Medicare and Budget Sequestration

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Medicare and Budget Sequestration
~~December 2, 2020~~January 25, 2021
Sequestration is the automatic reduction (i.e., cancellation) of certain federal spending, generally Sequestration is the automatic reduction (i.e., cancellation) of certain federal spending, generally
by a uniform percentage. The sequester is a budget enforcement tool that was established by by a uniform percentage. The sequester is a budget enforcement tool that was established by
Patricia A. Davis
Congress in the Balanced Budget and Emergency Deficit Control Congress in the Balanced Budget and Emergency Deficit Control ~~A ct~~Act of 1985 (BBEDCA, also of 1985 (BBEDCA, also
Specialist in Health Care Specialist in Health Care
known as the Gramm-Rudman-Hollings Act; P.L. 99-177, as amended) and was intended to known as the Gramm-Rudman-Hollings Act; P.L. 99-177, as amended) and was intended to
Financing Financing
encourage compromise and action, rather than actually being encourage compromise and action, rather than actually being ~~imp lemented~~implemented (also known as (also known as

triggered). Generally, this budget enforcement tool has been incorporated into laws to either ). Generally, this budget enforcement tool has been incorporated into laws to either
discourage or encourage certain budget objectives or goals. When these goals are not met, either discourage or encourage certain budget objectives or goals. When these goals are not met, either

through the enactment of a law or the lack thereof, a sequester is triggered and certain federal through the enactment of a law or the lack thereof, a sequester is triggered and certain federal
spending is reduced.spending is reduced.
Sequestration is of recent interest due to its current use as an enforcement mechanism for three budget enforcement rules Sequestration is of recent interest due to its current use as an enforcement mechanism for three budget enforcement rules
created by the Statutory Pay-As-You-Go Act of 2010 (Statutory PAYGO; P.L. 111-139)created by the Statutory Pay-As-You-Go Act of 2010 (Statutory PAYGO; P.L. 111-139) and the Budget Control Act of 2011 and the Budget Control Act of 2011
(BCA; P.L. 112-25).(BCA; P.L. 112-25). At present, only the BCA mandatory sequester has been triggered. Under the BCA, the sequestration of At present, only the BCA mandatory sequester has been triggered. Under the BCA, the sequestration of
mandatory spending was originally scheduled to occur in FY2013 through FY2021; however, subsequent legislation, mandatory spending was originally scheduled to occur in FY2013 through FY2021; however, subsequent legislation,
including, most recently, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136),including, most recently, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136), extended extended
sequestration for mandatory spending through FY2030. (The CARES Actsequestration for mandatory spending through FY2030. (The CARES Act, as amended by the Consolidated Appropriations Act, 2021 [P.L. 116-260], also temporarily suspended the application of this also temporarily suspended the application of this
sequestration to Medicare from May 1, 2020, through sequestration to Medicare from May 1, 2020, through ~~December 31, 2020~~March 31, 2021.) The Statutory PAYGO sequester and BCA .) The Statutory PAYGO sequester and BCA
discretionary sequester are current law and can be triggered if associated budget enforcement rules are broken. discretionary sequester are current law and can be triggered if associated budget enforcement rules are broken.
Medicare is a federal program that pays for certain health care services of qualified beneficiaries. The program is funded Medicare is a federal program that pays for certain health care services of qualified beneficiaries. The program is funded
using both mandatory and discretionary spending and is impacted by any sequestration order issued in accordance with the using both mandatory and discretionary spending and is impacted by any sequestration order issued in accordance with the
aforementioned laws. Medicare is mainly impacted by the sequestration of mandatory funds since Medicare benefit payments aforementioned laws. Medicare is mainly impacted by the sequestration of mandatory funds since Medicare benefit payments
(the majority of Medicare expenditures) are considered mandatory spending. Special sequestration rules limit the extent to (the majority of Medicare expenditures) are considered mandatory spending. Special sequestration rules limit the extent to
which Medicare benefit which Medicare benefit ~~s pending~~spending can be reduced in a given fiscal year. This limit varies depending on the type of can be reduced in a given fiscal year. This limit varies depending on the type of
sequestration order.sequestration order.
Under a BCA mandatory sequestration order, Medicare benefit payments and Medicare Integrity Program spending cannot be Under a BCA mandatory sequestration order, Medicare benefit payments and Medicare Integrity Program spending cannot be
reduced by more than 2%. Under a Statutory PAYGO sequestration order, Medicare benefit payments and Medicare Program reduced by more than 2%. Under a Statutory PAYGO sequestration order, Medicare benefit payments and Medicare Program
Integrity spending cannot be reduced by more than 4%. These limits do not apply to mandatory administrative Medicare Integrity spending cannot be reduced by more than 4%. These limits do not apply to mandatory administrative Medicare
spending under either type of sequestration order. These limits also do not apply to discretionary administrative Medicare spending under either type of sequestration order. These limits also do not apply to discretionary administrative Medicare
spending under a BCA discretionary sequestration order. spending under a BCA discretionary sequestration order.
Generally, Medicare’s benefit structure remains unchanged under a mandatory sequestration order and beneficiaries see few Generally, Medicare’s benefit structure remains unchanged under a mandatory sequestration order and beneficiaries see few
direct impacts. However, Medicare plans and providers see reductions in payments. Due to varying plan and provider direct impacts. However, Medicare plans and providers see reductions in payments. Due to varying plan and provider
payment mechanisms among the four parts of Medicare, sequestration is implemented somewhat differently across the payment mechanisms among the four parts of Medicare, sequestration is implemented somewhat differently across the
program. program.
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~~Medicare and Budget Sequestration~~

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Introduction
Sequestration is the automatic reduction (i.e., Sequestration is the automatic reduction (i.e., ~~cancel ation~~cancellation) of certain federal spending, ) of certain federal spending, ~~general y~~generally
by a uniform percentage.1 The sequester is a budget enforcement tool that Congress established in by a uniform percentage.1 The sequester is a budget enforcement tool that Congress established in
the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA,the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA, also known as the also known as the
Gramm-Rudman-Hollings Act; P.L. 99-177, as amended) intended to encourage compromise and Gramm-Rudman-Hollings Act; P.L. 99-177, as amended) intended to encourage compromise and
action, rather than action, rather than ~~actual y~~actually being implemented (also known as being implemented (also known as triggered).2 ).2 ~~General y~~Generally, this budget , this budget
enforcement tool has been incorporated into laws to either discourage or encourage certain budget enforcement tool has been incorporated into laws to either discourage or encourage certain budget
objectives or goals. When these goals are not met, either through the enactment of a law or lack objectives or goals. When these goals are not met, either through the enactment of a law or lack
thereof, a sequester is triggered and certain federal spending is reduced. thereof, a sequester is triggered and certain federal spending is reduced.
Sequestration is of recent interest due to its current use as an enforcement mechanism for three Sequestration is of recent interest due to its current use as an enforcement mechanism for three
budget enforcement rules created by the Statutory Pay-As-You-Go Act of 2010 (Statutory budget enforcement rules created by the Statutory Pay-As-You-Go Act of 2010 (Statutory
PAYGO; P.L. 111-139) and the Budget Control Act of 2011 (BCA; P.L. 112-25). Currently, only PAYGO; P.L. 111-139) and the Budget Control Act of 2011 (BCA; P.L. 112-25). Currently, only
the BCAthe BCA mandatory sequester has been triggered and is in effect (with the exception of May mandatory sequester has been triggered and is in effect (with the exception of May
2020 through through ~~December 2020~~March 2021 for Medicare).3 However, the Statutory PAYGO sequester and the BCA for Medicare).3 However, the Statutory PAYGO sequester and the BCA
discretionary sequester are current law and can be triggered if the budget enforcement rules are discretionary sequester are current law and can be triggered if the budget enforcement rules are
broken. broken.
Medicare, which is a federal program that pays for covered health care services of qualified Medicare, which is a federal program that pays for covered health care services of qualified
beneficiaries,4 is subject to a reduction in federal spending associated with the implementation of beneficiaries,4 is subject to a reduction in federal spending associated with the implementation of
these three sequesters, although special rules limit the extent to which it is impacted. these three sequesters, although special rules limit the extent to which it is impacted.
This report begins with an overview of budget sequestration and Medicare before discussing how This report begins with an overview of budget sequestration and Medicare before discussing how
budget sequestration has been implemented across the different parts of the Medicare program. budget sequestration has been implemented across the different parts of the Medicare program.
~~Additional y,~~ Additionally, this report provides appendixes that include references to additional Congressional this report provides appendixes that include references to additional Congressional
Research Service (CRS) resources related to this report and budget terminology definitions, as Research Service (CRS) resources related to this report and budget terminology definitions, as
defined by BBEDCA. defined by BBEDCA.
Budget Sequestration
Under current law, sequestration is a budget enforcement tool that occurs because certain Under current law, sequestration is a budget enforcement tool that occurs because certain
budgetary goals have not been met. When a sequester is triggered, budgetary goals have not been met. When a sequester is triggered, al all applicable budget accounts, applicable budget accounts,
unless exempted by law, are reduced by a certain percentage amount for a fiscal year.5 The unless exempted by law, are reduced by a certain percentage amount for a fiscal year.5 The

1 Under the Balanced Budget1 Under the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; also known as the Grammand Emergency Deficit Control Act of 1985 (BBEDCA; also known as the Gramm --
Rudman-HollingsRudman-Hollings Act; P.L. 99-177) §250(c)(2), sequestration is defined asAct; P.L. 99-177) §250(c)(2), sequestration is defined as “ “the cancellation of budgetary resources the cancellation of budgetary resources
provided by discretionary appropriations or direct spending law.”provided by discretionary appropriations or direct spending law.” ~~Budgetary~~ Budgetary resources are subject to sequestration resources are subject to sequestration
unlessunless exempted by law. Seeexempted by law. See Office of Management and BudgetOffice of Management and Budget (OMB),(OMB), OMB CircularOMB Circular A-11 (2019), Section 100, at A-11 (2019), Section 100, at
https://www.whitehouse.gov/wp-content/uploads/2018/06/s100.pdf. https://www.whitehouse.gov/wp-content/uploads/2018/06/s100.pdf.
2 U.S. 2 U.S. Congress, Senate Committee on Finance, Congress, Senate Committee on Finance, Budget Enforcement Mechanisms, Oral and Written , Oral and Written ~~T estimony~~Testimony of the of the
Honorable Phil Gramm, 112th Cong., 1st sess.,Honorable Phil Gramm, 112th Cong., 1st sess., May 4, 2011. May 4, 2011.
3 §3709 of the Coronavirus Aid, Relief, 3 §3709 of the Coronavirus Aid, Relief, and Economic Security Act (CARESand Economic Security Act (CARES Act; P.L. 116-136) temporarily suspended Act; P.L. 116-136) temporarily suspended
the application of the Budget Control Act of 2011 (BCA; P.L. 112-25) sequestration to Medicare from May 1, 2020, the application of the Budget Control Act of 2011 (BCA; P.L. 112-25) sequestration to Medicare from May 1, 2020,
through December 31, 2020.through December 31, 2020.
The Consolidated Appropriations Act, 2021 (P.L. 116-260), amended the CARES Act to extend this suspension through March 31, 2021. 4 For more information on Medicare, see CRS4 For more information on Medicare, see CRS Report R40425, Report R40425, Medicare Primer. .
5 Sequestration does not apply to every account, since many budget accounts are either exempted from sequestration or 5 Sequestration does not apply to every account, since many budget accounts are either exempted from sequestration or
governed by special rules undergoverned by special rules under sequestration, the latter of which can vary dependingsequestration, the latter of which can vary depending on the sequestration trigger.on the sequestration trigger. See See
BBEDCABBEDCA §255 and §256, as amended. Since§255 and §256, as amended. Since ~~OMB~~ OMB is responsible for the execution and legalis responsible for the execution and legal interpretations of interpretations of
sequestration orders, some accounts not listed in these sections may also be exempt from sequestration. For a complete sequestration orders, some accounts not listed in these sections may also be exempt from sequestration. For a complete
list of exempted accounts, see CRSlist of exempted accounts, see CRS Report R42050, Report R42050, Budget “Sequestration” and Selected Program Exemptions and
~~Special Rules~~.
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percentage reduction varies between and within budget accounts depending on the categories of percentage reduction varies between and within budget accounts depending on the categories of
funding, as described below, contained within each budget account. funding, as described below, contained within each budget account.
After identifying each category of funding within a budget account, sequestration reductions are After identifying each category of funding within a budget account, sequestration reductions are
~~applied~~ applied evenly across evenly across al all budget account subcomponents referenced in committee reports, budget budget account subcomponents referenced in committee reports, budget
justifications, and/or Presidential Detailed Budget Estimates – also known as programs, projects justifications, and/or Presidential Detailed Budget Estimates – also known as programs, projects
or activities.6 For budget accounts that contain only one category of funding, or activities.6 For budget accounts that contain only one category of funding, al all sequestrable sequestrable
funds are reduced by the same corresponding percentage. For accounts that contain multiple funds are reduced by the same corresponding percentage. For accounts that contain multiple
categories of funding, the total amount of each category of sequestrable funds is reduced by its categories of funding, the total amount of each category of sequestrable funds is reduced by its
corresponding percentage. The reduced budget resources are corresponding percentage. The reduced budget resources are ~~usual y permanently cancel ed~~usually permanently cancelled.7 .7
As currently used, a sequester applies to either discretionary or mandatory spending. As currently used, a sequester applies to either discretionary or mandatory spending.
Discretionary spending is associated with most funds provided by annual appropriations acts. Discretionary spending is associated with most funds provided by annual appropriations acts.
While While al all discretionary spending is subject to the annual appropriations process, only a portion of discretionary spending is subject to the annual appropriations process, only a portion of
mandatory spending is provided in appropriations acts.8 Mandatory spending is mandatory spending is provided in appropriations acts.8 Mandatory spending is ~~general y~~generally
provided by permanent laws, such as the Social Security Act which made indefinite budget provided by permanent laws, such as the Social Security Act which made indefinite budget
authority permanently availableauthority permanently available for Medicare benefit payments.9 Some federal programs, such as for Medicare benefit payments.9 Some federal programs, such as
Medicare, can receive both discretionary and mandatory funding. Medicare, can receive both discretionary and mandatory funding.
In the event that a sequester is triggered, the Office of Management and Budget (OMB) is In the event that a sequester is triggered, the Office of Management and Budget (OMB) is
responsible for calculating the across-the-board percentage reductions, and calculates separate responsible for calculating the across-the-board percentage reductions, and calculates separate
percentages for Medicare, other nondefense, and defense funding.10 Due to sequestration rules, percentages for Medicare, other nondefense, and defense funding.10 Due to sequestration rules,
which are covered later in this report, mandatory Medicare benefit payments receive a specific which are covered later in this report, mandatory Medicare benefit payments receive a specific
percentage reduction different from other types of federal spending. percentage reduction different from other types of federal spending.
The methodologies used to calculate these percentages and the sequestered amounts are published The methodologies used to calculate these percentages and the sequestered amounts are published
in a report produced by OMB. Once the President issues a sequestration order, the associated in a report produced by OMB. Once the President issues a sequestration order, the associated
report is made availablereport is made available to the public and transmitted to Congress.11to the public and transmitted to Congress.11

