Medicare and Budget Sequestration

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Medicare and Budget Sequestration
~~January 25~~May 11, 2021 , 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 ~~Act~~A ct 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 ~~implemented~~imp lemented (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 Act, as amended by the Consolidated Appropriations sequestration for mandatory spending through FY2030. (The CARES Act, as amended by the Consolidated Appropriations
Act, 2021 [P.L.Act, 2021 [P.L. ~~116-260],~~ 116-260], and an Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes [P.L. 117-7] also temporarily suspended the application of this sequestration to Medicare from May 1, 2020, also temporarily suspended the application of this sequestration to Medicare from May 1, 2020,
through through ~~March~~December 31, 2021.) The Statutory PAYGO sequester and BCA discretionary sequester are current law and can be 31, 2021.) The Statutory PAYGO sequester and BCA discretionary sequester are current law and can be
triggered if associated budget enforcement rules are broken. 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 spending can be reduced in a given fiscal year. This limit varies depending on the type of which Medicare benefit spending 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 payment mechanisms among the four parts of Medicare, sequestration is ~~implemented~~implemen ted somewhat differently across the somewhat differently across the
program. program.
Congressional Research Service Congressional Research Service

Medicare and Budget Sequestration

Introduction
Sequestration is the automatic reduction (i.e., Sequestration is the automatic reduction (i.e., ~~cancellation~~cancel ation) of certain federal spending, ) of certain federal spending, ~~generally~~general y
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 ~~actually~~actual y being implemented (also known as being implemented (also known as triggered).2 ).2 ~~Generally~~General y, 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 2020 mandatory sequester has been triggered and is in effect (with the exception of May 2020
through through ~~March~~December 2021 for Medicare).3 However, the Statutory PAYGO sequester and the BCA 2021 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.
~~Additionally,~~ Additional y, 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, ~~all~~ al 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 ~~Testimony~~T estimony 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~~§102 of Division N, T itle I of the Consolidated Appropriations Act, 2021 (P.L. 116-260) Consolidated Appropriations Act, 2021 (P.L. 116-260), amended the CARESamended the CARES Act to Act to
extend this suspension through March 31, 2021extend this suspension through March 31, 2021, and §1 of an Act to Prevent Across -the-Board Direct Spending Cuts, and for Other Purposes (P.L. 117-7), further extended the suspension through December 31, 2021. .
4 For more information on Medicare, see CRS 4 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 on the sequestration ~~trigger~~t rigger. 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~~
~~sequestration orders, some accounts not listed in these sections may also be exempt from sequestration. For a complete~~
list of exempted accounts, see CRS Report R42050, Budget “Sequestration” and Selected Program Exemptions and
interpretations of Congressional Research Service Congressional Research Service

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Medicare and Budget Sequestration

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 ~~all~~ al 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, ~~all~~ al 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 corresponding percentage. The reduced budget resources ~~are usually permanently cancelled~~usual y are permanently cancel ed.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 ~~all~~ al 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 ~~generally~~general y
provided by permanent laws, such as the Social Security Actprovided by permanent laws, such as the Social Security Act, which made indefinite budget 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~~
~~in a report produced by OMB. Once the President issues a sequestration order, the associated~~
~~report is made available to the public and transmitted to Congress.11~~

Special Rules.
~~6 See CRS~~ sequestration orders, some accounts not listed in these sections may also be exempt from sequestration. For a complete list of exempted accounts, see CRS Report R42050, Budget “Sequestration” and Selected Program Exemptions and 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 ~~Improve~~Im prove 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 ~~entitlements~~entitlem ents (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 ~~Terms~~Term s 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 sequestration order, each subcomponent of discretionary defense, or nondefense. During a sequestration 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 on the necessary ~~amount~~am ount of savings for that category. 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 ~~Title~~T itle 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. “Revised nonsecurity” includes function of 050, which is effectively the Department of Defense. “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 the sequester percentage in a given year,~~
~~see OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2021, February 10, 2020, at~~
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Congressional Research Service 2 link to page 7 Medicare and Budget Sequestration 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 report is made available to the public and transmitted to Congress.11
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 ~~trillion~~ tril ion 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 ~~automatically triggered~~triggered automatical y.13 .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 spending through FY2030.14 This ~~reduction is referred to in this report as the “~~report refers to this reduction as the BCA mandatory sequester. Additional y, the BCA ~~BCA mandatory~~
~~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
~~sequester.”) 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~~
~~caps. Most recently, the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123) increased the~~
~~discretionary spending caps for FY2018 and FY2019 so they would not be breached, and the~~

