Discretionary Spending in the Patient Protection and Affordable Care Act (ACA)

C. Stephen Redhead, Coordinator
Specialist in Health Policy

Sarah A. Lister
Specialist in Public Health and Epidemiology

Kirsten J. Colello
Specialist in Health and Aging Policy

Amanda K. Sarata
Specialist in Health Policy/Acting Section Research Manager

Elayne J. Heisler
Analyst in Health Services

The Patient Protection and Affordable Care Act (ACA) reauthorized funding for numerous existing discretionary grant programs and other activities. ACA also created multiple new discretionary grant programs and provided for each an authorization of appropriations. Funding for all these discretionary programs is subject to action by congressional appropriators. This report summarizes all the discretionary spending provisions in ACA. A companion product, CRS Report R41301, Appropriations and Fund Transfers in the Patient Protection and Affordable Care Act (ACA), summarizes all the mandatory appropriations in the law.

Among the provisions that are intended to strengthen the nation’s health care safety net and improve access to care, ACA permanently reauthorized the federal health centers program and the National Health Service Corps (NHSC). The NHSC provides scholarships and student loan repayments to individuals who agree to a period of service as a primary care provider in a federally designated Health Professional Shortage Area. In addition, ACA addressed concerns about the current size, specialty mix, and geographic distribution of the health care workforce. It reauthorized and expanded existing health workforce education and training programs under Titles VII and VIII of the Public Health Service Act (PHSA). Title VII supports the education and training of physicians, dentists, physician assistants, and public health workers through grants, scholarships, and loan repayment. ACA created several new programs to increase training experiences in primary care, in rural areas, and in community-based settings, and provided training opportunities to increase the supply of pediatric subspecialists and geriatricians. It also expanded the nursing workforce development programs authorized under PHSA Title VIII.

As part of a comprehensive framework for federal community-based public health activities, including a national strategy and a national education and outreach campaign, ACA authorized several new grant programs with a focus on preventable or modifiable risk factors for disease (e.g., sedentary lifestyle, tobacco use). The new law also leveraged a number of mechanisms to improve the quality of health care, including new requirements for quality measure development, collection, analysis, and public reporting; programs to develop and disseminate innovative strategies for improving the quality of health care delivery; and support for care coordination programs such as medical homes, patient navigators, and the co-location of primary health care and mental health services. Additionally, ACA authorized funding for programs to prevent elder abuse, neglect, and exploitation; grants to expand trauma care services and improve regional coordination of emergency services; and demonstration projects to implement alternatives to current tort litigation for resolving medical malpractice claims, among other provisions.

The Congressional Budget Office estimated that ACA’s discretionary spending provisions, if fully funded by future appropriations acts, would result in appropriations of approximately $100 billion over the 10-year period FY2012-FY2021. Most of that funding would be for programs that existed prior to, and whose funding was reauthorized by, ACA. Few new programs created by ACA received funding in FY2011 or FY2012. ACA also appropriated $1 billion to help cover the initial administrative costs of implementing the new law. All those funds were obligated by the end of FY2012. The President’s FY2013 budget requested more than $1 billion in discretionary funding for ongoing ACA administrative costs at the Department of Health and Human Services and the Internal Revenue Service, though none of these funds were included in the FY2013 continuing resolution under which the government is currently operating. It remains to be seen whether Congress will provide all of the requested ACA administrative funds.


Date of Report: January 15, 2013
Number of Pages: 41
Order Number: R41390
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Appropriations and Fund Transfers in the Patient Protection and Affordable Care Act (ACA)

C. Stephen Redhead
Specialist in Health Policy

Among its many provisions, the Patient Protection and Affordable Care Act (ACA) restructures the private health insurance market, sets minimum standards for health coverage, and, beginning in 2014, mandates that most U.S. residents obtain health insurance coverage or pay a penalty. The law provides for the establishment by 2014 of state-based health insurance exchanges for the purchase of private health insurance. Qualifying individuals and families will be able to receive federal subsidies to reduce the cost of purchasing coverage through the exchanges. ACA also expands eligibility for Medicaid; amends the Medicare program in ways that are intended to reduce the growth in spending; and makes other changes to the tax code, Medicare, Medicaid, and many other federal programs.

In addition, ACA appropriates billions of dollars to support new or existing grant programs and other activities. These mandatory appropriations include funds for a temporary insurance program for individuals who have been uninsured for several months and have a preexisting condition, as well as funding for states to plan and establish exchanges. ACA also provides funding for various Medicare and Medicaid demonstration programs, for the creation of a Center for Medicare and Medicaid Innovation to test and implement innovative payment and service delivery models, and for an independent board to provide Congress with proposals for reducing Medicare cost growth and improving quality of care for Medicare beneficiaries.

