Legislative Notice #36

July 30, 1997,11:00 a.m.

• H.R. 2015 is the spending-reduction portion of the reconciliation instructions of H. Con. Res. 84, Congress's budget resolution mandating a zero deficit by the year 2002. This conference report meets the spending reduction called for in the budget resolution, and is estimated to reduce five-year spending by $270 billion.
• H.R. 2015 modernizes Medicare by granting new health care options for seniors, while maintaining the traditional system, and more equitably distributes Medicare Choice payments among geographic regions. It also extends the life of the Medicare trust fund by 10 years. The legislation also makes much needed changes in the Medicaid program; extends health insurance to uninsured children (providing $24 billion); and provides for a tobacco-tax increase beginning in 2001 at 10 cents, rising by another nickel in 2002 -- for a total of 39 cents in the federal tax on cigarettes.
• At press time, it was anticipated the Senate would begin debating the conference report technically prior to its receipt from the House. That would require unanimous consent, which presumably will provide for the strict procedural rules of reconciliation legislation, namely that debate be limited to 10 hours, and no motion to recommit and no amendments be in order.
• H.R. 2015 conforms to the balanced budget agreement reached between Congress and President Clinton on May 2, 1997. Between the changes in federal spending policy in this legislation, and the tax changes in H.R. 2014, Congress will present a balanced budget to the President -- and with his signature, it will be the first balanced budget since 1969. Congress presented the President with a balanced budget (as certified by the Congressional Budget Office) in 1995, but it was vetoed.
• The Senate passed its version of this bill (S. 947) on June 25, 1997, by a vote of 73-27 (with 52 GOP yea votes and 3 nay votes). The House passed H.R. 2015 the same day by a vote of 270-162 (with 219 GOP yeas and 7 nays).

[The best detailed version of the conference report is a document jointly prepared by the Senate and House Budget Committees; this Notice does not attempt to duplicate those efforts, but rather merely highlights the conference report.]

This Notice highlights the spending policy changes agreed to in the House-Senate conference in accordance with the reconciliation instructions given to the various House and Senate Committees with jurisdiction over the affected spending areas (largely the Senate Finance Committee and the House Ways and Means Committee). One exception is the addition of a tobacco tax added as an amendment on the Senate floor during consideration of the tax-cut bill.

This legislation incorporates the final agreement reached by congressional leaders and the President reached on the spending and tax bills on June 28.

• Getting to a Zero Deficit: This legislation is necessary despite continued improvement in the federal deficit. Without the federal policy changes contained in the reconciliation bill, the deficit under CBO's most recent estimates (without the so-called fiscal dividend that balance will yield) would double to $139 billion by 2002. The deficit was $107 billion in FY 1996 and is currently projected to be $67 billion this year. However, without this legislation, it will not get to zero. The positive economic performance to date largely has been due to low inflation and business restructuring at home and the opening of new markets overseas that has resulted in higher-than-anticipated receipts.
• Medicare: The Balanced Budget Act of 1997 (BBA 97) makes the most significant changes to the Medicare program -- the federal government's health care program for all seniors -- since its inception in the 1960s. It modernizes the program by granting new health care options for seniors -- while maintaining and strengthening the traditional system. Further, it more equitably distributes federal managed care and new Medicare Choice payments between geographic regions. It also extends the life of the program's funding mechanism, the Medicare trust fund (known as the HI or Part A trust fund).

-- The BBA contains $115 billion in Medicare savings over the next five years, not by cutting, but by merely slowing the rate of growth.

-- The BBA preserves the traditional fee-for-service (FFS) Medicare system but it also will offer a new Medicare Choice system, which will allow seniors to choose FFS plans in the private sector, provider-sponsored organizations (PSOs), preferred-provider organizations (PPOs), or even open medical savings accounts (MSAs) -- that latter being limited to up to 390,000 participants. It will also expand access for these new options in currently underserved areas by more equitably distributing Medicare Choice payments nationwide.