11 For more information about the methodologies associated with calculating the sequester percentage in a given year, see OMB Report to the Congress on the Joint Com m ittee Reductions for Fiscal Year 2021 , February 10, 2020, at https://www.whitehouse.gov/wp-content/uploads/2020/02/JC-sequestration_report_FY21_2-10-20.pdf. https://www.whitehouse.gov/wp-content/uploads/2020/02/JC-sequestration_report_FY21_2-10-20.pdf.
12 See 12 See ~~Title~~ T itle IV of the BCA. IV of the BCA.
13 See13 See ~~CRS~~ 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. ~~The~~T he 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. ~~The~~T he 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. ~~The~~T he 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. ~~The~~T he Coronavirus Aid, Relief, and Economic Security Act (CARES Coronavirus Aid, Relief, and Economic Security Act (CARES
Act; P.L. 116-136) extended the sequester through FY2030. Act; P.L. 116-136) extended the sequester through FY2030. ~~The CARES Act~~T he CARES Act , as amended, as amended by the Consolidated by the Consolidated
Appropriations Act, 2021 (P.L. 116-260), Appropriations Act, 2021 (P.L. 116-260), and an Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes (P.L. 117-7) also temporarily suspended the application of sequestration to Medicare from also temporarily suspended the application of sequestration to Medicare from
May 1, 2020May 1, 2020 , , through through ~~March~~December 31, 2021. 31, 2021.
15 Four subsequent 15 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
~~Amended~~Am ended: Budgetary Effects, and CRS, and CRS Insight IN11148, Insight IN11148, The Bipartisan Budget Act of 2019: Changes to the BCA and
Debt ~~Limit~~.
16 See CRS Report RL34424, The Budget Control Act and Trends in Discretionary SpendingLim it. .
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sequester.”) 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 caps. Most recently, the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123) increased the discretionary spending caps for FY2018 and FY2019 so they would not be breached, and the Bipartisan Budget Act of 2019 (BBA ~~Bipartisan Budget Act of 2019 (BBA~~ 2019; P.L. 116-37) increased the caps for FY2020 and 2019; P.L. 116-37) increased the caps for FY2020 and
FY2021. FY2021.
Statutory PAYGO
The Statutory PAYGO Act established a budget enforcement mechanism The Statutory PAYGO Act established a budget enforcement mechanism ~~generally~~general y 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” ~~tallying~~tal ying 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
2020- 2020-~~March 2021).b~~
~~implemented and~~
~~Discretionary~~
~~Non-MIP~~
~~BCA~~
~~discretionary limits would~~
~~None.~~
~~Discretionary~~ December implemented and 2021).b 16 See CRS Report RL34424, The Budget Control Act and Trends in Discretionary Spending. 17 P.L. 116-37, §102. Congressional Research Service 4 link to page 8 Medicare and Budget Sequestration Sequester Funding Medicare Percentage Types Programs Sequester Enforcement Rule Cap Current Status Discretionary Non-MIP BCA discretionary limits would None. 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 ~~trigger~~edtriggered.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~~

~~17 P.L. 116-37, §102.~~
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~~Medicare and Budget Sequestration~~

from sequestration. sequestration. BCA refers 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 and is funded through
discretionarydiscretionary and mandatory resources.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 ~~all~~ al 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 all~~ refers to al HCFAC spending other than MIP. HCFAC spending other than MIP.
a. a. ~~The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136)~~P.L. 117-7, an Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes, specifies ~~specifies~~ that the non-that the non-
administrative Medicare sequester percentage cap under the BCA mandatory sequester wiladministrative Medicare sequester percentage cap under the BCA mandatory sequester wil ~~be 4~~ be 2% during % during
the first the first ~~six~~ 5½ months of the FY2030 sequestration ordermonths of the FY2030 sequestration order ~~and 0% for the last six months of the order. See~~
, 4% for the next 6 months of the order, and 0% for the remaining ½ month of the order. 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 Act, as amended by the Consolidated Appropriations Act, 2021 (P.L. 116-260), The CARES Act, as amended by the Consolidated Appropriations Act, 2021 (P.L. 116-260), and an Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes (P.L. 117-7) also temporarily also temporarily
suspended the sequestration of Medicare from May 2020 through suspended the sequestration of Medicare from May 2020 through ~~March~~ December 2021. 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.
Congressional Research Service 5 Medicare and Budget Sequestration 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 ~~million~~mil ion persons (54 persons (54 ~~million~~mil ion aged and 9 aged and 9
~~million~~ mil ion 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 ~~billion and will~~ bil ion and wil increase to about $1.7 increase to about $1.7 ~~trillion~~ tril ion in FY2030.19 Almost in FY2030.19 Almost ~~all~~
al Medicare spending is mandatory spending that is Medicare spending is mandatory spending that is ~~primarily used~~used primarily to cover benefit payments (i.e., 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.

~~18 Department of Health and Human Services, Fiscal Year 2020 Budget in Brief, p. 76, at https://www.hhs.gov/sites/~~
~~default/files/fy-2020-budget-in-brief.pdf.~~
~~19 Congressional Budget Office, March 2020 Medicare Baseline, at https://www.cbo.gov/system/files/2020-03/51302-~~
~~2020-03-medicare.pdf.~~
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Medicare consists of four distinct parts: Medicare consists of four distinct parts:
1. 1. Part A (Hospital (Hospital Insurance, or HI) covers inpatient hospital services, Insurance, or HI) covers inpatient hospital services, ~~skilled~~skil ed
nursing care, hospice care, and some home health services. Most persons aged 65 nursing care, hospice care, and some home health services. Most persons aged 65
and older are and older are ~~automatically~~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 ~~equally~~equal y 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 ~~all~~
al 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. .
18 Department of Health and Human Services, Fiscal Year 2020 Budget in Brief, p. 76, at https://www.hhs.gov/sites/default/files/fy-2020-budget-in-brief.pdf. 19 Congressional Budget Office, March 2020 Medicare Baseline, at https://www.cbo.gov/system/files/2020-03/51302-2020-03-medicare.pdf. Congressional Research Service 6 Medicare and Budget Sequestration 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 ~~well~~ wel 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 ~~all~~ al 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. ~~out-of-pocket spending.~~

~~20 A deductible is the amount an enrollee is required to pay for health care services or products before his or her~~
~~insurance plan begins to provide coverage. Coinsurance is the percentage share that an enrollee in a health insurance~~
~~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 well as any~~
~~additional premium required by the MA plan.~~
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~~Medicare and Budget Sequestration~~

Provider and Plan Payments
Under Medicare Parts A and B, the government Under Medicare Parts A and B, the government ~~generally~~general y pays providers directly for services on a pays providers directly for services on a
fee-for-service basis using different prospective payment systems and fee schedules.22 Under basis using different prospective payment systems and fee schedules.22 Under
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).
~~Historically~~Historical y, 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 ~~well~~wel . .
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~~
~~subject to the Medicare mandatory sequestration percentage limits.24~~
~~Administrative Spending~~
~~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,~~
~~respectively. Discretionary administration funding includes amounts for payments to contractors~~
~~to process providers’ claims, beneficiary outreach and education, and maintenance of Medicare’s~~
~~information technology infrastructure. Mandatory administration funding includes amounts for~~
~~quality improvement organizations and Part B premium payments for Qualifying Individuals~~
~~(QI).25~~