ACA provides funding for health workforce and maternal and child health programs, and establishes three multi-billion dollar funds. The first fund will provide a total of $11 billion over five years for community health centers and the National Health Service Corps. (A separate appropriation provides $1.5 billion for health center construction and renovation.) The second fund will support comparative effectiveness research through FY2019 with a mix of appropriations and transfers from the Medicare trust funds. The third fund, for which ACA provides a permanent annual appropriation, is intended to support prevention, wellness, and other public health-related programs authorized under the Public Health Service Act (PHSA).

Generally, the FY2013 mandatory appropriations in ACA would be fully sequestrable at the rate applicable to nonexempt nondefense mandatory spending, under a sequestration order triggered by the Budget Control Act.

Lawmakers opposed to ACA introduced numerous bills in the 112th Congress, several of which saw legislative action. They included measures to repeal ACA and replace it with new law; repeal or amend specific ACA provisions; eliminate certain mandatory appropriations and rescind all unobligated funds; and block or otherwise delay ACA implementation. Similar legislation may be introduced and debated during the 113th Congress.

In addition to the mandatory appropriations discussed in this report, ACA authorizes new funding for numerous existing discretionary grant and other programs, primarily ones authorized under the PHSA. The law also creates a number of new discretionary grant programs and activities and provides for each an authorization of appropriations. Funding for all these discretionary programs and activities is subject to action by congressional appropriators. A companion product, CRS Report R41390, Discretionary Spending in the Patient Protection and Affordable Care Act (ACA), summarizes all the provisions in ACA that include an authorization of appropriations.


Date of Report: January 15, 2013
Number of Pages: 34
Order Number: R41301
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Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System

Jim Hahn
Specialist in Health Care Financing

Janemarie Mulvey
Specialist in Health Care Financing

The Sustainable Growth Rate (SGR) is the statutory method for determining the annual updates to the Medicare physician fee schedule. The SGR system was established because of the concern that the Medicare fee schedule itself would not adequately constrain overall increases in spending for physicians’ services. While the fee schedule limits the amount that Medicare will pay for each service, there are no limits on the volume or mix of services. Under the SGR formula, if expenditures over a period are less than the cumulative spending target for the period, the annual update is increased. However, if spending exceeds the cumulative spending target over a certain period, future updates are reduced to bring spending back in line with the target.

In the first few years of the SGR system, the actual expenditures did not exceed the targets and the updates to the physician fee schedule were close to the Medicare economic index (MEI, a price index of inputs required to produce physician services). For the next two years, in 2000 and 2001, the actual physician fee schedule update was more than twice the MEI for those years. Beginning in 2002, the actual expenditure exceeded allowed targets, and the discrepancy has grown with each year. However, with the exception of 2002, when a 4.8% decrease was applied, Congress has enacted a series of laws to override the reductions.

There is a growing consensus among observers that the SGR system is fundamentally flawed and is creating instability in the Medicare program for providers and beneficiaries. The SGR system treats all services and physicians equally in the calculation of the annual payment update, which is applied uniformly with no distinction across specialties. In addition, there has been an increased concern that continued declines in physician payment rates, especially among primary care specialties, may potentially jeopardize access to services. Finally, legislative overrides since 2002 have only provided temporary reprieve from projected reductions in payments under the SGR calculation, requiring even steeper reductions in payment rates in the future.

Several alternatives to the current SGR mechanism have been proposed in recent years. For example, H.R. 3162, the Children’s Health and Medicare Protection Act of 2007 (CHAMP), introduced in the 110th Congress, would have created six categories of physicians services, each with a separate expenditure target, while H.R. 3961, the Medicare Physician Payment Reform Act of 2009, would have had only two expenditure categories: (1) evaluation, management, and preventive services, and (2) all other services. On October 14, 2011, the Medicare Payment Advisory Commission (MedPAC) sent its recommendations to Congress, repealing the SGR system and replacing it with a 10-year schedule of specified updates for the physician fee schedule, with primary care practitioners receiving a 0% update over the next 10 years and nonprimary care practitioners facing a 5.9% decline in payment rates the first three years and 0% thereafter. None of the proposals has garnered sufficient support to be passed into law.

On January 2, 2013, the President signed H.R. 8, the American Taxpayer Relief Act of 2012 (ATRA, P.L. 112-240). This provision averts the SGR-determined reduction and maintains the Medicare physician fee schedule payments at their current rates through December 31, 2013. The conversion factor for 2014 and afterwards will be computed as if the modification to the conversion factor in this section had never applied. .


