Last Updated on March 26, 2015
The 114th Congress is currently working to set the broad framework for the fiscal year (FY) 2016 federal budget process. In mid-March, the Republican leaders of the House and Senate Budget Committees released their respective FY16 budget blueprints. Though the chambers diverge on some key issues, the resolutions largely mirror prior year GOP-backed proposals, and would make significant changes to a number of programs important to LSA members. While these competing budget resolutions do not have the force of law, they do serve to outline the leadership's fiscal and policy priorities for FY16, and offer a preview of the challenges ahead.
In the coming months, lawmakers must decide whether to maintain the tight budget parameters that are due to return after the sequester-set spending caps were raised for two years, or to seek a new agreement that again alleviates some of those funding restraints. They may also consider making significant funding and structural changes to critical mandatory programs through a process called reconciliation, which the much-anticipated late June Supreme Court ruling in King v. Burwell could further complicate.
As the FY16 budget process unfolds, programs serving vulnerable, low-income Americans are likely to be targeted for savings. To provide you with a general framework of how the House and Senate leaders are approaching the FY16 budget and appropriations season, as well as an overview of looming fiscal challenges, LSA has analyzed the proposals, concentrating on key areas of importance for our members – including Medicaid, Medicare, and sequestration.
House. The House budget would combine the Children's Health Insurance Program (CHIP) and Medicaid into a single program, which it would then cut by nearly one-third over ten years ($913 billion) by converting it to a block grant. Under the House proposal, beginning in 2017, the federal government would no longer pay a fixed share of each state's Medicaid costs. Instead, states would receive a fixed dollar amount known as block grants or "state flexibility funds," though the budget does not specify the process for determining or adjusting the amounts of these allocations.
The House would also repeal the Affordable Care Act's (ACA) Medicaid expansion. The combined Medicaid cut outlined by the House would reach $1.8 trillion over ten years.
Senate. The Senate budget would also radically restructure Medicaid by converting much of it into two block grants and cutting federal Medicaid funding by roughly $400 billion over the next decade. Under the plan, the federal government would no longer pay a fixed share of states' Medicaid costs for children and non-elderly, non-disabled adults, including pregnant women. The Senate's blueprint would also alter federal financing for long-term care services and supports (such as nursing home care for seniors), which currently account for about a quarter of all Medicaid spending. Instead, states would receive a fixed dollar amount of federal funding for these spending categories in the form of two block grants. The budget plan does not explain how either block grant would be initially set or annually adjusted. Federal funding for acute care services furnished to seniors and people with disabilities would apparently continue as under current law.
Like the House plan, the Senate's budget would repeal the ACA's Medicaid expansion. The combined Medicaid cut would exceed $1.3 trillion over ten years.
House. The House budget would fundamentally restructure Medicare, turning it into a premium support program. Under the proposal, beginning in 2024, Medicare beneficiaries would have the option to stay on Medicare, or receive a lump sum of money to buy private insurance. The House Budget Committee estimates nearly $150 billion in Medicare savings over 10 years.
Senate. The Senate's budget proposes $435 billion in Medicare savings, but does not specify how these savings would be achieved. Notably, the Senate budget does step away from the sharp Medicare policy changes explicitly embraced by the House, by not recommending the conversion of Medicare into a semi-privatized system with vouchers to buy insurance.
The Affordable Care Act
House and Senate. The House and Senate budgets both call for a repeal of the Affordable Care Act, including the Medicaid expansion and the tax changes that help finance the ACA. At the same time, the budgets assume the same level of federal revenue ($1 trillion) over the next 10 years that is forecasted to occur with these revenue increases intact. In short, the new budgets are assuming trillions of dollars in tax revenues after repealing the health care taxes that produce it.
House. The House budget converts the Supplemental Nutrition Assistance Program (SNAP) to a block grant starting in 2021, and cuts SNAP funds by $125 billion – or more than a third – over 2021 to 2025. Further, the House directs the Agriculture Committee to identify additional savings by July 15, making SNAP a potential target in the reconciliation process.
Senate. While the Senate budget proposal does not ask the Agriculture Committee to meet a savings target, the proposal does recommend massive potential cuts – in the amount of $4.3 trillion over 10 years – to mandatory spending programs, without specifying how the cuts will be made. Though the Senate does not explicitly call for block-granting SNAP, the enormity of its unspecified entitlement program cuts indicates that the food assistance provided through SNAP would likely be cut heavily.
