Deficit Reduction Omnibus Reconciliation Act of 2005

Date: Nov. 2, 2005
Location: Washington, DC



The Senator from Iowa [Mr. GRASSLEY], for himself and Mr. Dorgan, Mr. Enzi, Mr. Harkin, Mr. Hagel, Mr. Johnson, Mr. Brownback, and Mr. Thune, proposes an amendment numbered 2359.

(The text of the amendment is printed in today's RECORD under ``Text of Amendments.'')

Mr. GRASSLEY. Madam President, since we are talking about farm payments and since I am involved in agriculture, I want to be totally transparent that on the side I am a family farmer, I have income from that farm, and I crop share with my farmer son Robin Grassley. We don't hire labor. So whatever farm payments go with our crops, I receive 50 percent of those farm payments from the Federal farm program.

This amendment is about the family farmer. Farm programs are not just about the 2 percent of Americans who farm for a living. Farm programs are about several things, but, most importantly, they are about national security because Napoleon said ``an army marches on its belly,'' so obviously a secure food supply is very important for our national security.

Second but not often said, it is about the social stability of our Nation because any society is only nine meals away from a revolution, so a certain food supply has something to do with the stable society of any country.

The American people recognize the importance of the family farmer to our Nation and the need to provide an adequate safety net for family farmers. That is why we have had a farm program for 70 years. In recent years, however, these farm payments have come under increasing scrutiny, particularly from people who do not understand agriculture. And when you spend the taxpayers' money, there is nothing wrong with scrutiny. Critics of farm programs have argued that the largest corporate farms reap most of the benefits of these payments.


Madam President, I still would stay within my 15 minutes because I don't want to use floor time that other Members might want to use.

But anyway, farm payments have come under increasing scrutiny, and that is legitimate because we are spending taxpayers' money. Critics of farm payments have argued that the largest corporate farms reap most of benefits from these payments. What is more, farm payments that were originally designed to benefit small and medium-sized family farmers have contributed to the demise of those smaller farmers as well because unlimited farm payments have placed upward pressure on land prices and cash trends and have contributed to overproduction and lower commodity prices, driving many family farmers off the farm.

The law creates a system that is out of balance. This is pointed out in this first chart I have here that basically indicates--and you can look at the different lines, but the bottom line is the one I most often use--10 percent of the largest farmers in America get 72 percent of the benefits that we appropriate to help family farmers with their safety nets. I have to ask: How long are city taxpayers going to support a farm program for family farmers when 10 percent of the biggest farmers are getting 72 percent of the benefits? That is something we in rural America need to be thinking about when we are anticipating just 2 years from now--less than 2 years--having a debate on the renewal of the 2007 farm bill. Are we going to be able to maintain support in the urban-dominated House of Representatives for a farm safety net when 10 percent of the biggest farmers in America are getting 72 percent of the benefits?

I believe we need to correct our course and modify the farm programs before those programs cause further concentration and consolidation in agriculture. Today, most commodities are valued off demand. Markets dictate profitability. When farmers overproduce by expanding rapidly because of the impact of Government farm payments, then markets are not functioning. Federal farm programs are influencing even land prices across the country. Iowa land is selling between $4,000 and $5,000 an acre in counties surrounding my home at New Hartford, IA.

This amendment will revitalize the farm economy for young people across the country by making land prices and cash trends more affordable, and that is going to be most important if we are going to revitalize American agriculture by getting young people in it when you consider today the average age of a family farmer is 50 years.

My amendment will put a hard cap on farm payments at $250,000. That is the same as what is in the President's budget, meaning the Republican President's budget, meaning Republican President Bush's budget. This will take it down from the current payment, $360,000, that is allowed under existing law, under the 2002 farm bill.

Just to remind everybody, I voted against the conference report on the 2002 farm bill, and the lack of farm payments, of responsible hard caps was the reason that I did. I worked back then with Senator Dorgan, who is the main sponsor of this amendment, on a similar measure in 2002, and it passed by a bipartisan, bipartisan support of 66 to 31. The amendment, of course, was taken out in conference.