Date of Report: January 17, 2013
Number of Pages: 25
Order Number: R40907
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Factors Affecting the Demand for Long-Term Care Insurance: Issues for Congress

Janemarie Mulvey
Specialist in Health Care Financing

As the 80 million baby boomers approach retirement, many are concerned they will not have sufficient savings to sustain their standard of living in retirement. Few, however, may be focused on another risk to their retirement security—the potential cost of financing often expensive longterm care services and supports (LTSS). LTSS include help with either functional or cognitive impairment and generally include assistance with activities such as bathing, eating, and dressing. For the majority of older Americans, the cost of obtaining paid help for these services may far exceed their financial resources in the future.

Private long-term care insurance (LTCI) is available to provide some financial protection for persons against the risk of the potentially high cost of LTSS. In 2010, about 6% of LTSS spending was paid by LTCI. This low rate of financing reflects relatively low demand for LTCI over the past few decades. Moreover, most policy owners have not yet reached the age where they may need services.

In 2010, between 7 million to 9 million Americans owned a private LTCI policy, with about 11% of the population aged 55 and older covered by a policy. A number of factors have adversely affected the demand for LTCI. The cost and complexity of LTCI policies have been cited as major deterrents to purchasing LTCI. In addition, increased concerns have arisen about the adequacy of consumer protections for LTCI as a result of inconsistencies in LTCI laws and regulations across the states. More recently, adverse publicity about premium increases and heightened concerns about the future solvency of LTCI insurers in the current economic environment have further dampened demand, prompting state regulators to re-evaluate current regulations and laws governing LTCI.

The private LTCI market has undergone significant changes in the past three decades. The employer-sponsored market has grown as a share of total LTCI sales and the overall market has become more concentrated in terms of the number of companies selling the product. A number of newer product lines have been introduced that combine LTCI with other products, such as retirement annuities and life-insurance products.

To address these issues, the 113th Congress may consider a number of legislative options to increase participation in the voluntary LTCI market. These may include proposals to

• increase tax incentives to lower the after-tax cost of policies, 
• improve consumer protections to boost consumer confidence in the product, and 
• expand consumer education. 

This report discusses the role of LTCI in financing LTSS and current trends in the LTCI industry; factors affecting the demand for LTCI, including cost and complexity of the product and adequacy of consumer protections; and legislative options available to address these issues.


Date of Report: January 16, 2013
Number of Pages: 24
Order Number: R40601
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Authorized Generic Pharmaceuticals: Effects on Innovation

John R. Thomas
Visiting Scholar

The practice of “authorized generics” has recently been the subject of considerable attention by the pharmaceutical industry, regulators, and members of Congress alike. An “authorized generic” (sometimes termed a “branded,” “flanking,” or “pseudo” generic) is a pharmaceutical that is marketed by or on behalf of a brand-name drug company, but is sold under a generic name. Although the availability of an additional competitor in the generic drug market would appear to be favorable to consumers, authorized generics have nonetheless proven controversial. Some observers believe that authorized generics potentially discourage independent generic firms both from challenging drug patents and from selling their own products.

These perceived disincentives result from the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984. Better known as the Hatch-Waxman Act, this legislation provides independent generic firms with a reward for challenging patents held by brand-name firms. That “bounty” consists of a 180-day generic drug exclusivity period awarded to the first patent challenger. During the 180-day period, the brand-name company and the first generic applicant are the only firms that receive authorization to sell that pharmaceutical. At the close of this period, other independent generic competitors may obtain marketing approval and enter the market, ordinarily resulting in lower prices for generic medicines.

Some commentators view the 180-day exclusivity period as a crucial incentive for generic firms to challenge patents held by brand-name firms. Under this view, the launch of an authorized generic during the 180-day exclusivity period makes the recovery of litigation expenses more difficult. In turn, the possibility that a brand-name firm will sell an authorized generic during the 180-day exclusivity period may decrease the incentives of generic firms to challenge patents in the first instance.

Other observers believe that authorized generics benefit consumers by increasing competition in the generic market. Because the authorized generic is manufactured by the brand-name firm and identical to its own product, consumers may be encouraged to switch to the lower-cost authorized generic alternative. Authorized generics may also facilitate the settlement of patent litigation between brand-name and independent generic firms. As an historical matter, certain of these settlement agreements have allowed authorized generics to enter the market, and therefore promoted competition, prior to the expiration of the relevant patent term.

Recent judicial opinions have upheld FDA practices allowing authorized generics. If authorized generic practice is deemed appropriate, then no action need be taken. The approach taken by legislation introduced in the 112th Congress, H.R. 741 and S. 373, presented another option. Under these bills, authorized generics may not be sold during the term of the 180-day generic exclusivity. This legislation was not enacted.


Date of Report: January 17, 2013
Number of Pages: 18
Order Number: RL33605
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