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Path Forward on Doc Fix: Remove PAYGO Exemptions

Summary: H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015, would increase
the deficit by $141 billion over FY 2015-2025 period. Section 525 of the bill would exclude this
increase in the deficit from being subjected to the requirements of the Statutory Pay-As-You-Go
Act of 2010 and section 201 of S. Con. Res. 21 or Senate PAYGO.
Exempting this legislation from PAYGO requirements effectively allows spending to be
increased by $141 billion above current law without offsets, repudiating the House and Senate
budget resolutions that both claim to balance within 10 years in part by assuming reductions in
Medicare spending below current law levels. Removing the PAYGO exemptions (by striking
section 525 from the bill) would require Congress to follow through on legislation achieving at
least some of the savings assumed in the budget resolution this year to offset the cost of the
Doc or trigger a sequester of mandatory spending programs.
The fiscally responsible position would be to strike section 525 from H.R. 2.
Background: The Statutory Pay-As-You-Go Act (PAYGO) of 2010 was designed to ensure
lawmakers do not add to the deficit, on net, over the course of a given year. Statutory PAYGO
does not require each individual bill to be offset but rather that the net effect of all legislation
enacted by Congress be deficit neutral. Thus Congress can enact legislation which would
increase the deficit and avoid triggering a sequester enforcing the PAYGO requirement by
enacting other legislation with equal or greater savings.
PAYGO is enforced through a PAYGO Scorecard, held by the Office of Management and
Budget (OMB), which records costs and savings over 10 years. OMB adds up the 5 and 10
year fiscal effects and then evenly distributes those effects over the appropriate periods. If the
scorecard shows an increase in the deficit, after Congress adjourns at the end of a session, the
President is required to issue a sequester order to cut mandatory spending by enough to offset
the deficit shown on the scorecard.
Estimated Effects of Doc Fix on PAYGO Scorecards if Not Offset before January 2016
2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

7.3

17.8

23.0

15.2

10.6

8.8

10.7

12.9

13.1

11.7

10.9

5-Year Scorecard

15.1

15.1

15.1

15.1

15.1

10-Year Scorecard

13.5

13.5

13.5

13.5

13.5

13.5

13.5

13.5

13.5

13.5

Net Change in the


On-Budget Deficit
Assuming Doc Fix is
Not Offset

Should Congress remove the PAYGO exemption found in section 525 of H.R. 2, the budgetary
effects would be added to OMBs PAYGO scorecard. Assuming no other legislation were
enacted in 2015, the result would be a $15 billion sequestration cut to non-exempt mandatory
spending in 2016, with about 80% of the cuts applying to the Medicare program. The process
would continue annually until sufficient deficit reduction is enacted or until the balance is paid
off.

Of course, the purpose of removing the PAYGO exemption is not to force an across-the-board
cut to the Medicare program, but to give Congress, the President, and other interested parties
the incentive to enact and support sufficient savings to avoid adding to the deficit.
Why the Senate should remove PAYGO exemption:
1. Striking PAYGO would provide time for Congress to identify and enact Medicare
savings to offset the SGR bill. Putting the costs of the doc fix on the PAYGO
scorecard by striking section 525 of H.R 2 would effectively require Congress to enact
additional savings sufficient to cover the bills costs by the end of 2015. Failure to do
so would result in a sequestration of mandatory spending, primarily the Medicare
program. Striking the PAYGO exemption would therefore put teeth behind the promise of
future offsets to pay for the cost of H.R. 2.
2. The Doc Fix is inconsistent with Senate and House budget resolutions. Both the
Senate and House passed budget resolutions that achieve balance in part by assuming
savings sufficient to reduce Medicare spending below current over the next 10 years in
addition to offsetting the full cost of a doc fix over ten years and produce a net reduction
in. Exempting H.R. 2 from statutory PAYGO would allow Medicare spending to increase
above current law levels, undermining the ability of the budgets to achieve balance
within 10 years. Striking the PAYGO exemption would require Congress to follow
through on legislation achieve at least part of the savings assumed in the budget
resolution.
3. Congress has consistently paid for previous doc fixes. Excluding the costs of
repealing SGR from Statutory PAYGO because those savings are unlikely to occur is at
odds with historical evidence. Congress has passed 17 different bills overriding the
scheduled payment reductions for Medicare providers. However, the cost of those doc
fixes have been offset 98 percent of the time according to the Committee for a
Responsible Federal Budget.
4. Growth in Medicare spending under current law is already unstainable. Statutory
PAYGO is intended to prevent Congress from enacting legislation which would increase
the deficit above current law levels. Under current law, which assumes the reductions
required by the Medicare SGR take effect, Medicare spending is projected to grow from
$527 billion in 2015 to $981 billion in 2025 (a 0.65 percent of GDP increase). If
exempted from PAYGO, the SGR bill would accelerated this growth and further lock in
this unsustainable spending path. Removing the PAYGO exemption, on the other hand,
would encourage Congress to enact additional entitlement reforms this year.
5. The Doc Fix violates the Ryan-Murray budget agreement. The Bipartisan Budget Act
(BBA) of 2013 governs the spending and revenue paths for both the House and Senate
until a new concurrent FY 2016 budget resolution is adopted (this will likely happen once
Congress returns from recess on April 13th). The BBA assumes that any doc fix beyond
what was included in the Ryan-Murray agreement will be fully paid for over the next 10
years. Therefore H.R. 2 would result in spending above the levels allowed under the
Ryan-Murray agreement.