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                                                        Calendar No. 80

106th Congress                                                   Report
  1st Session                    SENATE                          106-37

=======================================================================



 
                WORK INCENTIVES IMPROVEMENT ACT OF 1999

                                _______
                                

                 March 26, 1999.--Ordered to be printed

  Filed, under authority of the order of the Senate of March 25, 1999

                                _______


    Mr. Roth, from the Committee on Finance, submitted the following

                              R E P O R T

                         [To accompany S. 331]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Finance, to which was referred the bill 
(S. 331) to expand the availability of health care services for 
workers with disabilities and create a Ticket to Work and Self-
Sufficiency Program, having considered the same, reports 
favorably thereon as amended by the Committee, and recommends 
that the bill do pass.

                                CONTENTS

                                                                   Page
 I. Summary and Background.......................................     1
    A. Summary...................................................     1
    B. Background and Reasons for Legislation....................     1
    C. Legislative History.......................................     3
II. Explanation of the Bill......................................     3
    A. Short Title...............................................     3
    B. Purposes..................................................     3
    C. Title I--Expanded Availability of Health Care Services....     4
        1. Expanding Options Under Medicaid for Workers With 
          Disabilities...........................................     4
        2. Continuation of Medicare Coverage for Working 
          Individuals With
            Disabilities.........................................     6
        3. Grants to Develop and Establish State Infrastructures 
          to Support
            Working Individuals with Disabilities................     7
        4. Demonstration of Coverage of Workers With Potentially 
          Severe
            Disabilities.........................................     8
    D. Title II--Ticket to Work and Self-Sufficiency and Related 
      Provisions.................................................     9
        1. Subtitle A. Ticket to Work and Self-Sufficiency.......     9
            a. Establishment of the Ticket to Work and Self-
              Sufficiency
                Program..........................................     9
        2. Subtitle B. Elimination of Work Disincentives.........    12
            a. Work Activity Standard as a Basis for Review of an 
              Indi-
                vidual's Disabled Status.........................    12
            b. Expedited Reinstatement of Benefits...............    13
        3. Subtitle C. Work Incentives Planning, Assistance, and 
          Outreach...............................................    14
            a. Work Incentives Outreach Program..................    14
            b. State Grants for Work Incentives Assistance to 
              Disabled
                Beneficiaries....................................    15
    E. Title III--Demonstration Projects and Studies.............    16
        1. Extension of Disability Insurance Program 
          Demonstration
            Authority............................................    16
        2. Demonstration Projects Providing for Reductions in 
          Disability
            Insurance Benefits Based on Earnings.................    17
        3. Studies and Reports...................................    18
    F. Title IV--Technical Amendments............................    19
        1. Technical Amendments Relating to Drug Addicts and 
          Alcoholics.............................................    19
        2. Treatment of Prisoners................................    20
        3. Revocation by Members of the Clergy of Exemption From 
          Social
            Security Coverage....................................    22
        4. Additional Technical Amendment Relating to Cooperative
            Research or Demonstration Projects Under Titles II 
              and XVI............................................    22
        5. Authorization for States to Permit Annual Wages 
          Reports................................................    23
    G. Title V--Revenue Offsets..................................    23
        1. Modifications to Foreign Tax Credit Carryover Rules...    23
        2. Limit Use of Non-Accrual Experience Method of 
             Accounting to Amounts to be Received for the
             Performance of Qualified Personal Services..........    24
        3. Extension of IRS User Fees............................    26
III.Budget Effects of the Bill...................................    26
    A. Committee Estimates.......................................    26
    B. Budget Authority and Tax Expenditures.....................    28
    C. Consultation With Congressional Budget Office.............    28
IV. Vote of the Committee........................................    50
 V. Regulatory Impact and Other Matters..........................    50
    A. Regulatory Impact.........................................    50
    B. Unfunded Mandates Statement...............................    50
    C. Complexity Analysis.......................................    51
VI. Changes in Existing Law Made by the Bill, as Reported........    51

                       I. SUMMARY AND BACKGROUND

                               A. Summary

    S. 331, as reported by the Committee on Finance, expands 
new options to States under the Medicaid program for workers 
with disabilities; continues Medicare coverage for working 
individuals with disabilities; and establishes a Ticket to Work 
and Self-Sufficiency Program.

               B. Background and Reasons for Legislation

    The goal of the bill is to help individuals with 
disabilities go to work if they so choose. The bill takes 
significant steps toward reforming Federal disability programs; 
improving access to needed services, including health care and 
employment assistance; and removing barriers to work.
    Many persons with disabilities who currently receive 
Federal disability benefits, such as Social Security Disability 
Insurance (SSDI) and Supplemental Security Income (SSI), want 
to work. However, less than one-half of 1 percent of these 
beneficiaries leave the disability rolls and become self-
sufficient. If disabled individuals try to work and increase 
their income, they lose their disability cash benefits and, 
subsequently, lose their health care coverage. The threat of 
losing health benefits is a powerful disincentive for disabled 
beneficiaries who want to work.
    The unemployment rate among working-age adults with severe 
disabilities is nearly 75 percent. Today, more than 7.5 million 
disabled Americans receive cash benefits from SSI and SSDI. 
Disability benefit spending for SSI and SSDI total $73 billion 
a year, making these disability programs the fourth largest 
entitlement expenditure in the Federal Government. If only 1 
percent--or 75,000--of the 7.5 million disabled adults were to 
become employed, Federal savings in disability benefits would 
total $3.5 billion over the worklife of the beneficiaries. 
Removing barriers to work is a major benefit to disabled 
Americans in their pursuit of self-sufficiency and 
independence, and it also contributes to preserving the Social 
Security Trust Fund.

                         C. Legislative History

    The Finance Committee's first hearing on removing barriers 
to work for individuals with disabilities was held on July 29, 
1998. At this hearing, and at a subsequent hearing on February 
4, 1999, a total of 11 witnesses including disability services 
consumers, providers, and advocates testified about barriers to 
employment that currently exist in Federal disability and 
health care programs. The witnesses particularly singled out 
lack of access to health insurance as a primary obstacle to 
employment.
    On January 28, 1999, Senator Jeffords, on behalf of 
himself, Senator Kennedy, Senator Roth and Senator Moynihan, 
introduced S. 331, the Work Incentives Improvement Act of 1999, 
a bill designed to remove barriers to employment for 
individuals with disabilities. At the February 4 hearing, S. 
331 was specifically endorsed by Senator Bob Dole as well as 
representatives of the disability community.
    On March 4, 1999, the Finance Committee ordered reported 
favorably, as amended by the Committee, S. 331, the Work 
Incentives Improvement Act of 1999, by a recorded vote of 11 to 
1, with an additional 5 proxy votes in favor of the bill and 
with 1 proxy voted no.

                      II. EXPLANATION OF THE BILL

                       A. Section 1. Short Title

    The short title of the bill is the ``Work Incentives 
Improvement Act of 1999.''

                         B. Section 2. Purposes

    The Chairman's mark is based on S. 331 and has four primary 
purposes as set forth in the bill. First, the mark provides 
health care and employment preparation and placement services 
to individuals with disabilities to support efforts to return 
to work and to reduce dependency on cash assistance. Second, 
the mark creates new options for States to allow individuals 
with disabilities to purchase Medicaid coverage. Third, the 
mark lengthens the current period of extended eligibility for 
Medicare coverage for disabled beneficiaries who are leaving 
cash benefits for work. Finally, the mark establishes a return 
to work ``ticket'' program that will allow beneficiaries to 
seek the services necessary to obtain and retain employment and 
reduce their dependency on cash benefit programs.

       C. TITLE I--EXPANDED AVAILABILITY OF HEALTH CARE SERVICES

   1. Section 101. Expanding Options Under Medicaid for Workers With 
                              Disabilities

Present law

    Current law requires most States to provide Medicaid 
coverage for disabled individuals who are eligible for 
Supplemental Security Income (SSI). Individuals are considered 
disabled if they are unable to engage in substantial gainful 
activity (defined in Federal regulations as earnings of $500 
per month) due to a medically determinable physical or mental 
impairment which is expected to result in death, or which has 
lasted or can be expected to last for at least 12 months. 
Eleven States link Medicaid eligibility to 209(b) disability 
definitions which may be more restrictive than SSI criteria.
    Eligibility for SSI is determined by certain federally-
established income and resource standards. Individuals are 
eligible for SSI if their ``countable'' income falls below the 
Federal maximum monthly SSI benefit ($500 for an individual, 
and $751 for couples in 1999). Not all income is counted for 
SSI purposes. Excluded from income are the first $20 of any 
monthly income (i.e., either unearned, such as social security 
and other pension benefits, or earned) and the first $65 of 
earned income plus one-half of the remaining earnings. The 
Federal limit on resources is $2,000 for an individual, and 
$3,000 for couples. Certain resources are not counted, 
including an individual's home, and the first $4,500 of the 
current market value of an automobile.
    In addition, States must provide Medicaid coverage for 
certain disabled and blind individuals who no longer receive 
SSI because they work and their earnings cause them to exceed 
SSI income eligibility thresholds. SSI cash benefits phase down 
until their earnings reach the current threshold of $1,085 per 
month. Medicaid coverage continues for those with incomes 
rising above this threshold until earnings reach a level that 
takes into account amounts needed to cover health care costs 
and living expenses. That earnings level varies by State. For 
1998, that level ranges from $34,125 annually or $2,844 per 
month to $13,792 annually or $1,149 per month. This eligibility 
status applies as long as the beneficiary:
          (1) continues to be blind or have a disabling 
        impairment;
          (2) except for earnings, continues to meet all the 
        other requirements for SSI eligibility;
          (3) would be seriously inhibited from continuing or 
        obtaining employment if Medicaid eligibility were to 
        end; and
          (4) has earnings that are not sufficient to provide a 
        reasonable equivalent of benefits from SSI, State 
        supplemental payments (if provided by the State), 
        Medicaid, and publicly funded attendant care that would 
        have been available in the absence of those earnings.
    Recent law allowed States to increase the income limit for 
Medicaid coverage of disabled individuals. The Balanced Budget 
Act of 1997 (P.L. 105-33) allowed States to elect to provide 
Medicaid coverage to disabled persons who otherwise meet SSI 
eligibility criteria but have income up to 250 percent of the 
Federal poverty guidelines. Beneficiaries under the more 
liberal income limit may ``buy into'' Medicaid by paying 
premium costs. Premiums are set on a sliding scale based on an 
individual's income as established by the State.

Explanation of provision

    Under the proposal, States would have the option to 
establish one or two new Medicaid eligibility categories:
          First, States would have the option to cover persons 
        with disabilities whose income would make them 
        ineligible for SSI. In addition, States may establish 
        limits on resources and income that differ from the SSI 
        requirements. This means that income levels set by the 
        State could exceed 250 percent of the Federal poverty 
        level and resources levels could exceed $2,000 for 
        individuals, and $3,000 for couples, and the $20 
        exclusion or disregard of monthly unearned income could 
        be increased.
          Second, if States provide Medicaid coverage to 
        individuals described above, they may also opt to 
        continue to provide coverage to individuals, aged 16-
        64, who cease to be eligible for Medicaid under the 
        previous option because of medical improvement, but who 
        still have a severe medically determinable impairment, 
        and who are employed. Individuals covered by Medicaid 
        through other disability options (such as 1619b or the 
        Balanced Budget Act of 1997 option) would continue 
        Medicaid if eligibility ceases because of medical 
        improvement. States may establish limits on resources 
        and income that differ from the Federal requirements. 
        Individuals would be considered to be employed if they 
        earn at least the Federal minimum wage, and work at 
        least 40 hours per month, or are engaged in work that 
        meets criteria for work hours, wages, or other measures 
        established by the State and approved by the Secretary 
        of the Department of Health and Human Services (HHS).
    Individuals covered under these options could ``buy into'' 
Medicaid coverage by paying premiums or other cost-sharing 
charges on a sliding fee scale based on an individual's income, 
as established by the State. (Premium and cost-sharing changes 
do not apply to existing Medicaid mandatory or optional 
groups.) The State would be required to make premium or other 
cost-sharing charges the same for both these two new 
eligibility groups. In addition, a State may require 
individuals with income above 250 percent of the Federal 
poverty level to pay the full premium cost.
    Federal funds paid to a State for Medicaid coverage of 
these new eligibility groups must be used to supplement State 
funds used for their existing programs that assist disabled 
individuals to work. In order to receive Federal funds, States 
are required to maintain their current level of effort for 
these groups.

Reason for change

    These new Medicaid options are designed to make it possible 
for States to remove a significant barrier to employment 
confronting individuals with disabilities--the reality that 
increased earnings can result in the loss of health insurance 
coverage. The new options would provide access to Medicaid 
coverage for working disabled individuals without requiring 
them to first receive cash benefits to qualify.

Effective date

    The proposal would be effective on or after October 1, 
1999.

