Medicare and Budget Sequestration

Changes from September 26, 2023 to November 14, 2023

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Medicare and Budget Sequestration
~~September 26~~November 14, 2023 , 2023
Sequestration is the automatic reduction (i.e., cancellation) of certain federal spending, 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 generally by a uniform percentage. The sequester is a budget enforcement tool that was
established by Ryan J. Rosso
~~established by~~ Congress in the Balanced Budget and Emergency Deficit Control Act of Congress in the Balanced Budget and Emergency Deficit Control Act of
1985 (BBEDCA, also Analyst in Health Care Analyst in Health Care
~~1985 (BBEDCA, also~~ known as the Gramm-Rudman-Hollings Act; P.L. 99-177, as known as the Gramm-Rudman-Hollings Act; P.L. 99-177, as
~~Financing~~
amended) and was intended to amended) and was intended to Financing encourage compromise and action, rather than actually encourage compromise and action, rather than actually

being implemented (also known as being implemented (also known as triggered). Generally, this budget enforcement tool ). Generally, this budget enforcement tool

has been incorporated into laws to either discourage or encourage certain budget has been incorporated into laws to either discourage or encourage certain budget
objectives or goals. When these goals are not met, either objectives or goals. When these goals are not met, either through the enactment of a law or the lack thereof, a through the enactment of a law or the lack thereof, a
sequester is triggered and certain federal spending is reduced. sequester is triggered and certain federal spending is reduced.
Sequestration is of congressional interest due to its current use as an enforcement mechanism for three budget Sequestration is of congressional 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), the enforcement rules created by the Statutory Pay-As-You-Go Act of 2010 (Statutory PAYGO; P.L. 111-139), the
Budget Control Act of 2011 (BCA; P.L. 112-25), and the Fiscal Responsibility Act of 2023 (FRA; P.L. 118-5). Budget Control Act of 2011 (BCA; P.L. 112-25), and the Fiscal Responsibility Act of 2023 (FRA; P.L. 118-5).
At present, only the BCA sequester has been triggered and is in effect. Under the BCA, the sequestration of At present, only the BCA sequester has been triggered and is in effect. Under the BCA, the sequestration of
mandatory spending was originally scheduled to occur in FY2013 through FY2021. However, subsequent mandatory spending was originally scheduled to occur in FY2013 through FY2021. However, subsequent
legislation extended sequestration for mandatory spending through FY2031 and the sequestration of only legislation extended sequestration for mandatory spending through FY2031 and the sequestration of only
Medicare benefit payments spending through FY2032. (The sequestration to Medicare was temporarily suspended Medicare benefit payments spending through FY2032. (The sequestration to Medicare was temporarily suspended
from May 1, 2020, through March 30, 2022, and was limited to 1% from April 1, 2022, through June 30, 2022.) from May 1, 2020, through March 30, 2022, and was limited to 1% from April 1, 2022, through June 30, 2022.)
The Statutory PAYGO sequester applies to mandatory funding, is current law, and can be triggered if associated The Statutory PAYGO sequester applies to mandatory funding, is current law, and can be triggered if associated
budget enforcement rules are broken. Due to the potential impact of the American Rescue Plan Act of 2021 budget enforcement rules are broken. Due to the potential impact of the American Rescue Plan Act of 2021
(ARPA; P.L. 117-2) on deficits, sequestration under PAYGO was expected to be triggered in early 2022. However, (ARPA; P.L. 117-2) on deficits, sequestration under PAYGO was expected to be triggered in early 2022. However,
the Protecting Medicare and American Farmers from Sequester Cuts Act (P.L. 117-71) deferred the impact of the Protecting Medicare and American Farmers from Sequester Cuts Act (P.L. 117-71) deferred the impact of
ARPA to 2023. Subsequently, the Consolidated Appropriations Act, 2023, deferred ARPA to 2023. Subsequently, the Consolidated Appropriations Act, 2023, deferred ~~to 2026~~ the impact of ARPA the impact of ARPA
and other legislation estimated to impact the deficit under PAYGO. Without related congressional actionand other legislation estimated to impact the deficit under PAYGO. Without related congressional action ~~prior to~~
~~the end of 2025~~, reductions to Medicare under PAYGO could occur in , reductions to Medicare under PAYGO could occur in ~~2026~~2025. The FRA sequester applies to . The FRA sequester applies to
discretionary funding, is current law, and can be triggered if associated budget enforcement rules are broken (and discretionary funding, is current law, and can be triggered if associated budget enforcement rules are broken (and
Congress does not take action to change or waive this rule). Congress does not take action to change or waive this rule).
Medicare is a federal program that pays for certain health care services of qualified beneficiaries. The program is 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 funded using both mandatory and discretionary spending and is impacted by any sequestration order issued in
accordance with the aforementioned laws. Medicare benefit payments (the majority of Medicare expenditures) are accordance with the aforementioned laws. Medicare benefit payments (the majority of Medicare expenditures) are
considered mandatory spending and therefore are subject to the sequestration of mandatory funds. Special considered mandatory spending and therefore are subject to the sequestration of mandatory funds. Special
sequestration rules limit the extent to which Medicare benefit spending can be reduced in a given fiscal year. This 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 sequestration order. limit varies depending on the type of sequestration order.
Under a BCA mandatory sequestration order, Medicare benefit payments and Medicare Integrity Program 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 spending cannot be 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 payments and Medicare Program 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 apply to mandatory administrative Medicare spending under either type of sequestration order. These limits also
do not apply to discretionary administrative Medicare spending under an FRA sequestration order. do not apply to discretionary administrative Medicare spending under an FRA sequestration order.
Generally, Medicare’s benefit structure remains unchanged under a mandatory sequestration order and Generally, Medicare’s benefit structure remains unchanged under a mandatory sequestration order and
beneficiaries see few direct impacts. However, Medicare plans, providers, and suppliers see reductions in beneficiaries see few direct impacts. However, Medicare plans, providers, and suppliers see reductions in
payments. Due to varying plan and provider payment mechanisms among the four parts of Medicare, payments. Due to varying plan and provider payment mechanisms among the four parts of Medicare,
sequestration is implemented somewhat differently across the program. sequestration is implemented somewhat differently across the program.
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Medicare and Budget Sequestration

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Introduction
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.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, also known as the the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA, 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 actually being implemented (also known as action, rather than actually being implemented (also known as triggered).2 Generally, this budget ).2 Generally, 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 currently used as a budget enforcement mechanism as part of the Statutory Pay- Sequestration is currently used as a budget enforcement mechanism as part of the Statutory Pay-
As-You-Go Act of 2010 (Statutory PAYGO; P.L. 111-139), the Budget Control Act of 2011 As-You-Go Act of 2010 (Statutory PAYGO; P.L. 111-139), the Budget Control Act of 2011
(BCA; P.L. 112-25), and the Fiscal Responsibility Act of 2023 (FRA; P.L. 118-5). At this time, (BCA; P.L. 112-25), and the Fiscal Responsibility Act of 2023 (FRA; P.L. 118-5). At this time,
only the BCA mandatory spending sequester is in effect; it is scheduled to continue each year only the BCA mandatory spending sequester is in effect; it is scheduled to continue each year
through FY2031 for non-Medicare benefit payment spending and through FY2032 for Medicare through FY2031 for non-Medicare benefit payment spending and through FY2032 for Medicare
benefit payments. However, the Statutory PAYGO sequester and the FRA discretionary sequester benefit payments. However, the Statutory PAYGO sequester and the FRA discretionary sequester
are current law and can be triggered if the budget enforcement rules are broken (and Congress are current law and can be triggered if the budget enforcement rules are broken (and Congress
does not take action to change or waive these rules). does not take action to change or waive these rules).
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,3 is subject to a reduction in federal spending associated with the implementation of beneficiaries,3 is subject to a reduction in federal spending associated with the implementation of
these sequesters, although special rules limit the extent to which sequestered expenditures can be these sequesters, although special rules limit the extent to which sequestered expenditures can be
reduced. reduced.
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, this report provides appendixes that include references to additional Congressional Additionally, 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, all applicable budget accounts, budgetary goals have not been met. When a sequester is triggered, all applicable budget accounts,
unless exempted by law, are reduced by a certain percentage amount for a fiscal year.4 The unless exempted by law, are reduced by a certain percentage amount for a fiscal year.4 The

1 Section 250(c)(2) of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L. 99-177) 1 Section 250(c)(2) of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L. 99-177)
defines the terms defines the terms sequestration and and sequester as “the cancellation of budgetary resources provided by discretionary as “the cancellation of budgetary resources provided by discretionary
appropriations or direct spending law.” Budgetary resources are subject to sequestration unless exempted by law. For appropriations or direct spending law.” Budgetary resources are subject to sequestration unless exempted by law. For
further information on sequestration, see Office of Management and Budget (OMB), OMB Circular A-11 (2022), further information on sequestration, see Office of Management and Budget (OMB), OMB Circular A-11 (2022),
Section 100, at https://www.whitehouse.gov/wp-content/uploads/2018/06/s100.pdf. Section 100, at https://www.whitehouse.gov/wp-content/uploads/2018/06/s100.pdf.
2 U.S. Congress, Senate Committee on Finance, 2 U.S. Congress, Senate Committee on Finance, Budget Enforcement Mechanisms, Oral and Written Testimony of the , Oral and Written Testimony of the
Honorable Phil Gramm, 112th Cong., 1st sess., May 4, 2011. Honorable Phil Gramm, 112th Cong., 1st sess., May 4, 2011.
3 For more information on Medicare, see CRS Report R40425, 3 For more information on Medicare, see CRS Report R40425, Medicare Primer. .
4 Sequestration does not apply to every account, since many budget accounts are either exempted from sequestration or 4 Sequestration does not apply to every account, since many budget accounts are either exempted from sequestration or
governed by special rules under sequestration, the latter of which can vary depending on the sequestration trigger. See governed by special rules under sequestration, the latter of which can vary depending on the sequestration trigger. See
BBEDCA §255 and §256, as amended. Since OMB is responsible for the execution and legal interpretations of BBEDCA §255 and §256, as amended. Since OMB is 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 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, list of exempted accounts, see CRS Report R42050, Budget “Sequestration” and Selected Program Exemptions and
Special Rules. .
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percentage reduction varies between and within budget accounts depending on the categories of percentage reduction varies between and within budget accounts depending on the categories of
funding, as described below, contained within each budget account. funding, as described below, contained within each budget account.
After identifying each category of funding within a budget account, sequestration reductions are After identifying each category of funding within a budget account, sequestration reductions are
applied evenly across all budget account subcomponents referenced in committee reports, budget applied evenly across all 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.5 For budget accounts that contain only one category of funding, all sequestrable or activities.5 For budget accounts that contain only one category of funding, all 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 usually are permanently cancelled.6 corresponding percentage. The reduced budget resources usually are permanently cancelled.6
A sequester can apply to either discretionary or mandatory spending. Discretionary spending is A sequester can apply to either discretionary or mandatory spending. Discretionary spending is
associated with most funds provided by annual appropriations acts. While all discretionary associated with most funds provided by annual appropriations acts. While all discretionary
spending is subject to the annual appropriations process, only a portion of mandatory spending is spending is subject to the annual appropriations process, only a portion of mandatory spending is
provided in appropriations acts.7 Mandatory spending is generally provided by permanent laws, provided in appropriations acts.7 Mandatory spending is generally provided by permanent laws,
such as the Social Security Act, which made indefinite budget authority permanently available for such as the Social Security Act, which made indefinite budget authority permanently available for
Medicare benefit payments.8 Some federal programs, including Medicare, can receive both Medicare benefit payments.8 Some federal programs, including Medicare, can receive both
discretionary and mandatory funding. 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, certain other health programs, and other nondefense and defense percentages for Medicare, certain other health programs, and other nondefense and defense
funding.9 Due to sequestration rules, which are covered later in this report, mandatory Medicare funding.9 Due to sequestration rules, which are covered later in this report, mandatory Medicare
benefit payments receive a specific percentage reduction different from other types of federal benefit payments receive a specific percentage reduction different from other types of federal
spending.10 spending.10
The methodologies used to calculate these percentages and the sequestered amounts are published The methodologies used to calculate these percentages and the sequestered amounts are published
in a report produced by OMB. Once the President issues a sequestration order, the associated in a report produced by OMB. Once the President issues a sequestration order, the associated
report is made available to the public and transmitted to Congress.11 report is made available to the public and transmitted to Congress.11