-- The BBA also contains new consumer protection measures and anti-fraud measures, designed to combat the up-to-$23 billion that HHS has determined may be being taken from the system.

-- A Medicare Commission of 17 members is established to study the program and report back to Congress. The commission will commence work on December 1, 1997, and report by March 1, 1999.

• Medicaid: This legislation also makes much needed changes in the Medicaid program -- the government's health care program for the needy. It grants vastly expanded flexibility to the states, allowing them to build on the reforms and innovations they have already. These program changes will continue to result in significant health care improvements for beneficiaries and will save taxpayers $13 billion over the next five years.

-- The efficiency of the Medicaid program is increased: the Boren amendment (which resulted in states being under continual litigation) is repealed, and states will have the option of using HMOs without first having to receive a waiver.

• Uninsured Children: This legislation contains an additional $24 billion specifically designed to provide health insurance (and direct health services up to 10 percent of a state's allocation) to 5 million uninsured children. Eligibility is as follows: 200 percent of federal poverty level (FPL) in states with Medicaid eligibility at or below 200-percent FPL; in states with Medicaid eligibility above 200-percent FPL, the eligibility level will be 50 points above the state Medicaid eligibility level.
• Enforcement Provisions: The conference report includes enforcement provisions to help ensure that the agreement reached between Congress and the President will be met. This enforcement language includes an extension of current budget enforcement procedures -- the discretionary spending caps (with so-called "firewalls" that separate Defense from non-Defense spending) and pay-go restrictions on mandatory spending.

Making a Difference by Fulfilling Our Promise

The BBA assures the federal budget will balance in 2002. That is what Republicans set out to do when they assumed control of Congress in 1995. In Washington, keeping your word is news in itself but to fully appreciate how important it is in this case, compare where America will be under this legislation versus where it would be without it.

• The deficit will be eliminated in 2002 rather than more than doubling to $139 billion -- the deficit figure we could expect without the mandatory and discretionary spending reform and the so-called "fiscal dividend" contained in this budget.
• Total federal spending will be reduced by $270 billion over five years and almost $1 trillion over ten years versus no spending reduction if there were no such agreement.
• Non-defense discretionary spending -- the money Washington spends on itself -- will grow at an average rate of just 0.5 percent over the next five years.

1997 Budget Compared to 1993 Budget

To understand the magnitude of the accomplishment of balancing the budget, it is important to see where we were just four years ago in the first year of President Clinton's first term when his party controlled Congress. In comparison to the 1993 budget agreement reached between Clinton and his party in Congress, the 1997 agreement will:

• Reduce spending by $270 billion versus just $193 billion.
• Honestly balance the budget versus leaving a $206.2 billion deficit at the end of five years.
• Contain tax relief of $95 billion over five years and $272 billion over ten years versus a tax hike of $241 billion.
• Reduce the deficit by $240 billion more and reduce taxes $335 billion more than Clinton's 1993 budget.

Overcoming Clinton to Eliminate the Deficit

Since 1995, standing between Republicans and achieving a balanced budget was the President. For more than two years, President Clinton blocked all of the Republicans' efforts to eliminate the deficit and reduce taxes.

• Prior to Republicans assuming control of Congress in 1995, President Clinton refused to embrace even the idea of a balanced budget.
• Clinton's first three budgets -- released in 1993, 1994, and 1995 (for FYs 1994, 1995, and 1996 respectively), left deficits of $241.4 billion, $201.2 billion, and $194 billion by his own estimation (which CBO scored at $228.5 billion, $206.2 billion, and $276 billion respectively).
• Clinton's first budget called for an astronomical tax hike of $220 billion that Democrats in Congress increased to $240 billion.
• The President vetoed the Republicans' balanced budget in 1995 -- a budget that also would have cut taxes.
• Not until election year 1996 did Clinton even aspire to balance, producing a budget that left an $81 billion deficit in its final year. His budget this year left a $69 billion deficit.