Things do not look good for quick passage of a budget reconciliation bill.
President Donald Trump congratulated Republicans in the House when they bowed to a Senate reconciliation framework that endorsed lower spending reductions. This was not because he didn’t favor reductions – he does – but he wanted the process to continue. But since the vote, it has become very clear that the GOP is struggling to come up with enough votes to pass a package that a majority in each chamber can support.
Senate moderates and pragmatic conservatives insisted that reductions in the healthcare world should be minimal. The same holds true for about two dozen House GOP moderates. Conservatives and budget hawks in the House only agreed to the Senate framework after Trump and Speaker Mike Johnson committed to robust spending reductions.
Disparate interests
So how do you reconcile the two agendas, especially in the few short weeks needed to hit a pre-Memorial Day target for a House vote? A conservative lawmaker, Rep. Chip Roy, R-TX, put it best when he said: “I don’t think we’re on the same page — even inside the House, much less between the House and the Senate.” Rep. Buddy Carter, R-GA, indicated this week that the bill’s passage is likely to slip now to at least just before the July 4 holiday.
One of the biggest obstacles is an agreement on healthcare cuts, largely under the auspices of the Energy and Commerce Committee. Budget-cutters do not have a lot of leeway given Trump’s and congressional GOP leaders’ commitment not to impact coverage. Thus, they are getting creative, backing ideas that look to stay away from coverage, but still save in Medicaid and perhaps Medicare.
Potential cuts right now focus on:
- Instituting work requirements
- Tackling fraud, waste, and abuse (FWA)
- Tighter and more frequent eligibility requirements
- Repealing Biden-era rules on streamlining the enrollment process
- Barring non-citizens from enrollment
- Reining in provider taxes that generate state match in Medicaid
- Reducing allowable state-directed and lump-sum supplemental payments
- Certain pharmacy benefits manager reform, including banning spread pricing
- Beginning site neutral payments in Medicare
- Possible Medicare Advantage (MA) overpayment reform
Conservatives want even deeper changes and reductions. It appears that the Energy and Commerce Committee was zeroing in on cuts of about $620 billion over ten years. But House Speaker Mike Johnson came out this week taking one item off the table and cast doubt on another. An explicit reduction in Obamacare expansion population reimbursement is now off the table. Johnson added that a per capita cap funding scheme for Medicaid likely will be put aside as well.
Johnson’s declaration came after moderate House GOP members sent their strongest warnings yet about their unwillingness to back major reductions. Many moderates are more and more clear that they will not support any changes in reimbursement, no matter how they are crafted (e.g., per capita caps or percentage reimbursement reductions). Some have also said they cannot support provider tax reform. Thus, the Medicaid reduction target now likely will need to fall, perhaps to $500 billion at most.
But House GOP conservatives came back with a warning of their own that they will vote for the bill only if aggressive spending reduction targets are met, with some having a goal of real reform of the program to control costs long term. Conservative lawmakers are upset by Johnson’s declarations that certain reductions are off the tabke or could be eliminated. And conservative negotiators seem to say that a per capita cap for at least the expansion populations is still alive. There is growing attention being aid to reining in, phasing down, or eliminating provider taxes, which could save up to $600 billion over ten years.
For their part, Democrats, who will not support the reconciliation bill, are urging the GOP to look to MA overpayments and risk adjustment reform in lieu of Medicaid reductions.
Threading the needle is a tall order
Suffice it to say that the two sides of the GOP caucus appear farther apart as the self-imposed Memorial Day deadline looms. Here is why. The possible reductions above are an attempt to thread the needle between coverage losses and sufficient savings. But the cuts clearly would lead to coverage losses that moderates say they will not tolerate. Moderate GOP members could still get on board for some of these Medicaid reductions given their stealth nature – they don’t attack coverage directly. But the truth is that states likely would have to pare enrollment and benefits back as available revenue dries up from the feds. As an example, some states have so-called trigger laws if federal reimbursement for the expansion population is reduced. Others will have no choice but to reduce Medicaid if so much money is pulled back.
So, moderates hopping on any Medicaid reductions is a real question. Consider the position of the usually conservative Sen. Josh Hawley, R-MO, who is leading the charge against major Medicaid changes. “I’ve talked to a number of House members, a number of whom actually reached out to me and said — and by ‘a number’ I mean upwards of a dozen — who said, ‘We’re not going to vote for Medicaid payments cuts,’” he said.
And then you have the House GOP conservatives. Whatever your view of them, they have so far cooperated in the process by supporting its move forward with only vague commitments to the spending reductions they want to see. They are losing patience with the watering down of spending cuts.
