million beneficiaries will be within the category affected by the Budget 

proposal than under current law. 

Question 2—Changing Medicaid through Administrative Maneuvers 

I am concerned that the Administration consistently attempts to use its administrative authority to rework the Medicaid program in a manner that is inconsistent 

with the intent of the Congress. During debate over the Deficit Reduction Act, many 

of the administrative proposals contained in your budget were debated and roundly 

defeated by Congress, yet you continue to try to circumvent the will of the Congress 

and advance them outside the legislative process. 

For instance, I, along with many of my colleagues, remain opposed to your efforts 

to limit the use of intergovernmental transfers. You try to paint them as fraud and 

abuse, when those of us who know the program recognize that these functions are 

being used by states to generate much needed funding to cover millions of poor, elderly and disabled Americans. What’s more, the plan amendments that allow the 

states to operate were approved by your agency. 

Question 2. Your agency estimates that its proposal to restrict the use of IGTs 

will generate $5 billion in savings to the federal government, which likely amounts 

to close to $9 billion in total lost funding for the program. How will this money be 

made up within Medicaid so as not to result in lost coverage and access for persons 

currently on Medicaid? 

Answer. The proposed rule is estimated to result in savings of $120 million in 

2008 and $3.87 billion in 2008–2011. The proposed rule does not restrict the use 

of IGTs. Rather, the proposed rule was actually designed to protect health care providers. The proposed rule clarifies the definition of a unit of government and specifies that governmentally-operated health care providers are assured the opportunity 

to receive full cost reimbursement for serving Medicaid individuals. 

Non-governmentally-operated health care providers, including many of the ‘‘public’’ safety net hospitals, are not affected by the Medicaid cost limit provision of the 

proposed rule and therefore, may continue to receive Medicaid payments in excess 

of the cost of providing services to Medicaid individuals within existing Federal requirements. Moreover, the proposed rule reaffirms State Medicaid financing policy 

requiring that all health care providers be allowed to fully retain their Medicaid 

payments, another provision of which clearly demonstrates the Federal government’s intent to protect the nation’s public safety net and its ability to continue delivering critical health care services to Medicaid beneficiaries and the uninsured. 

Health care providers can realize greater net revenues if State or local government 

sources pay for the full non-Federal share of Medicaid payments rather than shift 

that burden to the health care providers themselves. 

Medicaid is a vitally important program that serves very vulnerable populations. 

Clearly the federal government must fulfill its obligations to fund its share of the 

cost of providing Medicaid services to the individuals who are eligible for Medicaid. 

However, Medicaid is a partnership with the states and both must meet their obligations to fund their share of the program. Our intent is to protect the nation’s public safety net and its ability to continue delivering critical health care services to 

Medicaid beneficiaries and the uninsured. 

Follow Up: 

Question a. Has your agency evaluated the impact this change will have on the 

number of people who loose coverage on a state-by-state basis given this loss of revenue? If not, I would like those numbers. 

Answer. The CMS Office of the Actuary does not prepare estimates on a stateby-state basis or by class of facility. 

Question 3—Medicare Part A and B cuts 

As I am sure you know, the Medicare program is expected to serve more than 44.6 

million Americans in fiscal year 2008 with more than 37.3 million of these being 

elderly recipients. This is a cornerstone of health care for most older Americans with 

more than one in seven of all Americans and virtually all of the population aged 

65 and over served by the program. This being the case, I am concerned about the 

58

proposals related to Part A and Part B of Medicare. Specifically, you have proposed 

cutting $75.6 billion from the program. 

Question 3. How can you ensure that the proposed cuts will not diminish the overall health care offered daily to our nation’s seniors? 

Answer. The President’s fiscal year (FY) 2008 Budget demonstrates a commitment 

to improving America’s health care system by further modernizing and improving 

Medicare and Medicaid; strengthening health care coverage for low-income and vulnerable populations; and taking steps to make health care more affordable and accessible for all. The proposals in the FY 2008 Budget are measured steps to improve 

the financial security and long-term stability of the Medicare program. 