5 See CRS Report R42972, 5 See CRS 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. .
6 “In some circumstances current law allows for budget authority sequestered in one fiscal year to become available to 6 “In some circumstances current law allows for budget authority sequestered in one fiscal year to become available to
the agencies again in a subsequent fiscal year. OMB refers to these amounts as ‘pop ups.’” See U.S. Government the agencies again in a subsequent fiscal year. OMB refers to these amounts as ‘pop ups.’” See U.S. Government
Accountability Office (GAO), Accountability Office (GAO), 2014 Sequestration Opportunities Exist to Improve Transparency of Progress Toward
Deficit Reduction Goals, GAO-16-263, April 2016, p. 20, at https://www.gao.gov/assets/680/676565.pdf. , GAO-16-263, April 2016, p. 20, at https://www.gao.gov/assets/680/676565.pdf.
7 Some mandatory entitlements are provided through the annual appropriations process and are considered 7 Some mandatory entitlements are provided through the annual appropriations process and are considered
appropriated entitlements (e.g., Medicaid). Although these entitlements are appropriated, the federal government is (e.g., Medicaid). Although these entitlements are appropriated, the federal government is
legally obligated to make payments to those deemed eligible for the entitlement. (Medicaid is explicitly exempt from legally obligated to make payments to those deemed eligible for the entitlement. (Medicaid is explicitly exempt from
sequestration.) sequestration.)
8 Indefinite budget authority is federal spending that, at the time of enactment, is for an unspecified amount that will be 8 Indefinite budget authority is federal spending that, at the time of enactment, is for an unspecified amount that will be
determined at a later date. See GAO, determined at a later date. See GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP, , GAO-05-734SP,
September 1, 2005, p. 23, at https://www.gao.gov/assets/80/76911.pdf. September 1, 2005, p. 23, at https://www.gao.gov/assets/80/76911.pdf.
9 All funds are first classified as discretionary or mandatory. Within each of these categories, funds are further 9 All funds are first classified as discretionary or mandatory. Within each of these categories, funds are further
classified as Medicare, certain other health programs, defense, or nondefense. During a sequestration order, each classified as Medicare, certain other health programs, defense, or nondefense. During a sequestration order, each
subcomponent of discretionary and/or mandatory funds receives a sequestration percentage based on the necessary subcomponent of discretionary and/or mandatory funds receives a sequestration percentage based on the necessary
amount of savings for that category, and any applicable special rules. Each of these categories receives a different amount of savings for that category, and any applicable special rules. Each of these categories receives a different
percentage reduction under a sequestration order. percentage reduction under a sequestration order.
10 For sequestration purposes, Medicare benefit payments are defined by BBEDCA as all payments for programs and 10 For sequestration purposes, Medicare benefit payments are defined by BBEDCA as all payments for programs and
activities under Title XVIII of the Social Security Act. See BBEDCA §256(d). activities under Title XVIII of the Social Security Act. See BBEDCA §256(d).
11 For more information about the methodologies associated with calculating the sequester percentage in a given year, 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 BBEDCA 251A Sequestration for Fiscal Year 2022, May 28, 2021, at see OMB Report to the Congress on the BBEDCA 251A Sequestration for Fiscal Year 2022, May 28, 2021, at
https://www.whitehouse.gov/wp-content/uploads/2021/05/BBEDCA_251A_Sequestration_Report_FY2022.pdf. https://www.whitehouse.gov/wp-content/uploads/2021/05/BBEDCA_251A_Sequestration_Report_FY2022.pdf.
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Budget Enforcement Rules
At present, there are three budget enforcement rules that could trigger sequestration. One was At present, there are three budget enforcement rules that could trigger sequestration. One was
established by the BCA, one was established by Statutory PAYGO, and one was established by established by the BCA, one was established by Statutory PAYGO, and one was established by
the FRA. The three rules and their corresponding sequesters can be summarized as follows (and the FRA. The three rules and their corresponding sequesters can be summarized as follows (and
are presented inare presented in Table 1): :
Budget Control Act
The BCA established a bipartisan Joint Select Committee on Deficit Reduction (Joint The BCA established a bipartisan Joint Select Committee on Deficit Reduction (Joint
Committee), which was responsible for developing legislation that would reduce the deficit by at Committee), which was responsible for developing legislation that would reduce the deficit by at
least $1.2 trillion from FY2012 to FY2021.12 However, the Joint Committee was unable to least $1.2 trillion 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, the sequestration of certain deficit reduction legislation by a date specified in the law. As a result, the sequestration of certain
mandatory spending initially from FY2013 to FY2021 was automatically triggered.13 (This report spending initially from FY2013 to FY2021 was automatically triggered.13 (This report
refers to these spending reductions as the refers to these spending reductions as the BCA mandatory sequester.) .)
Subsequent legislation extended this sequestration through FY2031 for non-Medicare benefit Subsequent legislation extended this sequestration through FY2031 for non-Medicare benefit
payment spending and through FY2032 for Medicare benefit payments. Legislation that extended payment spending and through FY2032 for Medicare benefit payments. Legislation that extended
the BCA mandatory sequester includes the following: the BCA mandatory sequester includes the following:
• The Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67) extended the BCA • The Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67) extended the BCA
mandatory sequester through FY2023; mandatory sequester through FY2023;
• A law modifying the cost-of-living adjustment (COLA) for certain military • A law modifying the cost-of-living adjustment (COLA) for certain military
retirees (P.L. 113-82) extended it through FY2024; retirees (P.L. 113-82) extended it through FY2024;
• The Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74) extended it through • The Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74) extended it through
FY2025; FY2025;
• The Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123) extended it • The Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123) extended it
through FY2027; through FY2027;
• The Bipartisan Budget Act of 2019 (BBA 2019; P.L. 116-37) extended it through • The Bipartisan Budget Act of 2019 (BBA 2019; P.L. 116-37) extended it through
FY2029; FY2029;
• The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116- • The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-
136) extended it through FY2030; 136) extended it through FY2030;
• The Infrastructure Investment and Jobs Act (P.L. 117-58) extended it through • The Infrastructure Investment and Jobs Act (P.L. 117-58) extended it through
FY2031; and FY2031; and
• The Consolidated Appropriations Act, 2023 (P.L. 117-328) extended it through • The Consolidated Appropriations Act, 2023 (P.L. 117-328) extended it through
FY2032, but only with respect to Medicare benefit payments. FY2032, but only with respect to Medicare benefit payments.
Additional legislation suspended the application of the BCA mandatory sequester to Medicare Additional legislation suspended the application of the BCA mandatory sequester to Medicare
during the Coronavirus Disease 2019 (COVID-19) pandemic from May 2020 through March during the Coronavirus Disease 2019 (COVID-19) pandemic from May 2020 through March
2022 and limited the reductions to 1% from April 2022 through June 2022. (See “Temporary 2022 and limited the reductions to 1% from April 2022 through June 2022. (See “Temporary
Suspension of Medicare Sequestration.”) Suspension of Medicare Sequestration.”)

12 See Title IV of the BCA. 12 See Title IV of the BCA.
13 Additionally, the BCA established statutory limits on 13 Additionally, the BCA established statutory limits on discretionary spending for FY2012-FY2021. For more spending for FY2012-FY2021. For more
information about the discretionary spending limits established under the BCA, see CRS Report R42506, information about the discretionary spending limits established under the BCA, see CRS Report R42506, The Budget
Control Act of 2011 as Amended: Budgetary Effects. .
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Statutory PAYGO
The Statutory PAYGO Act established a budget enforcement mechanism generally requiring that The Statutory PAYGO Act established a budget enforcement mechanism generally requiring that
legislation affecting direct (mandatory) spending and revenues does not have the effect of legislation 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 legislation estimated to increase the deficit has been enacted since 2010 (when the Although legislation estimated to increase the deficit has been enacted since 2010 (when the
Statutory PAYGO Act was enacted), a Statutory PAYGO sequester has never been triggered. To Statutory PAYGO Act was enacted), a Statutory PAYGO sequester has never been triggered. To
avoid any potential sequester, such legislation has often included a provision effectively avoid any potential sequester, such legislation has often included a provision effectively
exempting it from the PAYGO requirements.14 exempting it from the PAYGO requirements.14
A recent exception to this practice, however, was the American Rescue Plan Act of 2021 (ARPA; A recent exception to this practice, however, was the American Rescue Plan Act of 2021 (ARPA;
P.L. 117-2), which did not include any provision that excluded its budgetary effects from the P.L. 117-2), which did not include any provision that excluded its budgetary effects from the
Statutory PAYGO requirements. Therefore, its estimated deficit increases of over $1.9 trillion and Statutory PAYGO requirements. Therefore, its estimated deficit increases of over $1.9 trillion and
over $2.0 trillion were placed on the 5-year and 10-year PAYGO scorecards, respectively.15 To over $2.0 trillion were placed on the 5-year and 10-year PAYGO scorecards, respectively.15 To
avoid a sequester, however, the balances on the scorecards for FY2022 were transferred to avoid a sequester, however, the balances on the scorecards for FY2022 were transferred to
FY2023 by the Protecting Medicare and American Farmers from Sequester Cuts Act (P.L. 117-FY2023 by the Protecting Medicare and American Farmers from Sequester Cuts Act (P.L. 117-
71). The Consolidated Appropriations Act, 2023 (P.L. 117-328), subsequently transferred the 71). The Consolidated Appropriations Act, 2023 (P.L. 117-328), subsequently transferred the
balances on the scorecards for FY2023balances on the scorecards for FY2023- to FY2025 and will transfer the balances on the scorecards FY2025 and will transfer the balances on the scorecards
for FY2024for FY2024- to FY2025 after the first session of the 118th Congress adjourns. FY2025 after the first session of the 118th Congress adjourns.
A PAYGO sequester, including the 4% reduction to Medicare benefit payments, could be A PAYGO sequester, including the 4% reduction to Medicare benefit payments, could be
triggered in triggered in ~~early 2026~~2025 unless similar legislative action is taken before then. unless similar legislative action is taken before then.
If a PAYGO sequester were to be triggered If a PAYGO sequester were to be triggered ~~in 2026 or another future fiscal year~~, neither the , neither the
Statutory PAYGO Act nor the Budget Control Act include any explicit directions as to how the Statutory PAYGO Act nor the Budget Control Act include any explicit directions as to how the
two sequesters would be implemented alongside each other. two sequesters would be implemented alongside each other.
Fiscal Responsibility Act
The FRA established statutory limits on The FRA established statutory limits on discretionary spending for FY2024-FY2025.16 These spending for FY2024-FY2025.16 These
discretionary spending limits (discretionary spending limits (caps) restrict the amount of spending permitted through the annual ) restrict the amount of spending permitted through the annual
appropriations process for defense and nondefense programs. Any breach of these discretionary appropriations process for defense and nondefense programs. Any breach of these discretionary
caps would result in the sequestration of nonexempt discretionary funding within the applicable caps would result in the sequestration of nonexempt discretionary funding within the applicable
category (defense and/or nondefense). (This reduction is referred to in this report as the category (defense and/or nondefense). (This reduction is referred to in this report as the FRA
sequester.) .)

