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

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 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. 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 (ACA) would appear 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 through which certain individuals and families will be able to receive federal subsidies to reduce the cost of purchasing that coverage. The 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, Medicaid spending would be exempt from any reduction, and cuts to Medicare would be 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. 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.

ACA is likely to affect discretionary spending subject to the annual appropriations process. The law reauthorized appropriations for numerous existing discretionary grant programs and activities 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 costs to implement the policies and programs established by ACA. Those costs will have to be funded largely through the annual appropriations process. Most of the ACA-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: November 15, 2011
Number of Pages: 18
Order Number: R42051
Price: $29.95

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Community Living Assistance Services and Supports (CLASS) Provisions in the Patient Protection and Affordable Care Act (ACA)

Janemarie Mulvey
Specialist in Health Care Financing

Kirsten J. Colello
Specialist in Health and Aging Policy

Under current law, the majority of paid long-term services and supports (LTSS) are funded by public programs, such as Medicaid and Medicare. However, these programs are limited in scope and continue to face increased financial pressures. Although private long-term care (LTC) insurance is available to provide some financial protection against an individual’s risk of the potentially high cost of LTSS, fewer than 10% of individuals aged 50 and older own such a policy. Thus, for the majority of older Americans, the out-of-pocket cost of obtaining paid help for these services may far exceed their financial resources. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) establishes a federally administered voluntary LTC insurance program entitled the Community Living Assistance Services and Supports (CLASS) program. The stated purpose of the CLASS program, among other things, is to provide a financing mechanism for long-term care services that supports personal choice and independence to live in the community. However, a number of concerns have been raised about the long-run sustainability of the program.

Once the CLASS program is established, employed individuals aged 18 and older can voluntarily enroll in the CLASS program. This is a voluntary program and employers would have the option of participating. The ACA specifies two processes for enrollment into the CLASS program. The first is an automatic enrollment process. Within the automatic enrollment process, employers who choose to participate would be responsible for withholding CLASS premiums through payroll deductions. Employees would then have the opportunity to “opt-out” if they do not want to participate. These enrollment procedures for employers in the CLASS program are intended to be similar to those currently established for 401(k) and other similar retirement plans by the Internal Revenue Service. An alternative enrollment process would also be developed for self-employed individuals, those with more than one employer, and those who have an employer that does not elect to participate in the automatic enrollment process.

Premiums for the CLASS program are to be determined by the Secretary based on 75-year actuarial estimates of expected future use and expenditures. Premiums would vary by age at enrollment. The ACA also includes premium subsidies for workers with incomes below the federal poverty level and full-time students aged 18 to 21 who currently are working. To be eligible to receive benefits an individual must be an active enrollee who meets the five-year vesting and minimum earnings requirements. In addition, an eligible individual must have a functional limitation, as certified by a licensed health care practitioner, that is expected to last for 90 days. Benefits to eligible recipients include a cash benefit of at least an average of $50 a day (based on the reasonably expected distribution of beneficiaries receiving benefits at various levels). Other benefits include advocacy services, and advice and assistance counseling on accessing and coordinating LTSS.

In the 112th Congress, two legislative proposals to repeal the CLASS Act have been introduced (H.R. 1173 and S. 720). On October 14, 2011, the Department of Health and Human Services (HHS) sent a letter to Congress stating that after careful examination of how the Administration might implement a long-term financially stable CLASS program, HHS does not see a viable path forward for implementation at this time. This CRS report first discusses the cost and financing for LTSS as well as the current market for private LTC insurance. It then details those CLASS program requirements for enrollment, premiums, eligibility, benefits, administration, and oversight as specified in the ACA. Included in this discussion are various concerns that stakeholders have raised about long-run sustainability of the program.


