Medicaid and Related Federal Administrative Expenses Will Not Be Affected by Automatic Cuts in the Budget Control Act of 2011

In a recent report, “Budget ‘Sequestration’ and Selected Program Exemptions and Special Rules”, the Congressional Research Service (CRS) takes a closer look at budget sequestration scheduled to occur from 2013 through 2019 under the Budget Control Act of 2011 (BCA). Among other details, the report confirms the safety of specific programs, including Medicaid, which have been identified as being exempt from sequestration under two components of the BCA.

In the wake of the Super Committee’s failure to propose spending cuts, and barring any action by Congress to pass legislation that would replace the scheduled across-the-board cuts with more targeted program spending cuts, a recent CRS Report highlights two provisions of sequestration under the BCA that protect Medicaid.

Provision 1. “Establishment of discretionary spending limits, or caps, for each of FY2012-2021. If Congress appropriates more than allowed under these spending limits in any given year, the automatic process of sequestration will cancel the excess amount.”

This provision is part of the statutory PAYGO Act, signed in February 2010, that established a “permanent budget enforcement mechanism intended to prevent mandatory (i.e., direct) spending and revenue legislation that would increase the deficit from being passed and signed into law.”

Bottom Line: Medicaid is a discretionary program; therefore, the provisions of PAYGO do not apply to it.

Provision 2. “A series of automatic spending reductions [triggered by the Super Committee’s failure to deliver legislation to Congress by November 23, 2011 that would reduce the deficit by another $1.2 trillion], including: sequestration of mandatory spending in each of FY2013-FY2021, a one-year sequestration of discretionary spending for FY2013, and lower discretionary spending limits for each of FY2014-FY2021.”

Barring any additional action by Congress during the next 12 months to pass legislation that would replace the scheduled across-the-board cuts with more targeted program cuts (which could include cuts to any part of the federal budget, including those sections currently excluded from sequestration), the automatic spending cuts outlined in the BCA will go into effect.

Bottom Line: Medicaid is clearly identified as being exempt from sequestration; related federal administrative expenses, which are subject to a special rule, are subject to sequestration “only to the extent that the relevant federal program is subject to sequestration. In other words, if a program is exempt under Section 255 [of the BCA, as Medicaid is], then federal payments to states for the costs of administering that program also are exempt.”


It remains unclear how other programs, such as Education, that are subject to cuts under sequestration will be affected. Sequestration has not occurred since the early 1990s, so there is serious uncertainly about the actual impact and implementation of sequestration under the BCA of 2011. The CRS suggests that legal interpretations of the BCA and interpretations by the Office of Management and Budget will largely determine how those programs that are subject to sequestration under normal or special rules will be affected.