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NAMI Analysis of President Clinton's FY 1998 Budget Proposal

February 7, 1997

On February 6, President Clinton introduced his $1.7 trillion budget proposal for FY 1998. As is being widely reported in the press, the plan is designed to eliminate the federal budget deficit by 2002, offer targeted tax cuts and a reduction of $100 billion from the future growth of Medicare. The President's budget contains a range of policy proposals of importance to people with serious brain disorders. It also includes a range of proposed budget cuts and increases in critical programs of concern to NAMI. Included below is a program-by-program analysis of the budget plan.


For FY 1998, The Administration is proposing an overall NIH budget of $13.1 billion, an increase of $337 million (2.6 percent) over this year. $271 million of this increase is directed toward research project grants ($1.5 billion of which is earmarked for AIDS research), with $90 million directed toward the second phase of construction of the new Clinical Research Center. The Administration is proposing $630 million for NIMH, a $26 million increase over FY 1997 (a 4% increase). This about average for the increases proposed for NIH's 13 institutes. The Administration is requesting a 9% increase for NIDA, but only 3% increases for the Diabetes, Digestive and Kidney Diseases, Heart, Lung and Blood and Cancer Institutes. However, these proposed increases are far below the increases that key congressional leaders such as Rep. John Edward Porter (R-IL) and Senator Arlen Specter (R-PA) have pledged to push for. Senator Specter intends to increase NIH by 7.5% in FY 1998 and Senator Connie Mack (R-FL) has introduced a resolution to double NIH's budget over the next 5 years. The Administration's budget does not contain any substantive proposals relating to NIH's mission or its pending authorization bill.


The President's budget contains a proposal to trim future Medicaid spending by $22 billion through imposition of a "per capita cap" on federal spending and reform of the Disproportionate Share (DSH) program. These savings are partially offset by changes to the current welfare reform initiative (including protecting eligibility for children and legal immigrants) which cost $13 billion. This results in a net savings of $9 billion between 1998 and 2002. Overall, the federal share of Medicaid is projected to be $104 billion in FY 1998. This follows the current trend of slowing in program growth over the past few years - down to a 3.5% growth rate in 1996, from double digit growth in the late 80's and early 90's. This recent slow down in growth rates has largely accomplished the cuts that Congress and the President considered as part of deficit reduction plans considered in 1995 and 1996.

Per Capita Cap Proposal - The per capita cap plan would place strict state-by-state limits on federal Medicaid spending. Each state's per capita cap would be set on the basis of a complicated assessment of current Medicaid spending. States would be responsible for any spending beyond the federally capped contribution. As such, the proposal's main purpose is simply to set an outer limit on federal spending. In order to help states cope with impact of fewer federal dollars going into their Medicaid programs, the budget proposes several important programmatic changes.

Under the Administration's proposal, states would no longer have to seek federal approval, through the Section 1115 waiver process, in order to require beneficiaries to enroll in managed care plans. Repeal of the Section 1115 waiver process would eliminate what little federal oversight that has been exercised over the Medicaid managed care "behavioral health carve outs" that people with serious brain disorders are joining in increasing numbers. This process would accelerate in increasing numbers if states were allowed to compel participation as the Administration is requesting. President Clinton is also seeking repeal of the Boren Amendment - the provision in current law that requires Medicaid to pay providers at comparable rates to the private market.

The prospects for the per capita cap plan in Congress are dim. On a bipartisan basis, the nation's governors have expressed strong opposition to the proposal. Senate Majority Leader Trent Lott (R-MS) has also made clear his misgivings. In addition, regional disparities in health care spending are likely to crease huge difficulties for Congress in trying to determine the basis for each state's cap level, thereby making interstate disputes over funding nearly impossible to resolve.

