will be nearly $700 million in payments to providers and beneficiaries that will be held in suspense perhaps indefinitely.

Without a clear signal from this committee that the funding level is inappropriate, we are going to have some significant problems in the contractor community. Over the coming year, we anticipate that we may have to lay off as many as 3,000 staff, perhaps even more than that, to adjust to the reduced funding level. This is actually the third year in succession that the Medicare contractor budget has been, in terms of the appropriation and recommendation from the administration has been underfunded. Payment safeguards 2 years ago were underfunded, and the consequences of that is that the trust fund has lost billions of dollars. Last year payment for claims payment was underfunded, and it took the release of the contingency fund earlier this year to avert a crisis. This year it is beneficiary and provider services.

PREPARED STATEMENT

It really does not make sense to penalize beneficiaries and providers in this matter, and to avoid this enormous service disruption and failure, we hope this committee will recommend an adequate funding level for Medicare contractors. In our view an adequate funding level would restore $225 million to the Medicare budget and would result in a funding appropriation level $1,682,000,000.

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We will be pleased to respond to any questions the committee may have.

Senator BUMPERS. Thank you very much. [The statement follows:]

STATEMENT OF DONALD R. COHODES

Mr. Chairman and members of the subcommittee, I am Donald R. Cohodes, Vice President of Federal Programs for the Blue Cross and Blue Shield Association, the organization representing our 74 member Plans through the nation.

BCBSA POSITION ON THE FISCAL YEAR 1992 BUDGET

For the first time in the Medicare program's 25 year history, the Administration's fiscal year 1992 budget would cut the funding for the administration of the Medicare program $37 million below the prior year's level. The Administration's budget for contractor activities totals $1.457 billion for fiscal year 1992. The Administration also recommends a $100 million contingency fund which can only be released by the Office of Management and Budget (OMB) for unanticipated needs.

The fundamental problem with the Administration's budget is that it reduces funding by almost $120 million, or by over 50 percent, for beneficiary and provider services which include hearings on disputed claims and communications with Medicare beneficiaries and providers.

Only for claims processing does the Administration's budget provide adequate funding, but this too is vulnerable if other areas of the contractor budget remain underfunded.

For payment safeguards operations, which prevent inappropriate spending, the budget would be frozen for the second consecutive year, resulting in hundreds of millions of dollars in unwarranted payments from the trust funds.

We recommend increasing the Administration's budget by $225 million in order to restore funding in the hearings and communications activities and meet the increased demand for services due to volume; to support adequate funding for the timely processing of the 13 percent increase in the volume of Medicare claims submitted by providers and beneficiaries; to enhance efforts to safeguard Medicare from erroneous and improper payments; and to implement physician payment reform and other major changes in Medicare enacted in recent years.

CONSEQUENCES OF INADEQUATE FUNDING

The Administration's budget would reduce funding in the Medicare contractor budget for hearings and appeals by $48 million and for communications by $70 million:

-Fewer than one-third of over 30 million calls and questions about Medicare claims submitted by beneficiaries and providers would be answered next year. -Almost 7 million mandatory hearings on disallowed Medicare payments-70 percent of the total projected for next year-would be backlogged for 250 days or longer.

To translate this delay into dollar terms for beneficiaries, we estimate that if the Administration's budget is enacted, close to $700 million owed to beneficiaries from disputed claims will not be paid within fiscal year 1991. Indeed, we are unable to predict when these backlogged hearings would finally be resolved due to the lack of administrative resources. Additionally, this budget would cause contractors to lay off 3,000 employees providing these services.

We cannot understand why the Administration has proposed such severe cuts in the services and communications functions when physician_payment reform, the most sweeping change in the Medicare program since the DRG system, is scheduled to begin this year. This lack of planning will cause the health care community's transition to the new system to be plagued by annoyances, hassles, and delays that could be avoided if the communications activities budget is adequately funded.

We recommend a funding level of $175 million above the Administration's request for beneficiary and provider services, this would restore the Administration's proposed cuts and provide funds to deal with the projected increase in the program's volume.

Finally, the Administration's budget would reduce funding for Medicare payment safeguard activities, the operations by Medicare contractors that prevent Medicare overpayments and abusive billing practices.

Our proposed budget for Medicare contractors provides approximately $50 million above the Administration's request for payment safeguards operations. This increase is consistent with the GAO's and the Inspector General's repeated calls for adequate funding of payment safeguard activities as a means of protecting the Medicare trust funds from improper payments.

BUDGET ENFORCEMENT ACT OF 1990

We realize that Congress must live within the domestic discretionary spending caps adopted in the 1990 budget agreement. However, the Budget Enforcement Act of 1990 (Public Law 101-508) provides that the baseline for the administrative costs of Medicare, Railroad Retirement, and Unemployment Insurance is to be increased to account for inflation and growth in the beneficiary population. This would result in about a 6 percent increase in the baseline for Medicare contractors.

Although, the President's fiscal year 1992 budget increased the domestic discretionary spending cap by $600 million in budget authority and $550 million in outlays for fiscal year 1992 to reflect this baseline adjustment, it did not allocate any of the increase associated with the new baseline to the administrative budget of Medicare. We believe that these funds should be allocated to the intended programs.

CONCLUSION

The Blue Cross and Blue Shield Association urges that an operating budget of $1.682 million be appropriated for Medicare's claims payment contractors to avoid severe effects on beneficiaries. In addition, increased funding is needed to meet the growth in Medicare claims volume, to restore the unprecedented cuts in the hearing and communications activities, to implement new legislative reforms such as the physician payment initiative and to protect Medicare from billions of dollars in overpayments and abusive billing practices. We look forward to working closely with the subcommittee on these important issues.