     2. Section 102. Continuation of Medicare Coverage for Working 
                     Individuals With Disabilities

Present law

    Disabled beneficiaries are provided with an extended period 
of time to test their ability to work without losing their 
entitlement to Social Security Disability Insurance (SSDI) and 
Medicare Part A benefits. The period consists of:
          (1) a trial work period during which disabled 
        beneficiaries can work for up to 9 months (within a 5-
        year period) with no effect on their cash disability or 
        Medicare benefits; and
          (2) after a 3-month grace period, Medicare Part A 
        coverage continues for a 36-month extended period of 
        eligibility, while cash benefits are suspended for any 
        month in which the individual is engaged in substantial 
        gainful activity ($500 in monthly earnings).
    When the Medicare entitlement ends because of the 
individual's work activity, if the individual is still 
medically disabled, Medicare coverage can be purchased by the 
individual through the payment of monthly premiums (currently 
$309 per month for Part A, and $45.50 per month for Part B).

Explanation of provision

    The proposal would extend Medicare Part A coverage for 
working SSDI beneficiaries engaged in substantial gainful 
activity for the 10-year period following enactment of this 
subsection of the bill without requiring beneficiaries to pay 
the Medicare Part A premium. In addition, Medicare Part A 
coverage could continue after the termination of the 10-year 
period for any individual who is enrolled in the Medicare Part 
A program for the month that ends the initial 10-year period, 
without requiring the beneficiaries to pay the premium.
    The proposal would require the Comptroller General of the 
United States to submit a report to Congress no later than 8 
years after enactment that would examine the effectiveness and 
cost of extending Medicare Part A coverage to working disabled 
beneficiaries without charging them a premium. The report would 
be required to recommend whether the Medicare coverage 
extension should continue beyond the initial 10-year period set 
forth in the bill.

Reason for change

    Fear of losing Medicare coverage, or being required to make 
premium payments totaling $309 per month, has contributed 
significantly to the very low rate of SSDI beneficiaries 
returning to work (only 1 percent of SSDI beneficiaries move 
through the extended period of eligibility and ultimately leave 
the program). This provision would lengthen the current 
extended period of eligibility to remove a real barrier to 
employment.
    Many individuals with disabilities who join the workforce 
do not initially secure positions that offer health insurance 
benefits. However, if private sector coverage is offered, 
current law related to when Medicare is primary rather than 
secondary payer is unchanged.

Effective date

    The proposal would be effective on or after the date of 
enactment of the bill.

 3. Section 103. Grants to Develop and Establish State Infrastructures 
            to Support Working Individuals With Disabilities

Present law

    No provision.

Explanation of provision

    Infrastructure grants.--The proposal would require the 
Secretary of HHS to award grants to States to design, establish 
and operate infrastructures that provide items and services to 
support working individuals with disabilities, and to conduct 
outreach campaigns to inform them about the infrastructures. 
States would be eligible for these grants under the following 
conditions:
          (1) they must provide Medicaid coverage to the first 
        new eligibility category described above; and
          (2) they must provide personal assistance services to 
        assist individuals eligible under the proposal to 
        remain employed (that is, earn at least the Federal 
        minimum wage and work at least 40 hours per month, or 
        engage in work that meets criteria for work hours, 
        wages, or other measures established by the State and 
        approved by the Secretary of HHS).
    ``Personal assistance services'' refers to a range of 
services, provided by one or more persons, to assist 
individuals with disabilities to perform daily activities on 
and off the job. These services would be designed to increase 
individuals' control in life and ability to perform daily 
activities on or off the job.
    Formula for allocation of demonstration funds and award 
amounts.--The Secretary of HHS would be required to develop a 
formula for the award of infrastructure grants. The formula 
must provide special consideration to States that extend 
Medicaid coverage to persons who cease to be eligible for SSDI 
and SSI because of an improvement in their medical condition, 
but who have a severe medically determinable impairment, and 
who are employed.
    Grant amounts to States must be a minimum of $500,000 per 
year. They may be up to a maximum amount of 15 percent of 
Federal and State Medicaid expenditures in a given fiscal year 
for individuals eligible under one or both of the new 
eligibility groups described above, whichever is greater.
    Annual report. States would be required to submit an annual 
report to the Secretary on the use of the grant funds. In 
addition, the report must indicate the percent increase in the 
number of SSDI and SSI beneficiaries who return to work.
    Funding. The proposal would authorize the following 
amounts:
   FY2000, $20 million;
   FY2001, $25 million;
   FY2002, $30 million;
   FY2003, $35 million;
   FY2004, $40 million; and
   FY2005-FY2010, the amount of appropriations for the 
        preceding fiscal year plus the percent increase in the 
        CPI for All Urban Consumers for the preceding fiscal 
        year.
    The Secretary of HHS, in consultation with the Work 
Incentives Advisory Panel established by the bill, would be 
required to make a recommendation, by October 1, 2009, to the 
Committee on Commerce in the House and the Committee on Finance 
in the Senate, whether the grant program should be continued 
after FY2010.

Reason for change

    The grant program would provide limited financial support 
to States committed to developing new systems of care for 
working disabled individuals.

Effective date

    This provision would be effective October 1, 1999.

 4. Section 104. Demonstration of Coverage of Workers With Potentially 
                          Severe Disabilities

Present law

    No provision.

Explanation of provision

    The Secretary would be required to establish a State 
demonstration program that would provide medical assistance 
equal to that provided under Medicaid for disabled persons age 
16-64 who are ``workers with a potentially severe disability.'' 
These are individuals who meet a State's definition of physical 
or mental impairment, who are employed, and who are reasonably 
expected to meet SSI's definition of blindness or disability if 
they did not receive Medicaid services.
    The Secretary is required to approve demonstration programs 
if the State meets the following requirements:
          (1) the State has elected to take up the first new 
        Medicaid option to cover working persons with 
        disabilities with incomes in excess of current limits;
          (2) Federal funds are used to supplement State funds 
        used for workers with potentially severe disabilities 
        at the time the demonstration is approved; and
          (3) the State conducts an independent evaluation of 
        the demonstration program. The proposal would allow the 
        Secretary to approve demonstration programs that 
        operate on a sub-State basis.
    For purposes of the demonstration, individuals would be 
considered to be employed if they earn at least the Federal 
minimum wage and work at least 40 hours per month, or are 
engaged in work that meets threshold criteria for work hours, 
wages, or other measures as defined by the demonstration 
project and approved by the Secretary.
    Funding. The proposal would authorize the following 
amounts:
   FY2000, $70 million;
   FY2001, $73 million;
   FY2002, $77 million; and
   FY2003, $80 million.
    Payments to States. Payments under this demonstration 
program could not exceed, in the aggregate, $300 million. 
Payments may be provided to States only through FY2005. The 
Secretary is required to allocate funds to States based on 
their applications and the availability of funds. Funds awarded 
to States would equal their Federal medical assistance 
percentage (FMAP) of expenditures for medical assistance to 
workers with a potentially severe disability.
    The Secretary of HHS would be required to make a 
recommendation, by October 1, 2002, to the Committee on 
Commerce in the House and the Committee on Finance in the 
Senate, whether the grant program should be continued after 
FY2003.

Reason for change

    The demonstration would test whether providing individuals 
with potentially severe disabilities early access to insurance 
coverage can delay or prevent the onset of a fully disabling 
condition. Also, the demonstration would test whether access to 
insurance would make it possible for these individuals to 
remain in the work force longer, rather than moving on to the 
cash assistance rolls.

Effective date

    This provision would be effective October 1, 1999.

D. TITLE II--TICKET TO WORK AND SELF-SUFFICIENCY AND RELATED PROVISIONS

           1. Subtitle A. Ticket to Work and Self-Sufficiency

     a. Section 201. Establishment of the Ticket to Work and Self-
                          Sufficiency Program

Present law

    The Commissioner is required to promptly refer individuals 
applying for Social Security disability insurance (SSDI) or 
Supplemental Security Income (SSI) benefits for necessary 
vocational rehabilitation (VR) services to State vocational 
rehabilitation (VR) agencies. State VR agencies are established 
pursuant to Title I of the Rehabilitation Act of 1973, as 
amended. A State VR agency is reimbursed for the costs of VR 
services to SSDI and SSI beneficiaries with a single payment 
after the beneficiary performs ``substantial gainful activity'' 
(i.e., had earnings in excess of $500 per month) for a 
continuous period of at least 9 months. The Social Security 
Administration (SSA) has also established an ``alternate 
participant program'' in regulation where private or other 
public agencies are eligible to receive reimbursement from SSA 
for providing VR and related services to SSDI and SSI 
beneficiaries. To participate in the alternate participant 
program, a beneficiary must first be referred to, and declined 
by, a State VR agency. Such private and public agencies are 
reimbursed according to the same procedures as State VR 
agencies.

Explanation of provision

    The Committee provision would direct the Commissioner of 
Social Security to establish a ``Ticket to Work and Self-
Sufficiency Program'' under Title XI of the Social Security 
Act. Each eligible SSI or SSDI beneficiary would receive a 
``ticket'' which may be used to obtain employment services, VR 
services, and other support services (e.g., assistive 
technology) from a participating provider (termed ``employment 
networks'') of his or her choice. The Commissioner is expected 
to issue regulations regarding eligibility for participation in 
the program.
    Employment networks may include both State VR agencies and 
private and other public providers. Employment networks would 
be prohibited from seeking additional compensation from 
beneficiaries. Any disabled beneficiary who is enrolled with an 
employment network is otherwise ineligible for services from a 
State VR agency unless the employment network has entered into 
an agreement with that State VR agency.
    The Committee provision would direct the Commissioner to 
contract with one or more private or public entities with 
expertise and experience in the field of vocational 
rehabilitation and employment services to serve as a ``program 
manager'' to assist the Commissioner in administering the 
program. Program managers would be selected through a 
competitive bidding process. Such assistance would include 
recruiting and monitoring employment networks; ensuring the 
availability of adequate services in the geographic area 
covered by the program manager; providing information to 
beneficiaries about available employment networks; and ensuring 
that any beneficiary may change employment networks for good 
cause. Program managers are ineligible to serve as employment 
networks, or have a financial interest in an employment 
network, in the geographic area served by the program manager.
    Employment networks (i.e., providers of services) would 
consist of a single provider (public or private) or an 
association of providers, and may include a one-stop delivery 
system established under Title I of the Workforce Investment 
Act of 1998. Employment networks would be required to 
demonstrate relevant expertise and experience; meet certain 
financial reporting requirements; and prepare annual 
performance reports that would be provided to beneficiaries and 
to the public. Employment networks and beneficiaries would 
together develop an individual work plan in such a way that the 
beneficiary can exercise informed choices in selecting an 
employment goal and specific services need to achieve that 
goal. A beneficiary's written plan would take effect upon 
written approval by the beneficiary or beneficiary's 
representative. The Commissioner would not initiate a 
continuing disability review for beneficiaries enrolled in the 
program.
    Each employment network (i.e., providers) would elect to be 
paid according to one of two payment systems:
          (1) an outcome payment system, or
          (2) an outcome milestone payment system. However, a 
        participating State VR program also retains the option 
        of seeking reimbursement for services to any 
        beneficiary under the current law payment system. Under 
        the outcome payment system, each month that a 
        beneficiary is not receiving cash benefits the 
        beneficiary's employment network would receive an 
        amount not to exceed 40 percent of the average SSDI or 
        SSI monthly payment (as applicable to the beneficiary) 
        in the previous calendar year. Such payments would not 
        continue for more than 60 months.

Note: In 1997, the average monthly SSDI benefit payment was 
$722; the average monthly SSI benefit payment was $389.

    Under the outcome milestone payment system, employment 
networks may receive payment when one or more milestones (as 
determined by the Commissioner) are achieved leading to the 
goal of permanent employment. The payment schedule of the 
outcome milestone payment system would be designed so that the 
total of the payments with respect to any beneficiary is less 
than (on a net present value basis) the total amount of 
payments to which the employment network would be entitled 
under the outcome payment system.
    The Commissioner would periodically review both payment 
systems, and if necessary, alter the percentages, milestones, 
or payment periods to ensure that networks have adequate 
assistance to assist beneficiaries into the workforce.
    The Committee provision provides for graduated 
implementation of the program nationwide. Implementation would 
commence no later than 1 year after enactment of the 
legislation, and full implementation would be completed within 
3 additional years.
    The Committee provision would authorize transfers from the 
Social Security Trust Funds for reimbursement of employment 
networks, and authorize amounts to be appropriated to the 
Social Security Administration for SSI recipients. The 
Committee provision would also authorize appropriations for the 
administrative expenses of the program.
    The Committee provision provides for reauthorization of the 
program 5 years after the Commissioner commences implementation 
of the program. However, payment for any beneficiary who is 
enrolled in the program would continue for the period otherwise 
provided regardless of whether the program is reauthorized in a 
timely manner.
    The Commissioner is directed to conduct an evaluation of 
the program. Evaluation reports would be transmitted to the 
Senate Finance Committee and the House Ways and Means Committee 
at the end of the third, fifth, and seventh year of program 
operation.
    The Committee provision would also establish within the 
Social Security Administration a ``Work Incentives Advisory 
Panel.'' The panel would consist of 12 members, whose duties 
would include advising the Commissioner of Social Security and 
other cabinet officials on implementation of the Ticket to Work 
program; on demonstration programs relating to work incentives, 
and on any other issues related to work incentives planning 
relating to Social Security disability insurance (SSDI), 
Supplemental Security Income (SSI), Medicaid, and Medicare.