One section that was added in the 2002 farm bill set up the Commission on the Application of Payment Limitations. This was a substitute for the fact that we didn't get payment limitations; we are going to have a commission study it. This study concluded that payment limitations affect the largest producers and these producers generally have lower per-unit production costs than other producers. But the study also says smaller, less efficient producers may be able to expand production and become more efficient under further payment limitations.

Congress enacted in 1987 the Agricultural Reconciliation Act, more often referred to as the Farm Program Integrity Act, to establish eligibility conditions that are not being abided by today for recipients and to ensure that only entities actively engaged in farming receive payments. To be considered actively engaged in farming, this act requires an individual or entity to provide a significant contribution of inputs--capital, land, equipment, labor--as well as significant contributions of services, particularly labor, or active management to the farming operation. But people have been able to find loopholes around this act, and that has facilitated these huge payments that go beyond the limits that are in law today.

Last year, I held a hearing through the Finance Committee on the GAO report that was released April of 2004. The GAO report recommended that measurable standards and clarified regulations would better assure that people who receive payments are actively engaged in farming. Of course, our USDA under both Republicans and Democrats does not want to write these regulations, does not want to enforce them, and that is why we have this legal subterfuge of getting around the payment limitations that are higher but would be effective, and I wouldn't be arguing with them if they were.

Of the $17 billion in payments that the USDA distributed to recipients in 2002, $5.9 billion went to just 149,000 entities. Corporations and general partnerships represented 39 percent and 26 percent of these entities.

I want my colleagues to look at another chart from the Washington Post of March of this year:

If the purpose of the farm subsidies is to make family farms viable, it's hard to see why payments of more than $400,000 apiece should have gone to 54 deceased farmers between 1995 and 2003, or why the residents in Chicago should have collected $24 million in farm support over that period.

This type of arrangement, and others like it, raise questions about the interpretation and enforcement of the 1987 act that requires each partner be, according to the law, actively engaged in farming.

This is why I wrote the General Accounting Office to conduct a study. I encourage Members of this body to look at that report.

Earlier this year, the Senate went on record supporting a reform of Federal farm subsidies.

During the markup of the Senate budget resolution, I was able, with the ranking member of the committee, Senator Conrad, to include a sense-of-the-Senate amendment expressing support for stronger farm payment limits; hence, this amendment. That amendment passed the Senate Budget Committee 15 to 7.

The committee agreed that any reconciled mandatory agriculture savings required under the resolution should be achieved through modifications to the payment limitation provisions of the 2002 farm bill.

The budget resolution also instructed Congress to find $3 billion in savings over 5 years in agricultural programs. I supported that resolution coming out of committee without offering my amendment in committee because we have a responsibility to support the chairman in moving the budget resolution along. In the Agriculture Committee, it was bipartisan. These savings consisted of cutting commodity programs, and we achieved the $3 billion savings.

The proposed amendment before the Senate would cap farm commodity farm program payments at $250,000 a year. This would encompass direct payments, countercyclical payments, loan deficiency payments, and marketing loan gains. Gains from commodity certificates would be counted toward the limitation, closing another abusive loophole.

By tightening up loopholes, this amendment would save $1.1 billion in savings over 5 years. With these savings, the Grassley-Dorgan amendment would restore 50 percent of the CRP acres cut by the committee and restore up to 75 percent of the Conservation Security Program money that was cut during the Agriculture Committee markup of reconciliation.

These savings will allow us also to prevent a 2-percent reduction in across-the-board commodity cuts that this resolution before us calls for in the 2006 crop year.

Obviously, with all the increased costs of energy, farming, and everything else, we ought to do what we can to strengthen the safety net and not weaken it. This would help prevent that 2.5-percent cut in farm programs.

Not only has the Senate agreed to some type of payment limit reform in the past, but the President in his budget, as I said, included this $250,000 cap.

The Secretary of Agriculture recently at the Commodity Club luncheon on October 6 said he has heard from producers all over the country. I attended such a forum at the Iowa State Fair, and I understand the type of feedback he received.