The 2011 Budget Control Act (BCA) imposes tight limits on annual appropriations, first by creating caps that apply each year through 2021 and then by requiring additional reductions through a process known as sequestration. The law directed that in the first year sequestration was in effect, 2013, the necessary cuts would come through across-the-board reductions in most of the affected program areas. In 2014 and beyond, the BCA's sequester cuts are to be achieved by lowering the caps that would have otherwise applied.
There are separate caps set for defense and non-defense discretionary (NDD) programs. NDD appropriations constitute about one-sixth of the budget and support a wide variety of investments, services, and basic government functions. Examples include medical and scientific research, aid to education, veterans' health care, national parks and environmental protection, housing assistance, public health, homeland security, law enforcement, housing, employment, transportation, and non-Medicaid home and community-based services.
Since the BCA's enactment, Congress and the White House have agreed on measures to temporarily and partially alleviate some of the cuts, always seeking to distribute this relief evenly between defense and NDD. The most recent mitigation bill expires in 2016, raising concerns about the ramifications if policymakers cannot reach agreement on new legislation to alleviate future cuts.
Accordingly, a major budget issue for FY16 is whether Congress will enact legislation to replace or eliminate the BCA's constraints on discretionary programs. However, neither the House nor Senate budget resolutions offer a clear plan to do so. While this does not preclude future bipartisan, bicameral negotiations, it is a missed opportunity for leaders to prioritize critical discretionary programs.
Both resolutions include language that establishes so-called deficit neutral "reserve funds" for various programs and initiatives. These funds are merely policy placeholders that provide no plan and set aside no dollars. Rather, they say that if policymakers are able to provide some sequestration relief or otherwise increase FY16 appropriations totals in a deficit neutral way, then Congress can amend the budget resolution to accommodate the additional funding. This reserve fund language is not essential, as a budget resolution can be amended without it. Rather, it is included as a signal of Congressional will to address a particular policy goal.
House. It is telling, therefore, that in the House resolution, the reserve fund may only be used to provide sequestration relief to defense programs, and that revenue increases may not be used to offset any associated costs. That is, any sequestration relief that lawmakers may achieve would have to be offset entirely by spending cuts – not by increasing any revenues. Even then, the relief could only go to alleviate sequestration cuts to defense programs – not NDD.
Senate. The Senate's reserve fund is a bit more traditional, and could be used to provide sequestration relief for both defense and non-defense programs. As in the House, any such relief must be deficit neutral, but the upper chamber does not have a prohibition on the use of revenues to achieve this.
As noted in the previous section, the BCA, which established the appropriations caps and sequestration, specifies that sequestration cuts in 2014 and all subsequent years are to be implemented by reducing the caps that would otherwise apply - rather than by across-the-board cuts as in 2013.
House. The House Budget Committee appears to adhere to the BCA by leaving its spending caps in place for FY16 ($523 billion for defense, $493.5 billion for NDD). However, the budget actually increases available defense spending by $96 billion – none of which must be offset! - without providing a comparable boost to NDD programs. The House sidesteps the defense cap through the use of war funding.
Specifically, lawmakers are proposing to up the defense expenditures in the uncapped Overseas Contingency Operations (OCO) account to $96 billion. These funds are not subject to the annual appropriations limits under the BCA, meaning any OCO allocations defense programs receive are in addition to the statutory spending cap. Designed to cover the costs of military operations in the Middle East and other war zones, the OCO fund has, in recent years, been an appealing target for lawmakers looking to indirectly offset some of sequestration's cuts. Using OCO funds to meet general military needs is just a way to circumvent the BCA cap on defense appropriations.
Beyond FY16, the proposal directly increases defense spending, instead of relying on the OCO account. Over 10 years, the House would increase defense spending by $387 billion. Over that same period, the House budget would cut NDD spending by an additional $759 billion, beginning in FY17. These cuts are in addition to sequestration, which the House budget maintains.
As originally proposed, the House resolution would have provided an additional $90 billion in OCO funding. Prior to passage, the fiscal blueprint was amended to raise the limit on war spending to $96 billion and remove the requirement for any of the spending to be offset, winning the support of defense hawks who had threatened to sink the plan.
Senate. Similarly, the Senate budget resolution keeps the BCA's spending caps in place for FY16, while providing $96 billion for defense spending from the OCO account, allowing these programs to avoid much of the impact of sequestration. OCO funding in the Senate budget as introduced was $58 billion, and was increased in Committee through a successful amendment from Sen. Lindsey Graham (R-SC), bringing the Senate's proposal more in line with the $90 billion originally proposed by the House.