14 For more information, see CRS Congressional Distribution Memorandum, “Budgetary Effects Excluded or 14 For more information, see CRS Congressional Distribution Memorandum, “Budgetary Effects Excluded or
Eliminated from the Statutory Pay-As-You-Go (Stat-PAYGO) Scorecards,” May 9, 2023, by Bill Heniff Jr. Available Eliminated from the Statutory Pay-As-You-Go (Stat-PAYGO) Scorecards,” May 9, 2023, by Bill Heniff Jr. Available
from the author upon request. from the author upon request.
15 OMB, 15 OMB, 2021 Statutory Pay-As-You-Go Act Annual Report, p. 10, at https://www.whitehouse.gov/wp-content/uploads/, p. 10, at https://www.whitehouse.gov/wp-content/uploads/
2022/01/annualpaygoreport2021.pdf. 2022/01/annualpaygoreport2021.pdf.
16 For more information on these discretionary spending caps, see CRS Insight IN12168, 16 For more information on these discretionary spending caps, see CRS Insight IN12168, Discretionary Spending Caps
in the Fiscal Responsibility Act of 2023, and CRS Insight IN12183, , and CRS Insight IN12183, The FRA’s Discretionary Spending Caps Under a
CR: FAQs. .
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Table 1. Medicare Budget Enforcement Rules Summary
Sequester
Medicare
Percentage
Funding Types
Programs
Enforcement Rule
Cap
Current Status
Statutory PAYGO
Mandatory Mandatory
Parts A, B, C, Parts A, B, C,
If revenue and/or mandatory If revenue and/or mandatory
4% for Medicare 4% for Medicare
Current law but not Current law but not
and D Benefits; and D Benefits;
spending legislation that spending legislation that
benefit payments benefit payments
triggered. triggered.
MIP HCFAC; MIP HCFAC;
projects to increase the projects to increase the
and MIP HCFAC. and MIP HCFAC.
Non-MIP Non-MIP
deficit over a 5- and/or 10- deficit over a 5- and/or 10-
None for other None for other
HCFAC; HCFAC;
year period were enacted, a year period were enacted, a
spending. spending.
Administration Administration
sequester of certain sequester of certain
mandatory spending would mandatory spending would
be ordered. be ordered.
BCA Mandatory Sequester
Mandatory Mandatory
Parts A, B, C, Parts A, B, C,
If the Joint Select Committee 2% for Medicare If the Joint Select Committee 2% for Medicare
Currently triggered Currently triggered
and D Benefits; and D Benefits;
were to be unsuccessful at were to be unsuccessful at
benefit payments benefit payments
and in effect through and in effect through
MIP HCFAC; MIP HCFAC;
reducing the federal deficit reducing the federal deficit
and MIP HCFAC. FY2031, or with and MIP HCFAC. FY2031, or with
Non-MIP Non-MIP
by $1.2 by $1.2 ~~tril ion~~trillion from FY2012- from FY2012-
None for other None for other
respect to Medicare respect to Medicare
HCFAC; HCFAC;
FY2021, mandatory FY2021, mandatory
~~spendin~~gspending.a
benefit payments and benefit payments and
Administration Administration
sequestration would be sequestration would be
MIP HCFAC, MIP HCFAC,
~~implemented~~implemented.a
through through ~~FY203~~2FY2032.b
FRA Sequester
Discretionary Discretionary
Non-MIP Non-MIP
If discretionary If discretionary
None. None.
Current law but not Current law but not
HCFAC; HCFAC;
appropriations were enacted appropriations were enacted
triggered. triggered.
Administration Administration
that exceed specified limits, a that exceed specified limits, a
sequester would be sequester would be
triggered. triggered.
Source: CRS.CRS.
Notes: Programs that appear in both categories are funded using mandatory and discretionary spending Programs that appear in both categories 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 explicitly exempt Part from being included in the determination of adjustments to Medicare payment rates, and explicitly exempt Part
D low-income subsidies, Part D catastrophic subsidies (reinsurance) and Qualified Individual premiums from D low-income subsidies, Part D catastrophic subsidies (reinsurance) and Qualified Individual premiums from
sequestration. sequestration. BCA refers to Budget Control Act. refers to Budget Control Act. FRA refers to the Fiscal Responsibility Act.refers to the Fiscal Responsibility Act. Discretionary
Administration includes amounts for payments to contractors to process providers’ claims, beneficiary includes amounts for payments to contractors to process providers’ claims, beneficiary
outreach and education, and maintenance of Medicare’s information technology infrastructure. outreach and education, and maintenance of Medicare’s information technology infrastructure. HCFAC refers refers
to the Health Care Fraud and Abuse Control Program, which is responsible for activities that fight health care to the Health Care Fraud and Abuse Control Program, which is responsible for activities that fight health care
fraud and waste and is funded through discretionary and mandatory resources. fraud and waste and is funded through discretionary and mandatory resources. Mandatory Administration
includes, among other things, amounts for quality improvement organizations. includes, among other things, amounts for quality improvement organizations. Medicare Benefit Payments
are defined by BBEDCA as all payments for programs and activities under Title XVIII of Social Security Act, are defined by BBEDCA as all payments for programs and activities under Title XVIII of Social Security Act,
including the Medicare Integrity Program. including the Medicare Integrity Program. MIP HCFAC refers to the Medicare Integrity Program, which focuses refers to the Medicare Integrity Program, which focuses
on combating fraud in Medicare. on combating fraud in Medicare. Non-MIP HCFAC refers to all HCFAC spending other than MIP. refers to all HCFAC spending other than MIP.
a. Additionally, the BCA established statutory limits on a. Additionally, the BCA established statutory limits on discretionary spending for FY2012-FY2021. For more spending for FY2012-FY2021. For more
information about the discretionary spending limits established under the BCA, see CRS Report R42506, information about the discretionary spending limits established under the BCA, see CRS Report R42506,
The Budget Control Act of 2011 as Amended: Budgetary Effects. Per the Consolidated Appropriations Act, 2023 . Per the Consolidated Appropriations Act, 2023
(P.L. 117-328), the FY2032 Medicare sequester percentages (P.L. 117-328), the FY2032 Medicare sequester percentages ~~wil~~ will be 2% during the first six months of the be 2% during the first six months of the
FY2032 sequestration order and 0% for the next six months. See 2 U.S.C. §901a(6). For more information, FY2032 sequestration order and 0% for the next six months. See 2 U.S.C. §901a(6). For more information,
see “Timing.”
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 retirees (P.L. through FY2023. A law modifying the cost-of-living adjustment (COLA) for certain military retirees (P.L.
113-82) extended the sequester through FY2024. The Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-113-82) extended the sequester through FY2024. The Bipartisan Budget Act of 2015 (BBA 2015; 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, the CARES Act (P.L. 116-136) extended it through FY2030, and extended the sequester through FY2029, the CARES Act (P.L. 116-136) extended it through FY2030, and
the Protecting Medicare and American Farmers from Sequester Cuts Act (P.L. 117-71) extended it through the Protecting Medicare and American Farmers from Sequester Cuts Act (P.L. 117-71) extended it through
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FY2031. The Consolidated Appropriations Act, 2023 (P.L. 117-328), extended it to FY2032 but only for FY2031. The Consolidated Appropriations Act, 2023 (P.L. 117-328), extended it to FY2032 but only for
Medicare benefit payments and MIP HCFAC. The CARES Act, as amended by the Consolidated Medicare benefit payments and MIP HCFAC. The CARES Act, as amended by the Consolidated
Appropriations Act, 2021 (P.L. 116-260), an Act to Prevent Across-the-Board Direct Spending Cuts, and for Appropriations Act, 2021 (P.L. 116-260), an Act to Prevent Across-the-Board Direct Spending Cuts, and for
Other Purposes (P.L. 117-7), and the Protecting Medicare and American Farmers from Sequester Cuts Act Other Purposes (P.L. 117-7), and the Protecting Medicare and American Farmers from Sequester Cuts Act
(P.L. 117-71) also suspended the sequestration of Medicare from May 2020 through March 2022. P.L. 117-7 (P.L. 117-71) also suspended the sequestration of Medicare from May 2020 through March 2022. P.L. 117-7
also limited the Medicare reductions to 1% during April 2022 through June of 2022. also limited the Medicare reductions to 1% during April 2022 through June of 2022.
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 covered health care services of qualified Medicare, which is a federal program that pays for covered 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
applied. Due to the varying payment structures of the four parts of the program, sequestration is applied. Due to the varying payment structures of the four parts of the program, sequestration is
applied differently across Medicare. applied differently across Medicare.
Medicare was established in 1965 under Title XVIII of the Social Security Act to provide hospital Medicare was established in 1965 under Title XVIII of the Social Security Act to provide hospital
and supplementary medical insurance to Americans aged 65 and older. Over time, the program and supplementary medical insurance to Americans aged 65 and older. Over time, the program
has been expanded to also include certain disabled persons, including those with end-stage renal has been expanded to also include certain disabled persons, including those with end-stage renal
disease. In CY2022, the program covered an estimated 65.0 million persons (57.3 million aged disease. In CY2022, the program covered an estimated 65.0 million persons (57.3 million aged
and 7.7 million disabled).17 and 7.7 million disabled).17
The Congressional Budget Office (CBO) estimated that total Medicare spending in FY2023 will The Congressional Budget Office (CBO) estimated that total Medicare spending in FY2023 will
be about $1 trillion and will increase to about $1.9 trillion in FY2032.18 Almost all Medicare be about $1 trillion and will increase to about $1.9 trillion in FY2032.18 Almost all Medicare
spending is mandatory spending that is used primarily to cover benefit payments (i.e., payments spending is mandatory spending that is used primarily to cover benefit payments (i.e., payments
to health care providers for their services), administration, and the Medicare Integrity Program 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 other (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. administrative activities that are described in more detail later in this report.
Medicare consists of four distinct parts: Medicare consists of four distinct parts:
1. 1. Part A (Hospital Insurance, or HI) covers inpatient hospital services, skilled (Hospital Insurance, or HI) covers inpatient hospital services, skilled
nursing care, hospice care, and some home health services. Persons aged 65 and nursing care, hospice care, and some home health services. Persons aged 65 and
older are entitled to premium-free Part A if they or their spouse paid Medicare older are entitled to premium-free Part A if they or their spouse paid Medicare
payroll taxes for at least 40 quarters (about 10 years) on earnings covered by payroll taxes for at least 40 quarters (about 10 years) on earnings covered by
either the Social Security or the Railroad Retirement systems.19 Part A services either the Social Security or the Railroad Retirement systems.19 Part A services
are paid for out of the Hospital Insurance Trust Fund, which is mainly funded by 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 workers, shared equally a dedicated 2.9% payroll tax on earnings of current workers, shared equally
between employers and workers. between employers and workers.
2. 2. Part B (Supplementary Medical Insurance, or SMI) covers a broad range of (Supplementary Medical Insurance, or SMI) covers a broad range of
medical services, including physician services, laboratory services, durable medical services, including physician services, laboratory services, durable
medical equipment, and outpatient hospital services. Enrollment in Part B is medical equipment, and outpatient hospital services. Enrollment in Part B is
optional, but most beneficiaries with Part A also enroll in Part B. Part B benefits optional, but most beneficiaries with Part A also enroll in Part B. Part B benefits
are paid for out of the Supplementary Medical Insurance Trust Fund, which is are paid for out of the Supplementary Medical Insurance Trust Fund, which is