The concerns that have been expressed to the Secretary of Agriculture are that farm payments have been causing an increase in land values and the greatest benefits going to the largest farmers.

I have been hearing directly from producers for years exactly what the Secretary is hearing at his farm bill forums. We are hearing that young producers are unable to carry on the tradition of farming because they are financially unable to do so because of high land values, high land prices, and cash rent.

Neil Harl, a distinguished agriculture economist, now retired, from Iowa State University and one of the contributors to the commission report I referred to, has come out with another report. Dr. Harl's statement says:

The evidence is convincing that a significant portion of the subsidies is being bid into cash rents and capitalized into land values.

If investors were to expect less Federal funding or not at all, land values would likely decline, perhaps as much as 25 percent.

I have a number of editorials supporting my position. The third one I put up comes from the Des Moines Register. Again, it refers to responsibilities I have as chairman of the Senate Finance Committee, assuming I can control every committee in the Senate, and I am willing to inform the Des Moines Register that no Senator who is chairman of the Finance Committee does. They said, in regard to me as chairman of the Finance Committee and Congressman NUSSEL as chairman of the House Budget Committee:

Both could make a difference for Iowa's farmers and rural communities by steering adoption of payment limitations for farm subsidies. Nearly three-fourths of Federal farm payments go to 10 percent of the farms.

A fourth editorial is from a newspaper that the chairman of the Senate Agriculture Committee, I know, respects very well, the Atlanta Journal-Constitution. The Atlanta Journal-Constitution says:

As time has gone by, smaller farmers most in need have received less and less of government's support and corporate-like farms more and more.

Their arguments for payment limitations.

By voting in favor of this amendment, we can restore the cuts that have been made to the commodity and conservation programs and lessen Government support to corporate farmers.

The PRESIDING OFFICER. The Senator's time has expired.

Mr. GRASSLEY. Madam President, I ask for 15 seconds.

We can restore what we cut to family farmers in the resolution. We can allow young farmers to get into farming and lessen dependence on Federal subsidies. I hope my colleagues will support this commonsense amendment.

I yield the floor and reserve the remainder of my time. I ask people who want to speak in support of the amendment to please come to the floor so we can expedite this debate.

I might say that I have all sorts of respect for the Senator from Georgia. He is a tough competitor.


Mr. GRASSLEY. I yield myself a minute and a half.

Madam President, this amendment and this discussion both are not about the cost of production of agricultural commodities. This amendment and this discussion are about payment limits and the need to prevent public funds from being used by the biggest producers to become even larger by bidding up cash trends and capitalizing their extra profits from production into land values.

There is public interest in this being the result of Federal farm programs, and all except the very largest farmers know that and support this effort.

Focusing on costs of production is totally meaningless, unless one also includes the revenue from production.

Every crop has a different set of numbers on cost and a different set of numbers on revenue produced. Those numbers vary from crop to crop, and, to a degree, vary from region to region and year to year.

The farm program support levels have never been set on the basis of cost of production or on profitability, taking revenue into consideration. Support levels have been set by the Congress, not by some index based on cost of production.

Moreover, this is not about inefficiency, as some have argued for years. The largest producers, with extra profit from their size or scale, from discounts received in input, and from premiums received for volume production are not passed along to consumers. Those extra profits are used to bid land away from midsize and smaller operators.

Keep in mind that these programs are not entitlement programs. The purpose is to stabilize the sector and provide an income supplement when commodity prices are low.

I yield the floor.


Mr. GRASSLEY. Mr. President, I yield myself such time as I might consume.

First of all, the Senator from New Mexico works very closely and very hard as a member of the committee I chair. I appreciate his hard work and he should not take personal anything I am saying about his amendment.

Let me remind people what the Federal medical assistance percentage is all about. We call that FMAP for short. It sets the amount of money that the Federal Government contributes toward the costs of a State's Medicaid Program.