20 A deductible is the amount an enrollee is required to pay for health care services or products befo re his or her insurance plan begins to provide coverage. Coinsurance is the percentage share that an enrollee in a health insurance plan pays for a product or service covered by the plan. 21 Beneficiaries enrolled in a Medicare Advantage (MA, Part C) plan m ust pay Part B premiums as well as any additional premium required by the MA plan. 22 Under a 22 Under a prospective payment system (PPS), Medicare payments are made using(PPS), Medicare payments are made using a predetermined, fixed amount based a predetermined, fixed amount based
on the classification system for a particular service. on the classification system for a particular service. ~~The~~T he Centers for Medicare & Medicaid Centers for Medicare & Medicaid Services (CMS)Services (CMS) uses uses
separate PPSs to reimburse acute inpatient hospitals, home health agencies, hospice, hospital outpatient departments, 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 nursinginpatient psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities. facilities.
A A fee schedule is a listing of fees used is a listing of fees used by Medicare to pay doctors or other providers/suppliers. Fee schedulesby 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~~ durable medical equipment, 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 defines Medicare benefit payments as all payments for programs and activities~~
~~under Title XVIII of Social Security Act. This includes the Medicare Integrity Program (MIP). See BBEDCA §256(d).~~
~~25 The Qualifying Individuals (QI) program is a state program that helps pay Part B premiums for people who have Part~~
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~~link to page 7 link to page 13 link to page 7~~ ~~Medicare and Budget Sequestration~~
Congressional Research Service 7 link to page 7 link to page 7 Medicare and Budget Sequestration 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 Administrative Spending 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, respectively. Discretionary administration funding includes amounts for payments to contractors to process providers’ claims, beneficiary outreach and education, and maintenance of Medicare’s information technology infrastructure. Mandatory administration funding includes amounts for 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 (seSpecial rules limit the total effect of budget sequestration on Medicare (see Table 1). Most . Most
notably, BBEDCA,notably, BBEDCA, as amended by the BCA, prohibits Medicare benefit payments from being as amended by the BCA, prohibits Medicare benefit payments from being
reduced by more than 2% under a BCA mandatory sequestration order. Similarly, Statutory reduced by more than 2% under a BCA mandatory sequestration order. Similarly, Statutory
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 ~~specifically~~specifical y, 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 ~~well~~ wel as to as to ~~all~~ al 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~~
~~at 4%.28~~
~~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~~
~~to Medicare payment rates established under Title XVIII of the Social Security Act.29 (See~~
~~“Reductions in Benefit Spending.”)~~
~~Finally, certain Medicare programs and activities are explicitly exempted from Statutory PAYGO~~
~~and BCA sequestration orders. Specifically, Part D low-income subsidies,30 Part D catastrophic~~

~~A and limited income and resources. See CMS, “Medicare Savings~~ 24 For sequestration purposes, BBEDCA defines Medicare benefit payments as all payments for programs and activities under T itle XVIII of Social Security Act. T his includes the Medicare Integrity Program (MIP). See BBEDCA §256(d). 25 T he Qualifying Individuals (QI) program is 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,”Programs,” at https://www.medicare.gov/your-at https://www.medicare.gov/your-
medicare-costs/help-paying-costs/medicare-savings-program/medicare-savings-programs.html. 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, ~~the CARES Act (P.L. 116-136)~~P.L. 117-7, an Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes, specifies that the non-administrative Medicare specifies that the non-administrative Medicare
sequester percentage cap willsequester percentage cap will ~~be 4~~ be 2% during% during the firstthe first ~~six~~ 5½ months of the FY2030 sequestration order (i.e., April through months of the FY2030 sequestration order (i.e., April through
mid-September 2030)September 2030) ~~and 0% for the last six months of the order (i.e., October 2030 through March 2031), so the full~~
~~budgetary effects will occur within FY2030. See BBEDCA §251A(6)(C) and table note a in Table 1.~~
~~28 See BBEDCA §256(d)(2).~~
~~29 See BBEDCA §256(d)(6).~~
~~30 Medicare Part D provides subsidies to assist low-income beneficiaries with premiums and cost sharing. For more~~
~~information on Medicare Part D, see CRS Report R40611, Medicare Part D Prescription Drug Benefit.~~
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~~Medicare and Budget Sequestration~~

~~subsidies (reinsurance),31 and QI premiums cannot be reduced under a mandatory sequestration~~
~~order.32~~
, 4% for the next 6 months (i.e., mid-September 2030 through mid-March 2031), and 0% for the last ½ month of the order (i.e., the second half of March 2031). See BBEDCA §251A(6)(C) and table note a in Table 1. Congressional Research Service 8 link to page 13 Medicare and Budget Sequestration process would be the same, but the reduction of payments for Medicare benefits would be capped at 4%.28 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 to Medicare payment rates established under Title XVIII of the Social Security Act.29 (See “Reductions in Benefit Spending.”) Final y, certain Medicare programs and activities are explicitly exempted from Statutory PAYGO and BCA sequestration orders. Specifical y, Part D low-income subsidies,30 Part D catastrophic 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; howeverorder; however, special rules differentiate when a sequestration order is implemented for benefit 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 ~~all~~ al 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.from April 1, 2014, to March 31, 2015.34
~~All~~ Al 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. 28 See BBEDCA §256(d)(2). 29 See BBEDCA §256(d)(6). 30 Medicare Part D provides subsidies to assist low-income beneficiaries with premiums and cost sharing. For more information on Medicare Part D, see CRS Report R40611, Medicare Part D Prescription Drug Benefit. 31 Part D pays nearly all drug ~~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~~
~~corresponding percentage reductions, actual Medicare outlays will not be known until after the~~
~~end of the fiscal year. Since sequestration orders are issued either before or during the fiscal year~~
~~in which they are applicable, OMB estimates the total sequestrable budget authority for Medicare,~~
~~and other accounts with indefinite budget authority, in order to determine necessary sequestration~~
~~percentages.35~~
~~If Medicare outlays exceed the estimated amount included in a sequestration order for that fiscal~~
~~year, the additional outlays are sequestered at the established percentage for that fiscal year. If~~

