Monday, August 1, 2011

Budget Control Act and Medicare

As you have probably heard, the bipartisan Congressional leadership last night announced an agreement in principle on an increase in the federal debt ceiling.  Text of the agreement is available here.  In broad terms, the agreement provides for a $900 billion increase in the debt limit, paid for by newly established caps on discretionary spending over the next 10 years.  The second tranche of a debt limit increase would be conditioned on the recommendations of a Congressional Committee directed to achieve at least $1.2 trillion-$1.5 trillion in savings; the Committee would be directed to report by November 23, 2011, with its recommendations to be enacted by Congress (under special expedited procedures) by December 23, 2011.

If the Congressional Committee cannot reach agreement (or its recommendations are not enacted), then the second tranche of the debt limit increase will be paid for by corresponding cuts in spending (i.e., sequestration), including Medicare spendingSequestration will apply in equal amounts to defense and non-defense spending (which includes discretionary spending accounts, as well as Medicare).  The bill provides for a maximum 2 percent cut in Medicare spending, under procedures previously established under the Gramm-Rudman-Hollings Act (see subsection (d) here).  Note that the maximum 2 percent cut included in the bill would be a reduction from the 4 percent cut permitted under the original Gramm-Rudman-Hollings Act.

If the Congressional Committee results in enactment of a savings package, but the amount of savings totals less than the $1.2 trillion needed for a second tranche of a debt limit increase, then the reductions in spending required will be proportionately reduced for all programs subject to sequestration, including Medicare.  Grants to state Medicaid programs would be exempt from sequestration, as they are classified as a low-income program under the current law definition (statutory language available here).

Two additional provisions to note.  The first is that the Medicare statutory language on sequestration, specifically paragraph (5) of subsection d, expressly forbids any increase in beneficiary charges as a result of the sequestration process.  In other words, the cuts are in payments to Medicare providers only.  (As a reminder, Medicare physician payments are subject to a current-law reduction of about 30 percent under the Sustainable Growth Rate mechanism absent action by Congress prior to December 31, 2011.)

Secondly, the Budget Control Act provides that the President can put forward a $1.5 trillion debt limit increase (subject to a resolution of disapproval) if a Balanced Budget Amendment to the Constitution passes Congress, and is forwarded to the states.  While this provision would allow for a debt limit increase without enactment of the Congressional Committee’s recommendations, it would not affect provisions requiring sequestrations (i.e., cuts) to finance that debt limit increase.  In other words, the sequesters/cuts will go into effect absent enactment of the Congressional Committee recommendations, regardless of whether or not Congress clears a BBA.

These are the only provisions relating to health care included in the debt limit agreement (other than the indirect effects of caps on and sequesters of discretionary appropriations, of course).  We will have more updates on the legislation as they become available.