Reason for change

    Currently, few Social Security disability insurance (SSDI) 
or Supplemental Security Income (SSI) beneficiaries are 
referred for vocational rehabilitation (VR) services, and fewer 
actually return to work because of VR services. The 
Congressional Budget Office (CBO) has estimated that about 10 
to 15 percent of new SSDI and SSI beneficiaries are referred to 
State VR agencies, and that about 10 percent of those referred 
are accepted for services. According to the Social Security 
Administration (SSA), in 1998, 9,950 SSDI or SSI beneficiaries 
graduated from the disability benefit rolls to employment 
because of VR services paid for by SSA. During that time, about 
4.8 million disabled workers received SSDI benefits each month, 
and about 3.6 million disabled individuals (ages 18-64), SSI 
benefits. The General Accounting Office (GAO), as well as 
public and private commissions, have recommended major changes 
in SSA's approach to employment assistance.
    The Committee provision is intended to improve not only VR 
services but actual employment outcomes by permitting nearly 
any SSDI or SSI beneficiary who desires VR services to receive 
them; by permitting beneficiaries to choose from a variety of 
providers in addition to State VR agencies, and by improving 
the payment for services by stretching out reimbursements to VR 
providers for up to 5 years, contingent on their clients' 
sustained employment. By maintaining a link between payments 
and successful job outcomes, the program is intended to reward 
employment and not simply the provision of VR services. Given 
SSA's limited experience in administering employment and 
vocational rehabilitation services, the Committee provision 
would provide for program managers to assist in recruiting 
employment networks and handling the nuts-and-bolts of 
administration of the program.
    The Committee provision is based on H.R. 3433, the ``Ticket 
to Work and Self-Sufficiency Act of 1998,'' as passed by the 
House of Representatives on June 4, 1998.

Effective date

    Generally 1 year after enactment.

            2. Subtitle B. Elimination of Work Disincentives

  a. Section 211. Work Activity Standard As A Basis for Review of An 
                      Individual's Disabled Status

Present law

    Eligibility for Social Security disability insurance (SSDI) 
cash benefits requires an applicant to meet certain criteria, 
including the presence of a disability that renders the 
individual unable to engage in substantial gainful activity. 
Substantial gainful activity is defined as work that results in 
earnings that exceeds an amount set in regulation, currently 
$500 per month. Continuing disability reviews (CDRs) are 
conducted by the Social Security Administration to determine 
whether an individual remains disabled and thus eligible for 
continued benefits. CDRs may be triggered by evidence of 
recovery from disability, including, for example, return to 
work. The Social Security Administration is also required to 
conduct periodic CDRs--every 3 years for any beneficiary who is 
determined to be nonpermanently disabled, and at times 
determined by the Commissioner for beneficiaries with a 
permanent disability.

Explanation of provision

    The Committee provision would establish that the standard 
for work-related CDRs for long-term SSDI beneficiaries (i.e., 
individuals who have been receiving disability benefits for at 
least 24 months) would be limited to those triggered by 
employment that results in earnings that exceed substantial 
gainful activity, or to periodic continuing disability reviews.

Reason for change

    The Committee provision is intended to encourage long-term 
SSDI beneficiaries to return to work by ensuring that a small 
amount of work activity would not trigger a continuing 
disability review. However, like all beneficiaries, long-term 
beneficiaries would have benefits suspended if earnings exceed 
the substantial gainful activity level, and would be subject to 
periodic continuing disability reviews.

Effective date

    On enactment.

          b. Section 212. Expedited Reinstatement of Benefits

Present law

    Individuals entitled to Social Security disability 
insurance (SSDI) benefits may receive expedited reinstatement 
of benefits following termination of benefits because of work 
activity any time during a 36-month extended period of 
eligibility (EPE). That is, benefits may be reinstated without 
the need for a new application and disability determination. 
Individuals eligible for Supplemental Security Income (SSI) 
benefits whose benefits have been terminated because of work 
may receive expedited reinstatement at any time until benefits 
have been suspended for 12 consecutive months because of work. 
Otherwise, the Commissioner of Social Security must make a new 
determination of disability before a claimant can reestablish 
reentitlement to disability benefits.

Explanation of provision

    The Committee provision would provide that an individual:
          (1) whose entitlement to Social Security disability 
        insurance (SSDI) benefits had been terminated on the 
        basis of work activity following completion of an 
        extended period of eligibility (EPE); or
          (2) whose eligibility for Supplemental Security 
        Income (SSI) benefits (including special SSI 
        eligibility status under section 1619(b) of the Social 
        Security Act) had been terminated following suspension 
        of those benefits for 12 consecutive months on account 
        of excess income resulting from work activity, may 
        request reinstatement of those benefits without filing 
        a new application.
The individual must have become unable to continue working on 
the basis of his or her medical condition and must file a 
reinstatement request within the 60-month period following the 
month of such termination.
    While the Commissioner is making a determination of a 
reinstatement request, the individual will be eligible for 
provisional benefits (cash benefits and Medicare or Medicaid, 
as appropriate) for a period of not more than 6 months. If the 
Commissioner makes a favorable determination, such individual's 
prior entitlement to benefits would be reinstated, as would be 
the prior benefits of his or her dependents who continue to 
meet the entitlement criteria.

Reason for change

    The Committee provision is intended to encourage SSDI and 
SSI beneficiaries to return to work by providing assurance that 
cash and health benefits could be restored in a timely fashion 
if an individual must discontinue employment and continues to 
meet standards for disability set by the Social Security 
Administration.

Effective date

    One year after enactment.

   3. Subtitle C. Work Incentives Planning, Assistance, and Outreach

            a. Section 221. Work Incentives Outreach Program

Present law

    The Social Security Administration prepares and distributes 
educational materials on work incentives for individuals 
receiving Social Security disability insurance (SSDI) and 
Supplemental Security Income (SSI) benefits, including on the 
Internet. Social Security personnel in its 1,300 field offices 
are available to answer questions about work incentives. Work 
incentives currently include: exclusions for impairment-related 
work expenses; trial work periods during which an individual 
may continue to receive cash benefits; a 36-month extended 
eligibility period during which cash benefits can be reinstated 
at any time; continued eligibility for Medicaid and Medicare; 
continued payment of benefits while a beneficiary is enrolled 
in vocational rehabilitation program; and plans for achieving 
self-support (PASS).

Explanation of provision

    The Commissioner of Social Security is directed to 
establish a community-based work incentives planning and 
assistance program for the purpose of disseminating accurate 
information to individuals on work incentives. Under this 
program, the Commissioner would:
          (1) establish a program of grants, cooperative 
        agreements, or contracts to provide benefits planning 
        and assistance, including protection and advocacy 
        services, to individuals with disabilities, and 
        outreach to individuals with disabilities who are 
        potentially eligible for work incentive programs; and
          (2) establish a corps of work incentive specialists 
        located within the Social Security Administration.
    The Commissioner would determine the qualifications of 
agencies eligible for award of a grant, cooperative agreement, 
or contract. Social Security Administration field offices and 
State Medicaid agencies are deemed ineligible. Eligible 
organizations may include Centers for Independent Living, 
protection and advocacy organizations, and client assistance 
programs (established in accordance with the Rehabilitation Act 
of 1973, as amended); State Developmental Disabilities Councils 
(established in accordance with the Developmental Disabilities 
Assistance and Bill of Rights Act); and State welfare agencies 
(funded under Title IV-A of the Social Security Act).
    Annual appropriations for this program would not to exceed 
$23 million. The grant amount in each State would be based on 
the number of beneficiaries in a State, subject to certain 
limits.

Reason for change

    The Committee provision is intended to improve information 
about, and encourage the use of, work incentives by, Social 
Security disability insurance (SSDI) and Supplemental Security 
Income (SSI) beneficiaries. Disabled beneficiaries and 
advocates report that the work incentives for SSI and SSI 
beneficiaries are complex, difficult to understand, and 
information and assistance from the Social Security 
Administration is frequently not helpful. The Committee 
provision would improve both community-based sources of 
information through a grant program, and expertise within the 
Social Security Administration with a corps of work incentives 
specialists. Since some beneficiaries attempt to work without 
receiving rehabilitation services, work incentive information 
services would be available to all beneficiaries, not just 
those participating in the Ticket program.

Effective date

    Fiscal year 2000.

b. Section 222. State Grants for Work Incentives Assistance to Disabled 
                             Beneficiaries

Present law

    Grants to States to provide assistance to individuals with 
disabilities are authorized under the Developmental 
Disabilities Assistance and Bill of Rights Act (42 U.S.C. 6041 
et seq.). Such assistance includes information on and referral 
to programs and services; and legal, administrative, and other 
appropriate remedies to ensure access to services.

Explanation of provision

    The Commissioner of Social Security would be authorized to 
make grants to existing protection and advocacy programs 
authorized by the States under the Developmental Disabilities 
Assistance and Bill of Rights Act. Services would include 
information and advice about obtaining vocational 
rehabilitation and employment services, and advocacy and other 
services a Social Security disability insurance (SSDI) or 
Supplemental Security Income (SSI) beneficiary may need to 
secure or regain gainful employment, including applying for and 
receiving work incentives.
    Appropriations for this program would not to exceed $7 
million for fiscal year 2000, and such sums as needed 
thereafter. Individual grant amounts would be based on the 
number of beneficiaries in a State, subject to certain limits.

Reason for change

    The Committee provision is intended to improve direct 
assistance and supports to Social Security disability insurance 
(SSDI) and Supplemental Security Income (SSI) beneficiaries in 
making use of vocational rehabilitation, work incentives, and 
any related assistance or supports that would help a 
beneficiary to go to work or maintain employment. Disabled 
beneficiaries and advocates report that the work incentives for 
SSI and SSDI beneficiaries are complex, difficult to 
understand, and information and assistance from the Social 
Security Administration is frequently not helpful. The 
Committee provision would improve ``hands on'' assistance to 
people with disabilities in obtaining access to employment 
assistance and work incentives by providing grants to existing 
State-authorized entities with expertise in working with people 
with disabilities. Since some beneficiaries attempt to work 
without receiving rehabilitation services, work incentive 
information services would be available to all beneficiaries, 
not just those participating in the Ticket program.

Effective date

    Fiscal year 2000.

            E. TITLE III--DEMONSTRATION PROJECTS AND STUDIES

1. Section 301. Extension of Disability Insurance Program Demonstration 
                               Authority

Present law

    Section 505 of the Social Security Disability Amendments of 
1980, as amended (42 U.S.C. 1310) provides the Commissioner of 
Social Security authority to conduct certain demonstration 
projects. The Commissioner may initiate experiments and 
demonstration projects to test ways to encourage Social 
Security Disability Insurance (SSDI) beneficiaries to return to 
work, and may waive compliance with certain benefit 
requirements in connection with these projects. This 
demonstration authority has expired.

Explanation of provision

    The Committee provision would permanently authorize section 
505 of the Social Security Disability Amendments of 1980, and 
provide new authority to:
          (1) conduct demonstrations related to sliding scale 
        benefit offsets using variations in the amount of the 
        offset as a proportion of earned income; and
          (2) conduct demonstration projects with presumptively 
        eligible applicants.

Reason for change

    Current demonstration authority has expired.

Effective date

    Date of enactment.

  2. Section 302. Demonstration Projects Providing for Reductions in 
            Disability Insurance Benefits Based on Earnings

Present law

    No provision.

Explanation of provision

    The Committee provision would require the Commissioner of 
Social Security to conduct a demonstration project under which 
payments to Social Security disability insurance (SSDI) 
beneficiaries would be reduced $1 for every $2 of beneficiary 
earnings. The Commissioner would be required to annually report 
to the Congress on the progress of this demonstration project; 
the first report is due June 9, 2000.

Reason for change

    SSDI beneficiaries lose all cash benefits when they work 
and earn more than the substantial gainful activity limit 
(currently $500 a month), after participating in the 9-month 
trial work period. Because of the $500 ``earnings cliff,'' many 
SSDI beneficiaries view remaining on the rolls as financially 
more attractive than risking the uncertainties of competitive 
employment, especially when low-wage jobs are the likely 
outcome.
    To determine whether changes in this earnings-cliff hurdle 
would in fact encourage SSDI beneficiaries to return to work, 
the Committee provision would require SSA to test a gradual 
offset of SSDI cash benefits by reducing benefits $1 for every 
$2 in earnings over a determined level. A reduction in benefits 
based on earnings would lessen the total loss of benefits to 
beneficiaries who attempt work. However, some experts assert 
that the results of a permanent provision allowing a SSDI 
benefit offset of $1 for every $2 earned over a determined 
level would result in large costs to the Social Security Trust 
Funds because it would encourage disabled individuals who 
currently work despite their impairments to apply for benefits. 
The Committee provision would examine these several effects.

Effective date

    On enactment.

                  3. Section 304. Studies and Reports

Present law

    No provision.