~~31 Part D pays nearly all drug~~ costs above a catastrophic threshold, except for nominal beneficiary cost sharing. costs above a catastrophic threshold, except for nominal beneficiary cost sharing.
Medicare subsidizesMedicare subsidizes 80% of each plan’s costs for this catastrophic coverage. For more information on Medicare Part D, 80% of each plan’s costs for this catastrophic coverage. For more information on Medicare Part D,
see CRSsee CRS Report R40611, Report R40611, Medicare Part D Prescription Drug Benefit. .
32 See 32 See ~~BBEDCA~~ BBEDCA §256(d)(7). §256(d)(7).
33 See33 See ~~BBEDCA §256(d)(1).~~
~~34 Under current law, the sequestration of Medicare benefits under the BCA is effectively scheduled to continue~~
~~through September 30, 2030, due to special rules that cap the Medicare sequester percentage at 0% during the last six~~
~~months of the FY2030 order. Without this rule, Medicare benefit payments would be reduced for an additional six~~
~~months, through March 31, 2031 (i.e., reduced by 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 BBEDCA §251A(6)(C).~~
~~35 GAO,~~ ~~2014 Sequestration Opportunities Exist to Improve Transparency of Progress Toward Deficit Reduction~~
~~Goals, GAO-16-263, April 2016, p. 27, at https://www.gao.gov/assets/680/676565.pdf.~~
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~~Medicare and Budget Sequestration~~
BBEDCA §256(d)(1). Congressional Research Service 9 Medicare and Budget Sequestration While OMB uses current law to determine the amount of funds available to be sequestered and corresponding percentage reductions, actual Medicare outlays wil not be known until after the end of the fiscal year. Since sequestration orders are issued either before or during the fiscal year in which they are applicable, OMB estimates the total sequestrable budget authority for Medicare, and other accounts with indefinite budget authority, in order to determine necessary sequestration percentages.34 If Medicare outlays exceed the estimated amount included in a sequestration order for that fiscal year, the additional 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 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 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 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 authority. Similarly, OMB does not adjust future orders to account for any previous discrepancies
between estimates and actuals. 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.any applicable Medicare Secondary Payment adjustments.3635 Therefore, sequestration applies only 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 ~~allowed~~al owed 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.copayments to make up for the reduced Medicare payment.3736
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,from the inpatient facility. For services paid on a reasonable cost basis,3837 the reduction is to be 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,services provided under assignment,3938 the reduced payment is to be considered the reduced payment is to be considered payment in full
~~and the Medicare beneficiary will not pay higher copayments to make up for the reduced~~
~~amount.40~~
~~Medicare non-participating providers, which are providers that do not elect to accept Medicare~~
~~payments on all claims in a given year, are not subject to the same rules. Medicare non-~~
~~participating providers receive a lower reimbursement rate from Medicare on all services~~

~~36 CMS, Medicare FFS Provider e-News,~~ 34 GAO, 2014 Sequestration Opportunities Exist to Improve Transparency of Progress Toward Deficit Reduction Goals, GAO-16-263, April 2016, p. 27, at https://www.gao.gov/assets/680/676565.pdf. 35 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.
3736 Ibid. Ibid.
3837 Most providers are paid under a prospective payment system or fee schedule. Some types of providers, such 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).
3938 Assignment is 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 not 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 Medicare-approved~~
~~amount.~~
~~40 See CMS, Medicare FFS Provider e-News, 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/Downloads/2013-03-08-standalone.pdf.~~
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10

~~Medicare and Budget Sequestration~~

Congressional Research Service 10 Medicare and Budget Sequestration and the Medicare beneficiary wil not pay higher copayments to make up for the reduced amount.39 Medicare non-participating providers, which are providers that do not elect to accept Medicare payments on all claims in a given year, are not subject to the same rules. Medicare non-participating providers receive a lower reimbursement rate from Medicare on al services provided and may charge beneficiaries a limited amount more (balance provided and may charge beneficiaries a limited amount more (balance ~~bill~~ bil charge) than the fee charge) than the fee
schedule amount on non-assigned claims.schedule amount on non-assigned claims.4140 In these instances, instead of the Medicare check 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 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
~~specifically~~specifical y, 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 ~~bill~~ bil charges, charges, and the sequestered amounts taken out of the the sequestered amounts taken out of the
provider check.provider check.4241
Annual adjustments to Medicare payment rates are determined without incorporating Annual adjustments to Medicare payment rates are determined without incorporating
sequestration.sequestration.4342 However, the Medicare Payment Advisory Commission does incorporate the However, the Medicare Payment Advisory Commission does incorporate the
effects of sequestration when assessing the adequacy of provider payments.effects of sequestration when assessing the adequacy of provider payments.4443 The commission 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, as During the temporary suspension of sequestration of Medicare under the CARES Act, as
amended, fee-for-service provider payments amended, fee-for-service provider payments ~~will~~ wil not be subject to the 2% reduction in Medicare not be subject to the 2% reduction in Medicare
payments.payments.4544 The suspension is effective for claims with dates of service from May 1, 2020, The suspension is effective for claims with dates of service from May 1, 2020,
through through ~~March~~December 31, 2021. 31, 2021.
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
~~all~~ al Medicare-covered benefits, except hospice, to beneficiaries who enroll in their plan. These amount Medicare approves for the service, and not 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 Medicare -approved amount. 39 See CMS, Medicare FFS Provider e-News, 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/Downloads/2013-03-08-standalone.pdf. 40 CMS, ~~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~~
~~beneficiaries actually use. The plan is at risk if costs for all of its enrollees exceed program~~
~~payments and beneficiary cost sharing; conversely, the plan can generally retain savings if~~
~~aggregate enrollee costs are less than program payments and cost sharing.~~
~~With respect to sequestration, reductions are uniformly made to the monthly capitated payments~~
~~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~~
~~“bid process” and the amounts can vary depending on the private plan.46~~
~~In general, CMS payments to MAOs are generally comprised of amounts to cover medical costs,~~
~~administrative expenses, private plan profits, risk adjustments, and plan rebates to beneficiaries.47~~