~~6 See CRS~~ Special Rules. 6 See CRS Report R42972, Report R42972, Sequestration as a Budget Enforcement Process: Frequently Asked Questions, and CRS , and CRS
Report 98-721, Report 98-721, Introduction to the Federal Budget Process. .
7 “In some circumstances current law 7 “In some circumstances current law ~~allows~~ allows for budgetfor budget authority sequestered in one fiscal year to become availableauthority sequestered in one fiscal year to become available to to
the agencies again in a subsequentthe agencies again in a subsequent ~~fiscal~~ fiscal year. OMB refers to these amounts as ‘pop ups.’” Seeyear. OMB refers to these amounts as ‘pop ups.’” See U.S. Government U.S. Government
Accountability Office (GAO),Accountability Office (GAO), 2014 Sequestration Opportunities Exist to ~~Im prove~~Improve Transparency of Progress Toward
Deficit Reduction Goals, GAO-16-263, April 2016, p. 20, at https://www.gao.gov/assets/680/676565.pdf. , GAO-16-263, April 2016, p. 20, at https://www.gao.gov/assets/680/676565.pdf.
8 Some mandatory entitlements are provided through the annual appropriations process and are considered 8 Some mandatory entitlements are provided through the annual appropriations process and are considered
appropriated ~~entitlem ents~~entitlements (e.g., Medicaid). (e.g., Medicaid). Although these entitlements are appropriated, the federal government is Although these entitlements are appropriated, the federal government is
legally obligatedlegally obligated to make payments to those deemed eligibleto make payments to those deemed eligible for the entitlement. (Medicaid is explicitly exempt from for the entitlement. (Medicaid is explicitly exempt from
sequestration.) sequestration.)
9 Indefinite budget 9 Indefinite budget authority is federal spending that, at the time of enactment, is for an unspecified amount that will be authority is federal spending that, at the time of enactment, is for an unspecified amount that will be
determined at a later date. Seedetermined at a later date. See GAO,GAO, A Glossary of ~~Term s~~Terms Used in the Federal Budget Process, GAO-05-734SP, , GAO-05-734SP,
September 1, 2005, p. 23, at https://www.gao.gov/assets/80/76911.pdf. September 1, 2005, p. 23, at https://www.gao.gov/assets/80/76911.pdf.
10 All funds 10 All funds are first classifiedare first classified as discretionary or mandatory. Within each of these categories, funds are further as discretionary or mandatory. Within each of these categories, funds are further
classifiedclassified as Medicare,as Medicare, defense, or nondefense. During a defense, or nondefense. During a ~~sequest ration~~sequestration order, each subcomponent of discretionary order, each subcomponent of discretionary
and/or mandatory funds receives a sequestration percentage basedand/or mandatory funds receives a sequestration percentage based on the necessary amount of savings for that category.on the necessary amount of savings for that category.
For sequestration purposes, MedicareFor sequestration purposes, Medicare benefit payments are defined by BBEDCAbenefit payments are defined by BBEDCA as all payments for programs and as all payments for programs and
activities under activities under ~~T itle~~Title XVIII of the Social XVIII of the Social Security Act. SeeSecurity Act. See ~~BBEDCA~~ BBEDCA §256(d). Defense and§256(d). Defense and nondefense are referred to nondefense are referred to
in BBEDCAin BBEDCA as either “revised security” or “revised nonsecurity,” respectively. “as either “revised security” or “revised nonsecurity,” respectively. “ Revised security” is any funding Revised security” is any funding
codedcoded with a budgetwith a budget function of 050, which is effectively the Department of Defense. “function of 050, which is effectively the Department of Defense. “ Revised nonsecurity” includes Revised nonsecurity” includes
all other government spending. Each of these categories receives a different percentage reduction under a sequestration all other government spending. Each of these categories receives a different percentage reduction under a sequestration
order. order.
11 For more information about the methodologies associated with calculating 11 For more information about the methodologies associated with calculating the sequester percentage in a given year, the sequester percentage in a given year,
see see OMB Report to the Congress on the Joint ~~Com m ittee~~Committee Reductions for Fiscal Year 2021 ,, February 10, 2020, at February 10, 2020, at
~~https://www.whitehouse.gov/wp-content/uploads/2020/02/JC-sequestration_report_FY21_2-10-20.pdf.~~
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Budget Enforcement Rules
Currently, there are three budget enforcement rules that can trigger sequestration. Two were Currently, there are three budget enforcement rules that can trigger sequestration. Two were
established by the BCAestablished by the BCA and one was established by Statutory PAYGO. The three rules and their and one was established by Statutory PAYGO. The three rules and their
corresponding sequesters can be summarized as follows (and are presented corresponding sequesters can be summarized as follows (and are presented inin Table 1): :
Budget Control Act
The BCA The BCA established a bipartisan Joint Select Committee on Deficit Reduction (Joint established a bipartisan Joint Select Committee on Deficit Reduction (Joint
Committee), which was responsible for developing legislationCommittee), which was responsible for developing legislation that would reduce the deficit by at that would reduce the deficit by at
least $1.2 least $1.2 ~~tril ion~~ trillion from FY2012 to FY2021.12 However, the Joint Committee was unable to from FY2012 to FY2021.12 However, the Joint Committee was unable to
achieve this goal; therefore, Congress and the President were unable to enact corresponding achieve this goal; therefore, Congress and the President were unable to enact corresponding
deficit reduction legislation by a date specified in the law. As a result, two types of spending deficit reduction legislation by a date specified in the law. As a result, two types of spending
reductions were reductions were ~~automatical y~~automatically triggered.13 triggered.13
One automatic spending reduction involved the sequestration of certain One automatic spending reduction involved the sequestration of certain mandatory spending from spending from
FY2013 to FY2021. Subsequent legislation including, most recently, the Coronavirus Aid, Relief, FY2013 to FY2021. Subsequent legislation including, most recently, the Coronavirus Aid, Relief,
and Economic Security Act (CARES Act; P.L. 116-136) extended sequestration for mandatory and Economic Security Act (CARES Act; P.L. 116-136) extended sequestration for mandatory
spending through FY2030.14 This reduction is referred to in this report as the “BCA mandatory spending through FY2030.14 This reduction is referred to in this report as the “BCA mandatory
~~sequester”.~~
~~Additional y, the BCA~~ sequester.” Additionally, the BCA established statutory limits on established statutory limits on discretionary spending for FY2012- spending for FY2012-
FY2021.15 These discretionary spending limits (discretionary caps) restrict the amount of FY2021.15 These discretionary spending limits (discretionary caps) restrict the amount of
spending permitted through the annual appropriations process for defense and nondefense spending permitted through the annual appropriations process for defense and nondefense
programs. Any breach of these discretionary caps results in the sequestration of nonexempt programs. Any breach of these discretionary caps results in the sequestration of nonexempt
discretionary funding. (This reduction is referred to in this report as the “BCA discretionary discretionary funding. (This reduction is referred to in this report as the “BCA discretionary
sequestersequester”..”) This was triggered once in FY2013,16 and can be triggered again if discretionary caps ) This was triggered once in FY2013,16 and can be triggered again if discretionary caps
are breached in any fiscal year through FY2021 and Congress does not take action to raise these are breached in any fiscal year through FY2021 and Congress does not take action to raise these
caps. Most recently, the Bipartisan Budget Act of 2018 (BBAcaps. Most recently, the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123) increased the 2018; P.L. 115-123) increased the
discretionary spending caps for FY2018 and FY2019 so they would not be breached, and the discretionary spending caps for FY2018 and FY2019 so they would not be breached, and the
~~Bipartisan Budget Act of 2019 (BBA 2019; P.L. 116-37) increased the caps for FY2020 and~~
~~FY2021.~~

~~12 See T itle IV of the BCA.~~
~~13 See CRS~~ https://www.whitehouse.gov/wp-content/uploads/2020/02/JC-sequestration_report_FY21_2-10-20.pdf. 12 See Title IV of the BCA. 13 See CRS Report R42050, Report R42050, Budget “Sequestration” and Selected Program Exemptions and Special Rules. .
14 Six14 Six ~~subsequent~~ subsequent pieces of legislation have extended the BCA mandatory sequester. pieces of legislation have extended the BCA mandatory sequester. ~~T he~~The Bipartisan Budget Act of Bipartisan Budget Act of
2013 (BBA 2013; P.L. 113-67) extended the sequester through FY2023. A law2013 (BBA 2013; P.L. 113-67) extended the sequester through FY2023. A law modifying the costmodifying the cost -of-living adjustment -of-living adjustment
(COLA) for certain military retirees (P.L. 113-82) extended the sequester through FY2024. (COLA) for certain military retirees (P.L. 113-82) extended the sequester through FY2024. ~~T he~~The Bipartisan Budget Act Bipartisan Budget Act
of 2015 (BBA 2015; P.L. 114-74) extended the sequester through FY2025. of 2015 (BBA 2015; P.L. 114-74) extended the sequester through FY2025. ~~T he~~The Bipartisan Budget Act of 2018 (BBA Bipartisan Budget Act of 2018 (BBA
2018; P.L. 115-123) extended the sequester through FY2027, and the Bipartisan Budget2018; P.L. 115-123) extended the sequester through FY2027, and the Bipartisan Budget Act of 2019 (BBA 2019; P.L. Act of 2019 (BBA 2019; P.L.
116-37) extended the sequester through FY2029. 116-37) extended the sequester through FY2029. ~~T he~~The Coronavirus Aid, Relief, and Economic Security Act ( Coronavirus Aid, Relief, and Economic Security Act ( CARES CARES
Act; P.L. 116-136) extended the sequester through FY2030. Act; P.L. 116-136) extended the sequester through FY2030. ~~T he CARES Act~~The CARES Act, as amended by the Consolidated Appropriations Act, 2021 (P.L. 116-260), also temporarily suspended the also temporarily suspended the
application of sequestration to Medicare from May 1, 2020application of sequestration to Medicare from May 1, 2020 , through , through ~~December 31, 2020.~~
March 31, 2021. 15 Four subsequent15 Four subsequent pieces of legislation have modified the BCA discretionary caps as enacted. BBApieces of legislation have modified the BCA discretionary caps as enacted. BBA 2013 established 2013 established
newnew discretionary caps under the BCAdiscretionary caps under the BCA on defense and nondefense discretionary spending in FY2014 and FY2015. on defense and nondefense discretionary spending in FY2014 and FY2015.
BBABBA 2015 raised the discretionary caps in FY2016 and FY2017. BBA2015 raised the discretionary caps in FY2016 and FY2017. BBA 2018 raised the discretionary caps in FY2018 2018 raised the discretionary caps in FY2018
and FY2019, and BBAand FY2019, and BBA 2019 raised the discretionary caps in FY2020 and FY2021. For more information about the 2019 raised the discretionary caps in FY2020 and FY2021. For more information about the
discretionary spending limits establisheddiscretionary spending limits established ~~under~~ under the BCA, see CRSthe BCA, see CRS Report R42506, Report R42506, The Budget Control Act of 2011 as
~~Am ended~~Amended: Budgetary Effects, and CRS, and CRS Insight IN11148, Insight IN11148, The Bipartisan Budget Act of 2019: Changes to the BCA and
Debt ~~Lim it~~Limit. .
16 See 16 See ~~CRS~~ CRS Report RL34424, Report RL34424, The Budget Control Act and Trends in Discretionary Spending . .
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Bipartisan Budget Act of 2019 (BBA 2019; P.L. 116-37) increased the caps for FY2020 and FY2021. Statutory PAYGO
The Statutory PAYGO Act established a budget enforcement mechanism The Statutory PAYGO Act established a budget enforcement mechanism ~~general y~~generally requiring that requiring that
legislationlegislation affecting direct (mandatory) spending and revenues does not have the effect of affecting direct (mandatory) spending and revenues does not have the effect of
increasing the deficit over a 5- and/or 10-year period. If such legislation were to become law, a increasing the deficit over a 5- and/or 10-year period. If such legislation were to become law, a
sequester of certain sequester of certain mandatory spending would be required. This budget enforcement rule does spending would be required. This budget enforcement rule does
not have a sunset date and therefore remains in effect under current law. (This reduction is not have a sunset date and therefore remains in effect under current law. (This reduction is
referred to in this report as referred to in this report as Statutory PAYGO sequester.) .)
Although Congress has passed legislation that has been estimated to increase the deficit since the Although Congress has passed legislation that has been estimated to increase the deficit since the
law went into effect, the Statutory PAYGO sequester has never been triggered, as Congress has law went into effect, the Statutory PAYGO sequester has never been triggered, as Congress has
voted to prohibit the effects of specific legislation from being counted under the normal voted to prohibit the effects of specific legislation from being counted under the normal
operations of the Statutory PAYGO Act. A recent example of this is BBAoperations of the Statutory PAYGO Act. A recent example of this is BBA 2019,17 which included 2019,17 which included
language to reduce the “scorecards” language to reduce the “scorecards” ~~tal ying~~tallying the total impact of legislation on the deficit to zero. the total impact of legislation on the deficit to zero.
Table 1. Medicare Budget Enforcement Rules Summary
Sequester
Funding
Medicare
Percentage
Types
Programs
Sequester
Enforcement Rule
Cap
Current Status
Mandatory Mandatory
Parts A, B, C, Parts A, B, C,
Statutory Statutory
If revenue and/or If revenue and/or
4% for benefit 4% for benefit
Current law but Current law but
and D Benefits; and D Benefits;
PAYGO PAYGO
mandatory spending mandatory spending
payments and payments and
not triggered. not triggered.
MIP HCFAC; MIP HCFAC;
legislation legislation that projects to that projects to
MIP HCFAC. MIP HCFAC.
Non-MIP Non-MIP
increase increase the deficit over a the deficit over a
None for other None for other
HCFAC; HCFAC;
5 and/or 10-year period is 5 and/or 10-year period is
spending. spending.
Administration Administration
enacted, a sequester enacted, a sequester of of
certain mandatory certain mandatory
spending would be spending would be
ordered. ordered.