Explanation of provision

    1. Study by GAO of Existing Disability-Related Employment 
Incentives.--The Committee provision would direct the General 
Accounting Office (GAO) to assess the value of existing tax 
credits and disability-related employment initiatives under the 
Americans with Disabilities Act and other Federal laws. The 
report is to be submitted within 3 years to the Senate 
Committee on Finance and the House Committee on Ways and Means.
    2. Study by GAO of Existing Coordination of the DI and SSI 
Programs as They Relate to Individuals Entering or Leaving 
Concurrent Entitlement.--The Committee provision would direct 
the General Accounting Office (GAO) to evaluate the 
coordination under current law of work incentives for 
individuals eligible for both Social Security disability 
insurance (SSDI) and Supplemental Security Income (SSI). The 
report is to be submitted within 3 years to the Senate 
Committee on Finance and the House Committee on Ways and Means.
    3. Study by GAO on the Impact of the Substantial Gainful 
Activity Limit on Return to Work.--The Committee provision 
would direct the General Accounting Office (GAO) to examine 
substantial gainful activity limit as a disincentive for return 
to work. The report is to be submitted within 2 years to the 
Senate Committee on Finance and the House Committee on Ways and 
Means.
    4. Report on Disregards Under the DI and SSI Programs.--The 
Committee provision would direct the Commissioner of Social 
Security to identify all income disregards under the Social 
Security disability insurance (SSDI) and Supplemental Security 
Income (SSI) programs; to specify the most recent statutory or 
regulatory change in each disregard; the estimated current 
value of any disregard if the disregard had been indexed for 
inflation; recommend any further changes; and to report certain 
additional information and recommendations on disregards 
related to grants, scholarships, or fellowships used in 
attending any educational institution. The report is to be 
submitted within 90 days to the Senate Committee on Finance and 
the House Committee on Ways and Means.

Reason for change

    These reports would provide new information to evaluate or 
improve employment and related assistance to SSDI and SSI 
beneficiaries.

Effective date

    On enactment.

                    F. TITLE IV--TECHNICAL AMENDMENTS

   1. Section 401. Technical Amendments Relating to Drug Addicts and 
                               Alcoholics

Present law

    Public Law 104-121 included amendments to the Social 
Security disability insurance (SSDI) and Supplemental Security 
Income (SSI) programs providing that no individual could be 
considered to be disabled if alcoholism or drug addiction would 
otherwise be a contributing factor material to the 
determination of disability. The effective date for all new and 
pending applications was the date of enactment. For those 
individuals whose claims had been finally adjudicated before 
the date of enactment, the amendments would apply commencing 
with benefits for months beginning on or after January 1, 1997. 
Individuals receiving benefits due to drug addiction or 
alcoholism can reapply for benefits based on another 
impairment. If the individual applied within 120 days after the 
date of enactment, the Commissioner is required to complete the 
entitlement redetermination by January 1, 1997.
    Public Law 104-121 provided for the appointment of 
representative payees for recipients allowed benefits due to 
another impairment but who were also determined to have a drug 
addiction or alcoholism condition, and the referral of those 
individuals for treatment effective with applications and 
reapplications filed after July 1, 1996.

Explanation of provision

    The Committee provision clarifies that the meaning of the 
term ``final adjudication'' includes a pending request for 
administrative or judicial review or a pending readjudication 
pursuant to class action or court remand. The provision also 
clarifies that if the Commissioner does not perform the 
entitlement redetermination before January 1, 1997, that 
entitlement redetermination must be performed in lieu of a 
continuing disability review.
    The Committee provision also corrects an anomaly that 
currently excludes all those allowed benefits (due to another 
impairment) before March 29, 1996, and redetermined before July 
1, 1996, from the requirement that a representative payee be 
appointed and that the recipient be referred for treatment.

Reason for change

    The provision clearly defines ``final adjudication'' to 
avoid any misinterpretation by the courts. One court has 
concluded that the court can award benefits through January 1, 
1997, because the Commissioner's decision denying benefits was 
issued before March 29, 1996.
    As written, current law creates an anomaly, whereby all 
those allowed benefits (due to another impairment) before March 
29, 1996, and redetermined before July 1, 1996, are excluded 
from the requirement that a representative payee be appointed 
and that they be referred for treatment. The Committee 
provision corrects this anomaly.

Effective date

    The amendments would be effective as though they had been 
included in the enactment of Section 105 of Public Law 104-121 
(March 29, 1996).

                 2. Section 402. Treatment of Prisoners

 Implementation of Prohibition Against Payment of Title II Benefits to 
                               Prisoners

Present law

    Current law prohibits prisoners from receiving Old Age, 
Survivors and Disability Insurance (OASDI) benefits while 
incarcerated if they are convicted of any crime punishable by 
imprisonment of more than 1 year (regardless of actual sentence 
imposed). Federal, State, county or local prisons are required 
to make available, upon written request, the name and Social 
Security number (SSNs) of any individual so convicted who is 
confined in a penal institution or correctional facility.

Explanation of provision

    The Committee provision requires the Commissioner to make 
agreements with any interested State or local institution to 
provide monthly the names, Social Security numbers (SSNs), 
confinement dates, dates of birth, and other identifying 
information of residents. The Commissioner is required to pay 
the institution $400 for each Social Security recipient who 
becomes ineligible for benefits as a result of such a report, 
if the information is provided within 30 days of incarceration, 
and $200 if the information is furnished after 30 days but 
within 90 days. Payments to correctional institutions would be 
reduced by 50 percent for multiple reports on the same 
individual who receives both SSI and OASDI benefits. The 
Commissioner is authorized to provide, on a reimbursable basis, 
information obtained pursuant to these agreements to any 
Federal or federally-assisted cash, food or medical assistance 
program, for the purpose of determining program eligibility.

Reason for change

    The Committee provision provides new financial incentives 
for State and local correctional institutions to report 
information on inmates to the Social Security Administration 
(SSA) so that payment of Social Security benefits to prisoners 
being supported at taxpayer expense are discontinued promptly. 
Moreover, the Committee provision provides identical incentives 
now available to report identical information that leads to 
termination of Supplemental Security Income (SSI) benefits. 
Under current law, the Commissioner of Social Security already 
pays institutions $400 for each Supplemental Security Income 
(SSI) recipient who becomes ineligible for benefits as a result 
of such a report, if the information is provided within 30 days 
of incarceration, and $200 if the information is furnished 
after 30 days but within 90 days.

Effective date

    Three months after the date of enactment.

 Elimination of Title II Requirement That Confinement Stem From Crime 
            Punishable by Imprisonment for More Than 1 Year

Present law

    Title II of the Social Security Act bars payment of Old 
Age, Survivors, or Disability Insurance (OASDI) benefits to 
prisoners convicted of, or who are institutionalized because 
they are found guilty but insane, not guilty by reason of 
insanity, incompetent to stand trial, or the subject of a 
similar verdict or finding based on a mental disease, a mental 
defect, or mental incompetence with respect to, any crime 
punishable by imprisonment of more than a year (regardless of 
the actual sentence imposed).

Explanation of provision

    This provision would bar payment of OASDI benefits to 
prisoners and other individuals convicted of a criminal offense 
and confined, throughout a month, to:
          (1) a penal institution; or
          (2) other institution if found guilty but insane, 
        regardless of the total duration of the confinement.

Reason for change

    An audit conducted by the SSA Office of Inspector General 
determined that the language in existing law required that for 
each prisoner eligible for benefits, the duration of 
incarceration be determined on a case-by-case basis, based on 
data that can only be obtained from the courts. This is a 
costly, labor-intensive process that impedes timely suspension 
of benefits. As a matter of fairness, benefits would also be 
barred to persons who commit serious crimes but are found 
guilty by reason of insanity, regardless of the total duration 
of the institutionalization.

Effective date

    Three months after enactment.

  Continued Denial of Benefits to Sex Offenders Remaining Confined to 
           Public Institutions Upon Completion of Prison Term

Present law

    No provision.

Explanation of provision

    The amendment would prohibit Old Age, Survivors, or 
Disability Insurance (OASDI) benefits to sex offenders who, on 
completion of a prison term, remain confined in a public 
institution pursuant to a court finding that they continue to 
be sexually dangerous to others.

Reason for change

    The denial of benefits is extended in the case of sex 
offenders who remain confined after completing their prison 
terms.

Effective date

    On enactment.

 3. Section 403. Revocation by Members of the Clergy of Exemption From 
                        Social Security Coverage

Present law

    Practicing members of the clergy are automatically covered 
by Social Security as self-employed workers unless they file an 
application for an exemption from Social Security coverage; the 
application must be filed within a period ending with the due 
date of the tax return for the second taxable year (not 
necessarily consecutive) in which they receive remuneration for 
their ministerial services and must include a statement of the 
applicants' objection to the acceptance of Social Security 
benefits on religious principles. Applicants must also inform 
the ordaining, commissioning, and licensing body of their 
church or order about their objection. If granted, this 
exemption is irrevocable.

Explanation of provision

    The proposal would provide a 2-year ``open season,'' 
beginning December 31, 1999, for members of the clergy who want 
to revoke their exemption from Social Security, i.e., wish to 
join Social Security. This decision to join Social Security 
would be irrevocable. A member of the clergy choosing such 
coverage would become subject to self-employment taxes and his 
or her subsequent earnings would be credited for Social 
Security (and Medicare) benefit purposes.

Reason for change

    Some members of the clergy elected not to participate in 
Social Security (and Medicare) early in their careers, before 
they fully understood the ramifications of doing so. Because 
the election is irrevocable, there is no way for them to gain 
access to the program under current law. Clergy typically have 
modest earnings throughout their working life times and would 
be among those most likely to rely on Social Security (and 
Medicare) for much of their basic health care and living 
expenses in retirement. This proposal gives them a limited 
opportunity to enroll in the system, similar to those provided 
by Congress in 1977 and 1986.

Effective date

    The proposal would be effective with respect to service 
performed in taxable years beginning after December 31, 1999, 
for a period of 2 years, and with respect to monthly benefits 
in or after the calendar year the individual's application for 
revocation is effective.

4. Section 404. Additional Technical Amendment Relating to Cooperative 
       Research or Demonstration Projects Under Titles II and XVI

Present law

    Current law authorizes Title XVI funding for making grants 
to States and public and other organizations for paying part of 
the cost of cooperative research or demonstration projects.

Explanation of provision

    Clarifies current law to include agreements or grants 
concerning title II of the Social Security Act.

Reason for change

    Corrects an omission of intended Title II authority.

Effective date

    August 4, 1994.

5. Section 405. Authorization for States to Permit Annual Wages Reports

Present law

    The Social Security Domestic Employment Reform Act of 1994 
(P.L. 103-387) changed certain Social Security and Medicare tax 
rules. Specifically, the Act provided that domestic service 
employers (that is, individuals employing maids, gardeners, 
babysitters, and the like) would no longer owe taxes for any 
domestic employee who earned less than $1,000 per year from the 
employer. In addition, the Act simplified certain reporting 
requirements. Domestic employers were no longer required to 
file quarterly returns regarding Social Security and Medicare 
taxes, nor the annual Federal Unemployment Tax Act (FUTA) 
return. Instead, all Federal reporting was consolidated on an 
annual Schedule H filed at the same time as the employer's 
personal income tax return.

Explanation of provision

    The Committee provision would permit States the option of 
permitting domestic service employers to file annual rather 
than quarterly wage reports pursuant to section 1137 of the 
Social Security Act, which provides for an income and 
eligibility verification system for certain public benefits.

Reason for change

    The Committee provision provides for consistency of certain 
State wage reporting with revised Federal requirements.

Effective date

    On enactment.

                      G. TITLE V--REVENUE OFFSETS

 1. Section 501 of the Bill and Section 901 of the Code. Modifications 
                 to Foreign Tax Credit Carryover Rules

Present law

    U.S. persons may credit foreign taxes against U.S. tax on 
foreign-source income. The amount of foreign tax credits that 
can be claimed in a year is subject to a limitation that 
prevents taxpayers from using foreign tax credits to offset 
U.S. tax on U.S.-source income. Separate foreign tax credit 
limitations are applied to specific categories of income.
    The amount of creditable taxes paid or accrued (or deemed 
paid) in any taxable year which exceeds the foreign tax credit 
limitation is permitted to be carried back 2 years and forward 
5 years. The amount carried over may be used as a credit in a 
carryover year to the extent the taxpayer otherwise has excess 
foreign tax credit limitation for such year. The separate 
foreign tax credit limitations apply for purposes of the 
carryover rules.

Explanation of provision

    The bill reduces the carryback period for excess foreign 
tax credits from 2 years to 1 year. The bill also extends the 
excess foreign tax credit carryforward period from 5 years to 7 
years.

Reason for change

    The Committee believes that reducing the carryback period 
for foreign tax credits to 1 year and increasing the 
carryforward period to 7 years will reduce some of the 
complexity associated with carrybacks while continuing to 
address the timing difference between U.S. and foreign tax 
rules.

Effective date

    The provision applies to foreign tax credits arising in 
taxable years beginning after December 31, 2001.

