Archive

Department of Agriculture

Recommendations and Actions

USDA06: Encourage Better Food Package Management Practices and Facilitate Multi-State Contracts for Infant Food and Formula Cost Containment in the WIC Program

The Special Supplemental Food Program for Women, Infants and Children (WIC) was established in 1972 to improve the health of at-risk, low- income pregnant women, new mothers, infants, and children under age five by providing them supplemental foods, nutrition and health education, and health screening. Administered by the Food and Nutrition Service (FNS) of the U.S. Department of Agriculture (USDA), the program awards grants to state health departments or state health and welfare agencies to provide nutrition services.

The WIC program is successful and cost-effective with regard to prenatal WIC services. A 1992 General Accounting Office (GAO) study estimated that the savings that accrue over 18 years from providing prenatal WIC services to those infants born in 1990 would yield a return of $3.50 for each federal dollar invested.(1) (There are no cost/benefit studies available for children age two through four assisted under the program).

This success has led to strong congressional bipartisan support for the WIC program. Funding for the program has increased from $900 million in fiscal year 1981 to $2.86 billion in fiscal year 1993; participation also has increased from 2.1 million to an expected monthly average of 5.8 million participants during this same period. The program, however, does not reach all those eligible for it. In 1991, the Congressional Budget Office estimated that 8.4 million women, infants, and children were eligible to participate in the WIC program, although available funding allowed only 4.7 million to be served.(2)

The fiscal year 1993 program is expected to serve about 67 percent of all those eligible. Although the administration has proposed to fully fund the program by the end of fiscal year 1996, cost-containment efforts in the WIC program remain critical because they currently provide the opportunity to serve hundreds of thousands of participants who otherwise could not participate and benefit from WIC. Enhancing and extending cost-containment efforts can lower WIC costs and serve more participants with limited funds.

Infant formula is the single most expensive item in the WIC food package, with prices rising much faster in recent years than the prices of other WIC-covered items. During the 1980s, some states distributing food through retail stores implemented infant formula cost-containment efforts. These efforts required infant formula manufacturers to compete for selection as the single source of infant formula products used by a state WIC program; all WIC program participants from that state were required to purchase only a specific brand of infant formula. Contracts were awarded to the manufacturer offering the highest rebate to a state.

In 1988, Congress mandated that all WIC state agencies implement some form of infant formula cost containment. In 1989, Congress added the requirement that states use competitive bidding in their cost- containment efforts. An estimated $600 million was saved in fiscal year 1991 through cost-containment efforts. These savings were redirected to serve additional participants.

Although experts agree breastfeeding provides a healthier and more economical means of feeding an infant, as recently as 1987, less than 40 percent of early postpartum WIC mothers were breastfeeding. The Surgeon General advises that breastfeeding is the healthiest way for a mother to nurture her infant and has set a goal of reaching a 75 percent rate for breastfeeding. The WIC program seeks to encourage breastfeeding by providing an expanded food package to mothers who elect to breastfeed.

Infant and adult cereals offer the next logical items from the WIC package to consider for rebate cost-containment targeting. There is little variety in infant cereals, and most are manufactured by three major corporations. Seven states have entered into agreements for rebates with infant cereal manufacturers. For example, New York currently is receiving a 76-cent rebate on each box of infant cereal purchased under the WIC program.

Although the savings potential from these efforts remains somewhat less than the savings achieved from infant formula (the price of infant formula increased nearly 11 percent per year over the last decade while other items in the WIC food package have not increased at this rate), a federal effort will enhance the opportunity to achieve savings. Additional areas for cost savings could include (a) foods appropriate for older children, such as dry cereal, where brand name and generic products compete for market share, and (b) routine specification and selection of economical food package sizes and brands. Significant savings could be achieved, for example, by buying least-cost brands and milk by the gallon or half-gallon rather than in quarts.

If the WIC program is fully funded, as has been proposed, the pressure for states to keep costs down will be reduced; however, it will fall to the federal government to ensure that the focus on cost- containment efforts is not lost.

Actions

1. USDA should assume a leadership role in cost containment efforts and focus on cost containment for additional items in the WIC food package such as infant cereal, juice, and other food products.

FNS should actively solicit states to develop and test new approaches to containing costs for each of the major food items in the WIC packages. One possible approach would be through a competitive grant announcement. FNS should disseminate information about initiating contracts for items other than infant formula. FNS should also serve as a broker or facilitator for multi-state contracting efforts for rebates on items such as infant cereal or juice. FNS's authority to direct a portion of administrative funds toward testing new cost- containment strategies offers an immediate vehicle for funding these efforts. This testing should be included in fiscal 1995 budget plans.

About 75 percent of WIC funds are spent on food. Savings could be achieved through a combination of federally mandated cost containment measures, cooperative or shared contracts, as well as food package size and brand name management. Some states are already exploring other cost-containment approaches. Also, the Secretary of Agriculture has authority under current law to purchase and distribute WIC foods at the request of state agencies.

Additionally, FNS should develop a semiformal channel of communication with the Federal Trade Commission to provide an "early alert" system for trends reflecting bid-rigging in connection with WIC contract bidding.

2. USDA should expand its role in disseminating "best practices" information to states interested in pursuing multi-state cost- containment efforts.

Many states have been successful, without federal oversight, in developing multi-state consortia to achieve economies of scale in awarding contracts to infant formula manufacturers. Other states and Indian reservations may find the experiences and information from their counterparts in other parts of the country useful in pursuing their efforts. A more aggressive federal role in this area will ensure that interested parties receive thorough, accurate information quickly. FNS should develop "best practices" materials to distribute to WIC agencies and update them regularly.

3. USDA should continue and expand its educational efforts to promote breastfeeding.

Funding for breastfeeding promotion has increased in recent years. FNS should consider entering into agreements with advocacy groups such as La Leche League or the Ad Council to expand its promotion of breastfeeding to low-income mothers, emphasizing the health and nutritional advantages afforded breastfed children. The right of a WIC mother to choose how to feed her baby must be balanced against the public's interest in promoting the long-term health and well- being of children and holding down unnecessary expenditures on formula and health care. Health experts agree that healthy mothers who can, should breastfeed their infants.

Implications

These recommendations would serve to hold down costs of the WIC program, as well as emphasize the nutritional well-being of program participants. They will help USDA meet the President's goal of fully funding WIC sooner than expected. In addition, they will help to reduce the long-term costs associated with full funding.

Fiscal Impact

In the short run, savings in the WIC program free up resources to serve a greater number of eligible participants; in the long run, savings reduce the cost of achieving the President's goal of full funding. USDA should establish an ambitious goal of roughly $100 million per year in savings to be achieved through aggressive cost containment efforts in foods other than infant formula. This equates to roughly a 5 percent saving on foods other than infant formula. However, given the development work needed to obtain such savings, it would be premature to count on them when developing near-term funding levels for WIC. Therefore, no fiscal impact is claimed.

Endnotes

1. U.S. General Accounting Office, Early Intervention: Federal Investments Like WIC Can Produce Savings (Washington, D.C.: U.S. General Accounting Office, April 1992), p. 29.

2. U.S. Congress, Congressional Budget Office, Estimated Costs to Provide Full Funding for the Special Supplemental Food Program for Women, Infants and Children (WIC) (Washington, D.C.: U.S. Government Printing Office, March 1991).

Return To Report Index