Medicaid Expansions - As noted above, the per capita cap and DSH reforms would save the federal government $22 billion over 6 years. This is offset by $13 billion in increased Medicaid spending in several important areas. First, the Administration is proposing to protect Medicaid eligibility for legal immigrants and children who are set to lose eligibility for SSI benefits under the welfare reform law signed into law last summer (P.L. 104-193). The cost for protecting SSI Children losing cash benefits is projected to be $300 million over 6 years. A relatively small total since 85,000 of the 135,000 children likely to be cut off would retain Medicaid eligibility on the basis of their family's low-income status. A more detailed analysis of the just released Childrens' SSI changes is available on the NAMI Net. Continuing eligibility for legal aliens is more costly since the welfare law gave states tremendous leeway on whether to grant eligibility for persons entering the U.S. after enactment of the welfare bill.

Of critical importance to NAMI is a proposal to allow states to establish an income related premium "buy-in" for people with disabilities who leave the SSI rolls for employment. It would allow SSI beneficiaries who earn more than certain (yet to be specified) amounts to purchase Medicaid coverage by paying a premium that states would set on an income related scale. This proposal is part of a Social Security "return to work" plan which is referenced below. The other major Medicaid expansion relates to the President's Childrens' Health Care initiative detailed below.

Childrens' Health

Both the Administration and Congress are interested in expanding access to health coverage for low-income children of working families. It is estimated that 80% of the 10 million uninsured children have at least 1 parent in the workforce. These workers either do not have employer provided coverage or are offered "individual only" policies in the workplace. There are 3 parts to the Administration's "Kiddie Care" plan: a) children of workers between jobs (coverage financed by annual state grants to cover premium costs for up to 6 months), b) children whose parents earn too much for Medicaid, but too little to afford private health insurance (coverage financed through discretionary grants to the states for innovative programs), and c) children eligible for Medicaid, but not currently enrolled (1-year of extended coverage for children only in cases where parents are at risk of losing coverage because of higher earnings or other change in circumstances). This latter category also includes the so-called "Waxman Kids", i.e. children ages 13-18 who were to be phased in over the next 5 years.

Neither the Clinton proposal for expanding coverage for uninsured children, or the current congressional alternatives, specify the scope of benefits that private health plans would be required to make available to eligible children. Thus, there is currently no requirement in the proposal for mental illness parity for children with brain disorders.


The Clinton Administration is proposing $24.753 billion for the Department of Housing and Urban Development for FY 1998. This is a $5.5 billion increase over current year levels, with most of the increase going to renewal of expiring Section 8 rental contracts, expansion of tenant-based rental assistance for welfare recipients who are required to work and replacement of the most troubled public housing projects. It is highly unlikely that Congress would support efforts to increase HUD's budget in FY 1998. In fact, HUD programs are likely to be squeezed further this year as Congress struggles to find the funds necessary to deal with Section 8 renewals and expiring 30-year rental contracts and federally insured mortgages, all while avoiding cuts to politically popular programs such as CDBG and HOME.

For housing programs serving people with brain disorders, the Administration is proposing substantial cuts. The Section 811 program is slated for a $20 million cut, down from its current total of $194 million to $174 million. This continues the current downward trend in funding for Section 811, which was funded at $233 million just two years ago. Likewise, the Section 202 program (which serves the elderly) is slated for an even larger cut of $345 million - a cut of more than 50%.

The Administration is proposing no funding for tenant-based rental assistance for non- elderly people with disabilities (including individuals with serious brain disorders). For the current year, Congress appropriated $50 million for "non-elderly disabled" who are adversely impacted by designation of public and assisted housing as "elderly only." This means that for the first time in several years, HUD is not proposing any new resources to deal with the emerging housing crisis facing non-elderly people with disabilities as they are deemed ineligible for a growing share of public and assisted housing. The one bright spot in the budget proposal is a $9 million increase for fair housing enforcement (up to $39 million).

Social Security

For the coming year, Social Security will be largest (and fastest growing) federal program, up to $414 billion in FY 1998. This includes $25.4 billion for the SSI program (for more than 5 million eligible recipients) and $36 billion for SSDI benefits (for 4.5 million eligible recipients). The budget also includes more than $70 million in payments to state VR agencies for rehabilitation services for beneficiaries (covering services for only 6,000 people). The President's budget includes a "Ticket To Independence" proposal designed to promote work among beneficiaries and help move people off the disability rolls. Currently, less than 1% of beneficiaries leave the rolls. This despite the fact that many beneficiaries, including people with serious brain disorders, want to work.