Date of Report: November 14, 2011
Number of Pages: 19
Order Number: R40842
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Requiring Individuals to Obtain Health Insurance: A Constitutional Analysis

Jennifer Staman
Legislative Attorney

Cynthia Brougher
Legislative Attorney

Edward C. Liu
Attorney Adviser (General)

Erika K. Lunder
Legislative Attorney

Kenneth R. Thomas
Legislative Attorney

As part of the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, as amended, Congress enacted a “minimum essential coverage requirement,” a provision compelling certain individuals to have a minimum level of health insurance (i.e., an “individual mandate”). Individuals who fail to do so may be subject to a monetary penalty, administered through the tax code. Although the federal government provides health coverage for individuals through federal programs such as Medicare, it had never before required individuals to purchase health insurance.

This report analyzes certain constitutional issues raised by compelling individuals to purchase health insurance. It addresses the authority of Congress to pass a law of this nature under its taxing power or its power to regulate interstate commerce. With regard to the taxing power, the requirement to purchase health insurance might be construed as a tax and upheld so long as it was found to comply with the constitutional restrictions imposed on direct and indirect taxes. On the other hand, opponents of the minimum essential coverage requirement may argue that since it is imposed conditionally and may be avoided by compliance with regulations set out in the statute, that the requirement may be more accurately described as a penalty. If so, the taxing power alone might not provide Congress the constitutional authority to support this provision.

In evaluating under the minimum essential coverage requirement under the Commerce Clause, a court may rely on Supreme Court precedent and look to several factors to determine whether the minimum essential coverage requirement passes constitutional muster. Among many other things, a court may evaluate whether the requirement is a regulation of economic activity. One could argue that the requirement to purchase health insurance is economic in nature because it regulates how an individual participates in the health care market, through insurance or otherwise. On the other hand, it may be argued that the minimum essential coverage requirement goes beyond the bounds of the clause, because while regulation of the health insurance industry or the health care system is economic activity, regulating a choice to purchase health insurance is not.

It has been questioned whether the requirement to have health insurance might violate certain protections found under the U.S. Constitution. This report discusses how a court might evaluate a challenge to the minimum essential coverage requirement on Fifth Amendment due process, takings clause, or equal protection grounds, as well as under the Tenth Amendment. This report also addresses whether the exceptions to the minimum essential coverage requirement to purchase health insurance satisfy First Amendment freedom of religion protections.

Several lawsuits challenge the minimum essential coverage requirement on constitutional grounds. While some cases are currently pending, two appellate courts’ decisions on the constitutionality of the requirement have reached opposite holdings. In Florida v. HHS, attorneys general and governors in 26 states as well as others brought an action against the Secretaries of Health and Human Services, Treasury, and Labor, seeking relief from certain provisions of PPACA. On August 12, 2011, the Eleventh Circuit held that the minimum essential coverage requirement is unconstitutional. Conversely, the Sixth Circuit in Thomas More Law Center v. Obama upheld the minimum essential coverage requirement as a constitutional exercise of the Commerce Clause. Other courts, such as the Fourth Circuit in Virginia v. Sebelius and Liberty University v. Geithner, dismissed these challenges, not based on the merits of the case, but for procedural reasons. Several petitions for Supreme Court review were filed, and on November 14, 2011, the Supreme Court agreed to hear the appeal in the Florida case. Oral arguments in this case are expected to take place in March 2012.


Date of Report: November 15, 2011
Number of Pages: 36
Order Number: R40725
Price: $29.95

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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits

Janemarie Mulvey, Coordinator
Specialist in Health Care Financing

Evelyne P. Baumrucker
Analyst in Health Care Financing

Bernadette Fernandez
Specialist in Health Care Financing

Christine Scott
Specialist in Social Policy

Under the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148, as amended), the definition of income for eligibility for certain Medicaid populations and premium credits in the exchanges is based on modified adjusted gross income (MAGI). The initial intent of using MAGI was to standardize the definition of income for Medicaid eligibility purposes to reduce some of the variability and complexity that exists under the current program and to provide consistency between Medicaid and the health insurance exchange. The use of MAGI, however, has raised some concerns among Congress and the Obama Administration, as it excludes some types of income either partially or altogether. Of particular interest has been the potential impact of eligibility for Medicaid and premium credits for early retirees (aged 62 through 64) receiving Social Security benefits, as some or all of their Social Security income may be excluded from the MAGI definition of income. By excluding some types of income, individuals and families with a higher percentage of total income relative to the federal poverty level may qualify for Medicaid and premium credits. A recent cost estimate by the Congressional Budget Office finds that changing the MAGI income calculation to include all Social Security benefits would reduce the deficit by $13 billion over the 2012-2021 period.