In its March 2006 Report to Congress on Medicare Payment Policy, the Medicare 

Payment Advisory Commission (MedPAC) suggested a number of strategies to address Medicare’s long-term sustainability, including: constraining payment rates for 

health care providers, rationalizing benefits, increasing the program’s financing, and 

encouraging greater efficiency from health care providers. Concluding that increasing efficiency is most desirable, MedPAC cautioned: ‘‘[e]ven if policymakers succeed 

at moving providers toward greater efficiency, they may still need to make other 

policy changes to help ensure that the program’s financing is sustainable into the 

future.’’

In order to ensure the strength and stability of the Medicare Program, it is important to annually consider the need for a payment update and other policy changes. 

The update for many provider types was frozen by the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 (MMA), and the FY 2008 Budget proposals’ modest reduction to the rate of increase in payments for those providers that 

are currently receiving updates is a deliberate effort to rationalize Medicare payments. Even so, these proposals only slightly reduce the Medicare rate of growth 

from 7.4 percent to 6.7 percent over 10 years. As we seek to improve efficiency, CMS 

will continue monitoring the quality of care that is provided to beneficiaries. 

Follow-Up: 

Question a. We know that there are some providers that will not accept new patients who are on Medicare. How can you ensure that these cuts will not exacerbate 

that problem? 

Answer. A recent GAO study found that an increasing proportion of beneficiaries 

received physician services and an increasing number of physician services were 

provided to beneficiaries who were treated. The percentage of beneficiaries reporting 

major difficulties in accessing physician services had remained relatively constant, 

and there had been no reduction in the predominant tendency of physicians to accept Medicare patients and payments. The GAO report is entitled, ‘‘Medicare Physician Services: Use of Services Increasing Nationwide and Relatively Few Beneficiaries Report Major Access Problems’’ (GAO–06–704), published June 2006. 

Question 4—Nursing Home Diversion Programs 

We know that most seniors prefer to age in their home—and as baby-boomers continue to age, I expect that sentiment to only grow stronger. We have heard quite 

a bit about nursing home diversion programs and the use of home and community 

based services as an alternative to institutional care. In fact, my home state of Oregon is doing a great job of keeping people in their homes and out of nursing homes. 

Question 4. How extensive have the Department’s diversion programs been and 

what barriers have you found in relocating nursing home residents in community 

based settings? 

Answer. The Department is very committed to assisting States as they develop 

and expand programs serving individuals who are aging and individuals with disabilities in the community. One predominant vehicle that States use to provide 

home and community based services is Section 1915(c) Home and Community Based 

Services (HCBS) Waiver. There are approximately 300 HCBS waivers throughout 

the country serving more than one million Medicaid beneficiaries. While many 

States use these waivers as essential tools in the deinstitutionalization process, they 

are also using these waivers to stave off institutional stays. Of the nearly 300 

1915(c) waivers that CMS has approved, approximately 115 are designed specifically 

for individuals who, without the HCBS services, would require those services in a 

nursing facility. 

States also use services within their State Medicaid Plan to provide needed community based services, such as Home Health and Personal Care. As a result of the 

Deficit Reduction Act of 2005, States have additional options for the provision of 

community based long term care, such as Section 1915(i), HCBS as a State Plan 

Option, and Section 1915(j), Self-Directed Personal Assistance Services. CMS recently approved a Section 1915(i) State Plan Amendment for Iowa and a Section 

1915(i) State Plan Amendment for Alabama. These initial State Plan Amendments 

were based on draft guidances, and several other States have expressed interest in 

59

applying once CMS finishes the clearance process for the final guidances. These new 

DRA options are attractive because, in principle, nursing home diversion (preventing admissions) is preferable to after-the-fact efforts to transition nursing home 

residents back to community-living. Moreover, evaluation results from the Cash and 

Counseling Demonstration—the inspiration for 1915(j)—documented reduced nursing home use attributable to self-directed services in two of the three states. Medicaid cost savings from reductions in nursing home use among the ‘‘cash and counseling’’ experimental group were especially sizable in Arkansas. This may prove to 

be particularly effective way to promote nursing home diversion in rural states 

where traditional home care providers are in short supply. 

