FY2020 Mandatory Sequester Reduces Medicare $15.3 Billion, Other Mandatory Spending $5.39 Billion

FY2020 Mandatory Sequester Reduces Medicare $15.3 Billion, Other Mandatory Spending $5.39 Billion

link to page 2

October 15, 2019
FY2020 Mandatory Sequester Reduces Medicare $15.3 Billion,
Other Mandatory Spending $4.55 Billion
On October 1, 2019, the first day of FY2020, the FY2020
was to be achieved through annual reductions in
mandatory sequester order became effective.
discretionary spending by reducing the defense and
“Sequestration” is a budgetary mechanism that requires
nondefense spending caps below their initial BCA levels.
automatic cancellation of budgetary authority—the legal
However, subsequent legislation—the Bipartisan Budget
authority Congress grants agencies to enter into financial
Acts of 2013, 2015, 2018, and 2019—have partially or fully
obligations.
rolled back the additional discretionary savings.
The FY2020 mandatory sequester order reduced Medicare
The remainder of the $1.2 trillion in savings was to be
payments by $15.31 billion and other (nonexempt)
achieved through annual across-the-board cuts
mandatory spending by $4.55 billion. The reductions are
(sequestration) in all nonexempt mandatory spending. This
required by the Budget Control Act of 2011 (BCA; P.L.
portion of the automatic reductions has been fully
112-25). The BCA, as amended, requires similar reductions
implemented—and extended for an additional eight fiscal
on the first day of each fiscal year through FY2029. (For an
years through FY2029.
in-depth analysis of the mandatory sequester, see CRS
Calculating the Mandatory Sequester
Report R45941, The Annual Sequester of Mandatory
Spending through FY2029, by Charles S. Konigsberg.)
The BCA includes detailed statutory directions for the
Office of Management and Budget (OMB) to calculate, and
Mandatory Spending and Sequestration
the President to implement, the Joint Committee reductions
There are two types of budgetary authority (BA):
for each fiscal year through FY2021 (see Figure 1).
discretionary spending provided in annual appropriations
To achieve the required $1.2 trillion of deficit reduction, the
bills, which makes up about 30% of federal spending; and
BCA first subtracts an amount for debt service savings, then
(2) mandatory or direct spending—the other 70%—where
divides the remainder over nine years to arrive at an annual
the BA flows directly from multiyear authorizing laws
required reduction of $109.3 billion for each fiscal year
enacted outside the annual appropriations process.
through FY2021.
Examples of mandatory spending programs include
entitlement programs, nutrition assistance, and multiyear
That amount is split equally between defense and
highway bills.
nondefense spending, and each half is then allocated on a
mostly proportional basis between discretionary and
Since the creation of the sequester mechanism in the
mandatory spending.
Balanced Budget and Emergency Deficit Control Act of
1985 (BBEDCA; P.L. 99-177), it has been used to enforce a
The resulting reductions in discretionary spending were to
variety of fiscal policy goals. Sequestration is generally
be implemented by lowering the BCA discretionary
implemented through across-the-board (uniform
spending limits—although the required cap reductions have
percentage) reductions to programs, projects, and activities.
been superseded by four Bipartisan Budget Acts (2013,
2015, 2018 and 2019) that have raised the caps.
BCA and the Mandatory Sequester
The required reductions in mandatory spending in the
The BCA included discretionary spending caps to save
defense and nondefense categories are achieved through a
about $900 billion through FY2021 and a “Joint Committee
process”
mandatory sequester (across-the-board cuts)—subject to
aimed at saving another $1.5 trillion.
numerous exemptions and special rules. OMB refers to the
For the initial tranche of budgetary savings, the BCA placed
mandatory reductions as the “Joint Committee sequester.”
statutory limits on discretionary spending for each fiscal
year from FY2012 through FY2021.
2% Limit for Medicare and Other Special
Rules; Sequester Exemptions
To accomplish the second tranche of savings, the BCA
The annual Joint Committee mandatory sequester generally
established a bipartisan, bicameral Joint Select Committee
applies reductions across the board but is subject to special
on Deficit Reduction (“Joint Committee”). The committee
rules and exemptions. The most significant special rule is
was to negotiate a broad deficit reduction package, and as a
the 2% limit on Medicare reductions.
fallback, automatic spending reductions would be triggered
if Congress failed to enact at least $1.2 trillion in budget
Medicare is the largest mandatory spending program
savings by January 15, 2012.
subject to sequestration, although special rules limit the
sequestration of Medicare benefit payments to 2%. Most
The deadline was not met, triggering the BCA’s $1.2
Medicare spending—$765.5 billion in FY2020—is subject
trillion in automatic reductions. Most of the $1.2 trillion
to the 2% sequester, including payments to health care
https://crsreports.congress.gov

