WIC BUDGET PROPOSAL WOULD DISCOURAGE COST CONTAINMENT
AND REPRESENTS UNSOUND POLICY
Zoe Neuberger and Robert Greenstein
The Administration’s budget proposes a
significant policy change in the Special Supplemental Nutrition Program for
Women, Infants, and Children (WIC) that would have adverse effects on the
program. This same proposal was made by the Administration last year and was
wisely rejected by Congress. The proposal would override the provision in the
program’s authorizing statute that determines the portion of the WIC
appropriation that is provided to states for nutrition services and
administration (NSA) and would cap NSA grants at 25 percent of total grants to
states. (The Administration’s proposed statutory language appears in Appendix
Under the WIC authorizing statute, the amount
allocated for NSA is held constant from year to year on a per-participant basis,
except for an adjustment for inflation. Under this law, which was enacted in
the late 1980s, NSA grants per participant have remained at the same level for
19 years in inflation-adjusted terms, while the nutritional services and
administrative tasks that state and local WIC agencies are required to provide
with these funds have significantly increased. The existing provision has been
criticized as providing too little funding for NSA. Yet the change that the
budget proposes would reduce NSA funding per participant.
No studies or evidence indicate that the current
level of NSA funding per participant is too high. To the contrary, testimony by
state and local health agencies and studies by the Government Accountability
Office (GAO) suggest that the current level may be inadequate.
The budget proposal related to NSA funding
represents dubious policy for another reason, as well: the proposal risks
weakening state efforts to contain the costs of infant formula and other WIC
foods. Indeed, because of the proposal’s likely deleterious effects on WIC cost
containment, it could end up costing the federal government significant
sums over time.
- In the early years of WIC, a fixed percentage
of the WIC appropriation was provided for NSA costs. This approach was
abandoned by the first Bush Administration and Congress on a bipartisan basis
in 1989, in substantial part because it operated as a disincentive for
states to institute systems to contain WIC food costs.
- Under the system in place before 1989, states
in the aggregate were effectively penalized if they lowered WIC food costs.
Because a specific percentage of the WIC appropriation was allocated for NSA
each year, reduced food costs enabled states to serve more participants with
the same amount of WIC food dollars, but no additional NSA funds were made
available to cover the additional participants who could be served with the
cost-containment savings. Perversely, the more that states succeeded in
containing WIC food costs, the more their NSA funds per participant would
decline. As a result, states might have been driven to scale back efforts in
areas such as ensuring the integrity of eligibility determinations, vendor
monitoring, nutrition education, and referrals for immunizations.
- To address this problem and ensure that
pursuit of aggressive cost-containment strategies would not penalize states,
the first Bush Administration and Congress instituted the current NSA funding
system in 1989.
Under this system, states receive NSA funding on a per-participant basis. As
a result, states can produce savings through cost-containment measures and use
the savings to serve more eligible individuals without decreasing their
per-participant NSA grants over time.
- This system has been an outstanding success.
State infant formula cost-containment systems expanded dramatically after
enactment of the 1989 legislation and have saved enormous sums for the WIC
program since then. According to USDA estimates, WIC infant formula cost
containment now saves the program about $1.5 billion a year.
- Food price data demonstrate how successful the
WIC cost containment system has been. Over the past 16 years, WIC food
costs per participant have risen at only half the rate of grocery store food
prices. Food costs, as measured by the Consumer Price Index, have risen
53 percent, while WIC food costs per participant have risen 25 percent. This
is a remarkable achievement.
Unfortunately, the Administration’s budget
proposal would abandon the system crafted in 1989 and essentially revert to the
type of system in place before then. The budget proposal would create a
perverse incentive for states no longer to pursue aggressive cost containment.
- Under the proposal, the more successful that
state cost containment practices became — and the more that WIC food costs
declined in inflation-adjusted terms — the more that NSA funds per participant
would fall as well. Effective cost containment on a broad scale would
penalize states and squeeze NSA budgets. NSA funds would no longer be
commensurate with the number of participants being served.
- Likewise, the less vigorous that states
became in pursuing cost-containment measures and the lower the volume
of cost-containment savings produced, the higher the NSA allocations
per participant would be.