An additional provision of the Deficit Reduction Act of 2005 provides significant 

funding ($1.75 billion) over five years (2007–2011) to enable States to help individuals move from institutional settings into the community. CMS awarded Money Follows the Person Demonstration grants to 30 States and the District of Columbia. 

While this funding is tied directly to deinstitutionalization, it will provide vital assistance to States in their diversion efforts in the future by building and enhancing 

essential community capacity. Under the demonstration, approximately half of the 

expected transitions are elderly from nursing homes. The actual number of individuals’ targeted for transition to HCBS under this grant program is 26,251. 

Under the Real Choice Systems Change Grants Program, CMS awarded $19.6 

million for 33 Nursing Home Transition Grants (NFT) in Fiscal years 2001–2002. 

The Fiscal year 2002 grants ended on September 30, 2006. Twenty-three grants 

were awarded to States, and 10 grants were awarded to Independent Living Partnerships. These grants supported infrastructure development to identify and enable 

nursing home residents who could live in the community, with supports, to transition to home and community-based services (HCBS). In August 2006, as an evaluation of the NFT grants, RTI International completed the Final Report for the FY 

2001 Nursing Home Transition Grants (17 grants). States reported that the infrastructure development these grants provided enabled 3,371 nursing home residents 

to transition into HCBS. In addition, States reported the diverting of into HCBS an 

additional 266 individuals that would have been admitted to a nursing facility. 

As a percentage of all Medicaid long term care expenditures for older adults and 

persons with physical disabilities, spending in the community (including home 

health, personal care and HCBS waivers) increased to 26% in 2005, up from 16% 

in 1995 (Source: CMS Form 64 Reports). 

Despite the tremendous efforts to serve individuals in their homes and communities, barriers still exist. The two major barriers to successful transition into HCBS 

are lack of affordable and accessible housing and transportation. 

Other barriers identified include a lack of capacity for home and community services, including the ability of States to provide financial management services, timely 

access to home modifications, as well as the State’s ability to address complex medical needs in community settings. In addition, the availability or the perspective of 

surrogate decision makers and/or guardians was also identified as a barrier. In addition to those noted above, the report revealed that the following items could also 

impede an individual’s ability to move to the community:

• Lack of funding for case management/relocation assistance; 

• Restrictive eligibility criteria for HCBS; 

• Administrative and bureaucratic barriers; 

• Resistance to transition by family members and nursing home staff and physicians; and 

• Shortage of long-term care workers.

Follow-Up: 

Question a. Does the Department have any studies, data or estimates on the number of low acuity seniors living in skilled nursing institutions that could be better 

served in housing with supportive services? 

Answer. We do not have specific data on the number of low acuity seniors living 

in skilled nursing institutions that could be better served in housing with supportive 

services. 

Medicare Part D would not be nearly as successful as it is today without the hard 

work of State Health Insurance Assistance Programs (SHIPs) in providing Part D 

enrollment assistance and counseling. In 2006, SHIPs received approximately $31 

million, which is significantly less than $1 per Medicare beneficiary. I soon will be 

introducing legislation that will help remedy this funding deficiency and provide 

SHIPs an amount equal to $1 per Medicare beneficiary. 

Question 5—Funding for Part D Outreach and Counseling 

Question 5. What amount does the 2008 budget allocate for the SHIPs, and what 

amount is specifically earmarked for LIS outreach and enrollment? 

60

Answer. The FY 2008 President’s Budget Request includes $37.6 million for the 

National Medicare Education Program (NMEP) Community Based Outreach, of 

which $34.9 million is for SHIPs. This is funding for SHIP program support and 

direct grants to 54 SHIPS (50 States, District of Columbia, Puerto Rico, Guam and 

the Virgin Islands). The SHIPs provide an important role in counseling for LIS. 