FY2020 Mandatory Sequester Reduces Medicare $15.3 Billion, Other Mandatory Spending $4.55 Billion
providers for hospitalizations, physician services,
 5.9% across-the-board reduction in more than 200
prescription drugs, skilled nursing facility care, home health
nondefense mandatory spending accounts amounting to
visits, and hospice care. The reductions apply to fee-for-
$4.491 billion and a $59 million increase in student
service payments as well as Medicare Advantage plans.
loan origination fees; and

Other special rules that impact the mandatory sequester
8.6% across-the-board reductions in defense mandatory
include a 2% limit on reductions to mandatory spending for
accounts, amounting to $842 million (less than the
community and migrant health centers and the Indian
nondefense reductions due to the small amount of
Health Service and a special rule for student loans that
defense spending that is mandatory).
achieves the required budgetary savings by increasing
Scope of the Mandatory Sequester
origination fees.
The Joint Committee sequester automatically reduces more
Figure 1. Mandatory Sequester Calculations
than 200 budget accounts listed in the OMB Report. The
reductions impact a broad array of programs, including
Affordable Care Act cost-sharing reduction subsidies and
risk adjustment, farm price and income supports,
compensation and services for crime victims, citizenship
and immigration services, agricultural marketing services
and conservation programs, promoting safe and stable
families, and animal and plant health inspection. It also
includes Federal Deposit Insurance Corporation orderly
liquidation operations, vocational rehabilitation services,
mineral leasing payments, Centers for Medicare and
Medicaid Services program management, social services
block grants, Departments of Justice and Treasury law
enforcement activities, and student loan origination fees.
Also included are highway performance; school
construction bonds; spectrum relocation activities; Trade
Adjustment Assistance; Consumer Financial Protection
Bureau; Drug Enforcement Administration operations;
Tennessee Valley Authority; fish and wildlife restoration
and conservation; affordable housing; the maternal, infant,
and early childhood home visiting program; and Gulf Coast
restoration.
Extension of the Joint Committee
Sequester
The requirement for a Joint Committee (mandatory)
sequester in FY2013-FY2021 has been extended on five
occasions—to offset increases approved in discretionary
spending and other legislation—and is now required for
each fiscal year through FY2029. (The five extensions were
enacted as part of the Bipartisan Budget Acts of 2013,
2015, 2018, and 2019, and a 2014 law relating to cost-of-
living adjustments for military retirees.)
Annual calculation of the mandatory sequester is
Source: OMB, FY2020.
interdependent with calculation of the BCA discretionary
cap reductions. However, after FY2021, the BCA statutory
Many programs are exempt from the mandatory sequester
requirement for cap reduction calculations expires.
under Section 255 of BBEDCA (2 U.S.C. §905). Three-
Therefore, the statutes extending the Joint Committee
quarters of all mandatory spending is exempt from the
mandatory sequester through FY2029 tie the defense and
mandatory sequester, including Social Security; veterans
nondefense mandatory savings for the extension years to
programs; net interest; refundable income tax credits;
the uniform percentage reductions that will be calculated
civilian and military retirement; federal aid highways;
for FY2021. Those numbers are to be included in the
unemployment compensation; and low-income programs
Report on the Joint Committee Reduction that are to be
including Medicaid, Children’s Health Insurance,
released concurrent with the President’s budget for FY2021
Supplemental Security Income, Supplemental Nutrition
(in February 2020).
Assistance, and Temporary Assistance for Needy Families.
FY2020 Mandatory Sequester
Charles S. Konigsberg, Analyst on Congress and the
After implementing the above calculations and special
Legislative Process
rules, the Joint Committee reductions for FY2020 require:
IF11332
 2% across-the-board reduction in Medicare spending
amounting to $15.31 billion;
https://crsreports.congress.gov

FY2020 Mandatory Sequester Reduces Medicare $15.3 Billion, Other Mandatory Spending $4.55 Billion

Disclaimer
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 under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF11332 · VERSION 1 · NEW