~~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-, updated May 23, 2019, p. 4, at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-
~~Trends~~T rends-and-Reports/Medicare-Provider-Charge-Data/Downloads/Physician_FAQ.pdf. -and-Reports/Medicare-Provider-Charge-Data/Downloads/Physician_FAQ.pdf.
4241 CMS, CMS, Medicare FFSMedicare 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/FFSProvPartProg/at https://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/
Downloads/2013-03-08-standalone.pdf. Downloads/2013-03-08-standalone.pdf.
4342 BBEDCA BBEDCA §256(d)(6). §256(d)(6).
4443 Medicare Payment Advisory Commission (MedPAC), 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.
4544 See 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-se, and January 7, 2021, and-educationoutreachffsprovpartprogprovider-partnership-email-archive/2020-04-10-mlnc-se, and January 7, 2021,
CMSCMS MLNConnects Newsletter, “Physician Fee ScheduleMLNConnects Newsletter, “Physician Fee Schedule Update,” at https://www.cms.gov/outreach-and-Update,” at https://www.cms.gov/outreach-and-
educationoutreachffsprovpartprogprovider-partnership-email-archive/2021-01-07-mlnc-seeducationoutreachffsprovpartprogprovider-partnership-email-archive/2021-01-07-mlnc-se.
~~46 For more information on the annual bid process, see CRS Report R45494,~~ ~~Medicare Advantage (MA)–Proposed~~
~~Benchmark Update and Other Adjustments for CY2020: In Brief~~.
~~47 A plan rebate is the difference between a plan’s bid and a statutorily specified benchmark amount. It is included in~~
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~~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 April 16, 2021, CMS MLNConnects Newsletter, “ Medicare FFS Claims: 2% Payment Adjustment (Sequestration) Suspended T hrough December,” at https://www.cms.gov/outreach-and-educationoutreachffsprovpartprogprovider-partnership-email-archive/2021-04-16-mlnc. Congressional Research Service 11 Medicare and Budget Sequestration capitated monthly payments are made to MA plans regardless of how many or how few services beneficiaries actual y use. The plan is at risk if costs for al of its enrollees exceed program payments and beneficiary cost sharing; conversely, the plan can general y retain savings if aggregate enrollee costs are less than program payments and cost sharing. With respect to sequestration, reductions are made uniformly to the monthly capitated payments 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 “bid process” and the amounts can vary depending on the private plan.45 In general, CMS payments to MAOs are general y comprised of amounts to cover medical costs, administrative expenses, private plan profits, risk adjustments, and plan rebates to beneficiaries.46 MAOs have discretion to distribute any sequestration cut across these different components but must stil adhere to their legal obligations.47 Due to the temporary suspension of sequestration from May 2020 through December 2021, the 2% payment reduction that would have otherwise 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.enrolled within the sequestration suspension period.4948 (CMS (CMS ~~will~~ wil 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; howeverlower reimbursement rates; however, MAOs may be limited in their ability MAOs may be limited in their ability to do so.to do so.5049 CMS 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. ~~Specifically~~Specifical y, “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.”and the provider.”5150 Therefore, in order for MAOs to reduce provider payments by the 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 ~~allow~~al ow the reduction or the contract the reduction or the contract
would need to be renegotiated. Similarly, during the May 2020 through would need to be renegotiated. Similarly, during the May 2020 through ~~March~~December 2021 CARES Act, 2021 CARES Act,
as amended, suspension of sequestration, the decision to suspend the application of the 2% as amended, 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~~
~~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~~
~~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~~
~~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.~~

~~the plan payment and must be returned to enrollees in the form of additional benefits, reduced~~ 45 For more information on the annual bid process, see CRS Report R45494, Medicare Advantage (MA)–Proposed Benchm ark Update and Other Adjustm ents for CY2020: In Brief. 46 A plan rebate is the difference between a plan’s bid and a statutorily specified benchmark amount. It is included in the plan payment and must be returned t o enrollees in the form of additional benefits, reduced cost sharing, reduced cost sharing, reduced
Medicare Part B or Part D premiums, or some combination of these options.Medicare Part B or Part D premiums, or some combination of these options.
~~48 See~~ 47 See May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS,May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS, Additional Information Regarding the
Mandatory ~~Payment~~Paym ent Reductions in the Medicare Advantage, Part D, and Other ~~Programs~~Program s, 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.
4948 See 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 ~~Payment Information~~Paym ent Inform ation, 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,~~ , and March 30, 2021, memorandum from Jennifer R. Shapiro, CMS, Medicare Advantage/Prescription Drug System (MARx) April 2021 Paym ent Inform ation, at https://www.cms.gov/httpseditcmsgovresearch-statistics-data-and-systemscomputer-data-and-systemshpmshpms-memos-archive/hpms-memos-week-5-march-29-31-2021. 49 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%. ~~The~~T he 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.
5150 May 1, 2013, memorandum from Cheri Rice May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS,and Danielle Moon, CMS, Additional Information Regarding the
Mandatory ~~Payment~~Paym ent Reductions in the Medicare Advantage, Part D, and Other ~~Programs~~Program s, 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 Two 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~~
~~the suspension period. Additional detail may be found at https://www.uhcprovider.com/en/resource-library/news/~~
~~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 https://www.aetna.com/health-care-professionals/covid-faq/billing-and-coding.html.~~
~~53 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~~.
~~Congressional Research Service~~

