Congress returned to Washington last week to resume business for the second session of the 112th Congress. Washington begins its formal 2012 budget and legislative processes tonight when President Obama delivers the annual State of the Union Address to Congress. He is expected to make remarks about the importance of maintaining strong Medicaid, Medicare, and Social Security programs. Governor Mitch Daniels (R-IN) will deliver the official Republican response following the President's address.
The Administration will take its next step when it releases its FY 2013 budget to Congress-a delay of a week from the usual timeframe of the first Monday in February. However, there will be nothing "usual" about this year's budget and legislative season owing not only to it being an election year to determine who will gain control of White House, Senate and House; a shortened Congressional work year due to fewer days in session; but because of the debt deal reached in August.
Significant Budget Reduction Already Made
The Budget Control Act (BCA) enacted last summer is a "play with many chapters." The BCA established a $1.2 trillion sequestration (cuts in spending) to begin January 2013. Under existing law, given the BCA and other deficit reduction efforts made last year, the deficit will be reduced by about $2.1 trillion over 2012-2021. With 100% of the reductions coming from spending cuts, not from a balanced deficit reduction plan with both spending cuts and revenues, half of the BCA cuts come from nondefense domestic appropriations, 42% from defense (most from the Pentagon's budget), and the rest from entitlements not protected from cuts under the BCA's sequestration process.
The joint committee ("super committee") established in the August debt deal was designed to make recommendations for at least another $1.2 trillion over ten years. The committee failed to reach agreement last November. Failure to agree set up the automatic across-the-board cuts (sequestration set out above). It failed over the issue of revenues (taxes) and, therefore, the ratio of spending cuts to revenues.
What's Next-Fiscal Collide in 2012
Given the size of federal reductions already enacted for this year (FY 2012) and for FY 2013, the "typical" budget process will be more "theater" than substance. There is no plan to bring a joint Congressional budget resolution to the floor (therefore, no chance for budget reconciliation instructions regarding entitlement reforms to committees of jurisdiction). The individual appropriations committees already have their FY 2013 spending allocations. However, there will still be legislative proposals advanced-especially in the House-and lots of votes that may establish some dangerous directions for the post-election period (lame duck session) and 2013.
While the BCA protected Medicaid and other low-income entitlements from the sequestration (cuts through 2021), Medicaid is still vulnerable for two several reasons. First, policymakers have expressed a desire to partially or fully shield defense spending from sequestration. That would shift BCA's cuts to domestic programs-placing renewed budgetary pressures on the existing exemption protecting Medicaid. While ANCOR expects proposals this year to alter the sequestration in order to protect defense spending, it does not foresee action until after the 2012 elections, either in a lame-duck session in order to prevent implementation in 2013, or in 2013. Second, Medicaid is potentially vulnerable as Congress takes up the extension of unemployment insurance, payroll tax holiday, and the Medicare "doc fix" if Congress looks to paying for the Medicare physician rate with cuts to "health care." Third, the so-called "Bush" 2001-2010 tax cuts expire at the end of 2012.
Things to Keep in Mind for Medicaid Post-2012 Election: Let's look at what was placed on the table during 2011 for Medicaid that could provide some direction after the 2012 elections. Throughout the negotiations over raising the debt ceiling and later with the joint committee, President Obama, Republicans and Democrats all advanced plans which included savings and reforms to entitlement programs such as Medicaid and Medicare. Republicans called for $185 billion in cuts to Medicaid and block granting the program. President Obama called for significant cuts to Medicaid beginning with $34 billion in cuts to Medicaid in his February 2011 budget release for 2012; $100 billion in Medicaid cuts in his April Deficit Reduction Proposal; and $21.2 billion from Medicaid (nearly $15 billion in a blended Medicaid/CHIPPRA rate) in his September Proposal during the joint committee deliberations. At the time of the collapse of the joint committee in November, some members from both political sides had come to agreement over $50 billion in cuts to Medicaid. Some from both sides of the political spectrum pushing for "assumed" bigger savings from integrated financing and delivery systems of Medicare and Medicaid health and long-term services to dual beneficiaries are making the case that Medicaid can be "capped."
We still have a job ahead at the federal level this year to ensure that Medicaid remains exempt under the BCA sequestration and that we protect the structure of the program. We crossed that bridge last year and won. We can do it again this year. ANCOR will continue to apprise you of threats to Medicaid at the federal level. ANCOR staff are also looking down the road to 2013 and is counting on you in examining the Medicaid program this year.
You may find the attached Health Affairs Medicaid Reform Policy Brief of interest.