Heavy Agenda as Congress Returns: Health, Budget, Spending Caps, Debt Ceiling, Tax Cuts, Appropriations

As Congress returns from July 4th recess, Members face a barrage of six major issues:

  1. Medicaid and Health Insurance Cuts: In July, the Senate may vote on a revised ACA “repeal-and-replace” bill that includes a one-third cut to Medicaid and cuts to health insurance subsidies for low-income Americans.
  2. FY 2018 Budget: During July, Congress’ House and Senate Budget Committees will attempt to secure sufficient GOP votes to pass an FY 2018 Budget Resolution that includes:
    (i) Reconciliation Instructions to launch a filibuster-proof package of up to $200 billion of entitlement cuts over 10 years;
    (ii) Reconciliation Instructions to launch a filibuster-proof tax cut and reform bill, although there is disagreement on whether to enact permanent tax cuts that are revenue-neutral or limited 10-year tax cuts to comply with the Senate’s Byrd Rule;
    (iii) Total discretionary spending levels for FY 2018 (although the Budget Resolution numbers can later be changed by amendments to the statutory spending caps); and
    (iv) A spending and revenue framework for the next 10 years addressing rapidly rising Federal deficits and interest payments.  [In a June 29 Update, CBO projected that rapidly rising public debt will push Federal net interest payments above $800 billion per yearwhich should raise concerns about the advisability of tax cuts.]
    Missing from the Budget Debate: Any discussion of a significant public investment in infrastructure.
  3. Revised Spending Caps or Shutdown?  Regardless of whether the GOP can reach agreement on a Budget Resolution, as the new fiscal year approaches, Republicans and Democrats must negotiate a new Bipartisan Budget Act revising statutory spending caps on defense and non-defense spending. The caps currently in place for FY 2018 were originally set by the 2011 Budget Control Act (BCA) which set caps for each year through 2021; but the BCA caps have not endured. The defense and non-defense caps have been raised for each of the last four fiscal years (FY 2014 – 17).  It is likely that Congress will again enact a Bipartisan Budget Act to raise the caps for FY 2018 and 2019 because appropriations bills require 60 votes in the closely split (52-48) Senate and neither Republicans nor Democrats are willing to live within the constraints of the current statutory caps.  But the negotiation over new cap levels will take time and will be highly contentious, and may not reach a conclusion until after sufficient political pressure is generated by a likely federal government shut-down in October. Background on Spending Caps:
    — Defense Cap:  The current 2018 defense cap is $549b; Trump proposed $603b, but the House GOP has proceeded with a defense topline of $621 billion, with additional funding in a separate war funding account that boosts total FY ’18 defense spending to $658 billion.
    — Non-Defense Discretionary (NDD) Cap:
      2018 cap is $516b; Trump proposed a cut of $54 billion, but House GOP is proceeding with $511b. Ultimately, a bipartisan agreement later this year is likely to raise the NDD cap.
  4. FY 2018 Appropriations: In the meantime, without an agreement on defense and non-defense spending caps, GOP Appropriators are marking-up “placeholder bills” for FY 2018 Appropriations — that will have to be re-negotiated when agreement is eventually reached on revised spending caps.  Thus far, the House Appropriations Committee has advanced full committee placeholder bills for Defense; Mil Con-VA; and Legislative Branch; and subcommittee bills for Agriculture-Rural Dev-FDA; Commerce-Justice-Science; and Financial Services. See FedWeb’s Appropriations Portal for complete details, bill language, and report language.
  5. Hard Power vs. Soft Power As Appropriations bills are drafted, Congress will make critical strategic decisions on the Administration’s proposals to rapidly scale-up defense spending while rolling back America’s diplomatic capacity and international engagement.  House Appropriators have already passed an FY 2018 defense spending bill that exceeds the statutory spending cap by $35 billion.  (The bill also provides $73.9 billion for off-the-books war funding – “Overseas Contingency Operations” – that are not subject to the defense cap.)
  6. Debt Ceiling: According to new CBO projections, by early-to-mid-October, Congress must raise the federal debt ceiling or the U.S. will default on financial and legal obligations—triggering a global financial crisis.