BCA BCA
If the Joint Select If the Joint Select
2% for benefit 2% for benefit
Currently triggered Currently triggered
Mandatory Mandatory
Committee Committee was was
payments and payments and
and in effect and in effect
Sequester Sequester
unsuccessful at reducing unsuccessful at reducing
MIP HCFAC. MIP HCFAC.
through FY2030 through FY2030
the federal deficit by $1.2 the federal deficit by $1.2
None for other None for other
(temporarily (temporarily
tril ion tril ion from FY2012-from FY2012-
spendin spending.a
suspended during suspended during
FY2021, mandatory FY2021, mandatory
the period of May the period of May-
sequestration would be sequestration would be
~~December 2020~~2020-March 2021).b
implemented implemented and and
Discretionary Discretionary
Non-MIP Non-MIP
BCA BCA
discretionary discretionary ~~limits~~ limits would would
None. None.
Discretionary Discretionary limits limits
HCFAC; HCFAC;
Discretionary Discretionary
be established (with any be established (with any
currently in place currently in place
Administration Administration
Sequester Sequester
breaches enforced through breaches enforced through
through FY2021 but through FY2021 but
sequestration). sequestration).
spending levels spending levels not not
expected to violate expected to violate
limitslimits (caps) and (caps) and
sequester not sequester not
currently currently ~~triggered~~triggered.c
Source: CRS.CRS.
Notes: ProgramsPrograms that appear in both categoriesthat appear in both categories are funded using mandatory and discretionary spending are funded using mandatory and discretionary spending
authority. In addition to the Medicare sequestration cap, other sequestration rules prohibit sequestration effects authority. In addition to the Medicare sequestration cap, other sequestration rules prohibit sequestration effects
from being included in the determination of adjustments to Medicare payment rates, and explicitlyfrom being included in the determination of adjustments to Medicare payment rates, and explicitly exempt Part exempt Part
D low-income subsidies,D low-income subsidies, Part D catastrophic subsidiesPart D catastrophic subsidies (reinsurance) and Qualified Individual premiums(reinsurance) and Qualified Individual premiums ~~from~~
sequestration. BCA ~~refers~~ from 17 P.L. 116-37, §102. Congressional Research Service 4 Medicare and Budget Sequestration sequestration. BCA refers to Budget Control Act.to Budget Control Act. Discretionary Administration includes amounts for includes amounts for
payments to contractors to process providers’payments to contractors to process providers’ claims,claims, beneficiary outreach and education, and maintenance of beneficiary outreach and education, and maintenance of
Medicare’sMedicare’s information technology infrastructure. information technology infrastructure. HCFAC refersrefers to the Health Care Fraud and Abuse Control to the Health Care Fraud and Abuse Control
Program,Program, which is responsiblewhich is responsible for activitiesfor activities that fight health care fraud and wastethat fight health care fraud and waste and is funded through discretionary and mandatory resources. Mandatory Administration ~~and is funded through~~

~~17 P.L. 116-37, §102.~~
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discretionary and mandatory resources. Mandatory Administration includes, among other things, amounts includes, among other things, amounts
for quality improvementfor quality improvement organizations.organizations. Medicare Benefit Payments are defined by BBEDCA as are defined by BBEDCA as al all payments payments
for programs and activitiesfor programs and activities under Title XVIII of Social Security Act, including the Medicare Integrity Program. under Title XVIII of Social Security Act, including the Medicare Integrity Program.
MIP HCFAC ~~refers~~ refers to the Medicare Integrity Program, which focuses on combating fraud in Medicare. to the Medicare Integrity Program, which focuses on combating fraud in Medicare. Non-
MIP HCFAC ~~refers to al~~ refers to all HCFAC spending other than MIP. HCFAC spending other than MIP.
a. The Coronavirus Aid, Relief,a. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L.and Economic Security Act (CARES Act; P.L. 116-136) specifies that the non-116-136) specifies that the non-
administrative administrative Medicare sequester percentage cap under the BCA mandatory sequester wilMedicare sequester percentage cap under the BCA mandatory sequester wil be 4% during be 4% during
the first six months of the FY2030 sequestration orderthe first six months of the FY2030 sequestration order and 0% for the last six months of the order.and 0% for the last six months of the order. See See
BBEDCA §251A(6)(C). BBEDCA §251A(6)(C).
b. The Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67) extended the BCA mandatory sequester b. The Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67) extended the BCA mandatory sequester
through FY2023. A law modifying the cost-of-living adjustment (COLA) for certain military through FY2023. A law modifying the cost-of-living adjustment (COLA) for certain military ~~retirees~~ retirees (P.L. (P.L.
113-82) extended the sequester113-82) extended the sequester through FY2024. The Bipartisan Budget Act of 2015 (BBA 2015;through FY2024. The Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-P.L. 114-
74) extended the sequester through FY2025. The Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123) 74) extended the sequester through FY2025. The Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123)
extended the sequester through FY2027, the Bipartisan Budget Act of 2019 (BBA 2019; P.L. 116-37) extended the sequester through FY2027, the Bipartisan Budget Act of 2019 (BBA 2019; P.L. 116-37)
extended the sequester through FY2029, and the CARES Act (P.L. 116-136) extended it through FY2030. extended the sequester through FY2029, and the CARES Act (P.L. 116-136) extended it through FY2030.
The CARES ActThe CARES Act, as amended by the Consolidated Appropriations Act, 2021 (P.L. 116-260), also temporarily ~~also temporarily~~ suspended the sequestration of Medicaresuspended the sequestration of Medicare from May 2020 through from May 2020 through
~~December 2020~~March 2021. .
c. Several c. Several laws established new caps that were adhered to, thus not requiring any sequestration in the relevant laws established new caps that were adhered to, thus not requiring any sequestration in the relevant
years. These include BBA 2013 for FY2014 and FY2015: BBA 2015 for FY2016 and FY2017: BBA 2018 for years. These include BBA 2013 for FY2014 and FY2015: BBA 2015 for FY2016 and FY2017: BBA 2018 for
FY2018 and FY2019, and BBAFY2018 and FY2019, and BBA 2019 for FY2020 and FY2021. 2019 for FY2020 and FY2021.
For more information on budget sequestration, see CRS Report R42050, For more information on budget sequestration, see CRS Report R42050, Budget “Sequestration”
and Selected Program Exemptions and Special Rules, CRS Report R42972, , CRS Report R42972, Sequestration as a
Budget Enforcement Process: Frequently Asked Questions, and CRS Report R45941, , and CRS Report R45941, The Annual
Sequester of Mandatory Spending through FY2029. .
Medicare Overview
Medicare, which is a federal program that pays for certain health care services of qualified Medicare, which is a federal program that pays for certain health care services of qualified
beneficiaries, is subject to sequestration, although special rules limit the extent to which it is beneficiaries, is subject to sequestration, although special rules limit the extent to which it is
impacted. Due to the varying payment structures of the four parts of the program, sequestration is impacted. Due to the varying payment structures of the four parts of the program, sequestration is
applied differently across Medicare. applied differently across Medicare.
Medicare was established in 1965 under Title XVIII of the Social Security Act to provide hospital Medicare was established in 1965 under Title XVIII of the Social Security Act to provide hospital
and supplementary medical insurance to Americans aged 65 and older. Over time, the program and supplementary medical insurance to Americans aged 65 and older. Over time, the program
has been expanded to also include certain disabled persons, including those with end-stage renal has been expanded to also include certain disabled persons, including those with end-stage renal
disease. In FY2020, the program covered an estimated 63 disease. In FY2020, the program covered an estimated 63 ~~mil ion~~million persons (54 persons (54 ~~mil ion~~million aged and 9 aged and 9
~~mil ion~~ million disabled).18 disabled).18
The Congressional Budget Office (CBO) estimated that total Medicare spending in FY2020 The Congressional Budget Office (CBO) estimated that total Medicare spending in FY2020
would be about $836 would be about $836 ~~bil ion and wil~~ billion and will increase to about $1.7 increase to about $1.7 ~~tril ion~~ trillion in FY2030.19 Almost in FY2030.19 Almost al
all Medicare spending is mandatory spending that is primarily used to cover benefit payments (i.e., Medicare spending is mandatory spending that is primarily used to cover benefit payments (i.e.,
payments to health care providers for their services), administration, and the Medicare Integrity payments to health care providers for their services), administration, and the Medicare Integrity
Program (MIP). The remaining Medicare outlays are discretionary and used almost entirely for Program (MIP). The remaining Medicare outlays are discretionary and used almost entirely for
other administrative activities that are described in more detail later in this report. other administrative activities that are described in more detail later in this report.
~~Medicare consists of four distinct parts:~~
~~1. Part A (Hospital Insurance, or HI) covers inpatient hospital services, skil ed~~
~~nursing care, hospice care, and some home health services. Most persons aged 65~~

18 Department of Health and Human Services, 18 Department of Health and Human Services, Fiscal Year 2020 Budget in Brief, p. 76, at https://www.hhs.gov/sites/, p. 76, at https://www.hhs.gov/sites/
default/files/fy-2020-budget-in-brief.pdf. default/files/fy-2020-budget-in-brief.pdf.
19 Congressional Budget19 Congressional Budget Office, March 2020 Medicare Baseline,Office, March 2020 Medicare Baseline, at https://www.cbo.gov/system/files/2020-03/51302-at https://www.cbo.gov/system/files/2020-03/51302-
2020-03-medicare.pdf. 2020-03-medicare.pdf.
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Medicare consists of four distinct parts: 1. Part A (Hospital Insurance, or HI) covers inpatient hospital services, skilled nursing care, hospice care, and some home health services. Most persons aged 65 and older are automatically~~and older are automatical y~~ entitled to premium-free Part A because they or their entitled to premium-free Part A because they or their
spouse paid Medicare payroll taxes for at least 40 quarters (about 10 years) on spouse paid Medicare payroll taxes for at least 40 quarters (about 10 years) on
earnings covered by either the Social Security or the Railroad Retirement earnings covered by either the Social Security or the Railroad Retirement
systems. Part A services are paid for out of the Hospital Insurance Trust Fund, systems. Part A services are paid for out of the Hospital Insurance Trust Fund,
which is mainly funded by a dedicated 2.9% payroll tax on earnings of current which is mainly funded by a dedicated 2.9% payroll tax on earnings of current
workers, shared workers, shared ~~equal y~~equally between employers and workers. between employers and workers.
2. 2. Part B (Supplementary Medical Insurance, or SMI) covers a broad range of (Supplementary Medical Insurance, or SMI) covers a broad range of
medical services, including physician services, laboratory services, durable medical services, including physician services, laboratory services, durable
medical equipment, and outpatient hospital services. Enrollment in Part B is medical equipment, and outpatient hospital services. Enrollment in Part B is
optional, but most beneficiaries with Part A also enroll in Part B. Part B benefits optional, but most beneficiaries with Part A also enroll in Part B. Part B benefits
are paid for out of the Supplementary Medical Insurance Trust Fund, which is are paid for out of the Supplementary Medical Insurance Trust Fund, which is
primarily funded through beneficiary premiums and federal general revenues. primarily funded through beneficiary premiums and federal general revenues.
3. 3. Part C (Medicare Advantage, or MA) is a private plan option that covers (Medicare Advantage, or MA) is a private plan option that covers al
all Parts A and B services, except hospice. Individuals choosing to enroll in Part C Parts A and B services, except hospice. Individuals choosing to enroll in Part C
must be enrolled in Parts A and B. About one-third of Medicare beneficiaries are must be enrolled in Parts A and B. About one-third of Medicare beneficiaries are
enrolled in MA. Part C is funded through both the HI and SMI trust funds. enrolled in MA. Part C is funded through both the HI and SMI trust funds.
4. 4. Part D is a private plan option that covers outpatient prescription drug benefits. is a private plan option that covers outpatient prescription drug benefits.
This portion of the program is optional. About three-quarters of Medicare This portion of the program is optional. About three-quarters of Medicare
beneficiaries are enrolled in Medicare Part D or have coverage through an beneficiaries are enrolled in Medicare Part D or have coverage through an
employer retiree plan subsidized by Medicare. Part D benefits are also paid for employer retiree plan subsidized by Medicare. Part D benefits are also paid for
out of the Supplementary Medical Insurance Trust Fund and are primarily funded out of the Supplementary Medical Insurance Trust Fund and are primarily funded
through beneficiary premiums, federal general revenues, and state transfer through beneficiary premiums, federal general revenues, and state transfer
payments. payments.
For more information on the Medicare program, see CRS Report R40425, For more information on the Medicare program, see CRS Report R40425, Medicare Primer. .
Beneficiary Costs
Beneficiaries are responsible for paying Medicare Parts B and D premiums, as Beneficiaries are responsible for paying Medicare Parts B and D premiums, as ~~wel~~ well as other out-as other out-
of-pocket costs, such as deductibles and coinsurance,20 for services provided under of-pocket costs, such as deductibles and coinsurance,20 for services provided under al all parts of the parts of the
Medicare program.21 Under Medicare Parts A, B and D, there is no limitMedicare program.21 Under Medicare Parts A, B and D, there is no limit on beneficiary out-of-on beneficiary out-of-
pocket spending, and most beneficiaries have some form of supplemental insurance through pocket spending, and most beneficiaries have some form of supplemental insurance through
private Medigap plans, employer-sponsored retiree plans, or Medicaid to help cover a portion of private Medigap plans, employer-sponsored retiree plans, or Medicaid to help cover a portion of
their Medicare premiums and/or deductibles and coinsurance. Medicare Advantage has limits on their Medicare premiums and/or deductibles and coinsurance. Medicare Advantage has limits on
~~out-of-pocket spending.~~
~~Provider and Plan Payments~~
~~Under Medicare Parts A and B, the government general y pays providers directly for services on a~~
fee-for-service basis using different prospective payment systems and fee schedules.22 Under