When States are doing well economically, their Federal share goes down. Then when States need more help, when their economy is not doing so well, their Federal share goes up. That is the way the formula was designed. That is the way it has worked. It seems it has worked well for a long period of time. It helps States that need more resources because they have more low-income individuals who will qualify for Medicaid.

Of course, that is another part of the formula. And that makes a lot of sense because it targets scarce Federal resources to States with the largest number of people enrolled in Medicaid. That is the way the program has been on the books since 1965 when it was first enacted.

The Federal contribution, the FMAP, is recalculated each year. As it turns out, at the beginning of the current fiscal year many States saw their Federal share go down, but other States saw their Federal share go up.

So what is the argument that 2006 should be different than any other year? The argument apparently is that this is different because the Census Bureau updated data and that made the FMAP in a few States go down. But the data from the Census Bureau is designed to make the Federal share amounts more accurate. We should seek accuracy in any formulas we have and the statistics that back up those formulas. That is just good common sense, the way Government ought to operate. And, of course, the Census Bureau goes through this very same exercise not just recently--I mean recently but not just for the first time--every 5 years, so this is not something new, and this is done to make sure the rate for Federal contributions to Medicaid, or the FMAP, is set accurately.

Of course, that is what we want. The Federal share should be set according to an accurate formula, and the amount of money that goes to each State ought to be a very accurate amount of money. This is the goal and that is what has happened with the improved data of the Census Bureau.

The States that are affected do not want, of course, to see their Federal share go down, and it is very obvious that Senators, accordingly, would fight for the interests of their States. But Congress--if you look at the responsibility of all of us for the entire country--cannot come in every year and override the FMAP formula, because that defeats the whole purpose of having a formula in the first place.

The Federal share went down in these States this year because, oddly enough, it was supposed to go down. In some years, the Federal share goes up in a majority of the States instead of going down. And surprise--that is the way it is supposed to work. When the Federal share goes up, I can't recall anyone lobbying me as chairman of the committee to override the formula to lower their Federal share instead of increasing it.

If your general argument is that the formula is broken, it is going down for 29 States, doesn't that mean it is not broken for the other 21 States? Is it your argument that the formula only works when the States get more money?

It is true that the fluctuation in the Federal share calculation can create problems in States. I don't doubt that. If the States want to limit the amount of decreases--and the increases in Federal funding--then that is something that I would be willing to discuss further. I would be willing to work with anybody in this body in the future to bring greater predictability to the process.

This summer, as an example, I worked on a proposal to do that with my counterpart on the Democratic side of my committee, Senator Baucus of Montana. This proposal would put limits on how far the FMAP could go up or go down in any given year--in other words, to smooth out the peaks and valleys. It gives States predictability on their Federal share, and it would certainly bring stability to the process. I would be willing to introduce the Federal share corridor proposal that Senator Baucus worked on over the summer and have anybody in this body join us as cosponsors.

Finally, increasing the Federal share for 29 States this year necessarily means that we create an even bigger problem in the year 2007. This is then trying to solve one problem and creating another problem. We will be back here next year to solve that problem--create a bigger problem in 2008 and be back here to solve that problem in 2008. Most of the States are projected to see slight increases in 2007. By holding all States harmless this year, their decreases the following year will be greater. Are these States going to come back again next year and ask for another temporary fix to get more money for their Medicaid Program? I guess I don't have to tell you the answer to that question. You know what the answer is. They are not going to be here to voluntarily give up something.

I also question the offset included in this amendment to pay for the new spending. This amendment would further increase the rebate paid by drug manufacturers. It would do this by forcing manufacturers to pay States rebates for drugs dispensed through the Medicaid managed care plan.

The bill we are considering today already increases the rebate paid by drug manufacturers from 15.1 to 17 percent. The bill also makes the drug manufacturers pay millions more in rebates by closing a pair of loopholes in the rebate program. All together this bill already increases the rebates drug manufacturers are forced to pay by $1.7 billion. So this was not a source of revenue that my committee overlooked.

I understand my colleague might not think that is enough, but I would encourage him to look at the CBO report put out this past June examining the price of name-brand drugs. That report shows that the effective rebate being paid by drug manufacturers is actually 31.4 percent and not 15 percent.