Background on Senate Health Bill:  50 Votes May Be Out of Reach as CBO Projects 22 Million Uninsured and a 35% Cut in Medicaid

As Congress returns from the July 4, recess, 50 votes in the Senate to pass Leader McConnell’s ACA repeal-and-replace bill may be out of reach as CBO projects 22 million more uninsured Americans and a 35% cut in Medicaid — causing a deep divide between GOP moderates and conservatives:

  • On June 26, the nonpartisan Congressional Budget Office released its analysis of Senate Majority Leader McConnell’s (R-KY) draft health bill to repeal and replace the Affordable Care Act (ACA), estimating that by 2026, 22 million more Americans would be uninsured, as compared to current law.  CBO also projected that premiums for older people would be higher and the insurance would cover less. (See CBO Report, Table 5)
  • On June 29, CBO released long-term estimates that the bill would cut the overall Medicaid program by 35% over the next two decades, as compared with current law, i.e., the amount projected to be spent if current coverage and eligibility rules remain in place.  Due to the cuts, CBO said states would be forced to “decide whether to commit more of their own resources, cut payments to health care providers and health plans, eliminate optional services, restrict eligibility for enrollment, or adopt some combination of those approaches.”
  • Fact Check: In June 2015, Candidate Trump pledged to “save Medicare, Medicaid and Social Security without cuts.
  • 1 in 5 Americans:  The size and scope of the Medicaid cuts is highly significant because the program covers health care for 1-in-5 Americans including:  3-out-of-4 poor children, 2-out-of-3 nursing home residents, 3-out-of-5 children with disabilities, and 1-out-of-3 adults with disabilities (physical, intellectual, and developmental).
  • GOP Split: Despite plans to vote on the bill in June, Sen. McConnell on June 27 postponed a vote until after the July 4th congressional recess due to: (1) defections from GOP moderates concerned about cutbacks in Medicaid and insurance subsidies; and (2) defections from conservatives concerned that the Senate bill preserves too much of the ACA. Further complicating the situation was President Trump’s June 30 Tweet suggesting that repeal-and-replace should be de-coupled; and a recent proposal from Sen. Cruz to allow insurance companies to offer so-called “junk plans” with lower premiums, high deductibles, and lacking ACA consumer protections. Watch for a CBO score on the Cruz amendment; critics warn it would further destabilize the individual health insurance exchanges.
  • Seeking 50: Action on a revised Senate bill will occur in July if sufficient changes can be made to secure 50 GOP votes. (60 votes are unnecessary because the health bill is advancing as a filibuster-proof Budget Reconciliation bill.)  See Reconciliation and the Byrd Rule

Comparison of the ACA (current law), the draft Senate bill (“Better Care Reconciliation Act of 2017”), and the House-passed bill (“American Health Care Act”).

  • ACA (Current Law): “Obamacare” is aimed at providing universal health care by: (1) expanding Medicaid to cover people up to 138% of the federal poverty level (FPL); (2) providing income-related subsidies to purchase private insurance for people up to 400% of FPL; (3) requiring insurers to offer plans with reduced patient cost-sharing (deductibles and copays) for people up to 250% of FPL; and (4) requiring people to have insurance or pay a penalty in order to broaden the insurance pool.  The ACA is financed by taxes on high-income taxpayers, as well as fees / taxes on health insurance, drug, and medical device companies.
  • Senate and House Bills: The Senate and House bills would increase the number of people who are uninsured by 22 million and 23 million, respectively, in 2026 (relative to current law) due to: (1) repealing the individual mandate; (2) phasing out the Medicaid expansion; (3) reducing spending for the overall Medicaid program by imposing a per capita cap; (4) replacing ACA subsidies with substantially smaller tax credits; and (5) phasing out cost-sharing reduction subsidies for low-income enrollees.

Key Issues in the House and Senate Repeal-and-Replace Bills:

