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Monday, May 13, 2013

Budget Control Act: Potential Impact of Sequestration on Health Reform Spending

C. Stephen Redhead
Specialist in Health Policy

The Budget Control Act of 2011 (BCA) established new budget enforcement mechanisms for reducing the federal deficit over the 10-year period FY2012-FY2021. The BCA placed 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 created a Joint Select Committee on Deficit Reduction (Joint Committee) with instructions to develop legislation to reduce the federal deficit by at least another $1.5 trillion through FY2021. In the event that Congress and the President were unable to enact a Joint Committee bill—as turned out to be the case—then automatic annual spending reductions would be triggered beginning in FY2013 and extending through FY2021. Under the BCA, the reductions will be achieved by a combination of sequestration (i.e., an automatic across-the-board cancellation of budgetary resources) and, beginning in FY2014, by lowering the discretionary spending caps. The President ordered the FY2013 sequestration on March 1, 2013.

The potential impact of spending reductions triggered by the BCA on health reform spending under the Patient Protection and Affordable Care Act (ACA) appears to be somewhat limited. ACA sought to increase access to affordable health insurance by expanding the Medicaid program and by restructuring the private health insurance market. It set minimum standards for private insurance coverage, created a mandate for most U.S. residents to obtain coverage, and provided for the establishment by 2014 of state-based insurance exchanges for the purchase of health insurance. Certain individuals and families will be able to receive federal subsidies to reduce the cost of purchasing coverage through the exchanges. The new law included 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, all Medicaid spending and most of the spending on subsidies is exempt from any reduction, and cuts to Medicare are capped at 2%.

ACA also included 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. Generally, these appropriations are fully sequestrable. However, for any given fiscal year in which sequestration is ordered, only new budget authority for that year is reduced. Unobligated balances carried over from previous fiscal years are exempt from sequestration.

ACA also is having an effect on discretionary spending, which is subject to the annual appropriations process. The law reauthorized appropriations for numerous existing discretionary grant programs authorized under the Public Health Service Act, permanently reauthorized funding for the Indian Health Service (IHS), and created a number of new grant programs and provided for each an authorization of appropriations. In addition, the Congressional Budget Office projected that both the Department of Health and Human Services and the Internal Revenue Service will incur substantial administrative costs to implement ACA’s policies and programs. ACA-related discretionary spending generally is fully sequestrable.

Date of Report: May 1, 2013
Number of Pages: 25
Order Number: R42051
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