Sequester Redux x2

Blog Post
Thursday, March 25, 2021

Sequestration is making headlines once again in Washington as federal lawmakers work quickly to avoid untimely reductions in Medicare reimbursements to healthcare providers – in the middle of a viral pandemic. And if one sequester wasn’t enough trouble, Congress must deal with two.

The most urgent matter concerns a $16 billion reduction in Medicare spending that will take effect on March 31st unless Congress intervenes. This sequester is a legacy of the Budget Control Act of 2011—specifically, failure of the 2012 Joint Select Committee on Deficit Reduction to find $1.2 trillion in savings over the 2012-2021 budget window. The result was a two-pronged penalty: (1) a reduction in the discretionary spending caps between FYs 2012-2021, and (2) the annual sequester of certain mandatory programs between FYs 2013-2021. The Medicare sequester falls under the second category and is applied to reimbursements paid to hospitals and doctors in the Medicare fee-for-service programs (Part A and B), as well as the capitated payments paid to insurers under Medicare Parts C (Medicare Advantage plans) and D (prescription drug coverage). The BCA sequester does not affect Medicare benefits or cost-sharing amounts paid by beneficiaries.

The second sequester is less time sensitive but would have a larger impact on Medicare provider payments and other programs. The Statutory Pay-As-You-Go Act of 2010 (S-PAYGO) imposes a sequester on certain categories of mandatory spending when the net budgetary effects of all direct (mandatory) spending and revenue legislation enacted over the course of a calendar year would cause deficits to rise over the 5- or 10-year budget windows. Passage of the $1.9 trillion COVID relief package, the American Rescue Plan Act of 2021 (ARPA), probably would trigger a S-PAYGO sequester at the end of this year since it is highly unlikely that Congress could or would pass additional legislation in 2021 that would offset ARPA. If additional “savers” are not enacted, S-PAYGO would impose a $381 billion sequester at the end of this year, of which $36 billion would be applied to Medicare payments to health care providers (in addition to the BCA sequester). 

The S-PAYGO sequester is so large that the Congressional Budget Office believes that the Office of Management and Budget would be unable to implement it. S-PAYGO exempts so many large mandatory programs from sequester (e.g., Social Security and programs that provide support to low-income households) that the non-Medicare sequesterable base is only $80-$90 billion. 

Although S-PAYGO has been in effect since 2010, it has never been allowed to trigger a sequester. Instead, Republicans and Democrats in Congress have always joined together to intervene. For example, even though Democrats did not support the $1.5 trillion tax cuts in 2017, they did join with Republicans to avert the sequester it would have triggered at the end of that year (courtesy of language tucked into a December 2017 continuing resolution). 

Legislation addressing these two sequesters has passed the House and is awaiting action in the Senate. H.R.1868 would do three things: (1) delay the BCA Medicare sequester until December 31, 2021; (2) prevent the budgetary effects of the American Rescue Plan Act from being entered on the S-PAYGO scorecards; and (3) make minor technical corrections to the American Rescue Plan Act.  

The outlook for immediate action on H.R.1868 in the Senate is cloudy. Like Democrats in 2017, Republicans in 2021 unilaterally did not support the American Rescue Plan Act, but unlike those same Democrats, Republicans are not eager to call off the likely S-PAYGO sequester this year—at least not without exacting some concessions. For the moment, it appears Congress will merely suspend the pending $16 billion Medicare BCA sequester until December 31, 2021 and offset the cost with an extension of the mandatory sequester in later years, giving lawmakers time to negotiate the fate of the S-PAYGO sequester.

Cutting reimbursements to health care providers in the middle of a deadly pandemic makes no sense, so delaying any Medicare sequester in the present environment is sound policy. But intentionally and repeatedly gutting deficit reduction tools in non-pandemic times is equally unwise, especially now that our debt exceeds 100 percent of GDP. Once the pandemic is over, Congress must allow the Medicare BCA sequester to return or replace it with something else, and it must learn to abide by the enforcement procedures of S-PAYGO. The easiest way to prevent a sequester is to avoid triggering one in the first place.