17 CMS, “Fast Facts,” March 2023, at https://data.cms.gov/sites/default/files/2023-03/CMSFastFactsMar2023.pdf. 17 CMS, “Fast Facts,” March 2023, at https://data.cms.gov/sites/default/files/2023-03/CMSFastFactsMar2023.pdf.
18 Congressional Budget Office (CBO), May 2022 Medicare Baseline, at https://www.cbo.gov/system/files/2022-05/18 Congressional Budget Office (CBO), May 2022 Medicare Baseline, at https://www.cbo.gov/system/files/2022-05/
51302-2022-05-medicare.pdf. 51302-2022-05-medicare.pdf.
19 Individuals who do not meet this requirement may obtain Medicare Part A coverage by paying a premium. 19 Individuals who do not meet this requirement may obtain Medicare Part A coverage by paying a premium.
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primarily funded through Part B beneficiary premiums and federal general primarily funded through Part B beneficiary premiums and federal general
revenues. revenues.
3. 3. Part C (Medicare Advantage, or MA) is a private plan option that covers all (Medicare Advantage, or MA) is a private plan option that covers all
Parts A and B services, except hospice. Individuals choosing to enroll in Part C Parts A and B services, except hospice. Individuals choosing to enroll in Part C
must be enrolled in Parts A and B. About one-third of Medicare beneficiaries are must be enrolled in Parts A and B. About one-third of Medicare beneficiaries are
enrolled in MA. Part C is funded through both the HI and SMI trust funds. enrolled in MA. Part C is funded through both the HI and SMI trust funds.
4. 4. Part D is a voluntary private plan option that covers outpatient prescription drug is a voluntary private plan option that covers outpatient prescription drug
benefits. About three-quarters of Medicare beneficiaries are enrolled in Medicare benefits. About three-quarters of Medicare beneficiaries are enrolled in Medicare
Part D or have coverage through an employer retiree plan subsidized by Part D or have coverage through an employer retiree plan subsidized by
Medicare. Part D benefits are also paid for out of the Supplementary Medical Medicare. Part D benefits are also paid for out of the Supplementary Medical
Insurance Trust Fund and are primarily funded through Part D beneficiary Insurance Trust Fund and are primarily funded through Part D beneficiary
premiums, federal general revenues, and state transfer payments. premiums, federal general revenues, and state transfer payments.
For more information on the Medicare program, see CRS Report R40425, For more information on the Medicare program, see CRS Report R40425, Medicare Primer. .
Beneficiary Costs
Beneficiaries are responsible for paying Medicare Parts B and D premiums, as well as other out-Beneficiaries are responsible for paying Medicare Parts B and D premiums, as well as other out-
of-pocket costs, such as deductibles and coinsurance,20 for services provided under all parts of the of-pocket costs, such as deductibles and coinsurance,20 for services provided under all parts of the
Medicare program.21 Under Medicare Parts A, B and D, there is no limit on beneficiary out-of-Medicare program.21 Under Medicare Parts A, B and D, there is no limit 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.22 Medicare Advantage has limits on their Medicare premiums and/or deductibles and coinsurance.22 Medicare Advantage has limits on
beneficiary out-of-pocket spending. beneficiary out-of-pocket spending.
Provider and Plan Payments
Under Medicare Parts A and B, the government generally pays providers directly for services on a Under Medicare Parts A and B, the government generally pays providers directly for services on a
fee-for-service basis using different prospective payment systems and fee schedules.23 Under basis using different prospective payment systems and fee schedules.23 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

20 A deductible is the amount an enrollee is required to pay for health care services or products before his or her 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 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. 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 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. additional premium required by the MA plan.
22 For more information on Medigap, see CRS Report R47552, 22 For more information on Medigap, see CRS Report R47552, Medigap: Background and Statistics. .
23 Under a 23 Under a prospective payment system (PPS), Medicare payments are made using a predetermined, fixed amount based (PPS), Medicare payments are made using a predetermined, fixed amount based
on the classification system for a particular service. The Centers for Medicare & Medicaid Services (CMS) uses on the classification system for a particular service. The Centers for Medicare & Medicaid Services (CMS) uses
separate PPSs to pay acute inpatient hospitals, home health agencies, hospice, hospital outpatient departments, inpatient separate PPSs to pay acute inpatient hospitals, home health agencies, hospice, hospital outpatient departments, inpatient
psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities. A psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities. A fee
schedule is a listing of fees used by Medicare to pay doctors or other providers/suppliers. Fee schedules are used to pay is a listing of fees used by Medicare to pay doctors or other providers/suppliers. Fee schedules are used to pay
for physician services; ambulance services; clinical laboratory services; and durable medical equipment, prosthetics, for physician services; ambulance services; clinical laboratory services; and durable medical equipment, prosthetics,
orthotics, and supplies in certain locations. orthotics, and supplies in certain locations.
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activities that fight health care fraud and waste.24 HCFAC is funded using both mandatory and activities that fight health care fraud and waste.24 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, MIP has focused on combating fee-for-service fraud in Medicare Parts A and B. Historically, 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 well. integrity efforts into capitated payment systems as well.
While HCFAC is not a part of the Medicare program, MIP is authorized by the same title of the While HCFAC is not a part of the Medicare program, MIP is authorized by the same title of the
Social Security Act as Medicare and focuses entirely on the program. As a result, this portion of Social Security Act as Medicare and focuses entirely on the program. As a result, this portion of
HCFAC is treated as a part of Medicare benefit payments under a sequestration order and is HCFAC is treated as a part of Medicare benefit payments under a sequestration order and is
subject to the Medicare mandatory sequestration percentage limits.25 subject to the Medicare mandatory sequestration percentage limits.25
Administrative Spending
The administration of Medicare is funded through a combination of discretionary and mandatory The administration of Medicare is funded through a combination of discretionary and mandatory
resources that are subject to reductions under a discretionary or mandatory sequestration order, resources that are subject to reductions under a discretionary or mandatory sequestration order,
respectively. Discretionary administration funding includes amounts for payments to contractors respectively. Discretionary administration funding includes amounts for payments to contractors
to process providers’ claims, beneficiary outreach and education, and maintenance of Medicare’s to process providers’ claims, beneficiary outreach and education, and maintenance of Medicare’s
information technology infrastructure. Mandatory administration funding includes amounts for information technology infrastructure. Mandatory administration funding includes amounts for
quality improvement organizations and Part B premium payments for Qualifying Individuals quality improvement organizations and Part B premium payments for Qualifying Individuals
(QI).26 (QI).26
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, as amended by the BCA, prohibits Medicare benefit payments from being notably, BBEDCA, as amended by the BCA, prohibits Medicare benefit payments from being
reduced by more than 2% under a BCA mandatory sequestration order. Similarly, Statutory 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.27 The caps do not apply to Medicare mandatory and Statutory PAYGO sequestration order.27 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 BCA and Statutory PAYGO sequestration orders. under both BCA and Statutory PAYGO sequestration orders.
Under the current mandatory sequestration process triggered by the BCA, the Medicare Under the current mandatory sequestration process triggered by the BCA, the Medicare
sequestration percentage is capped at 2%.28 Therefore, regardless of the percentage reduction sequestration percentage is capped at 2%.28 Therefore, regardless of the percentage reduction

24 For additional information, see U.S. Department of Health and Human Services, Office of Inspector General, 24 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.
25 For sequestration purposes, BBEDCA defines Medicare benefit payments as all payments for programs and activities 25 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). under Title XVIII of Social Security Act. This includes the Medicare Integrity Program (MIP). See BBEDCA §256(d).
26 The Qualifying Individuals (QI) program is a state program that helps pay Part B premiums for people who have Part 26 The 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,”A and limited income and resources. See CMS, “Medicare Savings Programs,” at https://www.medicare.gov/medicare-at https://www.medicare.gov/medicare-
savings-programs. savings-programs.
27 Medicare benefit payments are considered mandatory budgetary resources and would not be subject to a FRA 27 Medicare benefit payments are considered mandatory budgetary resources and would not be subject to a FRA
sequestration order. sequestration order.
28 See 2 U.S.C. §901a(6). P.L. 117-71. Per the P.L. 117-58 Consolidated Appropriations Act, 2023 [P.L. 117-328], the 28 See 2 U.S.C. §901a(6). P.L. 117-71. Per the P.L. 117-58 Consolidated Appropriations Act, 2023 [P.L. 117-328], the
Medicare sequester percentage in FY2032 will be 2% during the first six months of the FY2032 sequestration order Medicare sequester percentage in FY2032 will be 2% during the first six months of the FY2032 sequestration order
(April 2032 through September 2032) and 0% for the next six months (October 2032 through March 2033). See 2 (April 2032 through September 2032) and 0% for the next six months (October 2032 through March 2033). See 2
U.S.C. §901a(6). For more information, see U.S.C. §901a(6). For more information, see “Timing.” ”
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applied to other mandatory spending, Medicare benefit payments cannot be reduced by more than applied to other mandatory spending, Medicare benefit payments cannot be reduced by more than
2%. 2%.
For the FY2013-FY2021 sequestration orders, the reduction percentages were determined under For the FY2013-FY2021 sequestration orders, the reduction percentages were determined under
the following method. If OMB were to determine that total nonexempt, nondefense mandatory the following method. If OMB were to determine that total nonexempt, nondefense mandatory
funds needed to be reduced by a percentage larger than 2% in order to achieve necessary savings funds needed to 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 under a BCA sequestration order for a given year, then a 2% reduction would be made to
Medicare benefit spending, and a uniform reduction percentage for the remaining non-Medicare Medicare benefit spending, and a uniform reduction percentage for the remaining non-Medicare
benefit, nonexempt, nondefense mandatory programs would be recalculated and increased by an benefit, nonexempt, nondefense mandatory programs would be recalculated and increased by an
amount to achieve the necessary level of reductions.29 If the uniform percentage reduction needed amount to achieve the necessary level of reductions.29 If the uniform percentage reduction needed
to achieve the total amount of savings were less than 2%, then the determined percentage would to achieve the total amount of savings were less than 2%, then the determined percentage would
be applied to Medicare as well as to all other nonexempt non-Medicare nondefense mandatory be applied to Medicare as well as to all other nonexempt non-Medicare nondefense mandatory
spending. spending.
If a mandatory sequestration order were to be triggered by Statutory PAYGO, the process would If a mandatory sequestration order were to be triggered by Statutory PAYGO, the process would
be the same as above, but the reduction of payments for Medicare benefits would be capped at be the same as above, but the reduction of payments for Medicare benefits would be capped at
4%.30 4%.30
Beyond FY2021, there is no statutory requirement that the BCA mandatory sequester achieve a Beyond FY2021, there is no statutory requirement that the BCA mandatory sequester achieve a
certain level of budgetary savings in defense and nondefense spending and, consequently, no certain level of budgetary savings in defense and nondefense spending and, consequently, no
specific amounts to apportion to the different spending categories. The statutes extending the specific amounts to apportion to the different spending categories. The statutes extending the
BCA mandatory sequester (see BCA mandatory sequester (see “Budget Control Act”) therefore required that the applicable ) therefore required that the applicable
percentage reductions for FY2022 through FY2031 be the same as those under the FY2021 percentage reductions for FY2022 through FY2031 be the same as those under the FY2021
sequestration order. (sequestration order. (See Table 2.) The statute extending sequestration only for Medicare benefit The statute extending sequestration only for Medicare benefit
payments for FY2032 required a 2% reduction for the first six months of the FY2032 payments for FY2032 required a 2% reduction for the first six months of the FY2032
sequestration order and 0% for the next six months. sequestration order and 0% for the next six months.
In addition to the Medicare percentage caps, BBEDCA also prohibits Statutory PAYGO and BCA In addition to the Medicare percentage caps, BBEDCA also prohibits Statutory PAYGO and BCA
mandatory sequestration effects from being included in the determination of annual adjustments mandatory sequestration effects from being included in the determination of annual adjustments
to Medicare payment rates established under Title XVIII of the Social Security Act, including the to Medicare payment rates established under Title XVIII of the Social Security Act, including the
Part C growth percentage and the Part D annual growth rate.31 (See Part C growth percentage and the Part D annual growth rate.31 (See “Reductions in Benefit
Spending.”) )
Certain Medicare programs and activities are explicitly exempted from Statutory PAYGO and Certain Medicare programs and activities are explicitly exempted from Statutory PAYGO and
BCA sequestration orders. Specifically, Part D low-income subsidies,32 Part D catastrophic BCA sequestration orders. Specifically, Part D low-income subsidies,32 Part D catastrophic
subsidies (reinsurance),33 and QI premiums cannot be reduced under a mandatory sequestration subsidies (reinsurance),33 and QI premiums cannot be reduced under a mandatory sequestration
order.34 order.34