 2. Section 502 of the Bill and Section 448 of the Code. Limit Use of 
 Non-Accrual Experience Method of Accounting to Amounts to be Received 
           for the Performance of Qualified Personal Services

Present law

    An accrual method taxpayer generally must recognize income 
when all the events have occurred that fix the right to receive 
the income and the amount of the income can be determined with 
reasonable accuracy. An accrual method taxpayer may deduct the 
amount of any receivable that was previously included in income 
that becomes worthless during the year.
    Accrual method taxpayers are not required to include in 
income amounts to be received for the performance of services 
which, on the basis of experience, will not be collected (the 
``non-accrual experience method''). The availability of this 
method is conditioned on the taxpayer not charging interest or 
a penalty for failure to timely pay the amount charged.
    A cash method taxpayer is not required to include an amount 
in income until it is received. A taxpayer may not use the cash 
method if purchase, production, or sale of merchandise is a 
material income producing factor. Such taxpayers are generally 
required to keep inventories and use the accrual method of 
accounting. In addition, corporations (and partnerships with 
corporate partners) generally may not use the cash method of 
accounting if their average annual gross receipts exceed $5 
million. An exception to this $5 million rule is provided for 
qualified personal service corporations, corporations:
          (1) substantially all of whose activities involve the 
        performance of services in the fields of health, law, 
        engineering, architecture, accounting, actuarial 
        science, performing arts or consulting; and
          (2) substantially all of the stock of which is owned 
        by current or former employees performing such 
        services, their estates or heirs. Qualified personal 
        service corporations are allowed to use the cash method 
        without regard to whether their average annual gross 
        receipts exceed $5 million.

Explanation of provision

    The bill provides that the non-accrual experience method 
will be available only for amounts to be received for the 
performance of qualified personal services. Amounts to be 
received for the performance of all other services will be 
subject to the general rule regarding inclusion in income. 
Qualified personal services are personal services in the fields 
of health, law, engineering, architecture, accounting, 
actuarial science, performing arts or consulting. As under 
present law, the availability of the method is conditioned on 
the taxpayer not charging interest or a penalty for failure to 
timely pay the amount.

Reason for change

    The Committee understands that the use of the non-accrual 
experience method provides the equivalent of a bad debt 
reserve, which generally is not available to taxpayers using 
the accrual method of accounting. The Committee believes that 
accrual method taxpayers should be treated similarly, unless 
there is a strong indication that different treatment is 
necessary to clearly reflect income or to address a particular 
competitive situation.
    The Committee understands that accrual basis providers of 
qualified personal services (services in the fields of health, 
law, engineering, architecture, accounting, actuarial science, 
performing arts or consulting) compete on a regular basis and 
on an even footing with competitors using the cash method of 
accounting. The Committee believes that this competitive 
situation justifies the continued availability of the non-
accrual experience method with respect to amounts to be 
received for the performance of qualified personal services. 
The Committee believes that it is important to avoid the 
disparity of treatment between competing cash and accrual 
method providers of qualified personal services that could 
result if the non-accrual experience method were eliminated 
with regard to amounts to be received for such services.

Effective date

    The provision is effective for taxable years ending after 
the date of enactment. Any change in the taxpayer's method of 
accounting necessitated as a result of the proposal will be 
treated as a voluntary change initiated by the taxpayer with 
the consent of the Secretary of the Treasury. Any required 
section 481(a) adjustment is to be taken into account over a 
period not to exceed 4 years under principles consistent with 
those in Rev. Proc. 98-60.\1\
---------------------------------------------------------------------------
    \1\ 1998-51 I.R.B. 16.
---------------------------------------------------------------------------

3. Section 503 of the Bill and New Section 7527 of the Code. Extension 
                            of IRS User Fees

Present law

    The IRS provides written responses to questions of 
individuals, corporations, and organizations relating to their 
tax status or the effects of particular transactions for tax 
purposes. The IRS generally charges a fee for requests for a 
letter ruling, determination letter, opinion letter, or other 
similar ruling or determination. Public Law 104-117 \2\ 
extended the statutory authorization for these user fees \3\ 
through September 30, 2003.
---------------------------------------------------------------------------
    \2\ An Act to provide that members of the Armed Forces performing 
services for the peacekeeping efforts in Bosnia and Herzegovina, 
Croatia, and Macedonia shall be entitled to tax benefits in the same 
manner as if such services were performed in a combat zone, and for 
other purposes (March 20, 1996).
    \3\ These user fees were originally enacted in section 10511 of the 
Revenue Act of 1987 (Public Law 100-203, December 22, 1987).
---------------------------------------------------------------------------

Explanation of provision

    The bill extends the statutory authorization for these user 
fees through September 30, 2006. The bill also moves the 
statutory authorization for these fees into the Internal 
Revenue Code.

Reason for change

    The Committee believes that it is appropriate to extend the 
statutory authorization for these user fees for an additional 3 
years.

Effective date

    The provision is effective on the date of enactment.

                    III. BUDGET EFFECTS OF THE BILL

                         A. Committee Estimates

    In compliance with paragraph 11(a) of Rule XXVI of the 
Standing Rules of the Senate, the following table is presented 
concerning the estimated budget effects of S. 331 as reported.



                B. Budget Authority and Tax Expenditures

Budget Authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that Titles I-IV of the bill involve net 
budget outlays (budget authority) of $3,239 million over fiscal 
years 1999-2008. (See table in A., above.)

Tax Expenditures

    In compliance with section 308(a)(2) of the Budget Act, the 
Committee states that bill section 502 involves a reduction in 
tax expenditures of $286 million over fiscal years 1999-2008.

            C. Consultation With Congressional Budget Office

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget Office 
submitted the following statement on S. 331, as amended by the 
Committee.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 19, 1999.
Hon. William V. Roth, Jr.,
Chairman, Committee on Finance, U.S. Senate,
Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 331, the Work 
Incentives Improvement Act of 1999.

            Sincerely,
                                   Barry B. Anderson,
                                       for
                                   Dan L. Crippen, Director.

    Enclosure.

               congressional budget office cost estimate

                S. 331--Work Incentives Improvement Act

  (As ordered reported by the Senate Committee on Finance on March 4, 
                                 1999)

                                SUMMARY

    S. 331, the Work Incentives Improvement Act of 1999, would 
alter cash and health-care benefits for people with 
disabilities. Title I would provide States with options to 
extend Medicaid coverage to certain disabled workers, enhance 
Medicare for certain former recipients of Social Security 
Disability Insurance (DI), and establish grants and 
demonstration projects for States to assist disabled workers. 
Title II would revamp the system under which people collecting 
benefits from DI and Supplemental Security Income (SSI) receive 
vocational rehabilitation (VR) services and would make it 
easier for working beneficiaries to retain or regain cash 
benefits. Titles III and IV would require several demonstration 
projects, give certain members of the clergy another 
opportunity to enroll in the Social Security system, and 
tighten restrictions on the payment of Social Security benefits 
to prisoners. To offset the costs of the bill, Title V would 
increase certain revenues. CBO estimates that the bill would 
add to the total Federal surplus by $0.7 billion over the 2000-
2004 period; of that amount, $0.1 billion would represent a 
reduction in the off-budget Social Security surplus, and the 
remaining $0.8 billion an improvement in the on-budget surplus.
    Section 4 of the Unfunded Mandates Reform Act (UMRA) 
excludes from the application of that act any legislative 
provisions that relate to the old-age, survivors, and 
disability insurance program under title II of the Social 
Security Act, including tax provisions in the Internal Revenue 
Code. CBO has determined that Subtitles A and B in Title II and 
Titles III and IV of this bill fall within that exclusion. The 
remainder of the bill contains no intergovernmental mandates as 
defined in UMRA. However, the optional programs would result in 
greater State spending if they chose to participate.
    The Joint Committee on Taxation has determined that two 
provisions in the revenue section of the bill constitute 
private-sector mandates. The direct cost of those provisions 
would exceed the statutory threshold specified in 2002 through 
2004.

                Estimated Cost to the Federal Government

    The estimated budgetary impact of S. 331 on direct spending 
and revenues is summarized in Table 1. The costs of this 
legislation fall within budget functions 550 (Health), 570 
(Medicare), 600 (Income Security), 650 (Social Security), and 
800 (General Government).

                           Basis of Estimate

    For purposes of estimating the budgetary effects of S. 331, 
CBO assumes enactment by September 1999.

Current Law

    About 8 million people between the ages of 18 and 64 now 
collect cash benefits under DI, SSI, or both. In both programs, 
applicants must show that they are incapable of substantial 
work in order to be awarded benefits. Nevertheless, the 
programs have several provisions that are meant to smooth 
beneficiaries' return to work. The law permits DI recipients to 
earn unlimited amounts for a nine-month period (known as the 
trial work period, or TWP) and a subsequent three-month grace 
period before suspending benefits. During the three years after 
the TWP--a period known as the extended period of eligibility, 
or EPE--those beneficiaries may automatically return to the DI 
rolls if their earnings sink below substantial gainful activity 
(SGA, now defined in regulation as $500 per month and soon to 
increase to $700). Furthermore, Medicare benefits (for which DI 
beneficiaries qualify after two years on the rolls) also 
continue for three years even if cash benefits are suspended. 
Medicare coverage then stops unless the worker pays a steep 
premium (up to $309 a month in 1999).
    The SSI disability program is restricted to people with low 
income and few resources. Although applicants for SSI benefits 
must meet the same disability criteria as in the DI program, 
the SSI program's subsequent treatment of earnings differs 
somewhat. SSI recipients who work get a reduced benefit 
(essentially, losing $1 of benefits for each $2 of earnings 
over $85 a month) but do not give up their benefit entirely. If 
their earnings top SGA but they are still medically disabled, 
they move into section 1619(a) status (and still collect a 
small cash benefit). If their earnings rise further, they enter 
1619(b) status (where they collect no cash benefit but retain 
Medicaid). If their incomes are too high even for the 1619(b) 
program, they may still enroll in Medicaid if their State 
offers a buy-in program permitted by the Balanced Budget Act of 
1997 (BBA).



    Both DI and SSI recipients are evaluated at the time of 
award for their potential to go back to work. Sketchy data 
suggest that a minority are referred to VR providers, chiefly 
State agencies, and only a minority of those referred are 
served. If the beneficiary successfully completes nine months 
of employment at SGA, the VR

provider is reimbursed by the Social Security Administration 
(SSA). In 1996, SSA began recruiting alternate providers under 
the Referral System for Vocational Rehabilitation Providers 
(RSVP) program. Candidates for this program must first be 
referred to and rejected by the State VR agencies, and the 
alternate providers face the same reimbursement system (that 
is, a single payment after nine months of substantial work). 
Thus, VR for DI and SSI recipients remains fundamentally a 
State program.
    In both the DI and SSI programs, recipients are reviewed 
periodically to verify that they are still disabled. These 
Continuing Disability Reviews (CDRs) are scheduled according to 
the recipient's perceived likelihood of improvement. If medical 
improvement is deemed possible, the cycle calls for a review 
every three years. (Those beneficiaries thought likely to 
improve are reviewed more often, and those unlikely to improve 
less often.) If the CDR results in a finding that the 
beneficiary is no longer disabled, cash and medical benefits 
stop. A CDR can also be triggered by a report of earnings.

Expanded Availability of Health Care Services (Title I)

    Title I of S. 331 would increase Federal spending by about 
$0.7 billion over the 2000-2004 period and by about $2 billion 
over the 2000-2009 period through policies that would expand 
the availability of health care services. It would expand 
existing State options for covering the working disabled under 
Medicaid and would extend Medicare coverage for DI recipients 
who return to work. Title I would also provide States with 
grants to develop infrastructure to assist the working disabled 
and establish demonstration projects for States to provide 
Medicaid benefits to workers with severe impairments who are 
likely to become disabled.
    State Option to Eliminate Income, Resource, and Asset 
Limitations for Medicaid Buy In. Section 101 of S. 331 would 
amend Medicaid law to allow States the option to raise certain 
income, asset, and resource limitations for workers with 
disabilities who buy into Medicaid. This policy, combined with 
the incentives created by grants and demonstration projects 
(discussed below), would induce some States to expand Medicaid 
to include the working disabled and would marginally increase 
enrollment in those States that would otherwise have expanded 
Medicaid to include this group, resulting in an increase in 
spending of about $100 million over five years (see Table 2).