12

~~Medicare and Budget Sequestration~~
Congressional Research Service 12 Medicare and Budget Sequestration reduction to provider payments may depend on the reimbursement language in MAO-provider contracts.51 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 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 cuts into payments to non-contracted providers for those services.52 Non-contracted providers 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 In addition, regulations in the annual bid process restrict MAO’s potential responses to
sequestration. sequestration. ~~Specifically~~Specifical y, MAOs are limited, MAOs are limited to “reasonable” revenue margins and a set to “reasonable” revenue margins and a set
Medicare/non-Medicare profit margin discrepancy, among other requirements.Medicare/non-Medicare profit margin discrepancy, among other requirements.5453 Furthermore, Furthermore,
MAOs are restricted from MAOs are restricted from ~~allowing~~al owing sequestration to impact a beneficiary’s plan benefits or sequestration to impact a beneficiary’s plan benefits or
liabilities,liabilities,55 54 so it becomes difficult for MAOs to pass an entire sequestration cut onto beneficiaries 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. 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.percentage.5655 In other words, plan payment updates are to be determined as if the reductions 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, ~~called~~cal ed 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 ~~actually~~actual y 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.adjustments are exempt from sequestration and are therefore not reduced.57
56 During the May 2020 through During the May 2020 through ~~March~~December 2021 CARES Act, as amended, sequestration suspension 2021 CARES Act, as amended, sequestration suspension
period, the 2% payment reductions to Part D plans will not occur. Payment period, the 2% payment reductions to Part D plans will not occur. Payment ~~adjustments during~~
~~the suspension period for Part D plans will be applied similarly to payments to MAOs under~~
~~Medicare Advantage.58 Also, similar 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 is “governed by the payment terms of the contract between the plan sponsor~~
~~and its network pharmacy providers.”59~~
~~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~~
~~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.~~
~~Under this program, sequestration reductions are applied to the annual subsidy amount.60~~

~~54 See CMS,~~ 51 T wo of the nation’s largest commercial insurers, Aetna and UnitedHealthcare, have indicated that they have temporarily eliminated the 2% sequestration cuts in payments to providers in their Medicare Advantage plans during the suspension period. Additional detail may be found at https://www.uhcprovider.com/en/resource-library/news/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 suspension extensions), and https://www.aetna.com/health-care-professionals/covid-faq/billing-and-coding.html. 52 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. 53 See CMS, Actuarial Bid Training – 2021, at https://www.cms.gov/Medicare/Health-Plans/, at https://www.cms.gov/Medicare/Health-Plans/
MedicareAdvtgSpecRateStats/MedicareAdvtgSpecRateStats/~~BidTraining2020~~BidT raining2020; and 42 C.F.R. Part 422, Subpart X. and 42 C.F.R. Part 422, Subpart X.
5554 See See CMS,CMS, User Group Call 05/07/2015, May 7, 2015, at https://www.cms.gov/Medicare/Health-Plans/, May 7, 2015, at https://www.cms.gov/Medicare/Health-Plans/
MedicareAdvtgSpecRateStats/Downloads/ActuarialBidQuestions2016.pdf. MedicareAdvtgSpecRateStats/Downloads/ActuarialBidQuestions2016.pdf.
5655 BBEDCA BBEDCA §256(d)(6)(A). §256(d)(6)(A). ~~The~~T he 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 ~~Adjustments~~Adjustm ents for CY2020: In Brief. .
~~57 This~~56 T his 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 are subject to sequestration. Congressional Research Service 13 Medicare and Budget Sequestration adjustments during the suspension period for Part D plans wil be applied similarly to payments to MAOs under Medicare Advantage.57 In addition, similar 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 is “governed by the payment terms of the contract between the plan sponsor and its network pharmacy providers.”58 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 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. Under this program, sequestration reductions are applied to the annual subsidy amount.59~~in the capitated payments and~~
~~are subject to sequestration.~~
~~58 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/~~
~~marx%20plan%20payment%20letter_may%204.22.2020_7.pdf.~~
~~59 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~~.
~~60 CMS, “Mandatory Payment Reduction in CMS’ Retiree Drug Subsidy Reconciliation Payments,” April 19, 2014, at~~
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Similar to Part C, the HHS Secretary is prohibited from taking into account any reductions in 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.payment amounts under sequestration for purposes of computing the Part D annual growth rate.6160
Health Care Fraud and Abuse Control Program
As noted, the HCFAC program is not part of Medicare but does receive mandatory and 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 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 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 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 portion of HCFAC funding has been suspended by the CARES Act, as amended, from May 2020
through through ~~March~~December 2021.) HCFAC mandatory funding that does not exclusively address Medicare 2021.) HCFAC mandatory funding that does not exclusively address Medicare is is
reduced by the nondefense mandatory sequester rate (5.7% in reduced by the nondefense mandatory sequester rate (5.7% in ~~2021~~FY2021), when applicable. ), 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. (Mandatory Medicare administrative spending authorized under Title XVIII of the Social 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.) 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 Act, as amended, May 2020 through With the exception of the CARES Act, as amended, May 2020 through ~~March~~December 2021 suspension, 2021 suspension,
Medicare benefit payments have been subject to the 2% annual reduction limit established by the Medicare benefit payments have been subject to the 2% annual reduction limit established by the
~~BCA~~ BCA since the first BCA mandatory sequester order was issued in FY2013. Nondefense since the first BCA mandatory sequester order was issued in FY2013. Nondefense
~~mandatory budget authority reductions, which have applied to mandatory Medicare~~
mandatory budget authority reductions, which have applied to mandatory Medicare 57 See April 22, 2020, memorandum from Jennifer R. Shapiro, CMS, Medicare Advantage/Prescription Drug System (MARx) May 2020 Paym ent Inform ation, at https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/marx%20plan%20payment%20letter_may%204.22.2020_7.pdf , and March 30, 2021, memorandum from Jennifer R. Shapiro, CMS, Medicare Advantage/Prescription Drug System (MARx) April 2021 Paym ent Inform ation, at https://www.cms.gov/httpseditcmsgovresearch-statistics-data-and-systemscomputer-data-and-systemshpmshpms-memos-archive/hpms-memos-week-5-march-29-31-2021. 58 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. 59 CMS, “Mandatory Payment Reduction in CMS’ Retiree Drug Subsidy Reconciliation Payments,” April 19, 2014, at https://www.rds.cms.hhs.gov/sites/default/files/webfiles/documents/mandatorypaymentreduction.pdf, and CMS, “Extension to Suspension of Sequestration for Retiree Drug Subsidy (RDS) Program ,” December 30, 2020, at https://www.hhs.gov/guidance/document/extension-suspension-sequestration-retiree-drug-subsidy-rds-program. 60 BBEDCA §256(d)(6)(B). Congressional Research Service 14 link to page 18 link to page 20 link to page 20 Medicare and Budget Sequestration administrative spending, have fluctuated between 5.1% and 7.3% from FY2013 through FY2021. (See Table 2.) Under the FY2021 sequestration order, mandatory Medicare administrative expenses were to be sequestered by the nondefense mandatory percentage, 5.7% in FY2021.61 ~~administrative spending, have fluctuated between 5.1% and 7.3% from FY2013 through FY2021.~~
~~(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 ~~all~~ al 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 ~~all~~ al other government spending not defined as Medicare or Defense Mandatory. MIP refers to the Medicare Integrity Program, ~~other government spending not~~