- Moreover, some states might scale back
outreach and leave WIC food funds unspent while needy, eligible women,
infants, and children remain outside the program. With fewer participants in
a given year, a state’s NSA budget for that year would stretch farther on a
The proposal regarding NSA funding should be
dropped; it would be unwise and counter-productive. The proposal is analyzed in
more detail below.
NSA Cap Would Create a Disincentive to Cost
Under the WIC authorizing statute, the proportion
of the WIC appropriation that is allocated for NSA each year is set at a level
that provides the same amount of NSA funding per participant as the program
provided in 1987, adjusted for inflation. The annual inflation adjustment
reflects the change each year in state and local government costs in
administering programs, as indicated by the U.S. Department of Commerce’s “index
for state and local government purchases.”
This provision was enacted in 1989, in
substantial part to facilitate efforts by state WIC programs to contain WIC food
costs. Since then, as a result of highly effective state cost-containment
activities, the WIC program has saved many billions of dollars. USDA data show
these savings are now running about $1.5 billion per year.
Indeed, a comparison of CPI data and WIC food
cost data shows how effective WIC cost containment has been. Over the past 16
years, WIC food costs per participant have grown at just half the rate of
grocery store food costs (see Table 1).
GROWTH OVER THE LAST 16 YEARS
WIC Per-Participant Food
Consumer Price Index for Food
Overall Consumer Price Index
During this period, NSA grants per participant
have held steady in inflation-adjusted terms, as the 1989 legislation intended.
As a result, WIC food costs per participant have grown at about half the general
inflation rate, while NSA costs per participant have grown at the full inflation
rate. Accordingly, NSA grants have grown somewhat faster than WIC food grants
and have edged up as a share of total WIC grants to states. This is a sign of
success and increased efficiency due to cost containment, not a sign of a
Indeed, virtually the entire increase in the
share of WIC grants that are allocated for NSA — from 20 percent before the 1989
law to about 27 percent today — is due to the fact that WIC food costs have
grown at only half of the rate of inflation as a consequence of WIC food cost
containment. As verification of this fact, a GAO report issued in 2001 found
that when infant formula rebate funds are counted along with federal WIC funds,
NSA costs remained constant at roughly 20 percent of total program costs
between 1988 and 1999 (the most recent year for which data were available at
the time the GAO conducted the study).
This GAO finding confirms that NSA costs have not risen inappropriately and that
the current NSA funding structure is working as Congress intended.
The Administration’s budget proposal disregards
these achievements. Were the proposal to be adopted, the overall level of NSA
funds per participant that was allocated to states would be tied to the level of
food costs per participant. The faster that per-participant food costs rose,
the more that per-participant NSA grants would increase. This would create a
perverse incentive for states to be less aggressive in containing food costs.
It would ignore the lessons that Congress and the first Bush Administration
applied in crafting the well-designed 1989 legislation.
It also may be noted that in recent years, as
infant formula rebate levels have leveled off, the share of WIC funds allocated
for NSA has ceased rising. This percentage stood at 27.7 percent in fiscal year
2000. It was 27.4 percent in fiscal year 2005.
The NSA Cap Would Erode Vital Services and
The WIC program provides key services in addition
to the WIC food package, including nutrition counseling, breastfeeding support,
and health care and immunization referrals. NSA grants also cover the
administrative costs associated with eligibility determinations, voucher
issuance and redemptions, vendor management, and cost containment.
The NSA proposal would likely lead to a reduction
in some of these important services and activities. That the proposed
reduction in NSA funding would pose such risks is suggested by a major GAO
report on NSA funding issued in 2001. The report, WIC Faces Challenges in
Providing Nutrition Services, found:
“Since the late 1980’s, a number of requirements
have been placed on the [WIC] program aimed at, among other things, containing
the cost of food benefits, promoting breastfeeding, encouraging immunizations,
and controlling program abuse. While these requirements have placed additional
service delivery and administrative demands on WIC staff, they have not been
accompanied by more funding per participant; the NSA grant per participant was
established in 1989 and since then has only been adjusted for inflation. There
is also evidence that nonfederal support for NSA may have decreased since fiscal
year 1992. Nor have the additional demands been offset by reductions in other
responsibilities. As a result, WIC agencies have had to cut costs and make
changes in service delivery that potentially will have a negative impact on the
quality of WIC services.”