The Senate budget also keeps sequestration in place, and on top of those reductions, seeks to cut funding for NDD programs by another $410 billion over 10 years. Under this plan, by 2025, total funding for NDD programs would be at least 24 percent below the 2010 level adjusted for inflation - shrinking the funds available for investments in education, research, and transportation, as well as for low-income programs such as housing assistance, Head Start, and the Low-Income Home Energy Assistance Program.
While the House and Senate budget proposals are similar to plans put forward by Rep. Paul Ryan (R-Wisc.) over the past few years, the political context has changed dramatically since then; Republicans now control both chambers of Congress. Thanks to the new power dynamic, Republicans can now use a process called reconciliation to move their budget proposals forward. In the Senate, reconciliation bills are not subject to the filibuster, making it easier for Congress to avoid procedural roadblocks that ordinarily give the minority party power to force a debate. Additionally, this process limits the scope of amendments, giving it real advantages for enacting controversial budget and tax measures.
The Congressional Budget Act permits using reconciliation for legislation that changes spending, revenues, and the federal debt limit. On the spending side, reconciliation can be used to address mandatory or entitlement spending — programs such as Medicare, Medicaid, and SNAP — but not Social Security or annually-appropriated discretionary programs.
To start the reconciliation process, the House and Senate must agree on a budget resolution that includes "reconciliation instructions" directing specified committees to prepare legislation by a certain date that achieves a savings or spending goal.
Both the House and Senate FY16 budgets include reconciliation instructions to committees with jurisdiction over health care, directing them to make deficit-cutting proposals by mid-summer, and furthering the possibility that mandatory programs of importance to LSA members could be targeted for deep cuts. Notably, any bills drafted as a result of reconciliation instructions must be signed into law by the President and are therefore subject to possible veto.
House. The House budget includes reconciliation instructions to 13 committees, instructing them to search for ways to repeal the ACA, and to develop legislation that would produce a specified amount of savings. The savings target varies by committee, and is a floor, not a ceiling. Lawmakers have until July 15 to submit the proposed legislation to the House Budget Committee.
Senate. The Senate budget resolution only gives reconciliation instructions to two committees – the Senate Finance Committee and the Senate Health, Education, Labor and Pensions (HELP) Committee. These panels are each given until July 31 to develop legislation that would reduce the deficit by at least $1 billion over 10 years. Again, this savings target is just a placeholder, and represents the lowest amount of deficit reduction the committee may recommend. It is likely that the committee will come back with a significantly higher level of cuts.
Since the House has proposed requiring reconciliation bills from more committees than has the Senate, the final, negotiated budget resolution agreed to by both chambers may well demand savings from more than the two committees included in the Senate plan. The expectation is that the minimal savings targets in the current drafts will be exceeded substantially by the time Congress takes up reconciliation bills later this year.
We will learn more once the recommendations are released this summer. The July dates specified by both chambers are intended to give lawmakers enough time to respond to the Supreme Court's ruling in King v. Burwell, which is due out in late June. At issue in the case is whether the subsidies offered through the ACA's federally-established exchanges are permissible under the law. If the Court rules against the Obama Administration and finds that Congress only intended the subsidies to be available to individuals living in states with state-run exchanges, the GOP-controlled Congress is expected to seek a rewrite of the ACA. The outcome of the King case, therefore, could impact how and where lawmakers look for health care savings. As the Senate budget resolution states, "By adopting this new budget, Republicans can repeal the President's health law and the committees of jurisdiction can continue to work on plans to replace it."
House. The House budget calls for comprehensive tax reform but includes few specifics. It does seek to repeal the ACA taxes and the Alternative Minimum Tax (AMT), which is designed to ensure that higher-income people pay a base level of tax. The cost of eliminating the ACA revenues and the AMT is estimated to be $1.5 trillion. The budget assumes these lost revenues would be offset by other tax increases, but does not offer specifics.
Additionally, the House plan would raise taxes on working low-income families, as it allows expansions of the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) to expire in 2017. The budget would also allow the American Opportunity Tax Credit to expire at the end of 2017, causing millions of low- and moderate-income families to lose some or all of the tax credits they receive to help offset college costs. Read more about these impacts here.
Senate. Despite repealing the ACA, the Senate budget similarly retains the $1 trillion over 10 years in revenues that are projected to be brought in by the health law, but does not explain how this money would be raised.
Like its House counterpart, the upper chamber's budget would also allow provisions of the EITC and CTC that are critical to millions of working families, as well as the American Opportunity Tax Credit, to expire at the end of 2017.