29 In making the sequestration amount determinations during the CARES Act, as amended, suspension of Medicare 29 In making the sequestration amount determinations during the CARES Act, as amended, suspension of Medicare
sequestration, OMB’s estimates reflected the full amount of sequestrable Medicare resources even though resources sequestration, OMB’s estimates reflected the full amount of sequestrable Medicare resources even though resources
expended during that period were not reduced. For additional information, see expended during that period were not reduced. For additional information, see OMB Report to the Congress on the
BBEDCA 251A Sequestration for Fiscal Year 2022,, May 28, 2021, at https://www.whitehouse.gov/wp-content/uploads/May 28, 2021, at https://www.whitehouse.gov/wp-content/uploads/
2021/05/BBEDCA_251A_Sequestration_Report_FY2022.pdf. 2021/05/BBEDCA_251A_Sequestration_Report_FY2022.pdf.
30 See BBEDCA, §256(d)(2). 30 See BBEDCA, §256(d)(2).
31 See BBEDCA §256(d)(6). 31 See BBEDCA §256(d)(6).
32 Medicare Part D provides subsidies to assist low-income beneficiaries with premiums and cost sharing. For more 32 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, information on Medicare Part D, see CRS Report R40611, Medicare Part D Prescription Drug Benefit. .
33 Part D pays nearly all drug costs above a catastrophic threshold, except for nominal beneficiary cost sharing. 33 Part D pays nearly all drug costs above a catastrophic threshold, except for nominal beneficiary cost sharing.
Medicare subsidizes 80% of each plan’s costs for this catastrophic coverage. For more information on Medicare Part D, Medicare subsidizes 80% of each plan’s costs for this catastrophic coverage. For more information on Medicare Part D,
see CRS Report R40611, see CRS Report R40611, Medicare Part D Prescription Drug Benefit. .
34 See BBEDCA §256(d)(7). 34 See BBEDCA §256(d)(7).
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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
additional orders are issued for each subsequent fiscal year, as necessary. These orders can be additional orders are issued for each subsequent fiscal year, as necessary. These orders can be
issued either before or during the fiscal year in which they apply, depending on the trigger. issued either before or during the fiscal year in which they apply, depending on the trigger.
Reductions in budget resources are to be made during the effective period of a sequestration Reductions in budget resources are to be made during the effective period of a sequestration
order; however, special rules differentiate when a sequestration order is implemented for benefit order; however, special rules differentiate when a sequestration order is implemented for benefit
payments. As a result, sequestration orders are applied to Medicare benefit payments on a payments. As a result, sequestration orders are applied to Medicare benefit payments on a
different timeline than other mandatory and discretionary Medicare funds (i.e., Medicare different timeline than other mandatory and discretionary Medicare funds (i.e., Medicare
administration and HCFAC). administration and HCFAC).
Once OMB issues a sequestration order, Medicare benefit payments are sequestered beginning on Once OMB issues a sequestration order, Medicare benefit payments are sequestered beginning on
the first date of the following month and remain in effect for all services furnished during the the first date of the following month and remain in effect for all services furnished during the
following one-year period.35 In the event that a subsequent sequester order is issued prior to the following one-year period.35 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 month after the initial order completion of the first order, the subsequent order begins on the first month after the initial order
has been completed.36 As an example, the first BCA mandatory sequester order (FY2013) was has been completed.36 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, issued 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 2014. 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. Subsequent sequestration orders have followed this effect from April 1, 2014, to March 31, 2015. Subsequent sequestration orders have followed this
timeline (i.e., have been in effect from April of the designated fiscal year through March of the timeline (i.e., have been in effect from April of the designated fiscal year through March of the
subsequent fiscal year). With future sequestration orders required to be issued prior to the subsequent fiscal year). With future sequestration orders required to be issued prior to the
completion of preceding orders, the first six months of the FY2032 sequester order, which has a completion of preceding orders, the first six months of the FY2032 sequester order, which has a
required 2% reduction, would be in effect from April 1, 2032, through September 30, 2032, and required 2% reduction, would be in effect from April 1, 2032, through September 30, 2032, and
the second six months of the FY2032 sequestration order, which has a 0% reduction, would be in the second six months of the FY2032 sequestration order, which has a 0% reduction, would be in
effect from October 1, 2032, through March 31, 2032. effect from October 1, 2032, through March 31, 2032.
All other sequestrable funding is reduced only during the fiscal year associated with the sequester All other sequestrable funding is reduced only during the fiscal year associated with the sequester
report. For example, the first BCA mandatory sequester order (FY2013) reduced appropriate report. For example, the first BCA mandatory sequester order (FY2013) reduced appropriate
administrative spending from March 1, 2013, to September 30, 2013. The second order for 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. FY2014 sequestered funds from October 1, 2013, to September 30, 2014.
While OMB uses current law to determine the amount of funds available to be sequestered and While OMB uses current law to determine the amount of funds available to be sequestered and
corresponding percentage reductions, actual Medicare outlays will not be known until after the 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 end of the fiscal year. Since sequestration orders are issued either before or during the fiscal year
in which they are applicable, OMB in which they are applicable, OMB estimates the total sequestrable budget authority for Medicare, the total sequestrable budget authority for Medicare,
and other accounts with indefinite budget authority, in order to determine necessary sequestration and other accounts with indefinite budget authority, in order to determine necessary sequestration
percentages.37 percentages.37
If Medicare outlays exceed the estimated amount included in a sequestration order for that fiscal If Medicare outlays exceed the estimated amount included in a sequestration order for that fiscal
year, the additional outlays are sequestered at the established percentage for that fiscal year. If 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

35 See BBEDCA §256(d)(1). 35 See BBEDCA §256(d)(1).
36 See BBEDCA §256(d)(4). 36 See BBEDCA §256(d)(4).
37 GAO, 37 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. , GAO-16-263, April 2016, p. 27, at https://www.gao.gov/assets/680/676565.pdf.
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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.
Temporary Suspension of Medicare Sequestration
During the COVID-19 pandemic, Congress took a number of actions to address financial During the COVID-19 pandemic, Congress took a number of actions to address financial
challenges faced by health care providers. This included suspending the application of the BCA challenges faced by health care providers. This included suspending the application of the BCA
mandatory spending sequestration to the Medicare program. Specific legislation included the mandatory spending sequestration to the Medicare program. Specific legislation included the
following: following:
• The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116- • The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-
136) initially suspended Medicare sequestration from May 2021 through 136) initially suspended Medicare sequestration from May 2021 through
December 2021 December 2021
• The Consolidated Appropriations Act, 2021 (P.L. 116-260), extended the • The Consolidated Appropriations Act, 2021 (P.L. 116-260), extended the
suspension through March 2021 suspension through March 2021
• An Act to Prevent Across-the-Board Direct Spending Cuts, and for Other • An Act to Prevent Across-the-Board Direct Spending Cuts, and for Other
Purposes (P.L. 117-7), extended the suspension through December 2021 Purposes (P.L. 117-7), extended the suspension through December 2021
• The Protecting Medicare and American Farmers from Sequester Cuts Act (P.L. • The Protecting Medicare and American Farmers from Sequester Cuts Act (P.L.
117-71) extended the suspension through March 2022 and limited the Medicare 117-71) extended the suspension through March 2022 and limited the Medicare
reductions under sequestration to 1% from April 2022 through June 2022 reductions under sequestration to 1% from April 2022 through June 2022
Beginning July 1, 2022, the full 2% sequester was re-implemented. Beginning July 1, 2022, the full 2% sequester was re-implemented.
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.38 Therefore, sequestration applies only any applicable Medicare Secondary Payment adjustments.38 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 allowed payment for a particular service is $100 and the beneficiary As an example, if the total allowed 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