~~20 A deductible is~~ out-of-pocket spending. 20 A deductible is the amount an enrollee is requiredthe amount an enrollee is required to pay for health care services or products before his or herto pay for health care services or products before his or her
insurance plan beginsinsurance plan begins to provide coverage. Coinsurance isto provide coverage. Coinsurance is the percentage share that an enrollee in a health insurance the percentage share that an enrollee in a health insurance
plan pays for a product or service covered by the plan. plan pays for a product or service covered by the plan.
21 Beneficiaries enrolled in a Medicare Advantage (MA, Part C) plan must pay Part B premiums as 21 Beneficiaries enrolled in a Medicare Advantage (MA, Part C) plan must pay Part B premiums as ~~well~~ well as any as any
additional premium requiredadditional premium required by the MA plan. Congressional Research Service 6 Medicare and Budget Sequestration Provider and Plan Payments Under Medicare Parts A and B, the government generally pays providers directly for services on a fee-for-service basis using different prospective payment systems and fee schedules.22 Under ~~by the MA plan.~~
~~22 Under a prospective payment system (PPS), Medicare payments are made using a predetermined, fixed amount based~~
~~on the classification system for a particular service. T he Centers for Medicare & Medicaid Services (CMS) uses~~
~~separate PPSs to reimburse acute inpatient hospitals, home health agencies, hospice, hospital outpatient departments,~~
~~inpatient psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities.~~
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~~link to page 8~~ ~~Medicare and Budget Sequestration~~

Parts C and D, Medicare pays private insurers a monthly Parts C and D, Medicare pays private insurers a monthly capitated per person amount to provide per person amount to provide
coverage to enrollees, regardless of the amount of services used. The capitated payments are coverage to enrollees, regardless of the amount of services used. The capitated payments are
adjusted to reflect differences in the relative cost of sicker beneficiaries with different risk factors adjusted to reflect differences in the relative cost of sicker beneficiaries with different risk factors
including age, disability, or end-stage renal disease. including age, disability, or end-stage renal disease.
Health Care Fraud and Abuse Control Program
The Health Care Fraud and Abuse Control Program (HCFAC) was established by the Health The Health Care Fraud and Abuse Control Program (HCFAC) was established by the Health
Insurance Portability and Accountability Act (HIPAA; P.L. 104-191) and is responsible for Insurance Portability and Accountability Act (HIPAA; P.L. 104-191) and is responsible for
activities that fight health care fraud and waste.23 HCFAC is funded using both mandatory and activities that fight health care fraud and waste.23 HCFAC is funded using both mandatory and
discretionary funds and consists of three programs: (1) the HCFAC program, which finances the discretionary funds and consists of three programs: (1) the HCFAC program, which finances the
investigative and enforcement activities undertaken by the Department of Health and Human investigative and enforcement activities undertaken by the Department of Health and Human
Services (HHS), the HHS Office of Office of Inspector General, the Department of Justice, and Services (HHS), the HHS Office of Office of Inspector General, the Department of Justice, and
the Federal Bureau of Investigation, (2) Medicaid Oversight, and (3) Medicare Integrity Program the Federal Bureau of Investigation, (2) Medicaid Oversight, and (3) Medicare Integrity Program
(MIP). (MIP).
~~Historical y~~Historically, MIP has focused on combating fee-for-service fraud in Medicare Parts A and B. , MIP has focused on combating fee-for-service fraud in Medicare Parts A and B.
However, increases in private Medicare enrollment—Parts C and D—have expanded program However, increases in private Medicare enrollment—Parts C and D—have expanded program
integrity efforts into capitated payment systems as integrity efforts into capitated payment systems as ~~wel~~ well. .
While HCFAC is not a part of the Medicare program, MIP is authorized by the same title of the While HCFAC is not a part of the Medicare program, MIP is authorized by the same title of the
Social Security Act as Medicare and focuses entirely on the program. As a result, this portion of Social Security Act as Medicare and focuses entirely on the program. As a result, this portion of
HCFAC is treated as a part of Medicare benefit payments under a sequestration order and is HCFAC is treated as a part of Medicare benefit payments under a sequestration order and is
subject to the Medicare mandatory sequestration percentage limits.24 subject to the Medicare mandatory sequestration percentage limits.24
Administrative Spending
The administration of Medicare is funded through a combination of discretionary and mandatory The administration of Medicare is funded through a combination of discretionary and mandatory
resources that are subject to reductions under a discretionary or mandatory sequestration order, resources that are subject to reductions under a discretionary or mandatory sequestration order,
respectively. Discretionary administration funding includes amounts for payments to contractors respectively. Discretionary administration funding includes amounts for payments to contractors
to process providers’ claims, beneficiary outreach and education, and maintenance of Medicare’s to process providers’ claims, beneficiary outreach and education, and maintenance of Medicare’s
information technology infrastructure. Mandatory administration funding includes amounts for information technology infrastructure. Mandatory administration funding includes amounts for
quality improvement organizations and Part B premium payments for Qualifying Individuals quality improvement organizations and Part B premium payments for Qualifying Individuals
~~(QI).25~~
~~Medicare Sequestration Rules~~
~~Special rules limit the total effect of budget sequestration on Medicare (see Table 1). Most~~
~~notably, BBEDCA, as amended by the BCA, prohibits Medicare benefit payments from being~~
~~reduced by more than 2% under a BCA mandatory sequestration order. Similarly, Statutory~~

A fee schedule ~~is a listing of fees used by Medicare to pay doctors or other providers/suppliers. Fee schedules~~ (QI).25 22 Under a prospective payment system (PPS), Medicare payments are made using a predetermined, fixed amount based on the classification system for a particular service. The Centers for Medicare & Medicaid Services (CMS) uses separate PPSs to reimburse acute inpatient hospitals, home health agencies, hospice, hospital outpatient departments, inpatient psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities. A fee schedule is a listing of fees used by Medicare to pay doctors or other providers/suppliers. Fee schedules are used are used
to pay for physician services; ambulance services; clinical laboratory services; andto pay for physician services; ambulance services; clinical laboratory services; and ~~durable medical equip ment~~ durable medical equipment, ,
prosthetics, orthotics, and supplies in certain locations. prosthetics, orthotics, and supplies in certain locations.
23 For additional information, see U.S. Department of Health and Human Services, Office of Inspector General, 23 For additional information, see U.S. Department of Health and Human Services, Office of Inspector General, Health
Care Fraud and Abuse Control Program Report,, at https://oig.hhs.gov/reports-and-publications/hcfac/index.asp. at https://oig.hhs.gov/reports-and-publications/hcfac/index.asp.
24 For sequestration purposes, BBEDCA 24 For sequestration purposes, BBEDCA ~~defines~~ defines Medicare benefit payments as all payments for programs and activities Medicare benefit payments as all payments for programs and activities
under under ~~T itle~~Title XVIII of Social XVIII of Social Security Act. Security Act. ~~T his includes~~ This includes the Medicare Integrity Program (MIP). See BBEDCAthe Medicare Integrity Program (MIP). See BBEDCA §256(d). §256(d).
25 25 ~~T he~~The Qualifying Individuals Qualifying Individuals (QI) program is(QI) program is a state program that helps pay Part B premiums for people who have Part a state program that helps pay Part B premiums for people who have Part
~~A and limited income and resources. See CMS, “ Medicare Savings Programs,” at https://www.medicare.gov/your-~~
~~medicare-costs/help-paying-costs/medicare-savings-program/medicare-savings-programs.html.~~
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link to page link to page 147 link to page link to page 813 link to page 7 Medicare and Budget Sequestration Medicare Sequestration Rules Special rules limit the total effect of budget sequestration on Medicare (see Table 1). Most notably, BBEDCA, as amended by the BCA, prohibits Medicare benefit payments from being reduced by more than 2% under a BCA mandatory sequestration order. Similarly, Statutory ~~Medicare and Budget Sequestration~~

PAYGO prohibits Medicare benefit payments from being reduced by more than 4% under a PAYGO prohibits Medicare benefit payments from being reduced by more than 4% under a
Statutory PAYGO sequestration order.26 The caps do not apply to Medicare mandatory and Statutory PAYGO sequestration order.26 The caps do not apply to Medicare mandatory and
discretionary administrative spending, which is subject to the unrestricted percentage reduction discretionary administrative spending, which is subject to the unrestricted percentage reduction
under both BCAunder both BCA and Statutory PAYGO sequestration orders. and Statutory PAYGO sequestration orders.
Under the current mandatory sequestration order triggered by the BCA, the Medicare Under the current mandatory sequestration order triggered by the BCA, the Medicare
sequestration percentage is capped at 2%.27 Therefore, as OMB determines the percentage sequestration percentage is capped at 2%.27 Therefore, as OMB determines the percentage
reductions for each budget category through FY2030, Medicare benefit payments cannot be reductions for each budget category through FY2030, Medicare benefit payments cannot be
reduced by more than 2%; as such, another budget category may be subject to a higher percentage reduced by more than 2%; as such, another budget category may be subject to a higher percentage
reduction in order to achieve the necessary amount of savings. reduction in order to achieve the necessary amount of savings.
More More ~~specifical y~~specifically, if OMB determines that total nonexempt, nondefense mandatory funds need to , if OMB determines that total nonexempt, nondefense mandatory funds need to
be reduced by a percentage larger than 2% in order to achieve necessary savings under a BCA be reduced by a percentage larger than 2% in order to achieve necessary savings under a BCA
sequestration order for a given year, then a 2% reduction would be made to Medicare benefit sequestration order for a given year, then a 2% reduction would be made to Medicare benefit
spending, and the uniform reduction percentage for the remaining non-Medicare benefit, spending, and the uniform reduction percentage for the remaining non-Medicare benefit,
nonexempt, nondefense mandatory programs would be recalculated and increased by an amount nonexempt, nondefense mandatory programs would be recalculated and increased by an amount
to achieve the necessary level of reductions. If the uniform percentage reduction needed to to achieve the necessary level of reductions. If the uniform percentage reduction needed to
achieve the total amount of savings is less than 2%, then the determined percentage would be achieve the total amount of savings is less than 2%, then the determined percentage would be
applied to Medicare as applied to Medicare as ~~wel~~ well as to as to al all other nonexempt non-Medicare nondefense mandatory other nonexempt non-Medicare nondefense mandatory
spending. Of note, if a mandatory sequestration order were triggered by Statutory PAYGO, the spending. Of note, if a mandatory sequestration order were triggered by Statutory PAYGO, the
process would be the same, but the reduction of payments for Medicare benefits would be capped process would be the same, but the reduction of payments for Medicare benefits would be capped
at 4%.28 at 4%.28
In addition to these percentage caps, BBEDCA also prohibits Statutory PAYGO and BCA In addition to these percentage caps, BBEDCA also prohibits Statutory PAYGO and BCA
mandatory sequestration effects from being included in the determination of annual adjustments mandatory sequestration effects from being included in the determination of annual adjustments
to Medicare payment rates established under Title XVIII of the Social Security Act.29 (See to Medicare payment rates established under Title XVIII of the Social Security Act.29 (See
“Reductions in Benefit Spending.”) Finally”.)
~~Final y~~, certain Medicare programs and activities are explicitly exempted from Statutory PAYGO , certain Medicare programs and activities are explicitly exempted from Statutory PAYGO
and BCAand BCA sequestration orders. sequestration orders. ~~Specifical y~~Specifically, Part D low-income subsidies,30 Part D catastrophic , Part D low-income subsidies,30 Part D catastrophic
~~subsidies (reinsurance),31 and QI premiums cannot be reduced under a mandatory sequestration~~
~~order.32~~