"Ticket To Independence" Plan - Specifically, the "Ticket To Independence" proposal includes a pilot in 5 to 10 states. It would allow people with disabilities to use their "ticket" with any participating public or private employment or rehabilitation provider of their choice (thus eroding the current state VR monopoly). Providers would be paid only when clients are placed in jobs and are removed from the disability rolls. A new demonstration program would allow eligible SSDI beneficiaries to extend Medicare coverage beyond the current trial work period once earnings surpass substantial gainful activity (SGA). States would be allowed to extend Medicaid coverage for SSI beneficiaries beyond current limits that wipe out eligibility once SGA is achieved.

While the Clinton Administration's proposal has not been fully fleshed out, there are several important qualifications. SSA cannot move forward without congressional authorization. Also, for SSI beneficiaries, there is nothing that would allow the federal government to compel states to extend Medicaid coverage for beneficiaries whose earnings are above SGA.

From NAMI's perspective, the proposal appears to fall short of the recommendations in the recently released report on the state VR system. First, it does not include protections that would allow people with brain disorders to maintain an "open file" that would protect eligibility after achieving SGA and losing cash benefits (such an approach would respond to the episodic nature of severe mental illness by allowing people to have cash benefits quickly restored). Second, by paying providers only for clients who reach the current definition of SGA, the Administration's plan discourages providers from serving people with the most severe illnesses and conditions. Finally, nothing in the proposal requires providers to offer long-term supports and services for clients after they have been successfully placed in jobs.

SSI Benefits for Legal Immigrants - The Clinton budget proposes to restore SSI eligibility for legal immigrants and refugees who were to be cut off later this year under the welfare reform law (P.L. 104-193). Provisions in the welfare law were designed to deny SSI benefits to 500,000 legal aliens, producing a savings of $2.2 billion in FY 1998. It is interesting to note that unlike recent changes to the SSI program aimed at persons with substance abuse disorders and children, the legal immigrant changes apply regardless of the severity of the individual's illness or impairment.

Specifically, the proposal would a) protect all immigrants who become disabled after entry into the U.S. and b) repeal a requirement in the law for "deeming" of sponsors' income in determining SSI eligibility and c) remove the mandate for sponsors to reimburse the government for SSI benefits that immigrants receive. However, these new exceptions would not apply if an immigrant was "disabled" prior to entering the U.S. The Administration's proposal also extends for two years SSI eligibility for certain refugees and asylees who are currently in the citizenship application pipeline. These changes are estimated to cost $9.9 billion over the next 6 years. Because of this high cost and resistance on the part of GOP leaders to opening up in the welfare reform law to changes, passage of the proposal is considered remote. Thus, legal immigrants with brain disorders and their families should continue moving forward with their naturalization and citizenship applications. The Immigration and Naturalization Service (INS) is now moving to expedite applications. The INS also recently put in place new regulations designed to provide exceptions to the naturalization exam and oath requirements for persons with severe mental illness.

SAMHSA - For FY 1998, the Administration is proposing $2.2 billion for the Substance Abuse and Mental Health Services Administration (SAMHSA). This is a $35 million increase over what Congress appropriated for the current fiscal year. All of this increase is directed toward the Center for Substance Abuse Treatment (CSAT) -- $10 million for the Substance Abuse Block Grant and $28 million for data collection (substance abuse prevention is slated for a $5 million cut). The Administration is proposing to freeze all programs under the Center for Mental Health Services (CMHS): $275.4 million for the Mental Health Block Grant, $58 million for consolidated mental health demonstration grants (known as "Knowledge Development and Application" or KDAs), $70 million for the Childrens' Mental Health program, $20 million for PATH and $22 for PAIMI.