During our 2006 SHIP grant year (April 2006—March 2007), 14,792 events were 

held by SHIPs where the target audience was the LIS population. As a proxy for 

LIS, 144,975 individuals with incomes below 150% of the federal poverty level were 

provided one-on-one counseling by SHIPs. This represents approximately 13% of all 

individuals who received one-on-one counseling from SHIPs in 2006. 

Although the SHIP funding is not broken out by LIS and non-LIS categories, we 

will be gathering additional data from the SHIPs on LIS support. In October 2007, 

CMS will be receiving mid-term reports in which the SHIPs will provide data to 

CMS on their LIS activities, demonstrating how they serve the LIS population. CMS 

will continue to collect pertinent performance measurement and assessment data on 

SHIPs in FY 2008 and beyond. 

CMS’ fiscal year 2008 budget request has not been approved at this time. CMS 

would consider how these efforts can be supported in the future, pending funding. 

Follow-Up: 

Question a. Will funding be provided to the AAAs (Triple As) and Native American aging programs, which so far have not received dedicated resources to support 

their Medicare Part D efforts? 

Answer. CMS has developed a collaborative partnership with the US Administration on Aging (AoA) to leverage the federal, State, tribal, and local partnerships 

called the National Aging Services Network. Through this collaborative effort, CMS 

is providing funding and other resources to the AoA and its National Aging Services 

Network to offer outreach and education, assistance, and counseling to people with 

Medicare at the local level. This partnership is designed to help beneficiaries make 

informed decisions about their healthcare, including Part D coverage options, and 

have greater access to affordable medications. 

QUESTIONS FROM SENATOR SMITH FOR JOSEFINA CARBONELL

Question. What type of analysis has your agency done to determine the amount 

of funding needed to allow OAA programs to just keep pace with projected population growth and inflation in FY 2008? 

Answer. The Administration did not propose to cut funding for the Older Americans Act (OAA) Nutrition and Caregiver programs, but proposed in the FY 2008 

President’s Budget the same level of funding as proposed in the FY 2007 President’s 

Budget. 

FY 2007 Congressional funding for the OAA Nutrition and Caregiver programs 

occurred after the submission of the FY 2008 President’s Budget. 

AoA has not performed an analysis of funding relative to inflation. We recognize 

that as the population of seniors grows, the demand for OAA programs will increase 

over time—however, the OAA provides only about one-third of total national aging 

services network spending. The State and local agencies that make up this network 

have been and will continue to be very effective in leveraging funds from other 

sources to support community-based long term care. 

AoA has addressed expectations for long-term growth in service demand through 

its innovative proposal for the ‘‘Choices for Independence’’ demonstration. The components of this demonstration, with rigorous testing and evaluation components, 

aim to increase the capacity of the aging services network to offer a comprehensive 

array of supportive services, including nutrition and caregiver services, to elderly individuals living in the community. 

Question. How can the AoA appropriately protect seniors from financial exploitation when you aren’t focusing adequate resources toward the problem? 

Answer. Title VII funds are used for the Ombudsman Program and for elderabuse prevention activity, including financial exploitation programming in States 

and communities. States also use Title III funds for these purposes and legal services. 

The Administration did not propose to cut funding for financial exploitation programs or for Title VII across the board, but proposed in the FY 2008 President’s 

Budget the same level of funding as proposed in the FY 2007 President’s Budget. 

FY 2007 Congressional funding for Title VII occurred after the submission of the 

FY 2008 President’s Budget. 

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QUESTIONS FROM SENATOR SMITH FOR BRIAN MONTGOMERY

Question. How do you reconcile the Administration’s funding for Section 202 

Housing with the AARP study? 

Answer. The Department is committed to addressing the housing needs of lowincome elderly Americans. Even though the costs of renewing Section 8 contracts 

continue to take up a larger portion of the overall budget, the Department has increased funding for the Section 202 program by $30 million over last year’s request. 