    Under current law, States have the option of extending 
Medicaid coverage to certain workers with disabilities with 
incomes under 250 percent of poverty. This option was created 
in the Balanced Budget Act of 1997 and to date, only one State 
has an approved State plan amendment to implement it. Based on 
discussions with State officials, CBO assumes that States with 
one-quarter of eligible people will develop small expansion 
programs under this option

over the next few years. Some of those States are likely to use 
current authority under the Medicaid program to disregard some 
income of people applying under this option, thus effectively 
enrolling persons with incomes slightly higher than 250 percent 
of poverty. Other States may develop income cut-offs at or 
below that level. Based on figures from SSA of the number of 
people who graduate from the 1619(b) program due to earnings, 
CBO calculates that about 1,000 working disabled will be 
enrolled in Medicaid on an average annual basis under current 
law.
    Under S. 331, CBO assumes that about half of the States 
adopting the current law option would revise their plans to 
raise certain income, asset and resource limitations beyond the 
250 percent limit. Taking up the option would allow those 
States access to incentive grants and demonstration funds made 
available under the bill and would relieve States of 
administering complex eligibility determinations in instances 
where States would otherwise have disregarded income. A 
possible effect of S. 331 in those States would be that more 
people would seek out the benefit if States made higher income 
limits explicit. As a result, there would be a small increase 
in the number of people enrolled under that option.
    CBO also assumes that several additional States would 
exercise the option to buy-in the working disabled under S. 331 
to gain access to incentive grants and demonstration funds made 
available under the bill. In total, CBO assumes that States 
with half the potential eligibles would pursue the option under 
S. 331, increasing Medicaid enrollment by about 2,500 people on 
an average annual basis.
    The estimated Federal share of Medicaid benefits for the 
working disabled population is about $6,500 per capita in 
fiscal year 2000 and about $9,000 per capita in 2004. States 
would incur administrative costs for expanding the program to 
include the working disabled population. Beneficiaries would 
also pay cost-sharing amounting to an estimated 5 percent of 
the total cost of the benefits. The resulting net increase in 
Federal spending attributable to this policy would be about 
$100 million over five years and $250 million over 10 years.
    CBO's estimate takes into account a range of assumptions 
about State participation and about the eligibility limits that 
States would establish. Based on discussions with State 
officials developing or implementing policies in this area, CBO 
assumes that States would be likely to proceed cautiously, so 
as to limit financial exposure. If several large States were to 
participate in this program, new program enrollment could 
potentially be twice CBO's estimate; conversely, fewer 
participating States would decrease the estimate. If all States 
were to take up the option and have no ability to restrict or 
limit the benefits to all qualified working disabled people 
meeting the Federal definition of disability regardless of any 
income, assets and resources, Federal costs could be 
substantially higher than the estimate. At the same time, 
States could maintain current limits or set eligibility limits 
to target a narrow subset of eligibles, thus resulting in a 
smaller increase in costs.
    State Option to Continue Medicaid Buy-In for Participants 
Whose DI or SSI Benefits are Terminated After a CDR. Section 
101 would also provide States the option to continue Medicaid 
coverage for persons enrolled under the buy-in option for the 
working disabled if those persons lose SSI or DI due to medical 
improvement, as established at a regularly scheduled CDR, yet 
still have conditions that qualify as a ``severe medically 
determinable impairment.'' Under current law, an estimated 5 
percent of the buy-in population will have medical improvements 
each year that will result in the loss of their disability 
status, and thus eligibility for the Medicaid buy-in. 
Continuing coverage for those people would raise Federal 
Medicaid spending by $15 million over five years and $60 
million over 10 years, assuming that most States choosing the 
Medicaid buy-in option would take up this option. If all States 
took up this option, Federal Medicaid costs would be $20 
million over five years and $80 million over 10 years.
    Extension of Medicare with No HI Premium to Former DI 
Beneficiaries Who Exhaust Their Current Law EPE. Section 102 of 
S. 331 would allow graduates of the EPE in the next 10 years to 
continue to receive Medicare benefits indefinitely without 
having to pay any Part A premium. The Federal cost of this 
provision is estimated at $10 million in 2000 and about $250 
million over five years.
    About 15,000 people start an EPE each year, and about 6,000 
finish one. The bill would provide Medicare coverage to people 
who otherwise would have lost it at the end of the EPE. CBO 
estimates that an extra 27,000 people would continue to be 
eligible for Medicare in 2004, the fifth year of the provision, 
growing to 60,000 in 2009. CBO assumes that the per capita cost 
for those beneficiaries is about one-half the cost of the 
average disabled beneficiary, reflecting the likelihood that 
they are somewhat healthier than other disabled beneficiaries, 
and the possibility that some beneficiaries would gain 
employer-sponsored insurance and rely on Medicare as a 
secondary payor.
    Grants to States to Provide Infrastructure to Support 
Working Individuals with Disabilities. To States that choose at 
least the first of the two Medicaid buy-in options, section 103 
of the bill would make available grants to develop and 
establish State capacity for providing items and services to 
workers with disabilities. The bill would appropriate $20 
million in 2000, $25 million in 2001, $30 million in 2002, $35 
million in 2003, and $40 million in 2004. The amount would be 
indexed to the consumer price index (CPI-U) through 2010. Each 
State's grant would be limited in each year to 15 percent of 
the estimated total Federal and State spending on the more 
costly of the two State options in the bill. Based on CBO's 
estimate of the State option to expand the Medicaid buy-in, the 
limitation would hold spending levels to about $10 million 
annually; five-year costs would be $40 million and 10-year 
costs would be $100 million. Funds not allocated would remain 
available for allocation to States in future years. Funds 
allocated to States would be available until expended.
    Demonstration Project for States Covering Workers with 
Potentially Severe Disabilities. Under section 104 of S. 331, 
States electing the first option under section 101 would also 
be eligible for grants to pay for demonstration projects that 
provide Medicaid to working persons with physical or mental 
impairments who could potentially become blind or disabled 
without Medicaid benefits. Those people would be ineligible for 
Medicaid benefits under current law because they do not have 
conditions that meet the DI or SSI definition of disability. 
The bill would appropriate $70 million in 2000, $73 million in 
2001, $77 million in 2002, and $80 million in 2003. Funds would 
remain available until expended, except that no payment could 
be made by the Federal Government after fiscal year 2005. CBO 
estimates that the costs of the provision would total $300 
million over the 2000-2004 period.

  Ticket to Work and Self-Sufficiency Program and Related Provisions 
                               (Title II)

    Ticket to Work and Self-Sufficiency Program. Title II would 
temporarily change the way that VR services are provided to 
recipients of DI and SSI benefits. The budgetary effects of the 
proposed tickets program comprise several components, which are 
detailed in Table 3. 



