Senator Corzine.

Senator CORZINE. Thank you, Mr. Chairman.

Mr. Secretary, I welcome you, and I also want to commend you for your real care about our communities and innovation that you have brought to a lot of the efforts, and so I look forward to working with you over the years on this.

That said, I want to identify with the remarks that Senator Conrad made, and I think the discussion we have already had today sort of reinforces the issue that our overall budget number do not seem to add up, whether it is the Medicare growth rates, which we talked about in actuarial sense, or whether it is reimbursement rates for providers, hospitals, doctors, home health care centers, home providers, and I think it is dangerous that we set up expectations that certain things are going to happen, but we are not going to have the resources to do it. And I think it is extremely tough on the ground for medical providers to make actual plans for how these things are going to roll out. And, you know, I think it is even harder for our seniors with regard to prescription drugs. $190 billion in no way is meeting the kinds of expectations that I think people are going to count on.

So there is a whole host of areas that I think our projected budget numbers do not meet what reality is going to be, and I think we are sort of kidding ourselves about where we are going to be over the next decade with regard to costs, and it is extraordinarily dangerous.

In that same vein, last year-and I will change subjects because I think Senator Conrad went through that-the State spent 2 billion more on TANF funds they received from the block grants. I know you care about this program. And we have frozen TANF numbers as we go forward in the budget, and this is an excruciating problems for our States that already have serious budget problems in the current environment. And I cannot imagine that you are not concerned, as a former Governor, about the freeze levels, funding, that we have on these programs given the need to continue to improve this welfare-to-work initiative that you have taken. And in many ways I am very supportive, but I think that making sure that Welfare to Work is appropriate is certainly another case.

And I just say you can go through the S-CHIP programs and see the same sorts of things. New Jersey uses all of the funds and gets reallocated funds from other places, other States. It is very unclear whether that is going to continue. We need to understand that for planning purposes. I just do not think we are talking about truth in what is going to be spent in these programs if we are truly committed to them.

So with regard to TANF, I would love to hear your comments. With regard to freeze levels, I certainly would like to hear about this reallocation of CHIP's money that is unexpended by some States, but other States are way over utilizing some of those excess appropriations, and particularly important for my State.

Secretary THOMPSON. Let me quickly, I think you raised three things. Let me see if I can tick them off very quickly and give an answer so I do not get in trouble with the Chairman.

Senator CORZINE. I will try to protect you on that score.

Secretary THOMPSON. First on the Medicare assumptions, I would like the have a group of the Senators sit down with the actuary staff at CMS, and Rick Foster. He would like to, explain how they got those numbers, and give you their assumptions. They have gone through it with me and it is a very educational thing and I think it would be very helpful if you would have the time for them to come in and do that, Senator Corzine.

In regards to TANF I negotiated the first TANF bill with Congress when I was Chairman of the National Governors Association, and we reached an agreement of $16.4 billion and we said we would not ask for inflation if they did not cut us. And so that was the agreement back in 1995 and 1996 when we negotiated with Congress, and I was a Governor then, leading the negotiations.

Right now a lot of people would like to have an inflationary increase in the $16.5 billion base, but the caseload has been reduced by about half. And there are some people that believe that we should cut the TANF. Other people like you think we should have an inflation increase. Ben Cardin from Maryland does, and he is leading the efforts in the House for the Democrats. But other people believe we should cut it. I felt very comfortable when I sat down with the Governors and said, "If we can come out with 16.5 plus a $2 billion contingency fund, plus a supplemental fund, that we should take it and be satisfied with it." I can understand where you are coming from, but all I can tell you is that, if we can get the level funding for the TANF program, I think most of the Governors not all, but most Governors will be somewhat happy with that, because a lot of Governors felt that they were going to be cut. In regards to S-CHIP, I think that this is something that we should work on because if the money is not used it should be reallocated to a State like New Jersey that is doing an excellent job with their S-CHIP money and be able to use that money because it needs to get in to help children. If it is not in the budget, we should make the modifications to accomplish that.

