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Tuesday, October 25, 2011

Budget Control Act: Potential Impact of Automatic Spending Reduction Procedures on Health Reform

C. Stephen Redhead
Specialist in Health Policy

The Budget Control Act of 2011 (BCA; P.L. 112-25) established new budget enforcement mechanisms for reducing the federal deficit by at least $2.1 trillion over the 10-year period FY2012-FY2021. The BCA places statutory limits, or caps, on discretionary spending for each of those 10 fiscal years, which will save an estimated $0.9 trillion during that period. In addition, it creates a Joint Select Committee on Deficit Reduction (Joint Committee), which is instructed to develop legislation to reduce the federal deficit by at least another $1.5 trillion through FY2021. If Congress and the President are unable to enact a Joint Committee bill by January 15, 2012, that reduces the deficit by at least $1.2 trillion over the period FY2012-FY2021, then automatic annual spending reductions would be triggered beginning in FY2013. They would be achieved by lowering the caps on discretionary spending and by an automatic across-the-board cancellation of budgetary resources (i.e., spending cuts) for nonexempt direct spending programs—a process known as sequestration.

The potential impact of spending reductions triggered by the BCA on health reform spending under the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148, as amended) would appear to be somewhat limited. PPACA increases access to affordable health insurance by expanding the Medicaid program and by restructuring the private health insurance market. It sets minimum standards for private insurance coverage, creates a mandate for most U.S. residents to obtain coverage, and provides for the establishment by 2014 of state-based insurance exchanges for the purchase of health insurance through which certain individuals and families will be able to receive federal subsidies to reduce the cost of purchasing that coverage. The law includes direct spending to subsidize the purchase of health insurance coverage through the exchanges, as well as increased outlays for the Medicaid expansion. Under the rules governing sequestration, Medicaid spending would be exempt from any reduction, and cuts to Medicare would be capped at 2%.

PPACA also includes numerous mandatory appropriations that provide billions of dollars to support temporary programs to increase coverage and funding for targeted groups, provide funds to states to plan and establish exchanges, and support many other research and demonstration programs and activities. These appropriations would, in general, be subject to direct spending reductions under a sequestration order. However, for any given fiscal year in which sequestration was ordered, only new budget authority for that year (including advance appropriations that first become available for obligation in that year) would be reduced. Unobligated balances carried over from previous fiscal years would be exempt from sequestration.

PPACA is likely to affect discretionary spending subject to the annual appropriations process. The law reauthorizes appropriations for numerous existing discretionary grant programs and activities authorized under the Public Health Service Act, permanently reauthorizes funding for the Indian Health Service (IHS), and creates a number of new grant programs and provides for each an authorization of appropriations. In addition, the Congressional Budget Office projects that both the Department of Health and Human Services and the Internal Revenue Service will incur substantial costs to implement the policies and programs established by PPACA. Most of these costs will have to be funded through the appropriations process. Most of the PPACA-related discretionary spending would be subject to automatic spending reductions triggered by the BCA. Under the sequestration rules, however, any reduction in funding for community health centers and the IHS would be capped at 2%.

Date of Report: October 1
7, 2011
Number of Pages:
Order Number: R4
Price: $29.95

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