A and limited income and resources. See CMS, “Medicare Savings Programs,” at https://www.medicare.gov/your-medicare-costs/help-paying-costs/medicare-savings-program/medicare-savings-programs.html. 26 Medicare benefit payments are considered mandatory budgetary resources and would26 Medicare benefit payments are considered mandatory budgetary resources and would not be subject to a BCA not be subject to a BCA
discretionary sequestration order. discretionary sequestration order.
27 See 27 See ~~BBEDCA~~ BBEDCA §251A(6). In addition, §251A(6). In addition, ~~t he~~the CARES CARES Act (P.L. 116-136) specifies that the non-administrative Medicare Act (P.L. 116-136) specifies that the non-administrative Medicare
sequestersequester percentage cap willpercentage cap will be 4% duringbe 4% during the first six months of the FY2030 sequestration order (i.e., April through the first six months of the FY2030 sequestration order (i.e., April through
September 2030) and 0% for the last six months of the order (i.e., October 2030 through March 2031), so the full September 2030) and 0% for the last six months of the order (i.e., October 2030 through March 2031), so the full
budgetarybudgetary effects willeffects will occur within FY2030. Seeoccur within FY2030. See ~~BBEDCA~~ BBEDCA §251A(6)(C) and table note a §251A(6)(C) and table note a inin Table 1.
28 See 28 See ~~BBEDCA~~ BBEDCA §256(d)(2). §256(d)(2).
29 See29 See ~~BBEDCA~~ BBEDCA §256(d)(6). §256(d)(6).
30 Medicare Part D provides subsidies30 Medicare Part D provides subsidies to assist low-income beneficiaries with premiums and cost sharing. For more to assist low-income beneficiaries with premiums and cost sharing. For more
information on Medicare Part D, see CRSinformation on Medicare Part D, see CRS ~~Report R40611, Medicare Part D Prescription Drug Benefit.~~
~~31 Part D pays nearly all drug costs above a catastrophic threshold, except for nominal beneficiary cost sharing.~~
~~Medicare subsidizes 80% of each plan’s costs for this catastrophic coverage. For more information on Medicare Part D,~~
~~see CRS~~ Report R40611, Report R40611, Medicare Part D Prescription Drug Benefit. .
~~32 See BBEDCA §256(d)(7).~~
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subsidies (reinsurance),31 and QI premiums cannot be reduced under a mandatory sequestration order.32 Medicare Sequester Execution
Timing
Once a sequester is triggered, OMB issues a sequestration order for, at most, one fiscal year, and Once a sequester is triggered, OMB issues a sequestration order for, at most, one fiscal year, and
subsequent orders are reissued for each fiscal year, as necessary. These orders can be issued either subsequent orders are reissued for each fiscal year, as necessary. These orders can be issued either
before or during the fiscal year in which they apply, depending on the trigger. before or during the fiscal year in which they apply, depending on the trigger.
Reductions in budget resources are to be made during the effective period of a sequestration Reductions in budget resources are to be made during the effective period of a sequestration
order; however special rules differentiate when a sequestration order is implemented for benefit order; however special rules differentiate when a sequestration order is implemented for benefit
payments. As a result, sequestration orders are applied to Medicare benefit payments on a payments. As a result, sequestration orders are applied to Medicare benefit payments on a
different timeline than other mandatory and discretionary Medicare funds (i.e., Medicare different timeline than other mandatory and discretionary Medicare funds (i.e., Medicare
administration and HCFAC). administration and HCFAC).
Once OMB issues a sequestration order, Medicare benefit payments are sequestered beginning on Once OMB issues a sequestration order, Medicare benefit payments are sequestered beginning on
the first date of the following month and remain in effect for the first date of the following month and remain in effect for al all services furnished during the services furnished during the
following one-year period.33 In the event that a subsequent sequester order is issued prior to the following one-year period.33 In the event that a subsequent sequester order is issued prior to the
completion of the first order, the subsequent order begins on the first day after the initial order has completion of the first order, the subsequent order begins on the first day after the initial order has
been completed. As an example, the first BCA mandatory sequester order (FY2013) was issued been completed. As an example, the first BCA mandatory sequester order (FY2013) was issued
on March 1, 2013, and took effect April 1, 2013. It remained in effect through March 31, 2014. on March 1, 2013, and took effect April 1, 2013. It remained in effect through March 31, 2014.
The FY2014 order was issued on April 10, 2013, (corrected on May 20, 2013) and was in effect The FY2014 order was issued on April 10, 2013, (corrected on May 20, 2013) and was in effect
from April 1, 2014, to March 31, 2015.34 from April 1, 2014, to March 31, 2015.34
Al All other sequestrable funding is reduced only during the fiscal year associated with the sequester other sequestrable funding is reduced only during the fiscal year associated with the sequester
report. Using the same example, the first BCA mandatory sequester order (FY2013) reduced report. Using the same example, the first BCA mandatory sequester order (FY2013) reduced
appropriate administrative spending from March 1, 2013, to September 30, 2013. The second appropriate administrative spending from March 1, 2013, to September 30, 2013. The second
order for FY2014 sequestered funds from October 1, 2013, to September 30, 2014. order for FY2014 sequestered funds from October 1, 2013, to September 30, 2014.
While OMB uses current law to determine the amount of funds available to be sequestered and While OMB uses current law to determine the amount of funds available to be sequestered and
corresponding percentage reductions, actual Medicare outlays corresponding percentage reductions, actual Medicare outlays ~~wil~~ will not be known until after the not be known until after the
end of the fiscal year. Since sequestration orders are issued either before or during the fiscal year end of the fiscal year. Since sequestration orders are issued either before or during the fiscal year
in which they are applicable, OMBin which they are applicable, OMB estimates the total sequestrable budget authority for Medicare, the total sequestrable budget authority for Medicare,
and other accounts with indefinite budget authority, in order to determine necessary sequestration and other accounts with indefinite budget authority, in order to determine necessary sequestration
percentages.35 percentages.35
If Medicare outlays exceed the estimated amount included in a sequestration order for that fiscal If Medicare outlays exceed the estimated amount included in a sequestration order for that fiscal
year, the additionalyear, the additional outlays are sequestered at the established percentage for that fiscal year. If outlays are sequestered at the established percentage for that fiscal year. If
~~Medicare outlays are determined to be less than the estimated amount, no adjustments are made~~
~~to the sequestration order. In other words, OMB does not adjust sequestration percentages for any~~
~~category of budget authority once actuals are realized for accounts with indefinite budget~~
~~authority. Similarly, OMB does not adjust future orders to account for any previous discrepancies~~
~~between estimates and actuals.~~

~~33 See BBEDCA~~ 31 Part D pays nearly all drug costs above a catastrophic threshold, except for nominal beneficiary cost sharing. Medicare subsidizes 80% of each plan’s costs for this catastrophic coverage. For more information on Medicare Part D, see CRS Report R40611, Medicare Part D Prescription Drug Benefit. 32 See BBEDCA §256(d)(7). 33 See BBEDCA §256(d)(1). §256(d)(1).
34 Under current law, the sequestration of Medicare benefits under the BCA34 Under current law, the sequestration of Medicare benefits under the BCA is effectively scheduledis effectively scheduled to continue to continue
through September 30, 2030, due to special rulesthrough September 30, 2030, due to special rules that cap the Medicare sequesterthat cap the Medicare sequester percentage at 0% duringpercentage at 0% during the last six the last six
months of the FY2030 order. Without this rule, Medicare benefit payments wouldmonths of the FY2030 order. Without this rule, Medicare benefit payments would be reducedbe reduced for an additional six for an additional six
months, through March 31, 2031 (i.e., reduced bymonths, through March 31, 2031 (i.e., reduced by 2% from April 1, 2030, through March 31, 2031, rather than 4% 2% from April 1, 2030, through March 31, 2031, rather than 4%
from April through September 2030 and 0% from October 2030 through March 2031). See BBEDCAfrom April through September 2030 and 0% from October 2030 through March 2031). See BBEDCA §251A(6)(C).§251A(6)(C).
35 GAO, 35 GAO, 2014 Sequestration Opportunities Exist to Improve Transparency ~~o f Progress~~ of Progress Toward Deficit Reduction
Goals, GAO-16-263, April 2016, p. 27, at https://www.gao.gov/assets/680/676565.pdf. , GAO-16-263, April 2016, p. 27, at https://www.gao.gov/assets/680/676565.pdf.
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Medicare outlays are determined to be less than the estimated amount, no adjustments are made to the sequestration order. In other words, OMB does not adjust sequestration percentages for any category of budget authority once actuals are realized for accounts with indefinite budget authority. Similarly, OMB does not adjust future orders to account for any previous discrepancies between estimates and actuals. Reductions in Benefit Spending
Parts A and B
Under Medicare Parts A and B, participating providers, such as hospitals and physicians, are paid Under Medicare Parts A and B, participating providers, such as hospitals and physicians, are paid
by the federal government on a fee-for-service basis for services provided to a beneficiary. by the federal government on a fee-for-service basis for services provided to a beneficiary.
According to guidance issued by the Centers for Medicare & Medicaid Services (CMS), any According to guidance issued by the Centers for Medicare & Medicaid Services (CMS), any
sequestration reductions are to be made to claims after determining coinsurance, deductibles, and sequestration reductions are to be made to claims after determining coinsurance, deductibles, and
any applicable Medicare Secondary Payment adjustments.36 Therefore, sequestration applies only any applicable Medicare Secondary Payment adjustments.36 Therefore, sequestration applies only
to the portion of the payment paid to providers by Medicare; the beneficiary cost-sharing amounts to the portion of the payment paid to providers by Medicare; the beneficiary cost-sharing amounts
and amounts paid by other insurance are not reduced. and amounts paid by other insurance are not reduced.
As an example, if the total As an example, if the total ~~al owed~~allowed payment for a particular service is $100 and the beneficiary payment for a particular service is $100 and the beneficiary
has a 20% co-insurance, the beneficiary would be responsible for paying the provider the full $20 has a 20% co-insurance, the beneficiary would be responsible for paying the provider the full $20
in co-insurance. The remaining 80% that is paid by Medicare would be reduced by 2% under the in co-insurance. The remaining 80% that is paid by Medicare would be reduced by 2% under the
FY2018 sequestration order, or $1.60 in this example, resulting in a total Medicare payment of FY2018 sequestration order, or $1.60 in this example, resulting in a total Medicare payment of
$78.40. In total, the provider would receive a payment of $98.40. This reduced payment is $78.40. In total, the provider would receive a payment of $98.40. This reduced payment is
considered payment in full and the Medicare beneficiary is not expected to pay higher considered payment in full and the Medicare beneficiary is not expected to pay higher
copayments to make up for the reduced Medicare payment.37 copayments to make up for the reduced Medicare payment.37
Part A inpatient services are considered to be furnished on the date of the individual’s discharge Part A inpatient services are considered to be furnished on the date of the individual’s discharge
from the inpatient facility. For services paid on a reasonable cost basis,38 the reduction is to be from the inpatient facility. For services paid on a reasonable cost basis,38 the reduction is to be
applied to payments for such services incurred at any time during the sequestration period for the applied to payments for such services incurred at any time during the sequestration period for the
portion of the cost reporting period that occurs during the effective period of the order. For Part B portion of the cost reporting period that occurs during the effective period of the order. For Part B
services provided under assignment,39 the reduced payment is to be considered services provided under assignment,39 the reduced payment is to be considered payment in full
and the Medicare beneficiary and the Medicare beneficiary ~~wil~~ will not pay higher copayments to make up for the reduced not pay higher copayments to make up for the reduced
amount.40amount.40
Medicare Medicare non-participating providers, which are providers that do not elect to accept Medicare providers, which are providers that do not elect to accept Medicare
payments on payments on all claims in a given year, are not subject to the same rules. Medicare non- claims in a given year, are not subject to the same rules. Medicare non-
participating providers receive a lower reimbursement rate from Medicare on participating providers receive a lower reimbursement rate from Medicare on ~~al services~~
~~provided and may charge beneficiaries a limited amount more (balance bil charge) than the fee~~
~~schedule amount on non-assigned claims.41 In these instances, instead of the Medicare check~~
~~being sent to the provider, a check that incorporates the 2% reduction is mailed to the patient. The~~

~~36 CMS, Medicare FFS Provider e-News,~~ all services 36 CMS, Medicare FFS Provider e-News, March 8, 2013, March 8, 2013, Monthly Payment Reductions in the Medicare Fee-for-Service
(FFS) Program – “Sequestration,” at https://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/at https://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/
Downloads/2013-03-08-standalone.pdf. Downloads/2013-03-08-standalone.pdf.
37 Ibid. 37 Ibid.
38 Most providers are paid under a prospective payment system or fee schedule. Some types of providers, such38 Most providers are paid under a prospective payment system or fee schedule. Some types of providers, such as as
Critical Access Hospitals, are paid on a reasonable cost basisCritical Access Hospitals, are paid on a reasonable cost basis ~~under~~ under which payments are basedwhich payments are based on actual costs incurred. on actual costs incurred.
ReasonableReasonable cost is defined at Socialcost is defined at Social ~~Security~~ Security Act §1861(v). Act §1861(v).
39 Assignment is 39 Assignment is an agreement by a doctor, provider, or supplier to be paid directly by Medicare, to accept the payment an agreement by a doctor, provider, or supplier to be paid directly by Medicare, to accept the payment
amount Medicare approves for the service, and amount Medicare approves for the service, and ~~no t~~not to bill the beneficiary for any more than the Medicare deductible to bill the beneficiary for any more than the Medicare deductible
and coinsurance (if applicable). Providers that don't accept assignment may charge more than the Medicareand coinsurance (if applicable). Providers that don't accept assignment may charge more than the Medicare -approved -approved
amount. amount.
40 See40 See ~~CMS, Medicare FFS~~ CMS, Medicare FFS Provider e-News,Provider e-News, March 8, 2013, March 8, 2013, Monthly Payment Reductions in the Medicare Fee-for-
Service (FFS) Program – “Sequestration,” at https://www.cms.gov/Outreach-and-Education/Outreach/ at https://www.cms.gov/Outreach-and-Education/Outreach/
FFSProvPartProg/Downloads/2013-03-08-standalone.pdf. FFSProvPartProg/Downloads/2013-03-08-standalone.pdf.
~~41 CMS,~~ ~~Medicare Provider Utilization and Payment Data: Physician and Other Supplier PUF: Frequently Asked~~
~~Questions, updated May 23, 2019, p. 4, at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-~~
~~T rends-and-Reports/Medicare-Provider-Charge-Data/Downloads/Physician_FAQ.pdf.~~
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Congressional Research Service 10 Medicare and Budget Sequestration provided and may charge beneficiaries a limited amount more (balance bill charge) than the fee schedule amount on non-assigned claims.41 In these instances, instead of the Medicare check being sent to the provider, a check that incorporates the 2% reduction is mailed to the patient. The patient must then pay the provider an amount that incorporates the sequestered amount. More patient must then pay the provider an amount that incorporates the sequestered amount. More
~~specifical y~~specifically, as payment, the beneficiary is responsible for paying the provider the amount listed , as payment, the beneficiary is responsible for paying the provider the amount listed
on the check, any cost sharing, balance on the check, any cost sharing, balance ~~bil~~ bill charges, charges, and the sequestered amounts taken out of the the sequestered amounts taken out of the
provider check.42 provider check.42
Annual adjustments to Medicare payment rates are determined without incorporating Annual adjustments to Medicare payment rates are determined without incorporating
sequestration.43 However, the Medicare Payment Advisory Commission does incorporate the sequestration.43 However, the Medicare Payment Advisory Commission does incorporate the
effects of sequestration when assessing the adequacy of provider payments.44 The commission effects of sequestration when assessing the adequacy of provider payments.44 The commission
uses these annual assessments to develop payment adjustment recommendations to the HHS uses these annual assessments to develop payment adjustment recommendations to the HHS
Secretary and/or Congress. Secretary and/or Congress.
During the temporary suspension of sequestration of Medicare under the CARES Act, During the temporary suspension of sequestration of Medicare under the CARES Act, as amended, fee-for-fee-for-
service provider payments service provider payments ~~wil~~ will not be subject to the 2% reduction in Medicare payments.45 The not be subject to the 2% reduction in Medicare payments.45 The
suspension is effective for claims with dates of service from May 1, 2020, through suspension is effective for claims with dates of service from May 1, 2020, through ~~December~~March 31, 2021. ~~31,~~
~~2020.~~
Part C (Medicare Advantage)
Under Medicare Advantage, private health plans are paid a per person monthly amount to provide Under Medicare Advantage, private health plans are paid a per person monthly amount to provide
al all Medicare-covered benefits, except hospice, to beneficiaries who enroll in their plan. These Medicare-covered benefits, except hospice, to beneficiaries who enroll in their plan. These
capitated monthly payments are made to MA plans regardless of how many or how few services capitated monthly payments are made to MA plans regardless of how many or how few services
beneficiaries beneficiaries ~~actual y~~actually use. The plan is at risk if costs for use. The plan is at risk if costs for al all of its enrollees exceed program of its enrollees exceed program
payments and beneficiary cost sharing; conversely, the plan can payments and beneficiary cost sharing; conversely, the plan can ~~general y~~generally retain savings if retain savings if
aggregate enrollee costs are less than program payments and cost sharing. aggregate enrollee costs are less than program payments and cost sharing.
With respect to sequestration, reductions are uniformly made to the monthly capitated payments With respect to sequestration, reductions are uniformly made to the monthly capitated payments
to the private plans administering Medicare Advantage (Medicare Advantage Organizations or to the private plans administering Medicare Advantage (Medicare Advantage Organizations or
MAOs). These fixed payments are determined every year with CMS approval through an annual MAOs). These fixed payments are determined every year with CMS approval through an annual
“bid process” and the amounts can vary depending on the private plan.46“bid process” and the amounts can vary depending on the private plan.46
In general, CMS payments to MAOs are In general, CMS payments to MAOs are ~~general y~~generally comprised of amounts to cover medical costs, comprised of amounts to cover medical costs,
administrative expenses, private plan profits, risk adjustments, and plan rebates to beneficiaries.47 administrative expenses, private plan profits, risk adjustments, and plan rebates to beneficiaries.47
~~MAOs have discretion to distribute any sequestration cut across these different components but~~
~~must stil adhere to their legal obligations.48 Due to the temporary suspension of sequestration~~
~~from May through December of 2020, the 2% payment reduction that would have otherwise~~