38 During the suspension of sequestration of Medicare under the CARES Act, as amended, fee-for-service provider 38 During the suspension of sequestration of Medicare under the CARES Act, as amended, fee-for-service provider
payments were not subject to the 2% reduction in Medicare payments. CMS, Medicare FFS Provider e-News, March 8, payments were not subject to the 2% reduction in Medicare payments. CMS, Medicare FFS Provider e-News, March 8,
2013, 2013, Monthly Payment Reductions in the Medicare Fee-for-Service (FFS) Program – “Sequestration,” at at
https://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/Downloads/2013-03-08-standalone.pdf. See https://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/Downloads/2013-03-08-standalone.pdf. See
April 10, 2020, CMS MLNConnects Newsletter, “COVID-19: Infection Control, Maximizing Workforce, Updated April 10, 2020, CMS MLNConnects Newsletter, “COVID-19: Infection Control, Maximizing Workforce, Updated
Q&A, CS Modifier for Cost-Sharing, Payment Adjustment Suspended,” at https://www.cms.gov/outreach-and-Q&A, CS Modifier for Cost-Sharing, Payment Adjustment Suspended,” at https://www.cms.gov/outreach-and-
educationoutreachffsprovpartprogprovider-partnership-email-archive/2020-04-10-mlnc-se; January 7, 2021, CMS educationoutreachffsprovpartprogprovider-partnership-email-archive/2020-04-10-mlnc-se; January 7, 2021, CMS
MLNConnects Newsletter, “Physician Fee Schedule Update,” at https://www.cms.gov/outreach-and-MLNConnects Newsletter, “Physician Fee Schedule Update,” at https://www.cms.gov/outreach-and-
educationoutreachffsprovpartprogprovider-partnership-email-archive/2021-01-07-mlnc-se; April 16, 2021, CMS educationoutreachffsprovpartprogprovider-partnership-email-archive/2021-01-07-mlnc-se; April 16, 2021, CMS
MLNConnects Newsletter, “Medicare FFS Claims: 2% Payment Adjustment (Sequestration) Suspended Through MLNConnects Newsletter, “Medicare FFS Claims: 2% Payment Adjustment (Sequestration) Suspended Through
December,” at https://www.cms.gov/outreach-and-educationoutreachffsprovpartprogprovider-partnership-email-December,” at https://www.cms.gov/outreach-and-educationoutreachffsprovpartprogprovider-partnership-email-
archive/2021-04-16-mlnc; and December 16, 2021, CMS MLNConnects Newsletter, “Medicare FFS Claims: 2% archive/2021-04-16-mlnc; and December 16, 2021, CMS MLNConnects Newsletter, “Medicare FFS Claims: 2%
Payment Adjustment (Sequestration) Changes,” at https://www.cms.gov/outreach-and-Payment Adjustment (Sequestration) Changes,” at https://www.cms.gov/outreach-and-
educationoutreachffsprovpartprogprovider-partnership-email-archive/2021-12-16-mlnc. educationoutreachffsprovpartprogprovider-partnership-email-archive/2021-12-16-mlnc.
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FY2023 sequestration order, or $1.60 in this example, resulting in a total Medicare payment of FY2023 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.39 copayments to make up for the reduced Medicare payment.39
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,40 the reduction is to be from the inpatient facility. For services paid on a reasonable cost basis,40 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,41 the reduced payment is to be considered services provided under assignment,41 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 and the Medicare beneficiary will not pay higher copayments to make up for the reduced
amount.42 amount.42
Medicare Medicare nonparticipating providers, which are providers that do not elect to accept Medicare’s providers, which are providers that do not elect to accept Medicare’s
allowed payments as payment in full on allowed payments as payment in full on all claims for services furnished to program beneficiaries claims for services furnished to program beneficiaries
in a given year, are not subject to the same rules. Medicare nonparticipating providers receive a in a given year, are not subject to the same rules. Medicare nonparticipating providers receive a
Medicare payment based on a lower maximum allowable charge under the fee schedule on all Medicare payment based on a lower maximum allowable charge under the fee schedule on all
services provided and may charge beneficiaries a limited amount in addition to the fee schedule services provided and may charge beneficiaries a limited amount in addition to the fee schedule
amount (balance bill charge) on nonassigned claims.43 In these instances, instead of the Medicare amount (balance bill charge) on nonassigned claims.43 In these instances, instead of the Medicare
check being sent to the provider, a check that incorporates the 2% reduction is mailed to the check being sent to the provider, a check that incorporates the 2% reduction is mailed to the
patient. The patient must then pay the provider an amount that incorporates the sequestered patient. The patient must then pay the provider an amount that incorporates the sequestered
amount. More specifically, as payment, the beneficiary is responsible for paying the provider the amount. More specifically, as payment, the beneficiary is responsible for paying the provider the
amount listed on the check, any cost sharing, balance bill charges, amount listed on the check, any cost sharing, balance bill charges, and the sequestered amounts the sequestered amounts
taken out of the provider check.44 This contrasts with payment for Part B services provided under taken out of the provider check.44 This contrasts with payment for Part B services provided under
assignment, where the Medicare participating provider cannot charge the beneficiary for revenue assignment, where the Medicare participating provider cannot charge the beneficiary for revenue
lost due to sequestration. lost due to sequestration.
Annual adjustments to Medicare payment rates are determined without incorporating Annual adjustments to Medicare payment rates are determined without incorporating
sequestration.45 However, the Medicare Payment Advisory Commission does incorporate the sequestration.45 However, the Medicare Payment Advisory Commission does incorporate the
effects of sequestration when assessing the adequacy of provider payments.46 The commission effects of sequestration when assessing the adequacy of provider payments.46 The commission

39 Ibid. 39 Ibid.
40 Most providers are paid under a prospective payment system or fee schedule. Some types of providers, such as 40 Most providers are paid under a prospective payment system or fee schedule. Some types of providers, such as
Critical Access Hospitals, are paid on a reasonable cost basis under which payments are based on actual costs incurred. Critical Access Hospitals, are paid on a reasonable cost basis under which payments are based on actual costs incurred.
Reasonable cost is defined at Social Security Act §1861(v). Reasonable cost is defined at Social Security Act §1861(v).
41 Assignment is an agreement by a doctor, provider, or supplier to be paid directly by Medicare, to accept the payment 41 Assignment is 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 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 and coinsurance (if applicable). Providers that don't accept assignment may charge more than the Medicare-approved
amount. amount.
42 CMS, Medicare FFS Provider e-News, March 8, 2013, 42 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/ at https://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/
Downloads/2013-03-08-standalone.pdf. Downloads/2013-03-08-standalone.pdf.
43 CMS, 43 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-and-Reports/Medicare-Provider-Charge-Data/Downloads/Physician_FAQ.pdf. Trends-and-Reports/Medicare-Provider-Charge-Data/Downloads/Physician_FAQ.pdf.
44 CMS, Medicare FFS Provider e-News, March 8, 2013, 44 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/at https://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/
Downloads/2013-03-08-standalone.pdf. Downloads/2013-03-08-standalone.pdf.
45 BBEDCA §256(d)(6). 45 BBEDCA §256(d)(6).
46 Medicare Payment Advisory Commission (MedPAC), 46 Medicare Payment Advisory Commission (MedPAC), Medicare Payment Policy Report to Congress, March 2018, p. , March 2018, p.
60, at https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/reports/60, at https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/reports/
mar18_medpac_entirereport_sec_rev_0518.pdf. mar18_medpac_entirereport_sec_rev_0518.pdf.
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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.
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 Medicare-covered benefits, except hospice, to beneficiaries who enroll in their plans. These all Medicare-covered benefits, except hospice, to beneficiaries who enroll in their plans. These
capitated monthly payments are made to MA plans regardless of how many or how few services capitated monthly payments are made to MA plans regardless of how many or how few services
are furnished to enrolled beneficiaries. The plan is at risk if costs for all of its enrollees exceed are furnished to enrolled beneficiaries. 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 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. if aggregate enrollee costs are less than program payments and cost sharing.
In general, CMS payments to the private plans administering Medicare Advantage (Medicare In general, CMS payments to the private plans administering Medicare Advantage (Medicare
Advantage Organizations, or MAOs) comprise amounts to cover medical costs, administrative Advantage Organizations, or MAOs) comprise amounts to cover medical costs, administrative
expenses, private plan profits, risk adjustments, and plan rebates to beneficiaries.47 These fixed expenses, private plan profits, risk adjustments, and plan rebates to beneficiaries.47 These fixed
payments are determined every year with CMS approval through an annual “bid process,” and the payments are determined every year with CMS approval through an annual “bid process,” and the
amounts can vary depending on the private plan.48 amounts can vary depending on the private plan.48
With respect to sequestration, reductions are made uniformly to the monthly capitated payments With respect to sequestration, reductions are made uniformly to the monthly capitated payments
to MAOs.49 MAOs have discretion on how to distribute any sequestration cut but must adhere to to MAOs.49 MAOs have discretion on how to distribute any sequestration cut but must adhere to
their legal obligations.50 their legal obligations.50
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 payment rates; however, MAOs may be limited in their ability to do so.51 CMS has lower payment rates; however, MAOs may be limited in their ability to do so.51 CMS has
provided instructions regarding the treatment of contract and noncontract providers that provide provided instructions regarding the treatment of contract and noncontract providers that provide
services under Part C. Specifically, “whether and how sequestration might affect an MAO’s services under Part C. Specifically, “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.”52 Therefore, in order for MAOs to reduce provider payments by the and the provider.”52 Therefore, in order for MAOs to reduce provider payments by the

47 A 47 A plan rebate is the difference between a plan’s bid and a statutorily specified benchmark amount. It is included in 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 to enrollees in the form of additional benefits, reduced cost sharing, reduced the plan payment and must be returned to enrollees in the form of additional benefits, reduced cost sharing, reduced
Medicare Part B or Part D premiums, or some combination of these options. Medicare Part B or Part D premiums, or some combination of these options.
48 For more information on the annual bid process, see CRS Report R45494, 48 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. .
49 During the temporary suspension of sequestration from May 2020 through March 2022, the 2% payment reduction 49 During the temporary suspension of sequestration from May 2020 through March 2022, the 2% payment reduction
did not apply. CMS also indicated that the 2% reduction did not apply to retroactive adjustments made to payments for did not apply. CMS also indicated that the 2% reduction did not apply to retroactive adjustments made to payments for
beneficiaries enrolled within the sequestration suspension period. See April 22, 2020, memorandum from Jennifer R. beneficiaries enrolled within the sequestration suspension period. See April 22, 2020, memorandum from Jennifer R.
Shapiro, CMS, Shapiro, CMS, Medicare Advantage/Prescription Drug System (MARx) May 2020 Payment Information, at , at
https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/
marx%20plan%20payment%20letter_may%204.22.2020_7.pdf; March 30, 2021, memorandum from Jennifer R. marx%20plan%20payment%20letter_may%204.22.2020_7.pdf; March 30, 2021, memorandum from Jennifer R.
Shapiro, CMS, Shapiro, CMS, Medicare Advantage/Prescription Drug System (MARx) April 2021 Payment Information, at , at
https://www.cms.gov/httpseditcmsgovresearch-statistics-data-and-systemscomputer-data-and-systemshpmshpms-https://www.cms.gov/httpseditcmsgovresearch-statistics-data-and-systemscomputer-data-and-systemshpmshpms-
memos-archive/hpms-memos-week-5-march-29-31-2021; and January 28, 2022, memorandum from Jennifer R. memos-archive/hpms-memos-week-5-march-29-31-2021; and January 28, 2022, memorandum from Jennifer R.
Shapiro, CMS, Shapiro, CMS, Medicare Advantage/Prescription Drug System (MARx) February 2022 Payment Information, at , at
https://www.cms.gov/files/document/marxplanpaymentletterfeb2022508.pdf. https://www.cms.gov/files/document/marxplanpaymentletterfeb2022508.pdf.
50 May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS, 50 May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS, Additional Information Regarding the
Mandatory Payment Reductions in the Medicare Advantage, Part D, and Other Programs, at https://www.cms.gov/, at https://www.cms.gov/
Medicare/Medicare-Advantage/Plan-Payment/Downloads/PaymentReductions.pdf. Medicare/Medicare-Advantage/Plan-Payment/Downloads/PaymentReductions.pdf.
51 As a result of the initial BCA sequester, some Medicare Advantage Organizations (MAOs) attempted to reduce 51 As a result of the initial BCA sequester, some Medicare Advantage Organizations (MAOs) attempted to reduce
provider payments by 2%. The courts ultimately determined that MAOs were subject to the terms in the contracts with provider payments by 2%. The courts ultimately determined that MAOs were subject to the terms in the contracts with
providers. See Baptist Hosp. of Miami, Inc. v. Humana Health Ins. Co. of Florida, Inc. and Butler Healthcare Providers providers. See 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.
52 May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS, 52 May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS, Additional Information Regarding the
Mandatory Payment Reductions in the Medicare Advantage, Part D, and Other Programs, at https://www.cms.gov/, at https://www.cms.gov/
Medicare/Medicare-Advantage/Plan-Payment/Downloads/PaymentReductions.pdf. Medicare/Medicare-Advantage/Plan-Payment/Downloads/PaymentReductions.pdf.
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sequestered amount, specific language within a contract must allow the reduction or the contract sequestered amount, specific language within a contract must allow the reduction or the contract
would need to be renegotiated.53 would need to be renegotiated.53
In certain instances, such as when beneficiaries receive emergency out-of-network care, MAOs In certain instances, such as when beneficiaries receive emergency out-of-network care, MAOs
need to reimburse the noncontracted providers; in such cases, the MAOs are required to pay at need to reimburse the noncontracted providers; in such cases, the MAOs are required to pay at
least the rate providers would have received if the beneficiaries had been enrolled in original least the rate providers would have received if the beneficiaries had been enrolled in original
Medicare. However, MAOs have the discretion of whether or not to incorporate sequestration Medicare. However, MAOs have the discretion of whether or not to incorporate sequestration
cuts into payments to noncontracted providers for those services.54 Noncontracted providers must cuts into payments to noncontracted providers for those services.54 Noncontracted providers must
accept any payments reduced by the sequestration percentage as payment in full. 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. Specifically, MAOs are limited to “reasonable” revenue margins and a set sequestration. Specifically, MAOs are limited to “reasonable” revenue margins and a set
Medicare/non-Medicare profit margin discrepancy, among other requirements.55 MAOs are also Medicare/non-Medicare profit margin discrepancy, among other requirements.55 MAOs are also
restricted from allowing sequestration to impact a beneficiary’s plan benefits or liabilities.56 restricted from allowing sequestration to impact a beneficiary’s plan benefits or liabilities.56
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.57 In other words, plan payment updates are to be determined as if the reductions percentage.57 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, called a direct Under Medicare Part D, each plan receives a base capitated monthly payment, called 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,
individual reinsurance, and risk corridor payments). While each plan receives the same direct individual reinsurance, and risk corridor payments). While each plan receives the same direct
subsidy amount for each enrollee regardless of how many benefits an enrollee actually receives, subsidy amount for each enrollee regardless of how many benefits an enrollee actually receives,
plans receive different risk-sharing adjustments in their monthly payments. With respect to plans receive different risk-sharing adjustments in their monthly payments. With respect to