  1. Deep Cuts in Medicaid:  ACA achieved a broad expansion of coverage for uninsured Americans, in part, by offering States the option to expand Medicaid so that all Americans up 138% of poverty can enroll. The House-passed and draft Senate bills would phase out the expansionbut go further, capping the overall Medicaid program. In effect, “Obamacare repeal-and-replace” has become a “Trojan Horse” for dramatic cuts in the Medicaid entitlement. This has generated broad opposition from medical providers, doctors, and patient groups, and advocates for children, the elderly, and disabled Americans.
    [Background: Medicaid and Medicare are frequently confused. They were both created in 1965 and both receive most of their funding from federal tax revenues, but are vastly different in their purposes and operations. Medicare is national health insurance for people 65 and over and people receiving Social Security Disability; and is administered by the Federal government. By contrast, Medicaid, is a State-administered program that pays for health care for low-income Americans and is jointly-funded by the federal and state governments. Unlike insurance, Medicaid generally has no premiums or copayments because recipients are low-income.]
  2. Using Medicaid Cuts to Pay for Tax Cuts:  Opponents of repeal-and-replace argue that most of the $772 billion in Medicaid cuts in the Senate bill would be used to pay for $541 billion in tax cuts that would disproportionately benefit high-income taxpayers; and that the House-passed bill would cut Medicaid by $834 billion – most of which would be used to pay for $664 billion in tax cuts.  Taxes that would be rolled back include an increased Medicare (HI) payroll tax and a 3.8% tax on net investment income–both for high-income taxpayers (above $250k for joint filers); and taxes on health insurers, drug companies, and medical device makers.  Tax Policy Center analysis of ACA tax provisions.
  3. Consumer Protections: Essential Health Benefits and Bar on Annual and Lifetime Limits:  Current law requires all plans to cover 10 categories* of essential health benefits (EHBs) and bars annual and lifetime limits. Under the draft Senate bill, if one of the ACA’s “essential benefits” is no longer deemed essential by a State, that may allow insurers to bring back lifetime caps for those services.(*The 10 required categories are: ambulatory (outpatient) care; emergency care; hospitalization; maternity/newborn; mental health and substance use; Rx drugs; rehabilitative/habilitative services; lab services; preventive care and chronic disease management; and pediatric services including dental & vision care.)
  4. Repealing the Individual Mandate:  The ACA seeks to broaden and stabilize the insurance pool by requiring everyone to be insured or pay a penalty—the argument being that if people wait to purchase insurance until they are sick, insurance companies are unable to cover costs—particularly if they are barred from denying coverage to people who have pre-existing conditions.  Supporters of the House and Senate bills oppose the mandate as infringement on individual freedom.  Despite throwing out the mandate, the House and Senate bills have “mandates” in a different form: the House bill includes a “late enrollment penalty” for people who do not maintain “continuous coverage,” and the Senate bill includes a 6-month insurance “lock-out provision” for people who have not maintained continuous coverage.
  5. Are the Insurance Exchanges Collapsing? Opponents of the ACA argue that Obamacare is “collapsing” – pointing out that insurance exchanges in some States are losing insurance companies willing to participate. Supporters of the ACA respond that insurers have dropped out because the Trump Administration has not been enforcing the individual mandate, and the Administration and Congress have been unwilling to commit to the continuation of cost-sharing reduction (CSR) subsidy payments to insurance companies.
    The nonpartisan CBO explains, “Several factors may lead insurers to withdraw from the market—including lack of profitability and substantial uncertainty about enforcement of the individual mandate and about future payments of the cost-sharing subsidies.”
    [Background on CSR Payments: The ACA requires insurers to offer plans with reduced patient cost-sharing (deductibles and copays) for people up to 250% of the poverty level. CBO explains, “to compensate for the added cost to insurers of the reduced cost-sharing, the federal government makes cost-sharing reduction (CSR) payments directly to insurance companies. CBO estimates the cost of these payments at $7 billion in fiscal year 2017.”  The Trump Administration has not committed to continuing CSR payments, arguing they were never properly authorized in the ACA.]
  6. Smaller Subsidies for Low- and Middle-Income Uninsured:  Opponents of the repeal-and-replace bills argue that smaller tax credits for purchase of insurance in the House and Senate bills, along with repeal of cost-sharing reduction subsidies, will prevent insurance from being affordable for low-income Americans.
  7. Planned Parenthood and Work Requirements:  House and Senate bills would prohibit Medicaid funding for Planned Parenthood for one year, and would permit States to impose work requirements for adults receiving Medicaid who are not disabled.
  8. Higher Premiums for Older Americans: Under current law, premiums for older Americans under 65 are capped at 3 times the cost for young enrollees. However, both the House and Senate bills would permit premiums for older Americans to be 5 times higher than young enrollees, unless a State adopts a different ratio. Under the Senate bill, for a 64-year-old with an annual income of $26,500, their premium in 2026 for a mid-level plan would average $6,500, compared with $1,700 under current law; and for a 64-year-old with an annual income of $56,800, the premium in 2026 would reach $20,500 a year, compared to $6,800 under current law. (CBO Report, Table 5)
  9. Public Attitudes: A paradox of the “Obamacare” debate is that initial public opposition to the law appears to be based on misunderstanding or misinformation. The nonpartisan Kaiser Family Foundation, when conducting surveys on individual components of the ACA, found that the following provisions enjoy broad public support:– subsidies to low- and moderate-income Americans to purchase private coverage;

–health insurance exchanges to compare prices and benefits;
–cost-sharing reduction payments to insurance companies to reduce deductibles and copayments for low-income enrollees;
–expand Medicaid with federal funding to cover more low-income, uninsured adults;
–young adults permitted to remain on parents’ insurance until age 26;
–prohibiting insurance companies from denying coverage because of pre-existing conditions; and
–requiring employers with 50 or more employees to offer health insurance or pay a fee to support subsidies for private insurance.