~~https://www.rds.cms.hhs.gov/sites/default/files/webfiles/documents/mandatorypaymentreduction.pdf.~~
~~61 BBEDCA §256(d)(6)(B).~~
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~~defined as Medicare or Defense Mandatory. MIP refers to the Medicare Integrity Program, which is under~~
~~HCFAC and focuses on combating fraud in Medicare.~~
~~In the FY2021 sequestration order, mandatory Medicare administrative expenses will be~~
~~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~~
~~in the OMB sequestration report.62~~
~~In total~~which is under HCFAC and focuses on combating fraud in Medicare. Prior to the CARES Act, as amended, sequestration suspension, Medicare benefit payments (not including administration) , Medicare benefit payments (not including administration) ~~are estimated to account for~~
~~90% of all~~ were expected to represent about 90% of al Medicare and non-Medicare resources Medicare and non-Medicare resources available to be sequestered (sequestrable to be sequestered (sequestrable
budget authority) under the FY2021 budget authority) under the FY2021 ~~BCA~~ BCA mandatory sequester.mandatory sequester.6362 Of the funds Of the funds ~~that are~~
to be sequestered, Medicare benefit payments sequestered, Medicare benefit payments ~~are estimated~~were expected to account for to account for an estimated 74% of the combined 74% of the combined
mandatory defense and nondefense mandatory defense and nondefense sequestered funds.sequestered funds.64
~~Traditionally~~63 Traditional y, 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 a given mandatory sequestration order. ~~In FY2021~~Under the FY2021 sequestration order, Medicare benefit payments , Medicare benefit payments ~~are estimated to~~
~~account for~~were expected to make up the largest share of sequestrable budget authority and sequestered funds since the first the largest share of sequestrable budget authority and sequestered funds since the first
BCA sequestration order was issued for FY2013, as shown BCA sequestration order was issued for FY2013, as shown inin Figure 1.6564 (For FY2020 (For FY2020 and FY2021, this , this
~~figure provides percentages based on the FY2020 sequestration order and does not reflect the~~
~~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 billion in each of FY2020 and FY2021—for a total increase of $8 billion~~
~~but did not provide a separate estimate for the Consolidated Appropriations Act, 2021, extension~~
~~through March 2021.66)~~