~~42 CMS, Medicare FFS Provider e-News,~~ 41 CMS, Medicare Provider Utilization and Payment Data: Physician and Other Supplier PUF: Frequently Asked Questions, updated May 23, 2019, p. 4, at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Medicare-Provider-Charge-Data/Downloads/Physician_FAQ.pdf. 42 CMS, Medicare FFS Provider e-News, March 8, 2013, March 8, 2013, Monthly Payment Reductions in the Medicare Fee-for-Service
(FFS) Program – “Sequestration,,” at https://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/at https://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/
Downloads/2013-03-08-standalone.pdf. Downloads/2013-03-08-standalone.pdf.
43 BBEDCA 43 BBEDCA §256(d)(6). §256(d)(6).
44 Medicare Payment Advisory Commission (MedPAC), 44 Medicare Payment Advisory Commission (MedPAC), Medicare Payment Policy Report to Congress, March 2018, p. , March 2018, p.
60, at http://www.medpac.gov/docs/default60, at http://www.medpac.gov/docs/default -source/reports/mar18_medpac_entirereport_sec_rev_0518.pdf?sfvrsn=0. -source/reports/mar18_medpac_entirereport_sec_rev_0518.pdf?sfvrsn=0.
45 See 45 See April 10, 2020, CMSApril 10, 2020, CMS MLNConnects Newsletter, “MLNConnects Newsletter, “ COVID-19: Infection Control, Maximizing Workforce, COVID-19: Infection Control, Maximizing Workforce,
Updated Q&A, CSUpdated Q&A, CS Modifier for CostModifier for Cost -Sharing, Payment Adjustment Suspended,”-Sharing, Payment Adjustment Suspended,” at https://www.cms.gov/outreach-at https://www.cms.gov/outreach-
and-educationoutreachffsprovpartprogprovider-partnership-email-archive/2020-04-10-mlnc-seand-educationoutreachffsprovpartprogprovider-partnership-email-archive/2020-04-10-mlnc-se.
, and January 7, 2021, CMS MLNConnects Newsletter, “Physician Fee Schedule Update,” at https://www.cms.gov/outreach-and-educationoutreachffsprovpartprogprovider-partnership-email-archive/2021-01-07-mlnc-se. 46 For more information on the annual bid process, see CRS 46 For more information on the annual bid process, see CRS Report R45494, Report R45494, Medicare Advantage (MA)–Proposed
~~Benchm ark~~Benchmark Update and Other ~~Adjustm ents~~Adjustments for CY2020: In Brief. .
47 A plan rebate is47 A plan rebate is the difference between a plan’s bidthe difference between a plan’s bid and a statutorily specified benchmark amount. It is included in Congressional Research Service 11 Medicare and Budget Sequestration MAOs have discretion to distribute any sequestration cut across these different components but must still adhere to their legal obligations.48 Due to the temporary suspension of sequestration from May 2020 through March of 2021, the 2% payment reduction that would have otherwise applied to MAOs will not be applied during the suspension period. CMS has indicated that the 2% will ~~and a statutorily specified benchmark amount. It is included in~~
~~the plan payment and must be returned to enrollees in the form of additional benefits, reduced cost sharing, reduced~~
~~Medicare Part B or Part D premiums, or some combination of these options.~~
~~48 See May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS,~~ ~~Additional Information Regarding the~~
~~Mandatory Paym ent Reductions in the Medicare Advantage, Part D, and Other Program s, at https://www.cms.gov/~~
~~Medicare/Medicare-Advantage/Plan-Payment/Downloads/PaymentReductions.pdf.~~
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~~applied to MAOs wil not be applied during the suspension period. CMS has indicated that the~~
~~2% wil~~ also not apply to any future retroactive adjustments made to payments for beneficiaries also not apply to any future retroactive adjustments made to payments for beneficiaries
enrolled within the sequestration suspension period.49 (CMS enrolled within the sequestration suspension period.49 (CMS ~~wil~~ will continue to apply sequestration continue to apply sequestration
to payments for, and any retroactive adjustments made to payments for, beneficiaries enrolled to payments for, and any retroactive adjustments made to payments for, beneficiaries enrolled
outside of the sequestration suspension period.) outside of the sequestration suspension period.)
Some MAOs have attempted to pass the reduction in their capitation rates onto providers through Some MAOs have attempted to pass the reduction in their capitation rates onto providers through
lower reimbursement rates; however MAOs may be limited in their abilitylower reimbursement rates; however MAOs may be limited in their ability to do so.50 CMS to do so.50 CMS
provided instructions regarding the treatment of contract and non-contract providers that provide provided instructions regarding the treatment of contract and non-contract providers that provide
services under Part C. services under Part C. ~~Specifical y~~Specifically, “whether and how sequestration might affect an MAO’s , “whether and how sequestration might affect an MAO’s
payments to its contracted providers are governed by the terms of the contract between the MAO payments to its contracted providers are governed by the terms of the contract between the MAO
and the provider.”51 Therefore, in order for MAOs to reduce provider payments by the and the provider.”51 Therefore, in order for MAOs to reduce provider payments by the
sequestered amount, specific language within a contract must sequestered amount, specific language within a contract must ~~al ow~~allow the reduction or the contract the reduction or the contract
would need to be renegotiated. Similarly, during the May would need to be renegotiated. Similarly, during the May ~~through December 2020~~2020 through March 2021 CARES Act CARES Act, as amended,
suspension of sequestration, the decision to suspend the application of the 2% reduction to suspension of sequestration, the decision to suspend the application of the 2% reduction to
provider payments may depend on the reimbursement language in MAO-provider contracts.52 provider payments may depend on the reimbursement language in MAO-provider contracts.52
In certain instances, such as when beneficiaries receive emergency out-of-network care, MAOs In certain instances, such as when beneficiaries receive emergency out-of-network care, MAOs
need to reimburse the non-contracted providers; in such cases, the MAOs are required to pay at need to reimburse the non-contracted providers; in such cases, the MAOs are required to pay at
least the rate providers would have received if the beneficiaries had been enrolled in original least the rate providers would have received if the beneficiaries had been enrolled in original
Medicare. However, MAOs have the discretion of whether or not to incorporate sequestration Medicare. However, MAOs have the discretion of whether or not to incorporate sequestration
cuts into payments to non-contracted providers for those services.53 Non-contracted providers cuts into payments to non-contracted providers for those services.53 Non-contracted providers
must accept any payments reduced by the sequestration percentage as payment in full.must accept any payments reduced by the sequestration percentage as payment in full.
~~In addition, regulations in the annual bid process restrict MAO’s potential responses to~~
~~sequestration. Specifical y, MAOs are limited to “reasonable” revenue margins and a set~~
~~Medicare/non-Medicare profit margin discrepancy, among other requirements.54 Furthermore,~~
~~MAOs are restricted from al owing sequestration to impact a beneficiary’s plan benefits or~~
~~liabilities,55 so it becomes difficult for MAOs to pass an entire sequestration cut onto beneficiaries~~
~~through higher premiums or seek to offset lost revenue by increasing non-Medicare profits.~~

~~49 See April 22, 2020, memorandum from Jennifer R. Shapiro, CMS,~~ ~~Medicare Advantage/Prescription Drug System~~
~~(MARx) May 2020 Paym ent Inform ation~~ the plan payment and must be returned to enrollees in the form of additional benefits, reduced cost sharing, reduced Medicare Part B or Part D premiums, or some combination of these options. 48 See May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS, Additional Information Regarding the Mandatory Payment Reductions in the Medicare Advantage, Part D, and Other Programs, at https://www.cms.gov/Medicare/Medicare-Advantage/Plan-Payment/Downloads/PaymentReductions.pdf. 49 See April 22, 2020, memorandum from Jennifer R. Shapiro, CMS, Medicare Advantage/Prescription Drug System (MARx) May 2020 Payment Information, at https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/, at https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/
marx%20plan%20payment%20letter_may%204.22.2020_7.pdfmarx%20plan%20payment%20letter_may%204.22.2020_7.pdf . .
50 As a result of the initial BCA sequester, 50 As a result of the initial BCA sequester, some Medicare Advantage Organizations (MAOs) attempted to reduce some Medicare Advantage Organizations (MAOs) attempted to reduce
provider payments by 2%. provider payments by 2%. ~~T he~~The courts ultimately determined that MAOs were subject to the terms in the contracts with courts ultimately determined that MAOs were subject to the terms in the contracts with
providers. Seeproviders. See Baptist Hosp. of Miami, Inc. v. Humana Health Ins. Co. of Florida, Inc. and Butler Healthcare Providers Baptist Hosp. of Miami, Inc. v. Humana Health Ins. Co. of Florida, Inc. and Butler Healthcare Providers
et al. v. Highmark Inc. et al. et al. v. Highmark Inc. et al.
51 May 1, 2013, memorandum from Cheri Rice51 May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS,and Danielle Moon, CMS, Additional Information Regarding the
Mandatory ~~Paym ent~~Payment Reductions in the Medicare Advantage, Part D, and Other ~~Program s~~Programs, at https://www.cms.gov/, at https://www.cms.gov/
Medicare/Medicare-Advantage/Plan-Payment/Downloads/PaymentReductions.pdf. Medicare/Medicare-Advantage/Plan-Payment/Downloads/PaymentReductions.pdf.
52 52 ~~T wo~~Two of the nation’s largest commercial insurers, Aetna and UnitedHealthcare, have indicated that they are of the nation’s largest commercial insurers, Aetna and UnitedHealthcare, have indicated that they are
temporarily eliminating the 2% sequestration cuts in payments to providers in their Medicare Advantage plans during temporarily eliminating the 2% sequestration cuts in payments to providers in their Medicare Advantage plans during
the suspension period. the suspension period. ~~For both companies, the suspension applies to payments made for dates of service between May~~
~~1 and December 31, 2020. Additional detail may be~~ Additional detail may be found at https://www.uhcprovider.com/en/resource-library/news/found at https://www.uhcprovider.com/en/resource-library/news/
Novel-Coronavirus-COVID-19/covid19-practice-administration/covid19-practice-administration-cares-act.html Novel-Coronavirus-COVID-19/covid19-practice-administration/covid19-practice-administration-cares-act.html (as of the date of this report, this site had not yet been updated to reflect the 3-month Consolidated Appropriations Act, 2021 suspension extension), and ~~and~~
https://www.aetna.com/health-care-professionals/covid-faq/billing-and-coding.html. https://www.aetna.com/health-care-professionals/covid-faq/billing-and-coding.html.
53 May 1, 2013, memorandum from Cheri Rice 53 May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS,and Danielle Moon, CMS, Additional Information Regarding the
Mandatory ~~Paym ent~~Payment Reductions in the Medicare Advantage, Part D, and Other ~~Program s~~.
~~54 See CMS, Actuarial Bid Training – 2021, at https://www.cms.gov/Medicare/Health-Plans/~~
~~MedicareAdvtgSpecRateStats/BidT raining2020 and 42 C.F.R. Part 422, Subpart X.~~
~~55 See CMS, User Group Call 05/07/2015, May 7, 2015, at https://www.cms.gov/Medicare/Health-Plans/~~
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~~Medicare and Budget Sequestration~~
Programs. Congressional Research Service 12 Medicare and Budget Sequestration In addition, regulations in the annual bid process restrict MAO’s potential responses to sequestration. Specifically, MAOs are limited to “reasonable” revenue margins and a set Medicare/non-Medicare profit margin discrepancy, among other requirements.54 Furthermore, MAOs are restricted from allowing sequestration to impact a beneficiary’s plan benefits or liabilities,55 so it becomes difficult for MAOs to pass an entire sequestration cut onto beneficiaries through higher premiums or seek to offset lost revenue by increasing non-Medicare profits.
As HHS computes annual adjustments to Medicare payment rates, the Secretary cannot take into As HHS computes annual adjustments to Medicare payment rates, the Secretary cannot take into
account any reductions in payment amounts under sequestration for the Part C growth account any reductions in payment amounts under sequestration for the Part C growth
percentage.56 In other words, plan payment updates are to be determined as if the reductions percentage.56 In other words, plan payment updates are to be determined as if the reductions
under sequestration have not taken place. This results in larger annual adjustments compared to under sequestration have not taken place. This results in larger annual adjustments compared to
baselines that incorporate sequestration cuts. baselines that incorporate sequestration cuts.
Part D
Under Medicare Part D, each plan receives a base capitated monthly payment, Under Medicare Part D, each plan receives a base capitated monthly payment, ~~cal ed~~called a direct a direct
subsidy, which is adjusted to incorporate three risk-sharing mechanisms (low-income subsidies, subsidy, which is adjusted to incorporate three risk-sharing mechanisms (low-income subsidies,
individualindividual reinsurance, and risk corridor payments). While each plan receives the same direct reinsurance, and risk corridor payments). While each plan receives the same direct
subsidy amount for each enrollee regardless of how many benefits an enrollee subsidy amount for each enrollee regardless of how many benefits an enrollee ~~actual y~~actually uses, plans uses, plans
receive different risk-sharing adjustments in their monthly payments. With respect to receive different risk-sharing adjustments in their monthly payments. With respect to
sequestration, the 2% reductions are made only to the direct subsidy amounts. Part D risk-sharing sequestration, the 2% reductions are made only to the direct subsidy amounts. Part D risk-sharing
adjustments are exempt from sequestration and are therefore not reduced.57adjustments are exempt from sequestration and are therefore not reduced.57
During the May During the May ~~through December 2020 CARES Act~~2020 through March 2021 CARES Act, as amended, sequestration suspension period, the 2% sequestration suspension period, the 2%
payment reductions to Part D plans payment reductions to Part D plans ~~wil~~ will not occur. Payment adjustments during the suspension not occur. Payment adjustments during the suspension
period for Part D plans period for Part D plans ~~wil~~ will be applied similarly to payments to MAOs under Medicare be applied similarly to payments to MAOs under Medicare
Advantage.58 Advantage.58 ~~Similarly~~ Also, similar to provider payments made by MAOs, whether and how sequestration, to provider payments made by MAOs, whether and how sequestration,
and its temporary suspension, affects a Part D plan sponsor’s payment to its contracted providers and its temporary suspension, affects a Part D plan sponsor’s payment to its contracted providers
is “governed by the payment terms of the contract between the plan sponsor and its network is “governed by the payment terms of the contract between the plan sponsor and its network
pharmacy providers.”59pharmacy providers.”59
Part D also contains a Retiree Drug Subsidy Program, which pays subsidies to qualified Part D also contains a Retiree Drug Subsidy Program, which pays subsidies to qualified
employers and union groups that provide prescription drug insurance to Medicare-eligible, retired employers and union groups that provide prescription drug insurance to Medicare-eligible, retired
workers. Instead of a capitated monthly payment, each sponsor receives a federal subsidy at the workers. Instead of a capitated monthly payment, each sponsor receives a federal subsidy at the
end of the year to cover a portion of gross prescription drug costs for each retiree during that year. end of the year to cover a portion of gross prescription drug costs for each retiree during that year.
Under this program, sequestration reductions are applied to the annual subsidy amount.60 Under this program, sequestration reductions are applied to the annual subsidy amount.60
~~Similar to Part C, the HHS Secretary is prohibited from taking into account any reductions in~~
~~payment amounts under sequestration for purposes of computing the Part D annual growth rate.61~~
~~Health Care Fraud and Abuse Control Program~~
~~As noted, the HCFAC program is not part of Medicare but does receive mandatory and~~
~~discretionary funds to ensure the programmatic integrity of the Medicare program. Under a BCA~~
~~sequestration order of mandatory funds, MIP funds are treated as a part of Medicare benefit~~