    The current VR program serves a fraction of DI and SSI 
recipients. Approximately 10 percent to 15 percent of new DI 
and SSI recipients are referred to State VR agencies; although 
SSA does not track what happens to them next, scattered clues 
suggest that about 10 percent of those referred are accepted. 
Recently, SSA has made approximately 650,000 DI awards a year; 
therefore, around 7,000 to 8,000 probably received VR services. 
SSA pays about 6,000 claims per year for VR services provided 
to DI recipients. SSA also pays about 6,000 claims for VR 
services to SSI recipients. Since about 3,000 claims are for 
people who collect benefits under both programs, total claims 
reimbursed are about 9,000 a year.
    Some DI and SSI recipients return to work without the help 
of VR agencies. Research suggests that only 10 percent to 20 
percent of DI recipients ever work after they start collecting 
benefits, and only 2 percent to 3 percent eventually have 
benefits withheld because of earnings. In contrast, SSA 
reimburses claims for VR services for about I percent of 
recipients. Thus, for each VR success, one or two other DI 
recipients go back to work and are suspended from the rolls 
without VR.
    S. 331 would revamp the VR system by permitting nearly any 
recipient who desires VR to receive it, by allowing clients to 
choose from a variety of providers in addition to State VR 
agencies, and by stretching out reimbursements to providers for 
up to five years, contingent on their clients' sustained 
absence from the rolls.
    Under S. 331, SSA would issue tickets to DI and SSI 
beneficiaries that they could assign to approved VR providers, 
whether State, private for-profit, or nonprofit. The bill would 
grant wide latitude to SSA in deciding the terms and conditions 
of the tickets; SSA tentatively plans to issue tickets to new 
beneficiaries at the time of award, unless they are deemed 
likely to recover, and to current beneficiaries after a CDR. By 
accepting a ticket, providers--labeled ``networks'' in the 
bill--would agree to supply services, such as training, 
assistive technology, physical therapy, or placement. A program 
manager, selected by SSA, would aid in recruiting providers and 
handling the nuts-and-bolts administration of the program.
    Providers could choose between two forms of reimbursement 
from SSA. One system would be based solely on outcomes; the 
provider would receive 40 percent of the average DI or SSI 
benefit for up to five years, so long as the client stayed off 
the rolls. Some providers fear, though, that they would 
experience acute cash-flow problems under such a system. To 
address that concern, the bill also offers a blended system, 
dubbed the ``milestones-outcome'' system. Under that system, 
SSA would make some payments earlier, but would trim subsequent 
payments to ensure that the overall cost (calculated on a net 
present value basis) did not exceed the cost of a pure outcomes 
system.
    The new program would be phased in gradually but last only 
five years. S. 331 calls for it to start in selected areas a 
year after enactment, and to operate nationwide 3 years after 
that. The last tickets would be issued five years after the 
start of implementation. Because the program would then end 
unless reauthorized, potential providers may hesitate to 
enlarge their capacity to serve DI and SSI clients.
    CBO estimates that about 7 percent of newly-awarded 
beneficiaries would seek VR services if they were readily 
available, versus only about 1 percent who receive them under 
current law. Both the Transitional Employment Demonstration 
(TED, a demonstration conducted in the mid-1980s and confined 
to mentally retarded recipients) and Project Network (a 
demonstration begun in 1992 and open to both DI and SSI 
beneficiaries) suggested that about 5 percent of beneficiaries 
would enroll in VR if given the chance. CBO judged that the 
level of interest ultimately would slightly exceed 5 percent 
for two reasons. First, intake under Project Network developed 
bottlenecks, which may have discouraged some potential 
participants. Second, Project Network barred any recipients who 
were employed or self-employed from enrolling; no such bar 
would be in place under S. 331, however, and those recipients 
would probably be interested in receiving services and would be 
attractive to providers.
    Research suggests that getting VR raises the propensity to 
work, and thus the chances for an earnings-related suspension. 
But raw figures can easily exaggerate the effectiveness of VR. 
The handful of beneficiaries who would sign up for VR are 
probably the most motivated, and many would have worked anyway. 
In fact, CBO assumes that one effect of S. 331 would be to 
enable providers to be reimbursed for providing services for 
many people who would have worked anyway.
    These expected effects can be illustrated by following the 
experiences of one hypothetical cohort of 650,000 new DI 
beneficiaries. Under current law, about 7,800 might be served 
under the State VR programs; 6,100 of them would eventually 
generate a reimbursement by SSA and would be suspended for at 
least a month. Another 8,300 would be suspended due to 
earnings, for at least one month, without any reimbursement to 
VR. Thus, total suspensions would be about 14,400, or about 2 
percent of the cohort, under current law. CBO estimates that, 
if those beneficiaries could freely enroll in VR using a 
``ticket,'' about 7 percent or 47,000 would get VR services. 
Most of those VR clients would work, and many (about 13,400) 
would be suspended for at least one month, an increase of 7,300 
in VR-reimbursed cases. However, CBO estimates that about 5,900 
of these workers would have gone back to work unaided. Thus, 
for this cohort, net suspensions would be about 1,400 higher.
    In estimating S. 331, CBO adjusted those hypothetical 
figures for its caseload projections and timing factors. First, 
CBO projects that the volume of disabled-worker awards 
gradually climbs from 625,000 in 1999 to about 780,000 in 2005. 
That increase reflects the aging of the baby-boom generation 
into its high-disability years and the scheduled increases in 
Social Security's normal retirement age. Second, CBO assumed 
that some extra rehabilitations would occur among the nearly 5 
million people now on the DI rolls, not just among new awards, 
although current beneficiaries are generally poorer candidates 
for VR than new applicants with more recent work experience. 
Third, CBO adjusted the numbers for the gradual phase-in of the 
new system. Under the bill's schedule, assuming enactment by 
September 1999, the first services would be rendered at a 
handful of sites in fiscal year 2001. If those clients engaged 
in trial work in 2002, the first extra suspensions would occur 
in 2003. The last tickets would be issued in 2005, and the last 
extra suspensions would occur in 2007.
    Specifically, CBO estimates that the number of net 
additional suspensions in DI--that is, suspensions that would 
not occur in the absence of the new program--would equal 500 in 
2003, 2,200 in 2004, and an average of 4,600 annually between 
2005 and 2007. Gross suspensions that involve reimbursement to 
a VR provider would climb gradually from 6,000 to 8,000 a year 
under current law, but would be markedly higher--about 15,000 
in 2007, almost double the current-law estimate--under the 
proposal. And the number of suspensions involving no 
reimbursement to VR would fall.
    CBO also had to make assumptions about recidivism. Many 
studies have documented that DI recipients who leave the rolls 
often return. It is not clear whether recipients of VR services 
are more or less likely to return to the rolls than others; 
some evidence suggests that the extra boost provided by VR 
fades over time. Because S. 331 proposes to pay providers for 
up to five years, but only if the recipient stays off the 
rolls, assumptions about recidivism are critical. Based on a 
variety of sources, CBO assumes that recipients suspended from 
the rolls have about a two-thirds chance of still being 
suspended one year later, about a one-half chance three years 
later (when, technically, their DI entitlement is terminated), 
and a 40 percent chance after five years.
    Effects of the Tickets Program in DI. The budgetary 
consequences of S. 331, from the standpoint of the DI program, 
would consist of seven effects:
   Payments to the program manager. SSA would hire a 
        program manager to coordinate issuance of tickets, the 
        recruitment of providers, and other tasks. Based on a 
        similar arrangement in the RSVP program, CBO assumes 
        that payments to the program manager would amount to 
        just a few million dollars a year.
   Milestone payments to providers. As explained 
        earlier, the bill would give providers a choice between 
        a pure outcome-based system (in which providers would 
        get periodic payments only during the period of 
        suspension) and a blended outcome-milestone system (in 
        which they could get some money earlier). CBO assumes 
        that most providers would opt for the blended system, 
        which CBO assumes to consist of a $500 payment after 
        several months of work and a $1,000 bonus on the date 
        of suspension. Placements would be considerably easier 
        for providers to achieve than suspensions. The first 
        milestone payments would be made in 2002 but would be 
        very small. They would peak at $26 million in 2006: an 
        estimated $15 million for 30,000 gross placements, 
        mostly from ticketholders served in 2005, and another 
        $11 million for 11,000 suspensions, mostly from 
        ticketholders served in 2004 (and who spent 2005 in 
        trial work).
   Incentive payments to providers. The incentive 
        payments would occur over a period of up to five years 
        if the beneficiary remained off the rolls. Therefore, 
        they would continue throughout CBO's 10-year horizon 
        even though the last tickets would be issued in 2005. 
        In the pure outcomes system, incentive payments would 
        be 40 percent of average benefits. CBO assumes that 
        most providers would opt for the blended payment 
        system, under which--in return for getting some earlier 
        milestone payments--they would accept incentive 
        payments of 30 percent. Again, outlays would be very 
        small in the early years. Incentive payments would peak 
        at $81 million in 2007. That is the year in which the 
        last batch of VR clients, who got their tickets in 
        2005, would be suspended (under the assumption that 
        they got services in 2005 and engaged in trial work in 
        2006). By 2007, gross suspensions of ticketholders over 
        the preceding five years are assumed to be about 
        35,000. Some of those would have returned to the rolls, 
        but 25,000 would remain suspended. Incentive payments 
        would equal 25,000 times 30 percent of the previous 
        year's average DI benefit (about $900 a month), or $81 
        million. By 2009, under CBO's assumptions about 
        recidivism, only 17,000 of those 25,000 would still be 
        off the rolls, and the 2,000 who were first suspended 
        in 2003 and 2004 would no longer be in the five-year 
        period for incentive payments. Thus, incentive payments 
        in that year would be $49 million.
   Partial repeal of current VR system. CBO assumes 
        that, under current law, the DI trust fund would 
        reimburse about 6,000 claims for VR services at present 
        (at an average cost of about $11,000) and about 7,300 
        in 2007 (at an average cost of about $14,000). The new 
        program would partially displace the current system for 
        five years. Specifically, if tickets were issued in 
        2001 through 2005, they would partially divert clients 
        who would otherwise have generated reimbursements to VR 
        providers (at the end of trial work) in 2003 through 
        2007. In 2007, $50 million in reduced payments would 
        result.
      S. 331 would grant State VR agencies the option of 
        remaining in the current reimbursement system--that is, 
        charging SSA for the full amount of costs incurred 
        after the client has worked for nine months. Because 
        the new program would expire after five years, many 
        State agencies might choose not to undergo the 
        disruption of a switch.
   Benefits avoided. The various payments to providers 
        discussed above all depend on the number of gross 
        rehabilitations. The savings in DI benefits, in 
        contrast, depend on the number of net or extra 
        rehabilitations. That distinction is important: when 
        providers serve clients who would have worked and 
        eventually been suspended anyway, they do not generate 
        savings in DI benefits. Over the 2003-2007 period, CBO 
        estimates that there would be a total of 35,000 gross 
        rehabilitations of ticket holders, of which only 17,000 
        would represent extra rehabilitations. Under CBO's 
        assumptions about recidivism, about 11,000 of those 
        17,000 would still be off the rolls in 2007; at an 
        average benefit of about $900, $122 million in benefit 
        savings would result. That year marks the peak savings, 
        because no more tickets would be issued after 2005. By 
        2009, the 11,000 would have shrunk further to 8,000, 
        and $89 million in benefit savings would be realized.
   Extra benefits paid. Some people might file for DI 
        benefits in order to get VR services. They may even be 
        encouraged to do so by prospective providers (for 
        example, by an insurance company that helps to run 
        their employer's private disability or workers' 
        compensation coverage). For those induced filers, the 
        entire benefit cost (for any time they spend on the 
        rolls) and the VR cost (if they do eventually get 
        suspended) would be a net cost to the DI program.
      To some extent, SSA could minimize this problem by 
        setting the terms and conditions under which it would 
        issue tickets--for example, by denying them to 
        beneficiaries who are expected to recover medically. 
        But some such filers might still seep through. CBO 
        assumes that a few hundred such filers would be 
        attracted to DI during the five years of the tickets 
        program, and some would remain on the rolls, leading to 
        extra benefit costs of up to $5 million annually.
   Resulting Medicare savings. DI recipients who return 
        to work continue to receive Medicare coverage for three 
        years after their suspension from DI. By leading to the 
        rehabilitation and suspension of more DI recipients, 
        the Ticket to Work and Self Sufficiency Act would 
        generate some savings in Medicare. DI beneficiaries who 
        are capable of working are probably healthier than 
        other beneficiaries, and their per capita Medicare cost 
        therefore less than average.
      Under CBO's assumption that the first services would be 
        rendered in 2001 and the first resulting suspensions in 
        2003, small Medicare savings would begin in 2006. By 
        2009, 13,000 extra suspensions are assumed to have 
        occurred over the 2003-2006 period (the group for whom 
        the three-year EPE would have expired); 5,700 would 
        still be off the rolls; and $35 million in Medicare 
        savings would result.
      Although these Medicare savings would result if the 
        Ticket to Work and Self-Sufficiency Act were enacted in 
        isolation, elsewhere S. 331 proposes to give continued 
        Medicare coverage to all beneficiaries who complete an 
        EPE. Therefore, these Medicare savings would be 
        rendered moot by the cost (shown in Title I) of that 
        proposal.
      Small costs--estimated by CBO to be between $1 million 
        and $4 million a year--would result from the induced 
        filers who remain on DI long enough (two years) to 
        qualify for Medicare.
    On balance, over the 1999-2003 period, CBO estimates a 
small net cost in the DI program from the proposed tickets, 
mainly because there would be few extra rehabilitations but 
there would be some startup costs and small payments to induced 
filers. Later, CBO foresees small net savings, chiefly because 
the DI benefit savings from extra suspensions slightly outweigh 
the costs of paying for VR services rendered by an expanded 
pool of providers.
    Effects of the Tickets Program in SSI. S. 331 would also 
bring SSI participants into the new tickets to work program. 
CBO estimated the effects on the SSI program in a manner 
similar to its estimates for DI. There are a few notable 
differences.
    The number of SSI recipients affected by the bill is 
generally estimated to be only half as many as in DI. Under 
current law, SSA pays for about 9,000 rehabilitations a year--
6,000 in DI and 6,000 in SSI, of which 3,000 are concurrent. 
Under the bill, services rendered by providers to concurrent 
beneficiaries would essentially be compensated under the DI 
rules. Thus, to avoid double-counting concurrent beneficiaries, 
CBO generally assumed only half as many cases in its SSI 
estimates as in the analogous DI estimates.
    Average benefits for disabled SSI beneficiaries are also 
only about half as large as in the DI program--in 2003, for 
example, about $425 in SSI versus $825 in DI. Therefore, all 
payments under the proposed system that are pegged to the 
average benefit, such as the incentive payments to providers, 
would be smaller in SSI. In fact, that provision has aroused 
concern that providers would be less willing to provide 
services to the SSI population. CBO implicitly assumes that 
providers would serve this group, perhaps emphasizing cheaper 
services with repeated interventions if necessary.
    Because SSI is limited to beneficiaries with low income and 
few resources, CBO assumed that there would be few induced 
filers. CBO also assumed that most SSI beneficiaries affected 
by the bill would retain Medicaid coverage through section 
1619(b).
    The upshot of S. 331 in the SSI program is a pattern that 
resembles that for DI: small early costs, giving way to small 
savings after 2003.
    Ban on Work CDRs for Certain DI Beneficiaries With 
Earnings. The bill would bar so-called work CDRs if the 
beneficiary has been on the rolls for more than 24 months. Work 
CDRs are triggered by a report of earnings. Beneficiaries would 
still be subject to regularly scheduled periodic CDRs.
    SSA conducts approximately 80,000 work CDRs a year. CBO 
estimates that about 1,500 people whose benefits would 
otherwise be terminated would benefit from this provision. 
Assuming that they are, on average, halfway between periodic 
CDRs scheduled at three-year intervals, they would get an extra 
18 months of benefits. When fully effective, the provision is 
expected to lead to annual DI costs of about $25 million and 
Medicare costs of about $ 10 million.
    Expedited Reinstatement of DI Benefits Within 60 Months of 
Termination. The bill would provide for expedited reinstatement 
of benefits for former DI recipients whose benefits were 
terminated because of earnings in the last 60 months. Under 
current law, those beneficiaries have the usual five-month 
waiting period waived if they seek benefits; but their 
application is judged no differently from one filed by someone 
who has never been on the rolls. S. 331 would alter that by 
stipulating that benefits must be awarded unless SSA can 
demonstrate that the applicant's medical condition has 
improved. S. 331 would also provide for automatic payment of up 
to five months of provisional benefits while the request for 
reinstatement is under consideration. Generally, those 
provisional payments would not be subject to recoupment even if 
the request is ultimately denied. CBO estimates that these 
liberalized procedures would tip the balance in up to a hundred 
cases each year, ultimately costing about $6 million in DI and 
$3 million in Medicare by 2009.
    CBO does not estimate that either of these two provisions 
would lead to additional suspensions from the DI rolls as a 
result of earnings, because there are no firm empirical data on 
which to base such an assumption.

Demonstration Projects and Studies (Title III)

    Permanent Extension of DI Demonstration Project Authority. 
SSA has had the authority to conduct certain research and 
demonstration projects that occasionally require waivers of 
provisions of title II of the Social Security Act. That waiver 
authority expired on June 10, 1996. This bill would extend it 
permanently. This extension would be the fifth since the waiver 
authority was enacted in 1980. This general waiver authority 
should not be confused with the so-called $1-for-$2 
demonstrations in the next section; those demonstrations are 
costlier and longer-lasting than the modest projects that SSA 
would likely conduct on its own initiative.
    When the waiver authority has been in effect, SSA has 
generally spent between $2 million and $4 million annually on 
the affected projects. CBO judges that the proposed extension 
would lead to extra outlays of $3 million in 2000 and $5 
million a year thereafter.
    $1-for-$2 Demonstration Projects. Under current law, after 
completing the TWP and the three-month grace period during 
which earnings are disregarded, a disabled worker gives up his 
or her entire benefit in any month that earnings exceed SGA. 
Both anecdotal and statistical evidence suggest that many 
beneficiaries balk at that, instead quitting work or holding 
their earnings just below the threshold. Some advocates favor, 
instead, cutting benefits by $1 for every $2 of earnings over 
SGA. More modestly, some favor a treatment of earnings more 
like the SSI program's--a cut of $1 in benefits for every $2 of 
earnings over $85 a month.
    Such proposals would probably encourage more people who are 
already on the DI rolls to work. Although fewer beneficiaries 
would be suspended (i.e., have their benefit reduced to zero), 
many might have their benefit substantially reduced. A major 
concern about such proposals, though, is that they would 
encourage an unknown number of people to file for benefits. 
Survey data suggest that there are millions of severely 
impaired people who are nevertheless working and not collecting 
DI. Filing for benefits, and working part-time, might actually 
improve their standards of living. That incentive would be much 
stronger if the DI program liberalized its treatment of 
earnings. The SSA Office of the Actuary in 1994 estimated that 
applying a $1-for-$2 policy for earnings above $500 would cost 
$5 billion in extra DI benefits over a five-year period and 
that setting the threshold at $85 would cost $2 billion.
    S. 331 would require SSA to conduct demonstrations to test 
the effects of a $1 reduction in benefits for each $2 of 
earnings. It would require that SSA conduct the demonstrations 
on a wide enough scale, and for a long enough period, to permit 
valid analysis of the results. CBO assumed that, to meet those 
criteria, the demonstrations would have to include perhaps half 
a dozen small States, that the intake phase of the project 
would have to last three or four years to permit observation of 
induced filers, and that the incentives themselves would have 
to be promised to the beneficiaries for an indefinite period. 
Because the demonstrations would pose formidable issues of 
design and administration, CBO assumes they would not get under 
way until 2002. CBO also assumes that the demonstration would 
be conducted in areas with and without the tickets to work and 
self-sufficiency, to enable the effect of the incentives to be 
isolated from the effects of the new VR program. Even a 
relatively small-scale demonstration might thereby apply to 
approximately 2 percent to 3 percent of the nation. Multiplying 
that percentage times the DI benefit costs suggested by the 
Actuaries' 1994 memo suggests that the demonstration would, 
after intake is complete, cost almost $20 million in extra DI 
benefits a year. It would also lead to slightly higher Medicare 
costs, since the induced filers would qualify for Medicare 
after two years on the DI rolls. Finally, CBO assumes that 
running the demonstrations and collecting and analyzing data 
would be handled by an expert contractor, at a cost of several 
million dollars a year. In sum, the $1-for-$2 demonstration 
projects proposed by the bill are estimated to cost $190 
million over the 2002-2009 period.