~~62 CMS~~ figure provides percentages based on the FY2020 and 61 CMS receives administrative funding for the Medicare program through the Medicare trust fundsreceives administrative funding for the Medicare program through the Medicare trust funds and the CMS and the CMS
program management account. Since the program management account. Since the OMB Report to the Congress on the Joint ~~Committee~~Com m ittee Reductions for Fiscal
Year 2021 shows the amount of mandatory administrative funding sequesteredshows the amount of mandatory administrative funding sequestered at the account levelat the account level, and CMS and CMS funds funds
other programs through the program management account, the total amount of mandatory administrative funding for other programs through the program management account, the total amount of mandatory administrative funding for
the Medicare program cannot be determined from the source. the Medicare program cannot be determined from the source.
6362 For a list of sequestrable For a list of sequestrable ~~budget~~ budget authority by budgetauthority by budget account, see account, see OMB Report to the Congress on the Joint
~~Committee~~Com m ittee Reductions for Fiscal Year 2021 , February 10, 2020. , February 10, 2020.
6463 Ibid. Ibid.
6564 Since Since the mandatory BCA sequesterthe mandatory BCA sequester went into effect, the total amount of Medicare benefit went into effect, the total amount of Medicare benefit ~~payments~~p ayments in a fiscal year in a fiscal year
has generally increasedhas generally increased at a at a ~~faster~~fast er 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 ~~FY2030.~~ InFY20 30. 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 ~~Taxpayer~~T axpayer 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 in FY2013 relative to all other ~~fiscal~~fisca l years under years under the BCA the BCA
mandatory sequester. mandatory sequester.
~~66 Congressional Budget~~ Congressional Research Service 15 link to page 11 Medicare and Budget Sequestration FY2021 sequestration orders and does not reflect the CARES Act, as amended, May 2020 through December 2021 suspension of sequestration. CBO estimated the original CARES Act May 2020 through December 2020 suspension would increase Medicare outlays by $4 bil ion in each of FY2020 and FY2021—for a total increase of $8 bil ion but did not provide a separate estimate for the Consolidated Appropriations Act, 2021, extension through March 2021.65 CBO projected the the additional March 2021 through December 2021 suspension extension enacted as part of P.L. 117-7, an Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes, would cost a total of $12.3 bil ion over FY2021 and FY2022.66 65 Congressional Budget Office (CBO), Office (CBO), Preliminary Estimate of the Effects of H.R. 748, the CARES Act, P.L. 116-136P.L. 116-136,
Revised, April 27, 2020, at https://www.cbo.gov/system/files/2020-04/hr748.pdf. , 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~~
~~March 31), the actual sequestration reductions associated with a sequestration order straddle two different fiscal years.~~
~~CBO therefore~~In its projection of the CARES Act provision, CBO projected that the Medicare sequestration suspension would 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
~~amended~~ amended the BCA (the BCA ( P.L. 112-25) to extend by one year (through FY2030) the sequestration of all nonexempt P.L. 112-25) to extend by one year (through FY2030) the sequestration of all nonexempt
mandatory spending. CBO scored the net impact of §3709 as decreasingmandatory spending. CBO scored the net impact of §3709 as decreasing direct spending (outlays) by $19 billion over direct spending (outlays) by $19 billion over
~~the 10-year,~~ the FY2020-FY2030FY2020-FY2030, projection period. (In its score of Division N of the Consolidated Appropriations Act, projection period. (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 2021 (P.L. 116-260), CBO provided an aggregate estimate for all provisions in ~~Title~~T itle I and did I and did not includenot include a separate a separate
estimate for the threeestimate for the three -month Medicare sequestration suspension extension; see CBO,-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, P.L. 116-260, January 14,
2021, at https://www.cbo.gov/system/files/2021-01/PL_116-260_div_N.pdf.)2021, at https://www.cbo.gov/system/files/2021-01/PL_116-260_div_N.pdf.)
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66 T his cost estimate reflects only the cost of the March 2021 through December 2021 extension and is in addition to the costs of the original CARES Act suspension and Consolidated Appropriations Act, 2021, extension. CBO, CBO’s Estim ate of the Statutory Pay-As-You-Go Effects of H.R. 1868, an Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes, April 12, 2021, at https://www.cbo.gov/publication/57139. P.L. 117-7 also made adjustments to the applicable percentages in FY2030, the final year of sequestration (see footnote 27) that are expected to result in savings; therefore, CBO scored the net cost of §1 as saving $200 million over FY2021-FY2031. Congressional Research Service 16 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 ~~all resources~~ al resources estimated to be available to be sequestered.estimated to be available to be sequestered. Sequestered Funds
refersrefers ~~to all resources estimated~~ to al 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. ~~All~~ Al percentages are estimates.percentages are estimates. This figure does not reflect the CARES Act, as amended, This figure does not reflect the CARES Act, as amended,
temporary suspension of temporary suspension of Medicare sequestration from May 2020 through sequestration from May 2020 through ~~March~~ December 2021, in effect during the period of the 2021, in effect during the period of the
FY2020 FY2020 and FY2021 sequestration sequestration ~~order~~orders. CBO estimates that Medicare benefit payment outlays wil more than double from FY2020 to FY2030 (from $826 bil ion to $1,712 bil ion), the last year of BCA mandatory sequestration.67 Most of this expected increase is due to an aging population and rising health care costs per person.68 Most of this increase would be subject to sequestration. 67 Congressional Budget Office, March 2020 Medicare Baseline, at https://www.cbo.gov/system/files/2020-03/51302-2020-03-medicare.pdf. T his estimate was done prior to the COVID-19 pandemic and therefore does not take into account the potential impact of the pandemic or subsequent legislative changes on Medicare spending. 68 Congressional Budget Office, The 2020 Long-Term Budget Outlook, September 2020, at https://www.cbo.gov/system/files/2020-09/56516-LTBO.pdf. Congressional Research Service 17 Medicare and Budget Sequestration For more information on the Budget Control Act, see CRS Report R41965, The Budget Control Act of 2011, and CRS Report R42506, The Budget Control Act of 2011 as Amended: Budgetary Effects. Congressional Research Service 18.
Figure 2 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~~
~~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~~
~~reference, in FY2020, Medicare Advantage accounted for about 42% of all HI Trust Fund benefit~~
~~payments and 39% of all SMI Trust Fund benefit payments.67 These ratios could change in~~
~~FY2021 based on actual spending.~~

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

Source: CRS analysis of ~~OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2021,~~
~~February 10, 2020.~~
Notes: Administrative funding is not included. Although Medicare Part C is sequestered, OMB 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.~~
~~CBO estimates that Medicare benefit payment outlays will more than double from FY2020 to~~
~~FY2030 (from $826 billion to $1,712 billion), the last year of BCA mandatory sequestration.68~~
~~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.~~
~~For more information on the Budget Control Act, see CRS Report R41965,~~ ~~The Budget Control~~
~~Act of 2011, and CRS Report R42506,~~ ~~The Budget Control Act of 2011 as Amended: Budgetary~~
~~Effects~~.

~~68 Congressional Budget Office, March 2020 Medicare Baseline, at https://www.cbo.gov/system/files/2020-03/51302-~~
~~2020-03-medicare.pdf.~~
~~69 Congressional Budget Office, The 2020 Long-Term Budget Outlook, September 2020, at https://www.cbo.gov/~~
~~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, The Annual Sequester of Mandatory Spending through FY2029 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 ~~will~~
wil 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——~~All~~ Al 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 ~~cancellation~~cancel ation 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. 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 Bill Heniff Jr., Analyst on
Congress and the Legislative ProcessCongress and the Legislative Process, made significant contributions to this report..
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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 ~~not~~n ot be relied upon for purposes other be relied upon for purposes other
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Congressional Research Service Congressional Research Service
R45106 R45106 · VERSION 1011 · UPDATED
2021