STATEMENT OF KATI HAYCOCK, VICE PRESIDENT, CHILDREN'S DEFENSE FUND

Senator BUMPERS. Ms. Haycock.

Ms. HAYCOCK. Mr. Chairman, I am Kati Haycock, vice president of the Children's Defense Fund. Thank you for allowing us to testify this morning.

As you know very well, 1990 was a landmark year for America's children here in Congress. In response to a growing national awareness that American children are not being prepared well for the challenges of the next century, Congress enacted an impressive legislative portfolio that offers much hope and many promises to the Nation's children and their families. But these promises will be meaningless without the funding necessary to make them a reality. We, therefore, urge you strongly to give your highest priority as you mark up the Labor, HHS, and Education appropriations bill to children's programs, and in particular to the six programs I will mention, all of which were either newly created or reauthorized last year and all of which make a very big difference for children and their families.

First, child care. As you know, this committee was instrumental in making sure that the new comprehensive child care legislation receives $731.9 million during its first critical year. We are confident that you will do your best to honor your commitment to America's children and families again this year by appropriating the full $825 million called for by the child care and development block grant authorization for fiscal year 1992.

Second, Head Start. Despite broad recognition of the importance of early childhood development and of the particular effectiveness of Head Start, we are still serving only about 30 percent of eligible children. Last year Congress overwhelmingly passed a Head Start reauthorization designed to change all that, and in particular, outlined a goal of serving all eligible children by 1994 and an fiscal year 1992 cost of $4.3 billion. We strongly urge this subcommittee to keep the program on the road to full participation by 1994.

Third, immunizations, and I know this is an important subject for you, Senator. We urge you to increase funding for the childhood immunization program by $50 million to help stem the current outbreak of measles and other preventable childhood diseases. In 1990, as you know, there were 25,000 cases of measles reported in the United States, up from only 1,600 just a few short years ago. Fourth, family preservation. As you know, reports from across the country tell tragic stories of families torn apart by drugs and child abuse and neglect. The family resource and support grant program will help States to put together comprehensive, coordinated family preservation services to help support families before crises arise; $30 million is needed for that program in fiscal year 1992.

Finally, I would also like to draw your attention to two critical programs for homeless children contained in the McKinney Act: the new $12.5 million demonstration program created to help families separated or likely to be separated by inadequate housing and homelessness and the education of homeless children program reauthorized at $50 million. We strongly recommend funding these two critical programs at their fully authorized levels.

PREPARED STATEMENT

Mr. Chairman, later today President Bush is set to disclose his new education agenda. It is important as he does so to remember that even the best designed education reform plan, however, is destined to fail unless we meet the basic needs of our children for

health care, for child care, for shelter, and for nutrition. What you said earlier is right. The people I represent do not vote. They are too young. But the programs, the investments, that I have outlined here and those in our written testimony will help them to grow up strong, healthy, and educated and will assure this country a much better future. They need your support as you mark up this legislation.

Thank you very much.

[The statement follows:]

STATEMENT OF KATI HAYCOCK

Mr. Chairman, you and the rest of this Subcommittee have a strong track record of acting to help children learn, thrive and develop into healthy, educated and productive adults. The Children's Defense Fund appreciates the opportunity to testify.

There is a growing national awareness that American children are not being prepared to meet the challenges of the next century. Unacceptable rates of childhood poverty and infant mortality, skyrocketing cases of measles and other preventable diseases among youngsters, dramatic increases in the numbers of very young children entering the foster care system, and the growing numbers of children without homes all point to the fact that too many of America's children are not entering school prepared to learn even basic skills, thus jeopardizing our nation's ability to compete, much less lead, in the 21st century.

In 1990, Congress responded by enacting a highly impressive portfolio of legislation to help parents take better care of their children and to help families take control of their lives. But the promises made to America's children and families in 1990 will be meaningless without the funding necessary to make them reality in 1991.

Therefore, CDF urges the Subcommittee to give its highest priority to the programs that follow. All of them were either newly-created or reauthorized last year and are known to make a positive difference in the lives of vulnerable children and their families.

We realize that even this limited list of funding needs for children's programs may sound difficult to accomplish this year in light of spending restrictions imposed by last year's budget deal. However, children did not cause this deficit, and they should be held harmless in the nation's deficit reduction efforts. But instead, America's children and families are asked to wait a year or two for spending caps to be lifted so that their basic needs can be addressed. Children's advocates are expected to "play fair" and "go along with" these new budget caps--even when those caps do not seem to apply to the savings and loan industry, Pentagon officials and any other powerful special interest that comes along with a so-called emergency.

When dealing with children's development, timing is everything. Today's vulnerable four-year-old cannot wait a year or two for some spending cap to be lifted. She will have already entered school without a Head Start experience or be sick with the measles without a needed vaccine. That is the emergency facing our nation's children. And that is why it is especially critical that their needs are made the nation's top priority throughout the budget and appropriations process this year. Child Care: The experiences of young children during their earliest years of development can either build or destroy the foundation for their future learning and achievement. Now that more than 51 percent of all children younger than six have mothers who work outside the home, the need for quality child care is greater than ever. Recognizing this fact, Congress and the President made a major commitment to improve families' access to quality child care with the passage of the Child Care and Development Block Grant.

Mr. Chairman, you were instrumental in seeing to it that this new initiative received $731.9 million its first critical year. We are confident that you will continue to honor this commitment to America's children and families again this year by appropriating the full $825 million (an increase of $93.1 million) that is called for by this new law in FY 1992. We also hope you will increase funding for the Licensing and Monitoring Grant program from $13 to $50 million to help strengthen the quality of child care services.