The GAO also
cited a 1998 USDA survey which found that “30 percent of local agencies serving
about 41 percent of all WIC participants reported having insufficient numbers of
professional staff. Finally . . . 56 percent of state WIC agency automated
management information systems were not capable of performing, or efficiently
performing, 1 or more of 19 essential program tasks.”
These problems likely would become more severe if the budget proposal were
The GAO’s reference to the evident need to
upgrade WIC management information systems is worthy of note. This need has
previously been recognized by the Administration; in its budget requests for
fiscal years 2004 and 2005, the Administration requested $30 million and $20
million set-asides, respectively, for the improvement of WIC management
information systems. This need was reflected in last year’s WIC reauthorization
legislation, which established a $30 million annual set-aside for management
information systems. In fiscal year 2006, the appropriations legislation
overrode the reauthorization set-aside and provided $20 million for management
information systems if contingency funds are not needed to serve eligible
The Administration’s budget request for fiscal
year 2007 again proposes to override the set-aside in the WIC authorization
statue and provide no earmarked funding for management information systems in
fiscal year 2007. If there no longer are any designated funds to improve
management information systems, states will have to absorb the costs of such
improvements within their NSA grants, which will further stretch NSA funds even
in the absence of the proposed cap. With the proposed cap on NSA funding and
the reduction it would entail, the squeeze on NSA funds would become more
To set NSA grants as a percentage of total WIC
costs, as was done prior to 1989, would ignore the lessons that policymakers
learned in the 1980s and undermine what probably are the most effective
cost-containment practices that any federal health-related program has
instituted. This proposal is ill-conceived and ought not be adopted.
The Administration’s Proposed WIC Appropriations Language
(Language discussed in this
paper is shown in italics.)
For necessary expenses to carry out the special
supplemental nutrition program as authorized by section 17 of the Child
Nutrition Act of 1966 (42 U.S.C. 1786), $5,200,000,000, to remain available
through September 30, 2008, of which such sums as are necessary to restore the
contingency reserve to $125,000,000 shall be placed in reserve, to remain
available until expended, to be allocated as the Secretary deems necessary,
notwithstanding section 17(i) of such Act, to support participation should cost
or participation exceed budget estimates: Provided, That of the total amount
available, the Secretary shall obligate not less than $15,000,000 for a
breastfeeding support initiative in addition to the activities specified in
section 17(h)(3)(A): Provided further, That notwithstanding section 17(h)(10(A)
of such Act only the provisions of section 17(h)(1)(B)(i) shall be effective in
2007; including $14,000,000 for the purposes specified in section 17(h)(10)(B)(i):
Provided further, That none of the funds in this Act shall be available to pay
administrative expenses of WIC clinics except those that have an announced
policy of prohibiting smoking within the space used to carry out the program:
Provided further, That none of the funds provided in this account shall be
available for the purchase of infant formula except in accordance with the cost
containment and competitive bidding requirements specified in section 17 of such
Act: Provided further, That of the total amount allocated as grants to
States, nutrition services and administration funding shall be capped at 25
percent of the total amount provided, with individual State agency allocations
to be made in accordance with a methodology developed by the Secretary:
Provided further, That none of the funds made available under this heading may
be used to provide WIC benefits to an individual who receives medical assistance
under title XIX of the Social Security Act, or is a member of a family in which
a pregnant woman or an infant receives assistance unless such individual’s
family income is below 250 percent of the applicable nonfarm income poverty
limits: Provided further, That none of the funds provided shall be available for
activities that are not fully reimbursed by other Federal Government departments
or agencies unless authorized by section 17 of such Act.
 See P.L. 101-147. The same
legislation also established the requirement for states to use competitive
bidding to award WIC infant formula contracts.
 Center on Budget and Policy
Priorities calculations based on USDA WIC Program Data available at
 Center on Budget and Policy
Priorities calculations based on U.S. Department of Labor Consumer Price Index
data available at
 WIC Faces Challenges in Providing
Nutrition Services, U.S. General Accounting Office, December 2001, GAO-02-142,
Figure 2, available at
 Ibid., p. 31.
Ibid., p. 37.
 See Budget of the United States for
Fiscal Year 2007, Appendix for the Department of Agriculture, page 176,