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

To: National Association for the Advancement of Orthotics and Prosthetics

From: Peter Thomas, Dustin May, Emily Niederman

Date: February 17, 2005

Re: Legislative Update – (FY) 2006 Budget Proposal

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

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

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

Health and Human Services

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

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

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

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

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

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

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

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

Other HHS Programs Impacting People with Disabilities

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

Department of Education

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

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

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

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

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


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

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