More and more, any agreement looks to be months away. And that creates issues for the running of government as the debt limit returned as of 2025. The U.S. government could potentially run out of cash to pay its bills in mid-July if the debt limit is not raised or suspended. And House conservatives are unlikely to vote to lift or suspend the debt limit without commitments of spending reductions to stop a further escalation of deficits and debts. The Senate, too, has its ardent budget hawks who want to see reductions.
Budget gimmick could prevail
Overlaying all of this is a gruesome budget deficit and national debt picture and an ongoing failure of any side of the aisle to truly grapple with it.
While I am a fan of preserving healthcare coverage, I am also a former state budget director who always had to balance his budget from year to year. Federal governments have the luxury of deficit spending, but by any reasonable measure, our annual deficits and national debt are out of control. This is the fault of both parties over the years that passed tax cuts and huge spending expansions without regard for the long-term consequences. My GOP party has become as irresponsible as the Democrats and perhaps even more so very soon.
A few key facts from an earlier blog on the status of our federal budget and debt.
- The national debt has hit about $36.7 trillion.
- The deficit for FFY 2024 was about $1.8 trillion.
- In FFY 2024, government spending was about $6.75 trillion or about 27%.
- While many would argue the annual budget should be balanced, a good target for a developed nation’s annual budget deficit is 2% to 3% of gross domestic product (GDP). Historically, the U.S. has been at about 3%. In FFY 2024, the U.S. nominal GDP was about $29.7 trillion. So, our deficit against GDP is about 6% — at least double the acceptable economic average. A 6% gap would not be unreasonable in bad economic times. Imagine what it would surge to in tough times.
- Interest on the federal debt in FFY 2024 was almost $900 billion and will hit $1 trillion per year in the coming years. That is over 10% of the budget and about what we spend on the military.
But it appears Congress could very well continue the trend. The GOP budget reconciliation resolution passed by both houses uses a gimmicky budget scoring method never used before for a budget reconciliation bill – “current policy” vs. the standard “current law.” This could further balloon the deficit and national debt. It is bad policy and budgeting.
The GOP leaders adopted the gimmick to have their cake and eat it too. Because the 2017 Trump tax cuts expire at the end of the year, extending them is a loss of revenue under the normal “current law” policy of scoring bills. And Senate budget rules say that, to avoid a filibuster (and a 60-vote cloture vote) and allowing passage of the budget bill with 51 votes, the deficit cannot increase after the applicable budget horizon.
So, to extend the 2017 Trump tax cuts under “current law,” they would have to make spending reductions in the trillions over time. Under the budget gimmick “current policy,” the scoring now recognizes the tax cuts as continuing regardless of what the underlying law says. Presto – no major spending reductions are needed and the tax cuts are free and can be made permanent!
What’s more, the GOP is adding significantly to the underlying tax cuts due to major campaign promises on taxation of social security, tips, overtime, and more. The state and local tax (SALT) cap likely will be moved up more as well.
Trillions in more debt
The Senate instructions allow for an increase in deficits over the 10-year horizon of up to $2 trillion and have de minimis spending cut targets. But the move to “current policy” makes the real impact on deficit increases up to $5.7 trillion. The House instructions have a $2 trillion mandatory spending cuts goal, which means increased deficits over the 10-year horizon would be about $3.3 trillion.
The silver lining of all this is that, while irresponsible, scoring the bill based on “current policy” would help with less severe budget reductions, especially on healthcare. Of course, as our Moms told us, nothing is free in life. While I have disagreement with House GOP conservatives on some of their spending reductions, they at least are consistent in their belief that the tax cuts should be paid for moving forward.
What will happen?
In the end, conservatives likely will die on the sword to make reductions to pay for some or all of the tax cuts (extensions and new). Moderates will push hard for as little impact as possible on healthcare.
But from a good-governance standpoint, “current policy” sets a terrible precedent when we have a huge and growing national debt. It would open the floodgates for future Congresses to pass tax cuts or increase spending without regard to the budget deficit and levels of debt. I am appalled by the course my own party could go. Both parties have saddled future generations and the economy with huge debt. There is no budget discipline. It looks like that could continue.
My point here is that both parties have and will continue to make a mess out of the budget. The national debt will consume a greater and greater share of the budget and gross domestic product (GDP). It will mean huge spending cuts, especially in healthcare, in the future.
#budgetreconciliation #trump #congress #spending #healthcare #coverage
— Marc S. Ryan