We have:

• Constructed almost 400,000 units specifically for the elderly. 

• 303 projects in the construction pipeline worth approximately $1.3 billion. 

The projects in the pipeline will generate approximately 12,000 new housing units 

for the elderly over the next 2 years. 

• And, we serve an additional 675,000 elderly families under other HUD rental 

assistance programs such as Section 8 and Public Housing.

Additionally, the Department has and will continue to have discussions with our 

stakeholders to develop options for dealing with this issue, especially as it relates 

to elderly housing. As part of these discussions, the Department is proposing $25 

million for a demonstration program that will leverage federal dollars with tax credits and other mixed financing options to not only increase the number of units being 

constructed, but also decrease the time it takes to make them available to the elderly. 

Question. How many people are eligible for the program, but not able to receive 

assistance because of the lack of funding? 

Answer. According to the latest available Affordable Housing Needs Report 

(AHNR) issued by HUD’s Office of Policy Development and Research, there were 

2.144 million elderly renter households with very low-incomes (below 50 percent of 

the area median income) without housing assistance in 2003. Of these households, 

1.129 million households had ‘‘worst case needs’’ for affordable housing, because 

they either were paying more than half their incomes for rent or they lived in substandard housing conditions. These household estimates were obtained from the 

American Housing Survey. 

Question. Do you anticipate that your demonstration project will fill the unmet 

gap? 

Answer. Since only $25 million will be available for the demonstration project, the 

Department does not anticipate the unmet gap will be filled. However, the Department does not believe that the number of additional units generated by the demonstration project will be a help in meeting the unmet housing need. With the demonstration project, HUD is most interested in identifying some best practices which 

facilitate the development of additional affordable housing. 

Question. What are the available alternatives for the elderly who cannot find the 

affordable housing they need through this program? 

Answer. The voucher program and other HUD programs as well as projects funded through low income housing tax credits and locally developed projects using local 

and state resources are all available to assist elderly households obtain affordable 

housing. 

Question. What studies has HUD conducted, or otherwise considered, regarding 

the benefits (economic, social or otherwise) of seniors who are able to age-in-place 

in federally assisted housing versus moving to a higher level of care? 

Answer. The Department’s Policy Development and Research Office has completed 

a study. The study will be available to the public as soon as it has been cleared 

through the Department. We note that the study cites several studies that address 

the issues of seniors aging-in-place. 

Question. In addition to the grants for assisted living conversions, what additional 

action has been taken to address this issue faced by so many of our elderly citizens? 

Answer. The Service Coordinator Program continues to link elderly residents to 

social service resources in the community that enable the residents to remain in 

their units longer. Some project owners are also refinancing there older projects in 

order to generate funds to make needed modifications to the projects to enable residents to remain in their homes longer and/or provide additional services to the residents. 

Question. How has HUD worked with other agencies to coordinate federal assistance in this area? 

Answer. As a first step, the Department has met internally and with other agencies to inventory the current programs and services available to the elderly. 

Question. Can you provide the Committee with an update on the status of the 

LEGACY Act? 

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Answer. The Legacy Act report has been submitted for HUD departmental clearance. The Census Bureau has reviewed the report and provided comments to HUD. 

The Department anticipates announcing the availability of the $4 million in appropriated funds in FY 2007 and training HUD staff before the end of FY 2007. 

Question. How many families are in need of this type of housing? 

Answer. Using the 2000 Census special tabulation data, denoted as STP–276, the 

report notes that 1.6 million grandparent-headed households are raising a grandchild and qualify for assistance under the LEGACY Act. An additional 1.1 million 

households meet the Act’s definition of other ‘‘relative-headed.’’ Therefore, there are 

approximately 2.7 million covered households in the United States. Many of these 

households are owners and/or have incomes that would make them ineligible for 

public assistance under the LEGACY Act. The 2000 Census shows approximately 

265,000 grandparent-headed households and, at most, 225,000 other relative-headed 

renter households who would qualify for assistance under the LEGACY Act. 