54 See CMS, Actuarial Bid Training – 2021, at https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/BidTraining2020 and 42 C.F.R. Part 422, Subpart X. 55 See CMS, User Group Call 05/07/2015, May 7, 2015, at https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/ActuarialBidQuestions2016.pdf. MedicareAdvtgSpecRateStats/Downloads/ActuarialBidQuestions2016.pdf.
56 BBEDCA56 BBEDCA §256(d)(6)(A). §256(d)(6)(A). ~~T he~~The Secretary uses an estimate of the growth in overall spending in Medicare when Secretary uses an estimate of the growth in overall spending in Medicare when
calculating updatedcalculating updated payments to MA plans. See CRSpayments to MA plans. See CRS Report R45494, Report R45494, Medicare Advantage (MA)–Proposed Benchmark
Update and Other ~~Adjustm ents~~Adjustments for CY2020: In Brief. .
57 57 ~~T his~~This is different from Medicare Part C risk-sharing adjustments, which are included is different from Medicare Part C risk-sharing adjustments, which are included in the capitated payments and in the capitated payments and
are subject to sequestration. are subject to sequestration.
58 See58 See April 22, 2020, memorandum from Jennifer R. Shapiro, CMS,April 22, 2020, memorandum from Jennifer R. Shapiro, CMS, Medicare Advantage/Prescription Drug System
(MARx) May 2020 ~~Paym ent Inform ation~~Payment Information, at https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/, at https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/
marx%20plan%20payment%20letter_may%204.22.2020_7.pdfmarx%20plan%20payment%20letter_may%204.22.2020_7.pdf . .
59 May 1, 2013, memorandum from Cheri Rice 59 May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS,and Danielle Moon, CMS, Additional Information Regarding the
Mandatory ~~Paym ent~~Payment Reductions in the Medicare Advantage, Part D, and Other ~~Program s~~Programs. .
60 CMS, 60 CMS, “Mandatory Payment Reduction in CMS’ Retiree Drug“Mandatory Payment Reduction in CMS’ Retiree Drug ~~Subsidy~~ Subsidy Reconciliation Payments,” April 19, 2014, at Reconciliation Payments,” April 19, 2014, at
~~https://www.rds.cms.hhs.gov/sites/default/files/webfiles/documents/mandatorypaymentreduction.pdf.~~
~~61 BBEDCA §256(d)(6)(B).~~
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~~payments and are therefore subject to the Medicare 2% sequester limit. HCFAC mandatory~~
Similar to Part C, the HHS Secretary is prohibited from taking into account any reductions in payment amounts under sequestration for purposes of computing the Part D annual growth rate.61 Health Care Fraud and Abuse Control Program As noted, the HCFAC program is not part of Medicare but does receive mandatory and discretionary funds to ensure the programmatic integrity of the Medicare program. Under a BCA sequestration order of mandatory funds, MIP funds are treated as a part of Medicare benefit payments and are therefore subject to the Medicare 2% sequester limit. (The sequestration of this portion of HCFAC funding has been suspended by the CARES Act, as amended, from May 2020 through March 2021.) HCFAC mandatory funding that does not exclusively address Medicare is reduced by the nondefense mandatory funding that does not exclusively address Medicare is reduced by the nondefense mandatory
sequester rate (5.7% in 2021), when applicable. sequester rate (5.7% in 2021), when applicable.
Administrative Expenses
Under either a mandatory or discretionary sequestration order, administrative spending within Under either a mandatory or discretionary sequestration order, administrative spending within
nonexempt Medicare and HCFAC programs is reduced by the nondefense rate determined by nonexempt Medicare and HCFAC programs is reduced by the nondefense rate determined by
~~OMB.~~
OMB. (Mandatory Medicare administrative spending authorized under Title XVIII of the Social Security Act is exempt from sequester during the CARES Act, as amended, suspension period.) Medicare and the BCA Mandatory Sequester
With the exception of the CARES ActWith the exception of the CARES Act ~~May through December 2020~~, as amended, May 2020 through March 2021 suspension, Medicare benefit suspension, Medicare benefit
payments have been subject to the 2% annual reduction limit established by the payments have been subject to the 2% annual reduction limit established by the ~~BCA~~ BCA since the since the
first BCAfirst BCA mandatory sequester order was issued in FY2013. Nondefense mandatory budget mandatory sequester order was issued in FY2013. Nondefense mandatory budget
authority reductions, which have applied to mandatory Medicare administrative spending, have authority reductions, which have applied to mandatory Medicare administrative spending, have
fluctuated between 5.1% and 7.3% from FY2013 through FY2021. fluctuated between 5.1% and 7.3% from FY2013 through FY2021. ~~(Se~~e(See Table 2.) )
Table 2. Mandatory Percentage Reductions Under Budget Control Act
Sequestration Orders
(FY2013–FY2021) (FY2013–FY2021)

FY2013 FY2014 FY2015 FY2016 FY2017
FY2018 FY2019 FY2020
FY2021
Medicare Medicare
(Benefit Payments and MIP
2.0% 2.0%
2.0% 2.0%
2.0% 2.0%
2.0% 2.0%
2.0% 2.0%
2.0% 2.0%
2.0% 2.0%
2.0% 2.0%
2.0% 2.0%
HCFAC)
Nondefense Mandatory Nondefense Mandatory
(Medicare ~~administrative~~ administrative spending
5.1% 5.1%
7.2% 7.2%
7.3% 7.3%
6.8% 6.8%
6.9% 6.9%
6.6% 6.6%
6.2% 6.2%
5.9% 5.9%
5.7% 5.7%
and non-MIP HCFAC)
Defense Mandatory Defense Mandatory
7.9% 7.9%
9.8% 9.8%
9.5% 9.5%
9.3% 9.3%
9.1% 9.1%
8.9% 8.9%
8.7% 8.7%
8.6% 8.6%
8.3% 8.3%
Source: OMB Reports to CongressOMB Reports to Congress on the Joint Committeeon the Joint Committee Sequestration for FY2013 to FY2021. Sequestration for FY2013 to FY2021.
Notes: Defense Mandatory is any funding coded with a budget function of 050. is any funding coded with a budget function of 050. Medicare Benefit
Payments are defined by BBEDCA as are defined by BBEDCA as al all payments for programspayments for programs and activities under Title XVIII of Social and activities under Title XVIII of Social
Security Act. TheSecurity Act. The Health Care Fraud and Abuse Control Program (HCFAC)) is responsibleis responsible for activities for activities
that fight health care fraud and waste.that fight health care fraud and waste. Nondefense Mandatory includes includes al all other government spending not https://www.rds.cms.hhs.gov/sites/default/files/webfiles/documents/mandatorypaymentreduction.pdf. 61 BBEDCA §256(d)(6)(B). Congressional Research Service 14 link to page 19 link to page 19 Medicare and Budget Sequestration ~~other government spending not~~
defined as Medicare or Defensedefined as Medicare or Defense Mandatory. Mandatory. MIP refers refers to the Medicare Integrity Program,to the Medicare Integrity Program, which is under which is under
HCFAC and focuses on combating fraud in Medicare. HCFAC and focuses on combating fraud in Medicare.
In the FY2021 sequestration order, mandatory Medicare administrative expenses In the FY2021 sequestration order, mandatory Medicare administrative expenses ~~wil~~ will be be
sequestered by the nondefense mandatory percentage, 5.7% in FY2021. The total reduction in sequestered by the nondefense mandatory percentage, 5.7% in FY2021. The total reduction in
Medicare administration budget authority, however, cannot be identified from the data presented Medicare administration budget authority, however, cannot be identified from the data presented
in the OMB sequestration report.62 in the OMB sequestration report.62
In total, Medicare benefit payments (not including administration) are estimated to account for In total, Medicare benefit payments (not including administration) are estimated to account for
90% of 90% of al all Medicare and non-Medicare resources Medicare and non-Medicare resources available to be sequestered (sequestrable to be sequestered (sequestrable

~~62 CMS receives administrative funding for the Medicare program through the Medicare trust funds and the CMS~~
~~program management account. Since the~~ ~~OMB Report to the Congress on the Joint Com m ittee Reductions for Fiscal~~
~~Year 2021~~ ~~shows the amount of mandatory administrative funding sequestered at the account level, and CMS funds~~
~~other programs through the program management account, the total amount of mandatory administrative funding for~~
~~the Medicare program cannot be determined from the source.~~
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~~budget authority) under the FY2021 BCA~~ budget authority) under the FY2021 BCA mandatory sequester.63 Of the funds that are mandatory sequester.63 Of the funds that are
sequestered, Medicare benefit payments are estimated to account for 74% of the combined sequestered, Medicare benefit payments are estimated to account for 74% of the combined
mandatory defense and nondefense sequestered funds.64mandatory defense and nondefense sequestered funds.64
~~Traditional y~~ Traditionally, Medicare benefit payments comprise the largest single source of sequestered funds , Medicare benefit payments comprise the largest single source of sequestered funds
in a given mandatory sequestration order. In FY2021, Medicare benefit payments are estimated to in a given mandatory sequestration order. In FY2021, Medicare benefit payments are estimated to
account for the largest share of sequestrable budget authority and sequestered funds since the first account for the largest share of sequestrable budget authority and sequestered funds since the first
BCABCA sequestration order was issued for FY2013, as shown isequestration order was issued for FY2013, as shown in Figure 1.65 (For FY2020, this .65 (For FY2020, this
figure provides percentages based on the FY2020 sequestration order and does not reflect the figure provides percentages based on the FY2020 sequestration order and does not reflect the
~~CARES Act May through December 2020 suspension of sequestration. CBO estimates that this~~
~~suspension wil~~ CARES Act, as amended, May 2020 through March 2021 suspension of sequestration. CBO estimated the original CARES Act May 2020 through December 2020 suspension would increase Medicare outlays by $4 increase Medicare outlays by $4 ~~bil ion~~ billion in each of FY2020 and FY2021—for a in each of FY2020 and FY2021—for a
total increase of $8 total increase of $8 ~~bil ion.)66~~

