Path Forward on Doc Fix: Remove PAYGO Exemptions

Summary: H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015, would increase the deficit by $141 billion over FY 2015-2025 period. Section 525 of the bill would exclude this increase in the deficit from being subjected to the requirements of the Statutory Pay-As-You-Go Act of 2010 and section 201 of S. Con. Res. 21 or Senate PAYGO. Exempting this legislation from PAYGO requirements effectively allows spending to be increased by $141 billion above current law without offsets, repudiating the House and Senate budget resolutions that both claim to balance within 10 years in part by assuming reductions in Medicare spending below current law levels. Removing the PAYGO exemptions (by striking section 525 from the bill) would require Congress to follow through on legislation achieving at least some of the savings assumed in the budget resolution this year to offset the cost of the Doc or trigger a sequester of mandatory spending programs. The fiscally responsible position would be to strike section 525 from H.R. 2. Background: The Statutory Pay-As-You-Go Act (PAYGO) of 2010 was designed to ensure lawmakers do not add to the deficit, on net, over the course of a given year. Statutory PAYGO does not require each individual bill to be offset but rather that the net effect of all legislation enacted by Congress be deficit neutral. Thus Congress can enact legislation which would increase the deficit and avoid triggering a sequester enforcing the PAYGO requirement by enacting other legislation with equal or greater savings. PAYGO is enforced through a “PAYGO Scorecard,” held by the Office of Management and Budget (OMB), which records costs and savings over 10 years. OMB adds up the 5 and 10 year fiscal effects and then evenly distributes those effects over the appropriate periods. If the scorecard shows an increase in the deficit, after Congress adjourns at the end of a session, the President is required to issue a sequester order to cut mandatory spending by enough to offset the deficit shown on the scorecard.

Estimated Effects of Doc Fix on PAYGO Scorecards if Not Offset before January 2016

Should Congress remove the PAYGO exemption found in section 525 of H.R. 2, the budgetary effects would be added to OMB’s PAYGO scorecard. Assuming no other legislation were enacted in 2015, the result would be a $15 billion “sequestration” cut to non-exempt mandatory spending in 2016, with about 80% of the cuts applying to the Medicare program. The process would continue annually until sufficient deficit reduction is enacted or until the balance is paid off.

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Net Change in the

On-Budget Deficit

Assuming Doc Fix is

Not Offset 7.3 17.8 23.0 15.2 10.6 8.8 10.7 12.9 13.1 11.7 10.9

5-Year Scorecard 15.1 15.1 15.1 15.1 15.1

10-Year Scorecard 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5

Of course, the purpose of removing the PAYGO exemption is not to force an across-the-board cut to the Medicare program, but to give Congress, the President, and other interested parties the incentive to enact and support sufficient savings to avoid adding to the deficit. Why the Senate should remove PAYGO exemption:

1. Striking PAYGO would provide time for Congress to identify and enact Medicare savings to offset the SGR bill. Putting the costs of the doc fix on the PAYGO scorecard by striking section 525 of H.R 2 would effectively require Congress to enact additional savings – sufficient to cover the bill’s costs – by the end of 2015. Failure to do so would result in a sequestration of mandatory spending, primarily the Medicare program. Striking the PAYGO exemption would therefore put teeth behind the promise of future offsets to pay for the cost of H.R. 2.

2. The Doc Fix is inconsistent with Senate and House budget resolutions. Both the Senate and House passed budget resolutions that achieve balance in part by assuming savings sufficient to reduce Medicare spending below current over the next 10 years in addition to offsetting the full cost of a doc fix over ten years and produce a net reduction in. Exempting H.R. 2 from statutory PAYGO would allow Medicare spending to increase above current law levels, undermining the ability of the budgets to achieve balance within 10 years. Striking the PAYGO exemption would require Congress to follow through on legislation achieve at least part of the savings assumed in the budget resolution.

3. Congress has consistently paid for previous doc fixes. Excluding the costs of repealing SGR from Statutory PAYGO because those savings are unlikely to occur is at odds with historical evidence. Congress has passed 17 different bills overriding the scheduled payment reductions for Medicare providers. However, the cost of those doc fixes have been offset 98 percent of the time according to the Committee for a Responsible Federal Budget.

4. Growth in Medicare spending under current law is already unstainable. Statutory PAYGO is intended to prevent Congress from enacting legislation which would increase the deficit above current law levels. Under current law, which assumes the reductions required by the Medicare SGR take effect, Medicare spending is projected to grow from $527 billion in 2015 to $981 billion in 2025 (a 0.65 percent of GDP increase). If exempted from PAYGO, the SGR bill would accelerated this growth and further lock in this unsustainable spending path. Removing the PAYGO exemption, on the other hand, would encourage Congress to enact additional entitlement reforms this year.

5. The Doc Fix violates the Ryan-Murray budget agreement. The Bipartisan Budget Act (BBA) of 2013 governs the spending and revenue paths for both the House and Senate until a new concurrent FY 2016 budget resolution is adopted (this will likely happen once Congress returns from recess on April 13th). The BBA assumes that any doc fix beyond what was included in the Ryan-Murray agreement will be fully paid for over the next 10 years. Therefore H.R. 2 would result in spending above the levels allowed under the Ryan-Murray agreement.