53 Similarly, during the May 2020 through March 2022 CARES Act, as amended, suspension of sequestration, the 53 Similarly, during the May 2020 through March 2022 CARES Act, as amended, suspension of sequestration, the
decision to suspend the application of the 2% reduction to provider payments may have depended on the decision to suspend the application of the 2% reduction to provider payments may have depended on the
reimbursement language in MAO-provider contracts. Two of the nation’s largest commercial insurers, Aetna and reimbursement language in MAO-provider contracts. Two of the nation’s largest commercial insurers, Aetna and
UnitedHealthcare, indicated that they temporarily eliminated the 2% sequestration cuts in payments to providers in UnitedHealthcare, indicated that they 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 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-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 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-updated to reflect the suspension extensions), and https://www.aetna.com/health-care-professionals/covid-faq/billing-
and-coding.html. and-coding.html.
54 May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS, 54 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. .
55 CMS, 55 CMS, Actuarial Bid Training, at https://www.cms.gov/medicare/medicare-advantage-rates-statistics/actuarial-bid-, at https://www.cms.gov/medicare/medicare-advantage-rates-statistics/actuarial-bid-
training; and 42 C.F.R. Part 422, Subpart X. training; and 42 C.F.R. Part 422, Subpart X.
56 CMS, 56 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.
57 BBEDCA §256(d)(6)(A). The Secretary uses an estimate of the growth in overall spending in Medicare when 57 BBEDCA §256(d)(6)(A). The Secretary uses an estimate of the growth in overall spending in Medicare when
calculating updated payments to MA plans. See CRS Report R45494, calculating updated payments to MA plans. See CRS Report R45494, Medicare Advantage (MA)–Proposed Benchmark
Update and Other Adjustments for CY2020: In Brief. .
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sequestration, the 2% reductions are made only to the direct subsidy amounts.58 Part D risk- sequestration, the 2% reductions are made only to the direct subsidy amounts.58 Part D risk-
sharing adjustments are exempt from sequestration and are therefore not reduced.59 sharing adjustments are exempt from sequestration and are therefore not reduced.59
In addition, similar to provider payments made by MAOs, whether and how sequestration affects In addition, similar to provider payments made by MAOs, whether and how sequestration affects
a Part D plan sponsor’s payment to its contracted providers is “governed by the payment terms of 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.”60 the contract between the plan sponsor and its network pharmacy providers.”60
Part D also contains a Retiree Drug Subsidy Program, which pays subsidies to qualified Part D also contains a Retiree Drug Subsidy Program, which pays subsidies to qualified
employers and union groups that provide prescription drug insurance to Medicare-eligible, retired employers and union groups that provide prescription drug insurance to Medicare-eligible, retired
workers. Instead of a capitated monthly payment, each sponsor receives a federal subsidy at the workers. Instead of a capitated monthly payment, each sponsor receives a federal subsidy at the
end of the year to cover a portion of gross prescription drug costs for each retiree during that year. end of the year to cover a portion of gross prescription drug costs for each retiree during that year.
Under this program, sequestration reductions are applied to the annual subsidy amount.61 Under this program, sequestration reductions are applied to the annual subsidy amount.61
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.62 payment amounts under sequestration for purposes of computing the Part D annual growth rate.62
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.63 HCFAC mandatory payments and are therefore subject to the Medicare 2% sequester limit.63 HCFAC mandatory
funding that does not exclusively address Medicare is reduced by the nondefense mandatory funding that does not exclusively address Medicare is reduced by the nondefense mandatory
sequester rate (5.7% in FY2023), when applicable. sequester rate (5.7% in FY2023), when applicable.

58 During the May 2020 through March 2022 CARES Act, as amended, sequestration suspension period, the 2% 58 During the May 2020 through March 2022 CARES Act, as amended, sequestration suspension period, the 2%
payment reductions to Part D plans did not occur. Payment adjustments during the suspension period for Part D plans payment reductions to Part D plans did not occur. Payment adjustments during the suspension period for Part D plans
were applied similarly to payments to MAOs under Medicare Advantage. See April 22, 2020, memorandum from were applied similarly to payments to MAOs under Medicare Advantage. See April 22, 2020, memorandum from
Jennifer R. Shapiro, CMS, Jennifer R. Shapiro, CMS, Medicare Advantage/Prescription Drug System (MARx) May 2020 Payment Information, at , at
https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/
marx%20plan%20payment%20letter_may%204.22.2020_7.pdf; March 30, 2021, memorandum from Jennifer R. marx%20plan%20payment%20letter_may%204.22.2020_7.pdf; March 30, 2021, memorandum from Jennifer R.
Shapiro, CMS, Shapiro, CMS, Medicare Advantage/Prescription Drug System (MARx) April 2021 Payment Information, at , at
https://www.cms.gov/httpseditcmsgovresearch-statistics-data-and-systemscomputer-data-and-systemshpmshpms-https://www.cms.gov/httpseditcmsgovresearch-statistics-data-and-systemscomputer-data-and-systemshpmshpms-
memos-archive/hpms-memos-week-5-march-29-31-2021; and January 28, 2022, memorandum from Jennifer R. memos-archive/hpms-memos-week-5-march-29-31-2021; and January 28, 2022, memorandum from Jennifer R.
Shapiro, CMS, Shapiro, CMS, Medicare Advantage/Prescription Drug System (MARx) February 2022 Payment Information, at , at
https://www.cms.gov/files/document/marxplanpaymentletterfeb2022508.pdf. https://www.cms.gov/files/document/marxplanpaymentletterfeb2022508.pdf.
59 This is different from Medicare Part C risk-sharing adjustments, which are included in the capitated payments and 59 This is different from Medicare Part C risk-sharing adjustments, which are included in the capitated payments and
are subject to sequestration. are subject to sequestration.
60 May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS, 60 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. .
61 CMS, “Mandatory Payment Reduction in CMS’ Retiree Drug Subsidy Reconciliation Payments,” April 19, 2014, at 61 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, 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 “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. https://www.hhs.gov/guidance/document/extension-suspension-sequestration-retiree-drug-subsidy-rds-program.
62 BBEDCA §256(d)(6)(B). 62 BBEDCA §256(d)(6)(B).
63 The sequestration of this portion of HCFAC funding was suspended by the CARES Act, as amended, from May 63 The sequestration of this portion of HCFAC funding was suspended by the CARES Act, as amended, from May
2020 through March 2022. 2020 through March 2022.
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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 applicable nondefense rate nonexempt Medicare and HCFAC programs is reduced by the applicable nondefense rate
determined by OMB.64 determined by OMB.64
Medicare and the BCA Mandatory Sequester
With the exception of the CARES Act, as amended, May 2020 through March 2022 suspension With the exception of the CARES Act, as amended, May 2020 through March 2022 suspension
(and the 1% limit from April through June 2022), Medicare benefit payments have been subject to (and the 1% limit from April through June 2022), Medicare benefit payments have been subject to
the 2% annual reduction limit established by the BCA since the first BCA mandatory sequester the 2% annual reduction limit established by the BCA since the first BCA mandatory sequester
order was issued in FY2013.65 Nondefense mandatory budget authority reductions, which have order was issued in FY2013.65 Nondefense mandatory budget authority reductions, which have
applied to mandatory Medicare administrative spending, fluctuated between 5.1% and 7.3% from applied to mandatory Medicare administrative spending, fluctuated between 5.1% and 7.3% from
FY2013 through FY2021. (FY2013 through FY2021. (See Table 2.) Under the sequestration orders that have been issued ) Under the sequestration orders that have been issued
since (FY2022-FY2024), mandatory Medicare administrative expenses have been and are to be since (FY2022-FY2024), mandatory Medicare administrative expenses have been and are to be
sequestered by the FY2021 nondefense mandatory percentage, 5.7%.66 sequestered by the FY2021 nondefense mandatory percentage, 5.7%.66
Table 2. Mandatory Percentage Reductions Under Budget Control Act
Sequestration Orders
FY2013-FY2024 FY2013-FY2024
FY2021
–

FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2024
Medicare Medicare
(Benefit Payments
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%
and MIP HCFAC)
Nondefense Nondefense
Mandatory Mandatory
(Medicare
~~administrative~~
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%
administrative spending and
non-MIP HCFAC)
Defense 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%
Mandatory Source: OMB Reports to Congress on the Joint Committee Sequestration for FY2013 to FY2024. OMB Reports to Congress on the Joint Committee Sequestration for FY2013 to FY2024.
Notes: Reductions to Medicare benefit and mandatory administrative spending did not occur during the CARES Reductions to Medicare benefit and mandatory administrative spending did not occur during the CARES
Act, as amended, temporary suspension of Medicare sequestration from May 2020 through March 2022, in effect Act, as amended, temporary suspension of Medicare sequestration from May 2020 through March 2022, in effect
during the period of the FY2020 through FY2021 sequestration orders. Reductions to Medicare benefit during the period of the FY2020 through FY2021 sequestration orders. Reductions to Medicare benefit
payments also were limited to 1% from April 2022 through June 2022. payments also were limited to 1% from April 2022 through June 2022. Defense Mandatory is any funding is any funding