~~63 For a list of sequestrable budget authority by budget account, see~~ ~~OMB Report to the Congress on the Joint~~
~~Com m ittee Reductions for Fiscal Year 2021~~ ~~, February 10, 2020.~~
~~64 Ibid.~~
~~65 Since the mandatory BCA sequester~~ billion but did not provide a separate estimate for the Consolidated Appropriations Act, 2021, extension through March 2021.66) 62 CMS receives administrative funding for the Medicare program through the Medicare trust funds and the CMS program management account. Since the OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2021 shows the amount of mandatory administrative funding sequestered at the account level, and CMS funds other programs through the program management account, the total amount of mandatory administrative funding for the Medicare program cannot be determined from the source. 63 For a list of sequestrable budget authority by budget account, see OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2021, February 10, 2020. 64 Ibid. 65 Since the mandatory BCA sequester went into effect, the total amount of Medicare benefit payments in a fiscal year went into effect, the total amount of Medicare benefit payments in a fiscal year
has generally increasedhas generally increased at a at a ~~fast er~~faster rate than other mandatory spending in the corresponding fiscal year. If current trends rate than other mandatory spending in the corresponding fiscal year. If current trends
continue, Medicare benefit payments can be expected to continue to account for larger shares of total sequestered funds continue, Medicare benefit payments can be expected to continue to account for larger shares of total sequestered funds
through the end of the BCA mandatory sequester in through the end of the BCA mandatory sequester in ~~FY20 30. I~~nFY2030. In Figure 1, Medicare benefit payments constituted a Medicare benefit payments constituted a
higher percentage of all sequesteredhigher percentage of all sequestered funds in FY2013 becausefunds in FY2013 because the American the American ~~T axpayer~~Taxpayer Relief Act of 2012 ( Relief Act of 2012 ( P.L. 112-P.L. 112-
240) reduced240) reduced the total amount of sequestered fundsthe total amount of sequestered funds in FY2013 relative to all other fiscal years underin FY2013 relative to all other fiscal years under the BCA the BCA
mandatory sequester. mandatory sequester.
66 Congressional Budget 66 Congressional Budget Office (CBO), Office (CBO), Preliminary Estimate of the Effects of H.R. 748H.R. 748, the CARES Act, P.L. 116-136, P.L. 116-136,
Revised, April 27, 2020, at https://www.cbo.gov/system/files/2020-04/hr748.pdf. Because the timing of the application , April 27, 2020, at https://www.cbo.gov/system/files/2020-04/hr748.pdf. Because the timing of the application
of the sequester to Medicare benefit payments is tied to the date of the initial sequestration order (i.e., from April 1 to of the sequester to Medicare benefit payments is tied to the date of the initial sequestration order (i.e., from April 1 to
March March 3031), the actual sequestration reductions associated with a sequestration order straddle), the actual sequestration reductions associated with a sequestration order straddle two different fiscal years. two different fiscal years.
CBOCBO therefore projected that the Medicare sequestration suspension wouldtherefore projected that the Medicare sequestration suspension would increase direct spending in both FY2020 increase direct spending in both FY2020
and FY2021. and FY2021. (The three-month Consolidated Appropriations Act, 2021 suspension extension also still falls within the FY2020 order but occurs entirely in FY2021.) In addition to the temporary suspension, §3709 of the CARES Act also In addition to the temporary suspension, §3709 of the CARES Act also ~~amends~~ amended the BCA (the BCA ( P.L. 112-25) to P.L. 112-25) to
extend by one year (through FY2030) the sequestration of all nonexempt mandatory spending. CBO scored the net extend by one year (through FY2030) the sequestration of all nonexempt mandatory spending. CBO scored the net
impact of §3709 as decreasingimpact of §3709 as decreasing direct spending (outlays) by $19 billion over the 10direct spending (outlays) by $19 billion over the 10 -year, FY2020-FY2030, projection -year, FY2020-FY2030, projection
period.period.
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~~link to page 21~~ (In its score of Division N of the Consolidated Appropriations Act, 2021 (P.L. 116-260), CBO provided an aggregate estimate for all provisions in Title I and did not include a separate estimate for the three-month Medicare sequestration suspension extension; see CBO, H.R. 133, Estimate for Division N—Additional Coronavirus Response and Relief Consolidated Appropriations Act, 2021 P.L. 116-260, January 14, 2021, at https://www.cbo.gov/system/files/2021-01/PL_116-260_div_N.pdf.) Congressional Research Service 15 link to page 20

Medicare and Budget Sequestration

Figure 1. Medicare Benefit Payment Amounts as a Percentage of Budget Control Act
Mandatory Sequester Amounts
(FY2013-FY2021) (FY2013-FY2021)

Source: CRS analysis of OMB Reports to the CongressCRS analysis of OMB Reports to the Congress on the Joint Committeeon the Joint Committee Sequestration for FY2013 to Sequestration for FY2013 to
FY2021. FY2021.
Notes: Each FY refers Each FY refers to amounts sequesteredto amounts sequestered in accordance with that fiscal year’sin accordance with that fiscal year’s sequestration order. sequestration order.
Mandatory sequesterMandatory sequester amounts include amounts for Medicare, other nondefense, and defense.amounts include amounts for Medicare, other nondefense, and defense. Sequestrable
budget authority refers to refers to ~~al resources~~ all resources estimated to be available to be sequestered.estimated to be available to be sequestered. Sequestered Funds
refersrefers ~~to al resources estimated~~ to all resources estimated to be sequestered.to be sequestered. ~~Administrative~~ Administrative funding is not included in Medicare benefit funding is not included in Medicare benefit
payment totals. payment totals. Al All percentages are estimates.percentages are estimates. This figure does not reflect the CARES ActThis figure does not reflect the CARES Act ~~temporary~~ , as amended, temporary suspension suspension
of sequestration from May of sequestration from May ~~through December 2020~~2020 through March 2021, in effect during the period of the FY2020 sequestration , in effect during the period of the FY2020 sequestration
order. order.
Figure 2 shows how the FY2021 BCA sequestration order is estimated to apply to the various shows how the FY2021 BCA sequestration order is estimated to apply to the various
parts of Medicare. It is worth noting that although Medicare Part C is sequestered, OMB parts of Medicare. It is worth noting that although Medicare Part C is sequestered, OMB
sequestration orders delineate at the trust fund level and do not distinguish each Medicare part. sequestration orders delineate at the trust fund level and do not distinguish each Medicare part.
Part C is funded out of both the Part A and Part B trust funds and is included in these totals. For Part C is funded out of both the Part A and Part B trust funds and is included in these totals. For
reference, in reference, in ~~FY2019~~FY2020, Medicare Advantage accounted for , Medicare Advantage accounted for ~~30% of al~~ about 42% of all HI Trust Fund benefit HI Trust Fund benefit
payments and payments and 2939% of % of al all SMI Trust Fund benefit payments.67 These ratios could change in SMI Trust Fund benefit payments.67 These ratios could change in
FY2021 based on actual spending.FY2021 based on actual spending.

~~67 CMS,~~ ~~CMS~~ 67 CMS, CMS Financial Report, , ~~FY2019~~FY2020, November , November ~~2019~~2020, p. , p. ~~471~~53, at https://www.cms.gov/files/document/cms-, at https://www.cms.gov/files/document/cms-
financial-reportfinancial-report -fiscal-year--fiscal-year-~~2019~~2020.pdf. .
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Figure 2. Estimated Source of Sequestered Medicare Benefits in FY2021
(total reduction in Medicare benefit payments—$16.2 (total reduction in Medicare benefit payments—$16.2 ~~bil ion~~billion) )

Source: CRS analysis of CRS analysis of OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2021,
February 10, 2020. February 10, 2020.
Notes: Administrative Administrative funding is not included. Although Medicare Part C is sequestered,funding is not included. Although Medicare Part C is sequestered, OMB sequestration OMB sequestration
ordersorders delineate at the trust fund leveldelineate at the trust fund level and do not distinguish each Medicare part. Part C is funded out of both and do not distinguish each Medicare part. Part C is funded out of both
the Part A and Part B trust funds and is included in these totals.the Part A and Part B trust funds and is included in these totals.
CBO estimates that Medicare benefit payment outlays CBO estimates that Medicare benefit payment outlays ~~wil~~ will more than double from FY2020 to more than double from FY2020 to
FY2030 (from $826 FY2030 (from $826 ~~bil ion to $1,712bil ion~~billion to $1,712 billion), the last year of BCA), the last year of BCA mandatory sequestration.68 mandatory sequestration.68
Most of this expected increase is due to an aging population and rising health care costs per Most of this expected increase is due to an aging population and rising health care costs per
person.69 Most of this increase would be subject to sequestration.person.69 Most of this increase would be subject to sequestration.
For more information on the Budget Control Act, see CRS Report R41965, For more information on the Budget Control Act, see CRS Report R41965, The Budget Control
Act of 2011, and CRS Report R42506, , and CRS Report R42506, The Budget Control Act of 2011 as Amended: Budgetary
Effects.

Effects. 68 Congressional Budget68 Congressional Budget Office, Office, March 2020 Medicare Baseline, at https://www.cbo.gov/system/files/2020-03/51302-, at https://www.cbo.gov/system/files/2020-03/51302-
2020-03-medicare.pdf. 2020-03-medicare.pdf.
69 Congressional Budget69 Congressional Budget Office, Office, The 2020 Long-Term Budget Outlook, September 2020, at https://www.cbo.gov/, September 2020, at https://www.cbo.gov/
system/files/2020-09/56516-LTBO.pdf. system/files/2020-09/56516-LTBO.pdf.
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Appendix A. Additional CRS Resources
To gain a deeper understanding of the topics covered in this report, readers may also wish to To gain a deeper understanding of the topics covered in this report, readers may also wish to
consult the following CRS reports: consult the following CRS reports:
CRS Report R40425, CRS Report R40425, Medicare Primer
CRS Report R43122, CRS Report R43122, Medicare Financial Status: In Brief
CRS Report R45494, CRS Report R45494, Medicare Advantage (MA)–Proposed Benchmark Update and Other
Adjustments for CY2020: In Brief
CRS Report R40611, CRS Report R40611, Medicare Part D Prescription Drug Benefit
CRS Report 98-721, CRS Report 98-721, Introduction to the Federal Budget Process
CRS Report R41965, CRS Report R41965, The Budget Control Act of 2011
CRS Report R42506, CRS Report R42506, The Budget Control Act of 2011 as Amended: Budgetary Effects
CRS Report RL34424, CRS Report RL34424, The Budget Control Act and Trends in Discretionary Spending
CRS Insight IN11148, CRS Insight IN11148, The Bipartisan Budget Act of 2019: Changes to the BCA and Debt Limit
CRS Report R42050, CRS Report R42050, Budget “Sequestration” and Selected Program Exemptions and Special
Rules
CRS Report R42972, CRS Report R42972, Sequestration as a Budget Enforcement Process: Frequently Asked
Questions
CRS Report R45941, CRS Report R45941, The Annual Sequester of Mandatory Spending through FY2029
CRS Report R41157, CRS Report R41157, The Statutory Pay-As-You-Go Act of 2010: Summary and Legislative
History
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Appendix B. Budget Terminology Definitions
As defined by Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA;As defined by Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L. 99-P.L. 99-
177, as amended) and simplified where appropriate: 177, as amended) and simplified where appropriate:
Budget Authority—Authority provided by federal law to enter into financial obligations that —Authority provided by federal law to enter into financial obligations that ~~wil~~
will result in immediate or future outlays involving federal government funds. result in immediate or future outlays involving federal government funds.
Budgetary Resources—Amounts available to enter into new obligations and to liquidate—Amounts available to enter into new obligations and to liquidate them. them.
Budgetary resources are made up of new budget authority (including direct spending authority Budgetary resources are made up of new budget authority (including direct spending authority
provided in existing statute and obligation limitations) and unobligated balances of budget provided in existing statute and obligation limitations) and unobligated balances of budget
authority provided in previous years. authority provided in previous years.
Discretionary Appropriations—Budgetary resources (except to fund direct-spending programs) —Budgetary resources (except to fund direct-spending programs)
provided in appropriation Acts. provided in appropriation Acts.
Mandatory Spending—Also known as —Also known as direct spending, refers to budget authority that is , refers to budget authority that is
provided in laws other than appropriation acts, entitlement authority, and the Supplemental provided in laws other than appropriation acts, entitlement authority, and the Supplemental
Nutrition Assistance Program. Nutrition Assistance Program.
Medicare Benefit Payments——Al All payments for programs and activities under Title XVIII of the payments for programs and activities under Title XVIII of the
Social Security Act. Social Security Act.
Revised Nonsecurity Category—Discretionary appropriations other than in budget function 050, —Discretionary appropriations other than in budget function 050,
often referred to as often referred to as nondefense category. .
Revised Security Category—Discretionary appropriations in budget function 050, often referred —Discretionary appropriations in budget function 050, often referred
to as to as defense category. .
Sequestration—The —The ~~cancel ation~~cancellation of budgetary resources provided by discretionary of budgetary resources provided by discretionary
appropriations or direct spending laws. appropriations or direct spending laws.
For definitions of other budget terms mentioned in this report but not defined by BBEDCA, For definitions of other budget terms mentioned in this report but not defined by BBEDCA, see see
U.S. Government Accountability Office, U.S. Government Accountability Office, A Glossary of Terms Used in the Federal Budget
Process, GAO-05-734SP, September 1, 2005, at https://www.gao.gov/assets/80/76911.pdf. , GAO-05-734SP, September 1, 2005, at https://www.gao.gov/assets/80/76911.pdf.

Author Information

Patricia A. Davis Patricia A. Davis

Specialist in Health Care Financing Specialist in Health Care Financing

Acknowledgments
This report was originally written by Ryan Rosso, Analyst in Health Care Financing. The author also This report was originally written by Ryan Rosso, Analyst in Health Care Financing. The author also
wishes to acknowledge the significant contributions made to this report by Bill Heniff Jr., Analyst on wishes to acknowledge the significant contributions made to this report by Bill Heniff Jr., Analyst on
Congress and the Legislative Process.Congress and the Legislative Process.
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Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should under the direction of Congress. Information in a CRS Report should ~~n ot~~not be relied upon for purposes other be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
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Congressional Research Service Congressional Research Service
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