Health Policy and the
Federal Budget Process
Tim Westmoreland
Visiting Professor of Law
Research Professor of Public Policy
Georgetown University
February 2006
Figure 1
Introduction to the Federal Budget
• It’s big. Really big.
• It drives federal policy in all areas-especially health.
• Very few people understand even the
basics.
• By the time you finish this introduction,
you will be one of the top 1% of Americans
in terms of budget proficiency.
Figure 2
To Begin: Four Necessary Terms
• Revenues--money coming into the federal
government (also referred to as “receipts’)
• Spending--money going out of the federal
government (“outlays”)
• Deficit--annual revenues minus annual
spending
• Debt--sum total of all annual deficits (and
surpluses)
Figure 3
Total Revenues = ~$1.9 Trillion
(FY 2004)
Other
Sources
• Personal Income Tax =
~$900 Billion
Corporate
Taxes
Personal
Income Tax
Social
Insurance
Taxes
• Social Insurance Taxes =
~$750 Billion
• Corporate Taxes =
~$200 Billion
• All other sources =
~$200 Billion
SOURCE: OMB, Fiscal Year 2004 Budget, February 2003.
Figure 4
Federal Spending in the
President’s FY 2006 Budget
Defense
Discretionary
17%
Social Security
21%
Medicare
13%
Non-defense
Discretionary
19%
Net Interest
8%
Other
14%
Medicaid
and SCHIP
8%
Total Outlays= $2.57 trillion
SOURCE: OMB, Fiscal Year 2006 Budget, February 2005.
Figure 5
Funding Proposed for HHS Health Programs
in Bush Administration’s FY 2006 Budget
HRSA
11%
Medicare
58%
SCHIP
1%
Medicaid
33%
Total = $592 Billion
Health
Discretionary
Programs
9%
CDC
8%
IHS 6%
FDA 3%
NIH
54%
SAMHSA
6%
CMS-PM
6%
OS-DM
6%
Total = $52.6 Billion
Notes: Totals do not include funding for the Administration on Children and Families, the
Administration on Aging and Program Support Center. AHRQ funding is entirely through transfers
from other HHS agencies. Totals do not add to 100% due to rounding.
SOURCE:
HHS, Budget in Brief FY 2006, February 2005.
Figure 6
Total Deficit =
Depends on How You Count It
• Unified Budget (Count all revenues,
including money coming in for trust funds
for future use): $400 billion
• On-budget Totals (Technical legal definition,
not counting Social Security or the Postal
Service): $570 billion
• Federal Funds Budget (Count only revenues
that can be spent this year): $600 billion
Figure 7
Total Debt = $8.2 Trillion and
Counting…
Q:
A:
What is the debt?
Money loaned to the federal government (such as
Savings Bonds or Treasury Bills) that has to be paid
back with interest.
Q:
A:
Where is the debt?
~$4.7T held by the public (investors, banks, pension
funds, etc.)
• Including ~$2.1T held by foreign investors and
governments
Plus
~$3.5T held by the federal government to use in the
future (e.g., the Social Security Trust Fund, the
Medicare Trust Fund, etc.)
Figure 8
Four Necessary Budget Concepts
• Three kinds of spending
• Baseline
• Limits
• Scorekeeping
Figure 9
Three Kinds of Spending
• Discretionary spending
• Mandatory spending
• Tax spending
Figure 10
Discretionary Spending
• Spending that is up to the Congress to decide each year.
• In any single year, it can be from zero to 100% of the
level authorized in law for each program.
• The presumption is that the money will not be there
unless the Congress acts to provide it.
• Budgeting by dollars.
– E.g., Congress may provide $100 million for childhood
immunizations; how many children can be immunized for that?
Figure 11
Examples of Discretionary Spending
• National Institutes of Health
• Centers for Disease Control and Prevention
• Indian Health Service
• Title X Family Planning
• Funding for
– Substance Abuse and Mental Health Services Administration (SAMH
– Health Resources and Services Administration (HRSA)
– Food and Drug Administration (FDA)
Figure 12
Mandatory Spending
• Spending that is promised in statute for an
ongoing period.
