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Medicare Compliance & Reimbursement

Budget:

Bracing Yourself For Another Balanced Budget Act?

Published on Thu Feb 26, 2004

Huge federal deficits could cost health care providers in the future.

Budget cuts affecting Medicare and other health programs could soon be in the news again, as federal account books show nothing but deficits in the foreseeable future and lawmakers begin to sweat over the red ink.

In an initial round of the 21st century fiscal wars, though, there could be a twist from the Medicare-related budget battles of 1997, analysts say. Rather than a new Balanced Budget Act that explicitly enacts cuts in Medicare and Medicaid in order to achieve overall budget goals, action this year could center on a number of budget-process proposals that may seem less intimately linked to health programs but could have equivalent impacts.

  • Entitlement program expansions -- but not tax cuts -- would pay their own way. The Bush budget proposes reinstating budget rules that would require legislated spending increases to be immediately offset by corresponding spending cuts. So-called pay-as-you-go rules also were implemented in 1990, and they contributed to bringing down the deficit.

    The new proposal has one substantial difference, however. The earlier pay-as-you-go rule required that any entitlement expansions or tax cuts be funded through offsetting entitlement cuts or tax increases.

    The Bush administration's new proposal, on the other hand, would apply only to mandatory spending in entitlement programs like Medicare and to refundable tax credits that go to lower-income people whose tax bills aren't high enough for them to have paid the whole creditable amount in the first place.

    Furthermore, entitlement-program expansions could only be offset with cuts to the same or another entitlement program -- i.e., a Medicare expansion would be paid for by a Medicare or Medicaid cut -- not by revenue measures such as a tax increase or closure of a tax loophole.

    In effect, the plan would put entitlement programs and refundable tax credits at a disadvantage in future Congresses, because, unlike for tax cuts, lawmakers would be forced to offset them with other painful spending cuts.

  • So ... Don't hold your breath for that refundable tax credit that targets the uninsured. With a short legislative year, a fistful of money worries, and a big health accomplishment just behind them in the Medicare prescription-drug bill, congressional leaders aren't likely to push hard on tax credits for the uninsured in 2004, even if budget law isn't changed to require an offset for the credit's refundable portion, as the White House wants.

    If that budget rule passed, things could get even dicier for the credit. The refundable part of the credit would have to be explicitly offset by cuts to other mandatory spending -- $22 billion over five years. But the administration's budget offers no hints of where it would make such cuts, noting only that, "when the Congress moves legislation to implement the ... proposal, the administration will work with the Congress to offset this additional spending."

    Appropriations Battles To Come

  • The administration wants strict caps on domestic discretionary spending, with tough enforcement. The Bush budget would set overall statutory caps on domestic discretionary spending, outside of homeland-security spending, for fiscal years 2005 through 2009. Most domestic programs are scheduled for flat funding or increases in FY 2005, but over the entire five-year budget period the caps are stringent.

    Spending for health programs generally would grow slightly in each of the five years -- in non-inflation-adjusted dollars, at least. But under the administration's program-by-program funding targets, out-year spending in numerous other domestic programs would experience real cuts, some of them quite severe. That could set up a series of contentious appropriations battles in the next half-decade.

    The administration also proposes that lawmakers adopt a strict enforcement measure for the caps. If a given year's appropriations exceeded the cap, Congress would be required to make across-the-board cuts in all discretionary spending authority -- a so-called sequester -- to bring spending back under the target number.

    Domestic discretionary spending outside of homeland security makes up less than twenty percent of the budget, however. So while the proposed caps could seriously ding individual federal programs, implemented in the absence of other, larger-scale budget-trimming measures, they would be relatively ineffective in bringing down the deficit.

    The bottom line: In one form or another, budget battles will take center stage in 2004. Members of Congress are worried about deficits and are scrutinizing all options, including the budget-process changes that the administration wants and some measures that the White House strongly opposes. Senate centrists are seeking votes that would give them enough political clout to oppose extension of all but a few of the tax cuts, for example.

    Meanwhile, House appropriators are indicating that not only domestic spending but also defense spending is ripe for more stringent budgetary treatment.

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