Technical Amendments (Title IV)

    Title IV contains technical corrections and clarifications 
to the Social Security Act. Two sections do have budgetary 
effects.
    Provisions Affecting Prisoners. S. 331 would tighten 
restrictions on the payment of Social Security benefits to 
prisoners. Current law sets strict limits on the payment of SSI 
benefits to incarcerated people and somewhat milder limits on 
payments of OASDI. SSI recipients who are in prison for a full 
month--regardless of whether they are convicted--have their 
benefits suspended while they are incarcerated. OASDI 
recipients who have been convicted of an offense carrying a 
maximum sentence of one year or more have their benefits 
suspended. Those who are convicted of lesser crimes, and those 
who are in jail awaiting trial, may still collect OASDI 
benefits. Those provisions are enforced chiefly by an exchange 
of computerized data between the Social Security Administration 
and the Federal Bureau of Prisons, State prisons, and some 
county jails. Those agreements are voluntary and, until 
recently, involved no payments to the institutions.
    The Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 changed that arrangement by 
directing SSA to pay institutions for reporting information 
that led to the identification of ineligible SSI recipients. 
The payment is $400 if the institution reports information 
within 30 days of confinement and $200 if the report is made 30 
to 90 days after confinement. The law also exempts matching 
agreements between SSA and correctional institutions from 
certain provisions of the Privacy Act.
    This bill would establish analogous arrangements for the 
OASDI program. It would also drop the requirement that OASDI 
benefits be suspended only if the maximum sentence for the 
offense is one year or more. (A conviction would still be 
required; inmates who are in jail while they await trial could 
continue to collect benefits.) CBO estimated the effects of 
this provision, like its predecessor in the welfare reform law, 
by analyzing data from several sources that suggest about 4 
percent to 5 percent of prisoners were receiving Social 
Security, SSI benefits, or both before incarceration. Reports 
from SSA's Inspector General showed that some of those 
prisoners were overlooked under matching arrangements either 
because their institution had not signed an agreement, had not 
renewed it promptly, or did not submit data on schedule.
    CBO estimates that, over the 2000-2009 period, the 
provisions would lead to payments of $85 million to 
correctional institutions out of the OASDI trust funds and 
benefit savings of $205 million, for a net saving of $120 
million. CBO also expects that the broader arrangement, by 
doubling the pool of potential payments, would encourage more 
jailers to submit information accurately and promptly and would 
therefore lead to spillover savings in the SSI program 
amounting to about $90 million over the 10-year period.
    Open Season for Clergy to Enroll in Social Security. 
Section 1402(e) of the Internal Revenue Code allows certain 
clergy to exempt the self-employment income from their ministry 
from Social Security and Medicare taxes. Under current law, 
such an exemption is irrevocable.
    Section 403 of S. 331 would allow clergy who have received 
an exemption a two-year opportunity to revoke that exemption 
beginning in calendar year 2000. Similar opportunities were 
offered in 1978 and 1987. Based on those experiences, CBO 
estimates that 3,500 taxpayers would choose to revoke their 
exemptions, and that the average new enrollee would have about 
$20,000 of self-employment income. (There would be a slight 
decrease in income tax revenue, since a portion of payroll 
taxes is deductible for income tax purposes.) From 2000 through 
2009, off-budget revenues would increase by $87 million, and 
on-budget revenues would increase by $10 million.
    Those taxpayers who revoke their exemption will eventually 
receive higher Social Security benefits, but that effect will 
mostly occur in years beyond the 10-year estimation period. CBO 
estimates that outlays will increase by $4 million in the 2000-
2009 period.
    Authorization for State to Permit Annual Wage Reports. S. 
331 would amend the Social Security Act to allow States to 
permit employers of domestic workers to report on such 
employment annually rather than quarterly. State-maintained 
employment histories are used to verify eligibility for certain 
benefits, such as unemployment insurance, food stamps, and SSI. 
This change would not affect eligibility requirements. It could 
present an administrative burden to States that choose to allow 
annual reporting, because they would have to research cases 
manually if they suspect domestic employment. CBO expects any 
budgetary effects to be insignificant.

Revenues (Title V)

    S. 331 would amend the tax code to modify the foreign tax 
credit carryback and carryforward periods. The Joint Committee 
on Taxation (JCT) estimates that this provision would increase 
governmental receipts by $1.2 billion over the 2000-2004 
period. The bill also would limit the nonaccrual experience 
method of accounting to amounts to be received for the 
performance of qualified professional services. JCT estimates 
that this provision would increase governmental receipts by 
$0.2 billion over the 2000-2004 period.
    S. 331 would extend through fiscal year 2006 the authority 
of the Internal Revenue Service (IRS) to charge taxpayers fees 
for certain rulings by the office of the chief counsel and by 
the office for employee plans and exempt organizations. CBO 
estimates that the extension of the IRS's authority to charge 
fees for such services, which is set to expire at the end of 
fiscal year 2003, would increase governmental receipts by $159 
million over fiscal years 2004 through 2006, net of income and 
payroll tax offsets. CBO based its estimate on recent 
collections data and on information from the IRS. The IRS would 
have the authority to retain and spend a small portion of these 
fees without further appropriation. CBO estimates that the 
extension of the fees would increase direct spending by $9 
million over fiscal years 2004 through 2006.

                   SPENDING SUBJECT TO APPROPRIATION

    S. 331 would also create several new programs or activities 
to be funded out of SSA's annual appropriation (see Table 4). 



    Section 201 of S. 331 would create a Work Incentives 
Advisory Panel to advise the Secretaries of Health and Human 
Services (HHS), Labor, and Education, and the Commissioner of 
Social Security on work incentives for the disabled, and to 
advise SSA on implementation and evaluation of the Ticket to 
Work program. The panel would consist of 12 members appointed 
by the Commissioner

in consultation with the Congress. At least 5 of the members 
would be current or former SSI or DI recipients. S. 331 would 
permit the panel to hire a director and other staff and pay 
other necessary expenses. CBO estimates that the panel would 
cost between $1 million and $2 million a year.
    Section 221 would establish a community-based program to 
disseminate information about work incentives and related 
issues. Grants totaling no more than $23 million a year would 
be awarded competitively to community-based groups. Because 
this would be a brand-new program, CBO assumes that spending 
would be low at first, not reaching $23 million until the third 
year.
    Section 222 would require the Commissioner of Social 
Security to make grants to the protection and advocacy (P&A;) 
system established under part C of title I of the Developmental 
Disabilities Act to assist disabled people to obtain vocational 
rehabilitation or employment. That P&A; system is currently 
funded by the Children and Family Services Program in the 
Department of HHS. The bill would authorize $7 million in 2000 
and such sums as shall be necessary thereafter; CBO assumed 
that funding would remain at about $7 million. Actual outlays 
would be $3 million in 2000, and $6 million to $7 million a 
year thereafter.
    Although they do not explicitly call for future 
appropriations, several other provisions of S. 331 would affect 
SSA's workload and thus the pressures on its annual 
appropriation. The Ticket to Work program (section 201) would 
require significant planning and oversight by SSA staff. 
Section 221 would direct SSA to establish a special corps of 
work incentive specialists to deal with questions from 
applicants, beneficiaries, and the community-based 
organizations funded under the same section. Enforcement of the 
tougher restrictions on prisoners in section 402 would require 
SSA staff time, because suspension of benefits occurs only 
after careful verification. Partly offsetting these extra 
costs, SSA would no longer be required to do work CDRs under 
section 211. CBO estimates that these effects on SSA's workload 
would, on balance, cost the agency between $10 million and $30 
million a year in the 2000-2004 period.

                      PAY-AS-YOU-GO CONSIDERATIONS

    The Balanced Budget and Emergency Deficit Control Act sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts. The net changes in outlays and 
governmental receipts that are subject to pay-as-you-go 
procedures are shown in the following table. For the purposes 
of enforcing pay-as-you-go procedures, only the effects in the 
current year, the budget year, and the succeeding four years 
are counted.

                                                   TABLE 5. SUMMARY OF PAY-AS-YOU-GO EFFECTS OF S. 331
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         By Fiscal Year, in Millions of Dollars
---------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  2000     2001     2002     2003     2004     2005     2006     2007     2008     2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays............................................       43      104      151      175      209      181      202      222      277      327
Changes in receipts...........................................       73       53      143      641      594      562      535      448      314      na
--------------------------------------------------------------------------------------------------------------------------------------------------------
na = not available.

                 ESTIMATED IMPACT ON THE PRIVATE SECTOR

    JCT has determined that S. 331 would impose two new 
private-sector mandates by modifying the foreign tax credit 
carryback and carryover periods and by limiting the use of the 
nonaccrual experience method of accounting. The direct costs of 
the new mandates would exceed the statutory threshold ($100 
million in 1996, adjusted annually for inflation) established 
in UMRA in each of fiscal years 2002 through 2004 (see Table 
6).

                               TABLE 6. ESTIMATED COST OF PRIVATE-SECTOR MANDATES
----------------------------------------------------------------------------------------------------------------
                                     By Fiscal Year, in Millions of Dollars
-----------------------------------------------------------------------------------------------------------------
                                                     2000         2001         2002         2003         2004
----------------------------------------------------------------------------------------------------------------
Cost to the Private Sector.....................         72           52          142          640         543
----------------------------------------------------------------------------------------------------------------
Source: Joint Committee on Taxation.

        ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

    Section 4 of the Unfunded Mandates Reform Act excludes from 
the application of that act any legislative provisions that 
relate to the old-age, survivors, and disability insurance 
programs under title II of the Social Security Act, including 
tax provisions in the Internal Revenue Code. CBO has determined 
that subtitles A and B in title II and titles III and IV of 
this bill fall within that exclusion.
    The remainder of the bill contains no intergovernmental 
mandates as defined in UMRA. However, it includes optional 
programs for States that would result in greater State spending 
if they chose to participate as well as additional grants to 
States for specific programs.
    Title I contains a number of options for States to expand 
their Medicaid program to cover workers with disabilities who 
want to buy into Medicaid and to continue Medicaid coverage for 
individuals who lose their eligibility for DI or SSI following 
a continuing disability review. CBO estimates that State costs 
attributable to these optional expansions during the first five 
years would total about $70 million for the first option and 
about $10 million for the second. States that implement the 
first of these Medicaid options would be eligible for grants to 
develop and operate programs to support working individuals 
with disabilities. CBO estimates that States would receive a 
total of about $40 million during the first five years the 
program is in effect. States would also have the option of 
charging participants premiums or other fees to offset a 
portion of the costs.
    Title I would also allow States to establish demonstration 
projects that would provide Medicaid to working individuals 
with physical or mental impairments who, without Medicaid, 
could become blind or disabled. CBO estimates that State costs 
attributable to this optional coverage would total $215 million 
over the first five years of implementation.

                       IV. VOTE OF THE COMMITTEE

    In compliance with section 133 of the Legislative 
Reorganization Act of 1946, the Committee states that S. 331, 
as amended by the Committee, was ordered reported favorably by 
a recorded vote of 11 to 1, with an additional 5 proxy votes in 
favor of the bill and with 1 proxy voted no.

                 V. REGULATORY IMPACT AND OTHER MATTERS

                          A. Regulatory Impact

    In compliance with paragraph 11(b) of Rule XXVI of the 
Standing Rules of the Senate, the Committee states that the 
legislation will not significantly regulate any individuals or 
businesses, will not impact on the personal privacy of 
individuals, and will result in no significant additional 
paperwork.
    Title I. The regulatory impact of this title will be 
limited largely to the need for the Health Care Financing 
Administration develop regulations for the implementation of 
the new Medicaid options for the States. States would be free 
to establish their own parameters around the administration of 
these new Medicaid options, as specified in the legislation.
    Title II-IV. The regulatory impact of Title II will limited 
largely to the need for the Social Security Administration and 
the U.S. Department of Education to develop regulations for the 
implementation of the new employment assistance program.
    Title V. Title V of the bill provides three revenue offsets 
to cover the budget costs of Titles I-IV (relating to 
availability of certain health care services and work-related 
incentives):
          (1) 1-year carryback and 7-year carryforward of 
        foreign tax credits (bill sec. 501);
          (2) limit use of non-accrual experience method of 
        accounting to amounts to be received for the 
        performance of qualified professional services (bill 
        sec. 502); and
          (3) extension of Internal Revenue Service (IRS) user 
        fees from October 1, 2003 through September 30, 2006 
        (bill sec. 503).
    These revenue provisions should not have any significant 
adverse regulatory impact on taxpayers. These provisions should 
not have any adverse impact on personal privacy.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (P.L. 104-4).
    The Committee has reviewed the provisions of the bill as 
reported. In accordance with the requirements of Public Law 
104-4, the Committee has determined that the following 
provisions of the bill contain Federal private sector mandates:
   Modification to foreign tax credit carryback and 
        carryover periods (bill sec. 501); and
   Limitation on use of non-accrual experience method 
        of accounting (bill sec. 502).
    These provisions are estimated to increase tax revenues by 
$3,195 million over fiscal years 1999-2008, which are no 
greater than the aggregate estimated amounts that the private 
sector will be required to pay in order to comply with the 
Federal private sector mandates under the bill.
    These provisions will not impose a Federal 
intergovernmental mandate on State, local or tribal 
governments.

                         C. Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
(the ``Code'') and has widespread applicability to individuals 
or small businesses.
    Under the authority of the Joint Committee on Taxation, its 
staff has determined that a complexity analysis is not required 
under section 4022(b) of the IRS Reform Act because the bill 
contains no provisions that amend the Code and that have 
widespread applicability to individuals or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary, in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).