Senator CORZINE. I think the bite on all of these issues though is going to show up in these State budgets, whether it is for just supporting the job training programs, the day care programs, all of those support programs that have been a fundamental part of the successes, if one labels them that, in the Welfare to Work, and those programs are extraordinarily expensive, and we will not have the ability.

Secretary THOMPSON. They are.

Senator CORZINE. I have one other quick question. I think I have time. One of the issues which I think you and I are probably on the same boat, although we come at it in an entirely different way, it is fairly shameful what our infant mortality rate is, what maternal mortality rate is, and Senator Bingaman and I have proposed Healthy Starts program which brings women, pregnant women themselves into the S-CHIP program. I am concerned-I will make this a statement as opposed to otherwise that we are tying this up into political debates about abortion if this were to be proposed with regard to unborn fetuses, when in fact we ought to stay focused on making sure that we attack this infant mortality and maternal mortality problem, which I think we both agree on, and I think ends up saving us a lot of money over a long period of time.

And I do not really see why we need to get it meshed up in this other debate.

Secretary THOMPSON. If the legislation can be passed, I would agree with you, but right now I do not know if the legislation is going to get passed. And I think prenatal care for mothers is very important, as you do, and I think it is absolutely vital to have healthy children, to give them

to

Senator CORZINE. You do support though, expanding S-CHIP

Secretary THOMPSON. I was the first one to apply for a waiver when I was a Governor, and set it up so that low-income working families could be covered. I think it is absolutely

Senator CORZINE. I hope we could work together to find a proposal that

Secretary THOMPSON. Absolutely.

I think you and I want to accomplish the same thing, and I would love to work with you, Senator.

Chairman CONRAD. Senator Snowe.

Senator SNOWE. Thank you, Mr. Chairman.

And welcome, Mr. Secretary. And I appreciate your testimony here today, and the focus on the President as well as yourself on some key domestic issues and priorities, and I am pleased that included in the President's budget is prescription drugs and Medicare modernization. And that is one of the areas I would like to address with you today and explore some of the issues. One, of course, is the funding issue.

Last year we included in our budget a $300 billion reserve fund for prescription drugs and Medicare modernization, and I noted the President has $190 billion. I am concerned that this obviously is not going to be sufficient to provide for a strong prescription drug program. I would like to say I think the President has $77 billion over 10 years for prescription drugs, and the remainder for Medicare modernization. Is that correct?

Secretary THOMPSON. No. The $77 million is for immediate help. This would allow a State like Maine to set up their own prescription drug program and would not have to be on Medicare, would not have to be on Medicaid. They could set up a separate program any way possible. And then the States would get their regular Federal match for drug coverage for individuals up to 100 of poverty, and then the Federal Government would come in with 90 percent FMAP for individuals between 100 and 150 percent. So the States would only be investing only 10 percent on every dollar up to 150 percent.

We think that we would use if the Congress passes it, we would use about $7.8 billion of the $77 billion because we are hopeful that on a bipartisan basis we could modernize Medicare and have the prescription drug coverage in there so you would not need this special program at the State level. This is for years 2003, 2004, 2005, and we are hoping then by 2006, when the modernized Medicare with prescription drug would kick in, this would fall by the wayside. And during this period of time we would use 7.8 billion and the rest of it would go into Medicare, not the full 77.

Senator SNOWE. Well, that is interesting. In other words, you are saying that this money is initially for the transitional program?

Secretary THOMPSON. Yes.

Senator SNOWE. So that means that

Secretary THOMPSON. Once you kick in the Medicare, then you would not need this program.

Senator SNOWE. Exactly, but you are still going to need additional funding for a strong prescription drug benefit program over the 10-year period, even if it is initially for this program, because this is for low-income seniors. Is that

Secretary THOMPSON. That is correct.

Senator SNOWE. And going up to what, 150 percent of poverty? Secretary THOMPSON. 150 percent of poverty, right.

Senator SNOWE. So, obviously, we are going to need more ultimately in order to have a strong program, even beyond the transitional program, to have to make additional funding

Secretary THOMPSON. That is why the President put in the $190 billion over 10 years. The President and this Administration feels that we can come up with a strengthened Medicare program and have prescription drug coverage in there starting in 2006 with the $190 billion. We can argue back and forth about the $190 billion, but I think the President should be complimented in this very trying time to put in a placeholder, of $190 billion for prescription drug coverage and strengthening Medicare, and that is what we are doing.