President Obama included in his deficit reduction proposal changing the definition of income for these programs. There have also been a number of legislative proposals introduced and passed in both chambers of Congress to change the definition of income to include the non-taxable portion of Social Security benefits in the definition of MAGI. Most notably, H.R. 674 was passed by the House on October 27, 2011, and amended by the Senate and passed on November 10, 2011. The bill now must go back to the House for consideration. In evaluating these proposals, a number of issues might be considered. First, an alternative definition may add complexity compared with the use of MAGI. Specifically, because adjusted gross income (on which MAGI is based) can be computed largely from information on an individual’s federal tax return, verification of income is streamlined. If an alternative definition is used that is not based on tax return information, the administrative complexity of verifying nontaxable income from different sources comes into play. Second, the definition was developed to ensure coordination between Medicaid and premium credits in the health insurance exchange. A change in the definition of income for Medicaid should then also apply to premium credits to ensure consistency between Medicaid and the premium credit offered to selected individuals who purchase private health insurance through the exchanges. Finally, many of the current legislative proposals have focused largely on the inclusion of Social Security benefits in income definitions for eligibility purposes. However, most other low-income programs include other types of income (e.g., nontaxable pensions) and asset holdings that are also excluded from MAGI.


Date of Report: November 10, 2011
Number of Pages: 24
Order Number: R41997
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Illicit Drug Policy: A Compendium

This collection of five in-depth Congressional Research Service studies opens with a discussion of issues relating to the reauthorization of the Office of National Drug Control Policy. It examines the disparities in federal cocaine sentencing, looks at the issue of fines and terms of imprisonment for drug offenses, addresses warrantless seizures in forfeiture cases, and discusses legal issues relating to the disposal of dispensed controlled substances.

Policy makers have sustained interest in various aspects of illicit drug control. The Obama Administration has indicated that a comprehensive National Drug Control Strategy should include a range of prevention, treatment, and law enforcement elements. One issue of concern to Congress involves the federal government’s role in quelling drug trafficking and related violence. The debate may involve how much aid to provide to state and local law enforcement to combat drug-related crimes, how to combat criminal organizations that are involved in the large-scale trafficking of illicit substances, and how to measure the success of federal drug control efforts.

Over the past 25 years, Congress subjected more criminal acts to mandatory minimum penalties. Nowhere is this more apparent than with federal drug laws. Parallel to the federalization of more crimes, Congress led the way in reforming the way in which the United States punishes law violators. With a de-emphasis on rehabilitation and an emphasis on just desert, in 1984, Congress passed legislation that abolished parole and created presumptive sentencing guidelines. Mandatory minimum penalties and presumptive sentencing guidelines were seen as mechanisms to eliminate judicial discretion and disparities in sentencing, while bringing transparency to the process. They appear, however, to have produced unintended consequences, including increased racial and ethnic disparities in federal prisons and increased incarceration of non-violent, drug offenders.

Reforming the federal sentencing system has been particularly contentious with regards to statutory mandatory minimums imposed for certain drug offenses, including the drug quantity ratio disparity between crack and powder cocaine. The 111th Congress acted to reduce the previously existing 100-1 disparity in crack/powder cocaine quantities that trigger mandatory minimum penalties for specified crimes. The Fair Sentencing Act of 2010 (P.L. 111-220) reduced the statutory ratio to 18:1, by increasing the threshold amount of crack cocaine to 28 grams (for the five-year sentence) and 280 grams (for the 10-year sentence) and eliminating the five-year mandatory minimum for simple possession of crack cocaine.

Date of Compendium: October 20, 2011
Number of Pages: 84
Order Number: IS20284
Price: $29.95. Subscribers to Congressional Research Report pay $14.97

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