• In any single year, it will be enough to meet
the promise of the statute
• The presumption is that the money will be
there unless the Congress acts to change the
promise in statute.
• Budgeting by goods and services.
– E.g., Congress may promise free vaccine to all
children; how much will that cost?
• Medicare and Medicaid are examples of
mandatory health spending
Figure 13
Tax Spending
• Tax spending is “revenue foregone,” i.e., money that
would normally have come in as taxes but is, instead,
kept by the taxpayer for a special use.
– The usual forms are a tax deduction, a tax credit, or a
refundable tax credit.
– E.g., if you immunize your own child, you may be allowed to
deduct the cost of the vaccine from your taxes.
• Most tax spending is an ongoing promise in statute
(like mandatory spending), so the presumption is that
the money will be there unless Congress changes the
promise in statute.
Figure 14
Tax Spending (continued)
• Since the money never actually comes into the
Treasury, tax spending is an indirect form of
spending.
– But for bookkeeping and accounting purposes, money that
doesn’t come in is the same as money that comes in and
goes out.
• As opposed to the other spending types, this
spending is rarely noted as part of the budget.
– E.g., the President’s proposal for 2005 was described as
“$2.57 trillion”; if tax spending had been included it would
have been $3.49 trillion”.
Figure 15
The President’s Health Care-Related
Tax Proposals, FY 2006 – FY 2015
$180
Billions of Dollars
Other Health Tax Related
Proposals
$160
$140
$120
$0.2
$22.7
$100
$80
$28.5
High Deductible Insurance
Premiums Tax Deduction
$74.0
Health Insurance Tax Credit
$60
$40
Small Employer Tax Credit
for HSA Contributions
$20
$0
Total = $125 Billion
SOURCE: Department of the Treasury, “2005 Blue Book” General Explanations of the
Administration’s Fiscal Year 2006 Revenue Proposals, February 2005.
Figure
Figure 16
16
Types of Spending are Changing
in Proportion
100%
90%
80%
70%
60%
Discretionary
Mandatory
50%
40%
30%
20%
10%
0%
1969
2005
SOURCE: OMB, FY05 Budget, February 2005 (Historical Tables, Table 8.3).
Figure 17
Tax Spending Will Soon Outpace
Discretionary Spending for the First Time
1500
Discretionary
Tax
Mandatory
1000
500
0
2005
2007
2009
SOURCE: Congressional Research Service and Federal Reserve.
Figure 18
Baseline
• “The Baseline” is the projection of how much
mandatory spending will be in the future.
• To keep the promise in the statute, more
money will be needed in the future.
– E.g., the promise may cost more, may
cover more people, or may include more
goods and services.
Figure 19
Projections of Federal Medicare
Spending, 2004-2010
Billions of Dollars
$381
$407
$433
$460
$340
$265
2004
$290
2005
2006
2007
2008
2009
2010
SOURCE: OMB, President’s FY2006 Budget, Historical Tables, February 2005.
Figure 20
Changes to the Baseline
• For instance, the promise of Medicare will cost more
next year than this year.
– There will be more people who qualify.
– The costs of current services will inflate.
– The mix of goods and services will expand (e.g., old
technologies (like X-rays) will be supplemented with new
ones (like CAT scans)
• Providing the same amount of money from year to
year would erode the promise.
Figure 21
Limits--Discretionary
• Discretionary spending is limited by an overall cap,
specified in the annual Congressional budget
resolution.
– The total of all discretionary spending cannot exceed a
specified total.
– This creates a zero-sum game for new spending.
• Creating a new program requires cutting an existing
program.
Figure 22
Limits—Mandatory and Tax Spending
• Mandatory spending and tax spending already in law
are not capped.
– A cap would force breaking statutory promises.
– Unless Congress changes the promise in statute,
mandatory spending and tax spending grow automatically.
• Any legislation that increases mandatory or tax
spending above the level specified in the annual
Congressional budget resolution is subject to a “Pay
As You Go” (or PAYGO) requirement.
• PAYGO requires that any legislation increasing
mandatory spending promises must be
accompanied by legislation reducing mandatory
spending promises by an equal amount.