I am also concerned about the substantive implications of the amendment. These Medicaid health plans are private businesses that can negotiate low drug prices. Yes, that is the way it was set up, so plans would negotiate lower drug prices. They already negotiate the best price of the marketplace. The States already get the benefit of those lower drug prices that these plans negotiate. Making the manufacturers then pay rebates for drugs on top of what is already negotiated is the same as making them pay a double rebate for those drugs. Of course, that makes no sense.

Yes, I do realize that the Medicaid Commission accepted this amendment in its recommendations, but I am quite certain the Medicaid Commission's stamp of approval would not win support from Members of this body for other proposals that we are considering today.

We have looked at this area. We have come up with responsible policies that address loopholes, and I don't think we need to further increase the rebate beyond what is already included in this bill. Therefore, with due respect for my colleague from New Mexico, I urge my colleagues to oppose the amendment and the offset that funds it.

I yield the floor.


Mr. GRASSLEY. Mr. President, first of all, I want to make very clear, regarding some of the concerns that have been expressed in support of this amendment, I thought we took them into consideration 2 years ago--did take them into consideration in their policy. I think now that things are rolling out I am even more confident of what we did. So that would apply also to the issues raised here, whether or not beneficiaries have the ability to make decisions about their care, the type of plan they want to be in.

We knew beneficiaries would need to have good resources to learn about the benefits. We have, for instance, a State Health Insurance Information Program that has counselors who can provide one-on-one counseling. CMS has developed a network of community-based organizations to do the same thing. AARP is holding meetings--all over the country, I believe, but I see them noticed in our newspapers all the time. It seems like a massive number of meetings that my senior citizen constituents have gone to.

Do I think nobody could fall through the cracks? Perhaps so. But I think they would have to be people who are very isolated. I know CMS is taken through the mail, and presumably everybody has an address that gets mail. We have taken very good care to make sure people are notified through the mail. If there is one place where there might be a problem, that is the extent to which States might not have everybody in their files. But I have even been satisfied that CMS has been working on that problem for a long period of time.

So because we have thought about these things, I rise to oppose the amendment by the distinguished Senator from Washington.

When we worked on the Medicare Modernization Act, which established this drug benefit program, every State Governor wanted beneficiaries who have Medicaid and Medicare coverage, dual eligibles, to get their prescription drugs through Medicare.

Members of both sides supported this approach. They said Medicare has been a universal benefit, available to all beneficiaries since its inception. The Medicare drug benefit should then be no different.

Those who supported covering dual eligibles under the Medicare drug benefit noted that these beneficiaries would have nothing, no prescription drug coverage, if a State chose to end its Medicaid prescription drug benefit, which it could do. As Senator Hatch said, we even considered an amendment, supported by 47 Senators, to make the benefit available to all Medicare beneficiaries, including Medicare beneficiaries with Medicaid coverage.

For those of us who ultimately supported this approach in the final bill, did we think that we could just wave a magic wand to make the transition happen? As I said, we did not think that. Transitions like this are not easy. We knew that. The Centers for Medicare and Medicaid Services, the agency responsible for making this transition happen and administering the program over a long period of time, knew it would be a big task to transition all those folks into Medicare.

That is why the agency started working on a transition plan--with States and advocacy groups--more than a year ago. In May, the agency issued a 44-page strategy for transitioning this group of beneficiaries into the Medicare drug benefit. That strategy lays out in great detail the steps that the agency will take to ensure continuity of coverage for this vulnerable group of beneficiaries.

First and foremost, these beneficiaries will be assigned to a Medicare prescription drug plan with their coverage effective on January 1st. Folks refer to this as auto-enrollment. This process will prevent any gap in coverage for these beneficiaries. The agency worked with States to develop lists of dually eligible beneficiaries. These lists have undergone rigorous scrutiny to ensure their accuracy and completeness.

Letters informing beneficiaries about the upcoming changes went out today. It clearly states that beneficiaries should choose a plan, but if they don't, they will be assigned to the plan listed in the letter.

