If you have been following my posts you understand that the Budget Control Act creates a new 12-Member Congressional Joint Select Committee to negotiate and agree to at least $1.2 T in deficit reduction by November 23rd. If the Committee fails or if it makes recommendations but they don’t become law, then plan B is triggered.
Plan B is an automatic sequester that cuts $1.2 T over the nine-year period 2013-2021 from all discretionary and some mandatory spending programs.
Monday I wrote that the bulk of the mandatory spending covered was Medicare. I flagged farm subsidies and unspecified “other smaller entitlements” as also being on the triggered sequester’s chopping block.
Many big entitlements are exempted from this sequester, including Social Security, Medicaid, most welfare programs, refundable tax credits, veterans benefits, and civilian and military retirement benefits. This is because the Budget Control Act did not write its own new set of exemptions from the mandatory sequester. It instead referenced an exemption list in an earlier law.
On Monday I missed the new Affordable Care Act (ObamaCare) mandatory spending. While the biggest spending components of this law would be exempt from the sequester, significant parts of it would be subject to cuts if the Joint Committee fails.
I am fairly confident that the premium subsidies, the Medicaid expansion and other Medicaid-related spending increases, and the SCHIP reauthorization would be exempt from the new sequester, because they expand programs that were explicitly exempted in that earlier referenced law. Those are the biggest dollar components of ObamaCare.
But the Affordable Care Act was enacted after that earlier law, so any new spending programs should be on the sequester’s chopping block if the Joint Committee fails. As best I can tell, this includes:
- Cost-sharing Subsidies (Section 1402): Approximately $111 billion from 2014-2021.
- Risk Adjustment (Section 1342): More than $100 billion from 2014-2021.
- Prevention and Public Health Fund (Section 4002): A total of $16.75 billion from 2013-2021.
- Rate Review Grants (Section 1003): Funds from the initial $250 million that remain available in 2014.
- High-Risk Pool Funding (Section 1101): Funds from the initial $5 billion that remain in 2013 and 2014.
- Health Insurance Cooperatives (Section 1322): $3.8 billion.
- Re-insurance for Early Retirees (Section 1102): $5 billion, but likely that the funds will be obligated before 2013.
- Health Insurance Exchange Administrative Grants (Section 1311): Unspecified amounts in FY2013 and FY 2014.
- Community Health Centers Fund (Section 10503(b)(1)): A total of $7.3 billion for FY2013 through 2015.
- Health Center Construction and Renovation (Section 10503 (c)): Funds remaining from the initial $1.5 billion remain available until FY 2015.
- National Health Service Corps (Section 10503 (b)(2)): A total of $900 million in mandatory funding for 2013, 2014, and 2015.
- Maternal, Infant, and Early Childhood Home Visiting Program (Section 2951): A total of $800 million in mandatory spending in 2013 and 2014.
- Personal Responsibility Education Programs (Section 2953): A total of $150 million for 2013 and 2014.
- School Based Health Centers (Section 4101): $50 million in FY 2013.
- Patient Centered Outcomes Research Trust Fund: A total of $1.05 billion between 2013 and 2019.
I am unsure whether the CLASS Act spending is vulnerable, and I’m not certain on the risk adjustment money listed above, either.
Remember that “vulnerable to sequester” means “will be cut somewhat,” rather than “will be wiped out.” In an earlier example I said that if the Joint Committee failed completely, a $1.2 T spending cut would cut nondefense discretionary and other mandatory programs 8%. So think of this in the roughly 6-8% cut range if the Committee fails.
I see seven big consequences of this:
- Elements of ObamaCare spending are now in the mix to be cut. I like this; liberals will hate it.
- This injects ObamaCare spending squarely into the Joint Committee negotiations, and not just the vulnerable parts. I hope Republicans appointed to the Joint Committee will argue for repeal of these big new entitlements. I think Congressional Republicans erred by leaving it out of the last battle.
- It also brings ObamaCare back into the broader fiscal policy and election debate.
- Nondefense appropriations would bear a slightly smaller share of any triggered cut. Democratic appropriators may actually like this news, though I can’t imagine they’d say so publicly.
- This shifts leverage in the Joint Committee negotiations toward Republicans. How much of a shift depends on how substantively and politically valuable these programs are to Congressional Democrats and the White House. Democrats now have one more reason to avoid the triggered sequester, increasing leverage for Republicans in those negotiations and making it a bit easier for them to push back on demands for tax increases.
- While the core spending of ObamaCare would be exempt, the cost-sharing subsidies and risk adjustment payments would (I think) be subject to cuts. Beneficiaries and insurers would be harmed. Those are big policy consequences. I don’t know whether cuts in risk adjustment payments would be big enough to mess with the complex insurance regulatory structure in the Affordable Care Act. Insurers argue that risk adjustment payments are essential to making guaranteed issue and community rating work.
- Senior White House officials had to know that components of ObamaCare would be subject to triggered cuts if the Joint Committee fails. There is no way they could have missed this. I wonder if they told their Democratic allies in Congress about this risk before the vote? Even if you want to argue that these aren’t the biggest spending components of ObamaCare, the effects on leverage within the Joint Committee negotiations could be a huge deal.