64 Mandatory Medicare administrative spending authorized under Title XVIII of the Social Security Act was exempt 64 Mandatory Medicare administrative spending authorized under Title XVIII of the Social Security Act was exempt
from the sequester during the CARES Act, as amended, suspension period. Department of Health and Human Services, from the sequester during the CARES Act, as amended, suspension period. Department of Health and Human Services,
Agency Financial Report: Fiscal Year 2021, p. 154, at https://www.hhs.gov/sites/default/files/fy-2021-hhs-agency-, p. 154, at https://www.hhs.gov/sites/default/files/fy-2021-hhs-agency-
financial-report.pdf. financial-report.pdf.
65 Certain other health programs were also subject to a 2% reduction in FY2013, FY2014, FY2015, FY2017, FY2022, 65 Certain other health programs were also subject to a 2% reduction in FY2013, FY2014, FY2015, FY2017, FY2022,
and FY2023. and FY2023.
66 CMS receives administrative funding for the Medicare program through the Medicare trust funds and the CMS 66 CMS receives administrative funding for the Medicare program through the Medicare trust funds and the CMS
program management account. Since the program management account. Since the OMB Report to the Congress on the BBEDCA 251A Sequestration for Fiscal
Year 2023 shows the amount of mandatory administrative funding sequestered at the account level and CMS funds shows the amount of mandatory administrative funding sequestered at the account level and CMS funds
other programs through the program management account, the total amount of mandatory administrative funding for 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.
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coded with a budget function of 050. coded with a budget function of 050. Medicare Benefit Payments are defined by BBEDCA as all payments for are defined by BBEDCA as all payments for
programs and activities under Title XVIII of Social Security Act. Theprograms and activities under Title XVIII of Social Security Act. The Health Care Fraud and Abuse Control
Program (HCFAC) is responsible for activities that fight health care fraud and waste. ) is responsible for activities that fight health care fraud and waste. Nondefense
Mandatory includes all other government spending not defined as Medicare or Defense Mandatory. includes all other government spending not defined as Medicare or Defense Mandatory. MIP refers refers
to the Medicare Integrity Program, which is under HCFAC and focuses on combating fraud in Medicare. Certain to the Medicare Integrity Program, which is under HCFAC and focuses on combating fraud in Medicare. Certain
other heath programs were also subject to a 2% reduction in FY2013, FY2014, FY2015, FY2017, FY2022, and other heath programs were also subject to a 2% reduction in FY2013, FY2014, FY2015, FY2017, FY2022, and
FY2023. FY2023.
Traditionally, Medicare benefit payments comprise the largest single source of funds available to Traditionally, Medicare benefit payments comprise the largest single source of funds available to
be sequestered and the largest single source of funds that are sequestered in a given mandatory be sequestered and the largest single source of funds that are sequestered in a given mandatory
sequestration order, as shown insequestration order, as shown in Figure 1 andand Figure 2, respectively. Under the FY2024 BCA espectively. Under the FY2024 BCA
mandatory sequester order, the estimated $952.2 billion in Medicare benefit payments subject to mandatory sequester order, the estimated $952.2 billion in Medicare benefit payments subject to
sequestration (not including administration) were expected to represent about 87.3% of all sequestration (not including administration) were expected to represent about 87.3% of all
Medicare and non-Medicare resources Medicare and non-Medicare resources available to be sequestered.67 Of the funds expected to be to be sequestered.67 Of the funds expected to be
sequestered, the estimated Medicare benefit sequestration amounts of $19.0 billion were expected sequestered, the estimated Medicare benefit sequestration amounts of $19.0 billion were expected
to account for about 69.2% of all sequestered funds.68 The smaller percentage of Medicare to account for about 69.2% of all sequestered funds.68 The smaller percentage of Medicare
sequestered amounts relative to the percentage of Medicare amounts available to be sequestered sequestered amounts relative to the percentage of Medicare amounts available to be sequestered
is a reflection of Medicare being subject to a 2% reduction limit, while nondefense mandatory is a reflection of Medicare being subject to a 2% reduction limit, while nondefense mandatory
and defense mandatory amounts are not. and defense mandatory amounts are not.
Figure 1. Sequestrable Budget Authority Under Mandatory Budget Control Act
Sequestration Orders: Amounts by Category and Medicare Percentage Share
FY2013-FY2024 FY2013-FY2024
Figure is interactive in the HTML version of this report.
Source: CRS analysis of OMB Reports to the Congress on the Joint Committee Sequestration for FY2013 to CRS analysis of OMB Reports to the Congress on the Joint Committee Sequestration for FY2013 to
FY2024. FY2024.
Notes: Each fiscal year refers to amounts sequestered in accordance with that fiscal year’s sequestration order.
Sequestrable budget authority refers to all resources estimated to be available to be sequestered.

67 For a list of sequestrable budget authority by budget account, see 67 For a list of sequestrable budget authority by budget account, see OMB Report to the Congress on the BBEDCA
251A Sequestration for Fiscal Year 2024, March 13, 2023, at https://www.whitehouse.gov/wp-content/uploads/2023/, March 13, 2023, at https://www.whitehouse.gov/wp-content/uploads/2023/
03/BBEDCA_Sequestration_Report_and_Letter_3-13-2024.pdf. 03/BBEDCA_Sequestration_Report_and_Letter_3-13-2024.pdf.
68 Ibid. 68 Ibid.
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Notes: Each fiscal year refers to amounts sequestered in accordance with that fiscal year’s sequestration order. Sequestrable budget authority refers to all resources estimated to be available to be sequestered. Administrative funding is not included in Medicare benefit payment totals. All percentages are estimates. The Administrative funding is not included in Medicare benefit payment totals. All percentages are estimates. The
fiscal years with asterisks in the Medicare percentage of total do not reflect the CARES Act, as amended, fiscal years with asterisks in the Medicare percentage of total do not reflect the CARES Act, as amended,
temporary suspension of Medicare sequestration from May 2020 through March 2022, or the 1% limit in effect temporary suspension of Medicare sequestration from May 2020 through March 2022, or the 1% limit in effect
from April 2022 through June 2022. from April 2022 through June 2022.
Figure 2. Sequestered Amounts Under Mandatory Budget Control Act
Sequestration Orders: Amounts by Category and Medicare Percentage Share
FY2013-FY2024 FY2013-FY2024
Figure is interactive in the HTML version of this report.
Source: CRS analysis of OMB Reports to the Congress on the Joint Committee Sequestration for FY2013 to CRS analysis of OMB Reports to the Congress on the Joint Committee Sequestration for FY2013 to
FY2024. FY2024.
Notes: Each fiscal year refers to amounts sequestered in accordance with that fiscal year’s sequestration order. Each fiscal year refers to amounts sequestered in accordance with that fiscal year’s sequestration order.
Sequestered Amounts refers to all resources estimated to be sequestered. Administrative funding is not refers to all resources estimated to be sequestered. Administrative funding is not
included in Medicare benefit payment totals. All percentages are estimates. The fiscal years with asterisks in the included in Medicare benefit payment totals. All percentages are estimates. The fiscal years with asterisks in the
Medicare percentage of total do not reflect the CARES Act, as amended, temporary suspension of Medicare Medicare percentage of total do not reflect the CARES Act, as amended, temporary suspension of Medicare
sequestration from May 2020 through March 2022, or the 1% limit in effect from April 2022 through June 2022. sequestration from May 2020 through March 2022, or the 1% limit in effect from April 2022 through June 2022.
CBO estimates that Medicare benefit payment outlays will almost double from FY2022 to CBO estimates that Medicare benefit payment outlays will almost double from FY2022 to
FY2032 (from $983 billion to $1.9 trillion), the last year of BCA mandatory sequestration for FY2032 (from $983 billion to $1.9 trillion), the last year of BCA mandatory sequestration for
Medicare benefit payments.69 Most of this expected increase is due to an aging population and Medicare benefit payments.69 Most of this expected increase is due to an aging population and
rising health care costs per person.70 Most of this increased amount would be subject to rising health care costs per person.70 Most of this increased amount would be subject to
sequestration. sequestration.

69 CBO, 69 CBO, May 2022 Medicare Baseline, at https://www.cbo.gov/system/files/2022-05/51302-2022-05-medicare.pdf. , at https://www.cbo.gov/system/files/2022-05/51302-2022-05-medicare.pdf.
70 CBO, 70 CBO, The 2022 Long-Term Budget Outlook, July 2022, p. 19, at https://www.cbo.gov/publication/57971. , July 2022, p. 19, at https://www.cbo.gov/publication/57971.
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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 R46240, CRS Report R46240, 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 Report R46752, CRS Report R46752, Expiration of the Discretionary Spending Limits: Frequently Asked
Questions
CRS Insight IN11148, CRS Insight IN11148, The Bipartisan Budget Act of 2019: Changes to the BCA and Debt Limit
CRS Report R42050, CRS Report R42050, Budget “Sequestration” and Selected Program Exemptions and Special
Rules
CRS Report R42972, CRS Report R42972, Sequestration as a Budget Enforcement Process: Frequently Asked
Questions
CRS Report R45941, CRS Report R45941, The Annual Sequester of Mandatory Spending through FY2029
CRS Report R41157, CRS Report R41157, The Statutory Pay-As-You-Go Act of 2010: Summary and Legislative
History
CRS Insight IN12168, CRS Insight IN12168, Discretionary Spending Caps in the Fiscal Responsibility Act of 2023
CRS Insight IN12183, CRS Insight IN12183, The FRA’s Discretionary Spending Caps Under a CR: FAQs
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Appendix B. Budget Terminology Definitions
As defined by the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L. As defined by the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L.
99-177, as amended) and simplified where appropriate99-177, as amended) and simplified where appropriate:
Budget Authority—Authority provided by federal law to enter into financial obligations that will —Authority provided by federal law to enter into financial obligations that will
result in immediate or future outlays involving federal government funds. result in immediate or future outlays involving federal government funds.
Budgetary Resources—Amounts available to enter into new obligations and to liquidate them. —Amounts available to enter into new obligations and to liquidate 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 payments for programs and activities under Title XVIII of the —All 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 cancellation of budgetary resources provided by discretionary —The cancellation 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, see For definitions of other budget terms mentioned in this report but not defined by BBEDCA, 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

Ryan J. Rosso Ryan J. Rosso

Analyst in Health Care Financing Analyst in Health Care Financing

Acknowledgments
Patricia Davis, former Specialist in Health Care Financing, was responsible for recent updates to this Patricia Davis, former Specialist in Health Care Financing, was responsible for recent updates to this
report. Bill Heniff Jr., Analyst on Congress and the Legislative Process, made significant contributions to report. Bill Heniff Jr., Analyst on Congress and the Legislative Process, made significant contributions to
this report.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 not be relied upon for purposes other under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
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Congressional Research Service Congressional Research Service
R45106 R45106 · VERSION 1618 · UPDATED
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