Debt Ceiling Deal and Healthcare: Notes from the Fiscal Cliff

May 31, 2023

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The deal announced Memorial Day weekend suspends the U.S. borrowing limit until Jan. 1, 2025, removing it as a potential issue in the next presidential election. The bill addresses discretionary spending – not mandatory spending programs like Medicare, Medicaid and Social Security. Discretionary spending while important is a smaller part of the federal budget.

The deal caps non-defense spending in fiscal year (FY) 2024 and increases it by 1% in 2025. The House Republican fact sheet says that non-defense discretionary spending would be limited to FY 2022 levels and topline federal spending would be limited to 1% annual growth for the next six years.

The breakdown of non-defense discretionary spending for FY 2024 is thought to be capped at about $700 billion of which $121 billion would be for veterans’ health care and $583 billion would be for other areas.

The deal would maintain funding for veterans’ health care and would increase support for the PACT Act’s toxic exposure fund for FY 2024. The PACT Act expanded the Department of Veterans Affairs health care and benefits for veterans exposed to burn pits, Agent Orange and other toxic substances.  

Work Requirements

Medicaid will not be subject to work requirements, but the agreement calls for broadening work requirements for certain adults receiving benefits from the Supplemental Nutrition Assistance Program formerly known as food stamps. Currently, childless, able-bodied adults ages 19-49 are only able to get food stamps for three months out of every three years unless they are employed for at least 20 hours per week or meet other criteria. The agreement increases the upper age limit to 55 in phases. The deal, however, would expand exemptions for veterans, people who are homeless and former foster youth. All changes would end in 2030.

The administration is waiting for formal estimates but believes that the same number of food stamp recipients would be subject to work requirements because of the exemptions.

The agreement also tightens the current work requirements in the Temporary Assistance for Needy Families program. It appears that this will be achieved by primarily adjusting the work participation rate credits that states can receive for reducing their caseloads.  

Rescinds Covid Funding

The bill would rescind unobligated COVID-19 funds which is estimated to be about $28 billion from more than 120 accounts – including the National Institutes of Health, the Centers for Medicare and Medicaid Services and the Centers for Disease Control and Prevention. The deal would retain about $5 billion in funding to accelerate the development of COVID-19 vaccines and treatments, and vaccines for the uninsured. Congress has approved roughly $4.6 trillion in COVID-19 funding since 2020.

Healthcare Fraud and Abuse 

The deal also increases funds for Health Care Fraud and Abuse Control by providing new budget authority for FY 2024 and 2025. The administration had requested additional funding for fraud and abuse efforts in its budget.

Administrative PAY-GO

Under the compromise package, federal agencies would be subject to an administrative version of PAY-GO rules through 2024. This is part of the “enforcement” effort to control spending.

Before finalizing a rule that would increase direct spending by more than $1 billion over 10 years or $100 million in any single year, federal agencies would have to submit a plan that reduces direct spending by an equal or greater amount. For agency actions mandated by law, agencies would have to identify a least costly implementation option for executive rulemakings. If a rule were to be finalized and hit the spending thresholds set up by the administrative PAY-GO structure, the bill would require the agency to send a notice and a written opinion from the general counsel of the agency explaining that the rule is legally required, along with a projection of the amount of direct spending under the least costly implementation option reasonably identifiable by the agency that meets the requirements under the statute. That notice and opinion would go to the Director of the Office of Management and Budget (OMB). The OMB Director would be able to waive the requirements if an agency action is deemed necessary for the delivery of essential services of effective program delivery.    

The House must vote first on the proposal. It is expected to pass, although it may be a close vote. The Senate would take up the proposal after the House vote. U.S. Treasury Secretary Yellen says the Treasury has been able to extend “extraordinary measures” to make sure the government does not default until June 5.