I know that the Congress passed $300 billion last year, and I know that you are supportive of that, and I also want to compliment you on your leadership on the Medicare reform package.

Senator SNOWE. I think we are all in agreement on the common goal. The question is in terms of when to start and how we work through those issues. The President has multiple programs, which is I think significant with respect to the prescription drug benefit. Could you elaborate on some of these issues?

Secretary THOMPSON. Sure.

Senator SNOWE. One, the President has a prescription drug discount program; is that correct?

Secretary THOMPSON. Yes.

Senator SNOWE. Second, he has a waiver program?

Secretary THOMPSON. Yes.

Senator SNOWE. Is that one of the other proposals for a State like Maine that is providing a discount prescription drug program to Medicaid recipients?

Secretary THOMPSON. Yes.

Senator SNOWE. That is another proposal. And then third is creating this transitional program?

Secretary THOMPSON. Yes, $77 billion.

Senator SNOWE. And then, fourth, obviously, would be designing the overall comprehensive program. How do you anticipate folding in the transition program to the comprehensive program? Are we hoping is there that goal to-is it the Administration's goal to design the comprehensive program this year?

Secretary THOMPSON. I do. I hope we do it on a bipartisan basis. I think it is important for this Congress to do it, and this Administration wants to work with you. I think we can get a strengthened Medicare with prescription drug coverage passed this year if we do it on a bipartisan basis.

In regards to your question, number 1, the card. The courts put us in a temporary restraining order because we did not go through promulgating a new rule. We are in the process of promulgating the rule. We think that hopefully will satisfy the courts.

Number 2, we are asking this Congress, in the meantime, while we are working on Medicare to pass immediate helping hand for $77 billion. So that what you would do is you would, if Congress passed it, if the State would set up a program on prescription drugs like Maine has, Maine. Maine would get the regular FMAP up to 100 percent. I do not know what Maine's FMAP is. I think it is 60/40.

Senator SNOWE. That is right, just about.

Secretary THOMPSON. And so you would get 60 percent, up to 100 percent, and then from 100 to 150 you would get 90 percent coverage from the Federal Government. And this would be for a period of time until we got the Medicare up and running, and then this would go by the wayside and we would go into the Medicare coverage with prescription drugs.

The waiver program is another program that we are starting in the Department of Health and Human Services by giving a prescription drug waiver, and we have given one to the State of Illinois, and the State of Illinois is capping their Medicaid payments up to 200 percent of poverty, and they are on a sliding scale. If it goes over that, the State would pay it, and so the Federal Government is not going to be out. We are giving them a waiver to try this new program.

The fourth one is the comprehensive Medicare strengthened proposal with prescription drug coverage within it.

Senator SNOWE. Now what do you anticipate the cost of this drug subsidy program to be out of the $190 billion over, let's say, the next 3 years? What would you anticipate the cost to be out of that $190 billion?

Secretary THOMPSON. Well, we figure at least $7.8 billion for the program for up to 100 percent of poverty. We think that the model waiver for Pharmacy Plus would be held harmless because the States should cap it. We are going to set it up so they would be able to get their Medicaid match up to 200 percent of poverty, and we think that by using this, you would hold-people would be doing this and would not be spending down their assets and go into the nursing home in order to get prescription coverage.

I think we could actually save money by keeping people out of the nursing home if we set up a program like this. That is why we set up the model waiver.

The third one is the prescription drug card discount. We think we can save seniors up to a max of 20 to 25 percent of their cost if we get this general card out there through Medicare.

Senator SNOWE. OK. Well, thank you, Mr. Secretary. I applaud you and the President for leadership on these key issues. Thank you.

Secretary THOMPSON. Thank you very much, Senator Snowe.
Chairman CONRAD. Senator Wyden.

Senator WYDEN. Thank you, Mr. Chairman.

Mr. Secretary, it is always good to have a chance to work with you, and you have been very forthright in dealing with me. I think