Figure 23
Scorekeeping
• To know whether new legislation meets
PAYGO requires an estimate of the costs and
savings. This estimate is called “the score.”
• The Congressional Budget Office (CBO), a
non-partisan branch of the Congress, is the
official scorekeeper of legislation.
Figure 24
Scorekeeping (continued)
• CBO estimates the five-year costs of mandatory
spending or tax spending legislation.
– E.g., a bill to provide free immunizations to all children will
increase spending
– Or, put another way…
costs = (number of children) x (percentage of children who will
seek immunization) x (cost of the immunizations per child) x
(expected increases in children, percentages, and costs).
Figure 25
Scorekeeping (continued)
• In estimating the score, CBO may also take into
account possible savings.
– E.g., the immunizations bill may save some
money because children will no longer be
hospitalized for preventable illness.
Figure 26
Federal Budget Process
President’s Budget Submitted to Congress
First Monday in February
Congressional Budget Resolution
OR
Discretionary spending allocated
to the Appropriations committees
Budget Reconciliation
- Senate Finance, House Commerce,
Annual Appropriations
- House and Senate Appropriations
committees sub-allocate spending to their
subcommittees
House Ways & Means, and other
committees report changes to
House/Senate budget committees
- Changes compiled into one bill
- Bills considered by House/Senate and
negotiated in conference
- Bill considered by House/Senate and
- Bills signed by the President
- Bill signed by the President
negotiated in conference
Fiscal Year begins October 1
SOURCES: Congressional Budget Act of 1974, as amended; Oleszek, Congressional Procedures
Figure 27
The Federal Budget Calendar:
February- March
Early February: President submits proposed budget
for the next year to the Congress.
•This budget sets the Administration’s
programmatic and funding priorities
•Proposal only advisory to the Congress--
not binding
February & March: House and Senate committees hold
hearings on the proposed budget.
Figure 28
The Federal Budget Calendar:
April
April 15: The Congress passes a House/ Senate Budget
Resolution.
•
Resolution is a blueprint of Congress’ plan for the
budget.
•
It is NOT law and is NOT sent to the President for
signature.
•
This resolution contains both the Discretionary
Spending Cap and any targets for planned cuts or
increases in mandatory and tax spending.
Note: This deadline is frequently missed.
Figure 29
The Federal Budget Calendar:
May-September
May through September:
• Appropriations Committees draft and enact legislation
to provide discretionary spending for the coming year,
up to the level of the Discretionary Spending Cap.
• Authorizing Committees draft and enact legislation to
make mandatory and tax spending changes to meet
targets set in the Budget Resolution.
– The entire package of this legislation is called “Budget
Reconciliation” (because it “reconciles” the promises in statute
with the targets for the budget).
Figure 30
The Federal Budget Calendar:
October
October 1: New federal fiscal year begins
– If appropriations laws are not enacted by October
1, Congress typically enacts temporary “bandaid” measures (called Continuing Resolutions) to
keep programs operating until the laws are
enacted.
Figure 31
Four (of Many) Health Policy Problems
Caused by the Budget Process
• Discretionary spending breaks promises.
– Health care costs grow faster than discretionary spending.
Programs to provide comprehensive health care (like the
Indian Health Service) will fall behind.
• Long-term health investments discouraged.
– New prevention and treatment efforts may reduce
mandatory spending in the long run, BUT scorekeeping
looks at only the next five years.
– E.g., early treatment of HIV costs money in the short run but
may save money in the long run.
Figure 32
Four Problems (continued)
• Tax spending is opaque and unevaluated.
– Increasingly, federal policy is funded through tax spending,
BUT it is not generally shown as part of the budget and is rarely
evaluated for effectiveness.
• Scorekeeping overprices and undervalues health
benefits.
– Scores for prevention and treatment may appear high— BUT
that’s because the services keep people alive longer.
Figure 33
In Conclusion
• The budget and its process are always changing.
– E.g., surplus once in 2000, huge deficits since.
– E.g., Medicare will soon begin paying for services out of its
trust fund.
– E.g., new rules for PAYGO are under consideration.
• But it will always be big and it will always drive policy.
• But now you understand it.