The agency included some additional information in a question and answer format. The first question is, ``What should I do now?'' Among other things, the answer says that beneficiaries should find out which plans cover the prescriptions they take and the pharmacies they want to use.

I know that folks are concerned that a beneficiary might toss aside their letter--we have all done that with mail. That is why pharmacists will have access to the beneficiaries and their assigned plan. So on January 1st, when a beneficiary goes to a pharmacy, the pharmacist can fill that prescription under that plan.

Now, some people are concerned that a beneficiary will be assigned to a plan that doesn't cover a drug they need, and they won't find out until they go into the pharmacy. In its transition guidance to plans, the agency strongly recommended that plans provide for temporary ``first fill'' of 30 days to provide a transition supply to meet the immediate need of a beneficiary. This is a common practice today.

Any plan that chooses not to do this, had to provide the agency with sufficient detail on how it would ensure that new enrollees stabilized on a drug not on the plan's formulary would continue to have access to the drugs they need. For example, a plan not using the first-fill could have procedures in place to contact enrollees in advance of their initial effective date in order to identify their needs. All of these alternative plans were subject to the agency's approval.

In addition the agency carefully reviewed all of the plans' formularies to ensure that dually eligible beneficiaries would have good access to the drugs they need.

Many plans around the nation cover nearly all of the top 100 drugs used by seniors. The agency also required plans to cover all or substantially all drugs in six classes that include drugs most commonly used by seniors.

I also know there is concern that a dually eligible beneficiary might be assigned to a plan that doesn't cover a drug they need or include their pharmacy in its network. That is one reason why the Centers for Medicare and Medicaid Services sent the letters out now. Dually-eligible beneficiaries can still pick whatever plan they want for their coverage on January 1st, but if the don't make an affirmative decision, then they will have coverage through the plan to which they been assigned.

And if that plan doesn't work for them, they can switch plans at any time throughout the year. Any time.

I was among the Senators who voted against the amendment in the Senate, but I obviously agreed to the provisions hammered out in the conference committee.

Now is not the time to change the provisions. Letters have gone out to beneficiaries. Plans have submitted their proposals to the government based on the specifications in the law. Changes now could lead to increased cost for all beneficiaries and Government.

Members argued with great passion as to why this group of beneficiaries should have their drug benefit covered by Medicare. Members of the conference committee worked to make that happen.

The Senate bill was bipartisan and it passed by a vote of 76 to 21. The bill that emerged from conference was bipartisan and passed by a vote of 54 to 44 with the support of 11 Democrats and 1 Independent.

The bill passed because we recognized that if we asked seniors to wait for a perfect bill, that they were going to be left waiting for a long, long time.

The AARP and more than 300 patient advocacy and health care organizations endorsed the final product. The AARP said the final bill ``helps millions of older Americans and their families,'' and is ``an important milestone in the nation's commitment to strengthen and expand health security for its citizens. .....''

The prescription drug benefit is affordable and universal. It will cover about half the cost of prescriptions for the average beneficiary. Dually-eligible beneficiaries will have almost all their drug costs paid.

After years of hard work on both sides of the aisle, Republicans and Democrats came together to pass the Medicare Modernization Act. Now is not the time to reopen this issue.

The Centers for Medicare and Medicaid Services has worked hard to implement the new program. Any changes at this point will almost certainly delay the drug benefit from implementation.

In thinking about the months of negotiating this package, I can tell you that there is no interest from this Senator to reopen and renegotiate the new Medicare drug benefit now.

The time for delay is over. The new Medicare drug benefit was a bipartisan product, it is law, and it is set to begin for all beneficiaries, who have waited long enough for this important benefit.

I agree that every step needs to be taken to ensure that there is no disruption in coverage for these vulnerable beneficiaries.

I believe those steps are being taken. It is my understanding that a number of folks think that this transition will be too confusing for beneficiaries. In my opinion, having some drugs covered by Medicare and some by Medicaid will be even more so.

I urge my colleagues to vote against this amendment.