Question. Given that the agency didn’t request funding for the LEGACY Act, do 

you consider this program to be a priority at the Department? 

Answer. The Department considers any program that provides a resource to develop additional affordable housing units for very low-income elderly persons a priority. The Department is working towards announcing the availability of these 

funds in the FY 2007 Notice of Funding Availability. 

Question. Why does the Administration want to eliminate this option for states? 

Answer. It appears that this is not a HECM question but a needs test for Med- icaid and the result, it would appear, is that individuals with more than $500,000 

equity in their homes, would have to sell or lower that equity with a HECM. As 

such, it’s outside our purview to address. 

Question. What advice would you give individuals considering a reverse mortgage? 

Answer. There are many issues an individual should consider before pursuing a 

reverse mortgage including other housing options, e.g., selling their home and using 

the proceeds to buy or rent a new home or moving into assisted living or other alternative housing. Considering all housing options will help to clarify which option best 

suits the individual’s needs. Individuals should also research public benefits that 

may be available to help them address their particular need. For example, if an individual is seeking a reverse mortgage to pay for property taxes or do home repairs, 

their State or local jurisdiction may offer programs for these purposes. There may 

also be government programs that can also help pay for medical expenses and prescription drugs. 

Individuals should also consider the costs associated with each of their housing 

options. While selling the too-large family home and purchasing a new senior-friendly home may seem the best solution, the cost of the two transactions may make this 

type of arrangement too expensive. Alternatively, the cost of a reverse mortgage is 

most affordable for those who stay in their homes for several years. Fortunately, the 

costs of HECM are completely transparent to prospective borrowers. Lenders are required by law (Truth in Lending Act) to provide a disclosure called a Total Annual 

Loan Cost (TALC) form, which arrays exactly how much this loan cost after 2, 4, 

8, and 12 years. This document shows how the costs represent a smaller and smaller proportion of the loan over time. Another cost consideration often posed by people 

who misunderstand the benefits of a HECM is that seniors simply take out a home 

equity loan, which appears less expensive than a reverse mortgage. However, seniors need sufficient income and credit capacity to qualify for these mortgages and 

ultimately need to repay these mortgages, so home equity loans are often an impractical solution for cash-strapped seniors. 

Finally, the individual may want to involve family or trusted friends in the decision making process. The individual may wish to think about the impact of a reverse mortgage on their heirs and estate. Whether an individual decides to discuss 

their consideration of a reverse mortgage with family and friends is a completely 

personal decision and choice. 

Question. How prevalent is fraud in this industry? 

Answer. HUD is not aware of much fraud in the reverse mortgage industry. In 

fact, most mortgage fraud is either ‘‘fraud for property’’ which is not going to happen 

on a HECM (FHA’s reverse mortgage) since the borrower already owns the home, 

or ‘‘fraud for profit,’’ which often includes a strawbuyer or an unwitting first-time 

homebuyer. These are not features of reverse mortgages. 

But more importantly, at least with FHA’s reverse mortgage product, the Department has instituted policies and procedures to provide protections for senior homeowners considering an FHA reverse mortgage. In addition to the various disclosures 

provided, including the Truth in Lending Act disclosure described above, HECM’s 

require that seniors receive counseling from a HUD-approved counseling agency. In 

addition to exploring alternatives to a reverse mortgage and the financial implicaVerDate 0ct 09 2002 11:54 Aug 28, 2007 Jkt 000000 PO 00000 Frm 00066 Fmt 6601 Sfmt 6601 H:\DOCS\34648.TXT SAGING1 PsN: JOYCE
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tions of a HECM, counselors educate individuals on what to expect from the various 

entities involved in the loan process. Counselors explain to clients the standard 

ways for HECM borrowers to access their loan proceeds and warn clients against 

signing over funds to loan officers or others involved in the loan transaction.

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