Budget Control Act: Potential Impact of Sequestration on Health Reform Spending

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C.Stephen Redhead
Specialist in Health Policy

TheBudget Control Act of 2011 (BCA; P.L. 112-25) established new budgetenforcement mechanisms for reducing the federal deficit by at least $2.1trillion over the 10-year period FY2012-FY2021. The BCA placed statutorylimits, or caps, on discretionary spending for each of those 10 fiscalyears, which will save an estimated $0.9 trillion during that period. Inaddition, it created a Joint Select Committee on Deficit Reduction (JointCommittee) with instructions to develop legislation to reduce the federaldeficit by at least another $1.5 trillion through FY2021. On November 21,2011, the Joint Committee announced that it was unable to agree on a legislativepackage of deficit cuts, which raises the likelihood of automatic annualspending reductions beginning in FY2013. Under the BCA, the reductionswould be achieved by a combination of sequestration—an automaticacross-the-board cancellation of budgetary resources (i.e., spending cuts)for nonexempt direct spending programs—and lowering the caps on discretionaryspending.

The potential impact of spending reductions triggered by the BCA on healthreform spending under the Patient Protection and Affordable Care Act (ACA)would appear to be somewhat limited. ACA sought to increase access toaffordable health insurance by expanding the Medicaid program and byrestructuring the private health insurance market. It set minimum standards for privateinsurance coverage, created a mandate for most U.S. residents to obtaincoverage, and provided for the establishment by 2014 of state-based insuranceexchanges for the purchase of health insurance. Certain individuals andfamilies will be able to receive federal subsidies to reduce the cost ofpurchasing coverage through the exchanges. The new law included direct spendingto subsidize the purchase of health insurance coverage through the exchanges,as well as increased outlays for the Medicaid expansion. Under the rulesgoverning sequestration, Medicaid spending would be exempt from anyreduction, and cuts to Medicare would be capped at 2%.

ACA also included numerous mandatory appropriations that provide billions ofdollars to support temporary programs to increase coverage and funding fortargeted groups, provide funds to states to plan and establish exchanges,and support many other research and demonstration programs and activities.These appropriations would, in general, be subject to direct spendingreductions under a sequestration order. However, for any given fiscal yearin which sequestration was ordered, only new budget authority for thatyear (including advance appropriations that first become available forobligation in that year) would be reduced. Unobligated balances carried overfrom previous fiscal years would be exempt from sequestration.

ACA is likely to affect discretionary spending subject to the annualappropriations process. The law reauthorized appropriations for numerousexisting discretionary grant programs and activities authorized under thePublic Health Service Act, permanently reauthorized funding for the Indian HealthService (IHS), and created a number of new grant programs and provided for eachan authorization of appropriations. In addition, the Congressional BudgetOffice projected that both the Department of Health and Human Services andthe Internal Revenue Service will incur substantial administrative coststo implement the policies and programs established by ACA. Those costswill have to be funded largely through the annual appropriations process.ACArelated discretionary spending would, in general, be subject toautomatic spending reductions triggered by the BCA.


Date of Report: October 1, 2012
Number of Pages: 23
Order Number: R42051
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