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Jon Gettle
The Sausage Factory
12/22/06
Professor Laracy

The Deficit Reduction Act of 2005: A Look at its Social Implications

Introduction

Since 1992 when then President Bill Clinton vowed to “End welfare as we

know it,” the United States has been in a constant mode of self evaluation with

regard to those who are less fortunate, and those who are yet to—or cannot any

longer, take care of themselves. The poor—particularly the youth, the elderly, and

disabled are constantly being cited as reasons for legislation regarding mandatory

spending programs, namely social security, Medicare, and Medicaid. Being that

this mandatory federal spending accounts for 54% of the total U.S. budget,

according to the House Committee on the Budget, many agreed that the federal

government had to make a change to many of the programs that restrict

governmental finances.

This paper will examine several portions of the 800 page Deficit

Reduction Act of 2005 with a focus on its effects on Medicaid reform, student

loan re-structuring, and its extension of the TANF legislation. The paper will

outline and describe the various political actors as well as the role they played in

the political process of the legislation. These actors will be politicians and well as

those representing the interests of groups and organizations that are affected by

the contents of the bill. Sources for this paper are largely of an official federal
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type with the distinct exception of personal correspondence, press releases, third

party commentary and personal assessment. Sources and ideas are blended in a

comprehensive manner with the distinct goal of analyzing and explaining the

atmosphere surrounding the Deficit Reduction Act of 2005.

Facts of the DRA

In late 2005 when the Southeastern United States was struck by Hurricanes

Katrina, Wilma, and Rita, billions of dollars worth of damage was done, and

countless people were displaced and looking for answers from their

representatives in Congress. Spurred on by popular support and a Presidential

endorsement, congress promised $62.5 billion to aid the victims of that disaster.

The unprecedented and unplanned spending, on top of other budgetary concerns,

necessitated a far reaching piece of legislation known as the Deficit Reduction Act

of 2005.

The DRA is a type of legislation known as a reconciliation bill. This type

of bill appears in congress every few years (the 1990’s saw three, the last of

which was in 1997) and it is defined as, “A bill containing changes in law

recommended pursuant to reconciliation instructions in a budget resolution”

(Senate.gov). These bills are often only used when major budget deficits are seen,

and a call of fiscal responsibility appears from inside Congress.

Such a call came on October 27, 2005 when Rep. Judd Gregg of New

Hampshire proposed S. 1932, the Deficit Reduction Act of 2005. Fifteen days
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later, Rep. Jim Nussle of Iowa proposed H.R. 4241 for consideration in the House

of Representatives. The Senate bill passed on November 3 with a largely partisan

vote of 52-47 dominated by Republicans. The House bill was voted in similarly

partisan fashion with 217 “aye” votes all coming from republican representatives,

and 215 “nay” votes that included 200 democrats, 14 republicans, and one

independent.

The DRA is a comprehensive bill that means to reach out to many areas of

federal spending with the stated goal of reining it in. The bill became a very

divisive issue in Congress due largely to its attempt to reduce funding to welfare

recipients, college students, the elderly and the disabled, among others. The

Republican stance is summarized by Rep. Trent Franks of AZ, “The Deficit

Reduction Act reforms key government programs. These are common sense

reforms set to reduce the deficit by more than $50 billion. The billions of dollars

we are saving with this plan are a down payment on America's future” (US. Fed

News). Specifically, the DRA is set to reduce Medicaid outlays by allowing states

to reduce benefits and impose additional cost-sharing requirements and premiums

on certain enrollees, reducing payments for prescription drugs, and tightening the

rules relating to asset transfers prior to eligibility for Medicaid long-term care

services. The bill will also extend the state family assistance grant program

through 2010 at the current funding level of $16.6 billion, make numerous

changes to federal higher education programs, including the student and parent

loan programs, and to the premiums charged by the Pension Benefit Guaranty
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Corporation, and Reduce funding for the child support enforcement program by

over $4 billion. The savings estimated by Congress would come from a reduction

of overall federal outlays, presumably to be paid for by the public.

Effects on the Issues – Medicaid

Among the entitlement programs earmarked for a decrease of funding,

Medicaid had become one of the most divisive issues within the DRA. The bill

calls for an increased look-back period for Medicaid eligibility, a new penalty

period start date (Nursing Homes 46), and it makes ineligible for Medicaid for

nursing facility or other long term care services certain individuals with an equity

interest in their homes greater than $500,000. Further, it allows states to elect an

equity interest threshold exceeding $500,000, but not more than $750,000 (S.

1932). The reasons for such legislation are cited as legal loopholes and rampant

Medicaid fraud that ends up costing both the federal and state governments

billions. According to a speech given by President Bush on February 8, 2006,

“The bill helps restrain Medicaid spending by reducing federal overpayment for

prescription drugs. Taxpayers should not have to pay inflated markups for the

medicine that the people on Medicaid depend. The bill gives governors more

flexibility to design Medicaid benefits that meet the needs of their states

efficiently and affordably” (PR Newswire).

On July 15, before Hurricane Katrina and the $60+ billion of emergency

funds granted by Congress, the National Governors Association began their


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annual meeting. Among the policy positions adopted during their stay in Iowa,

the bi-partisan gathering adopted a formal opinion on Medicaid and other parts of

the healthcare system so as to “help keep Medicaid sustainable in the long-term”

(NGA.org). This recommendation is cited by many proponents of the DRA

including Rep. John Sullivan of OK, and Rep. Michael Turner of Ohio. What

gives the NGA such a vested interest in the passing of the DRA is the fact that the

governors receive more authority and greater autonomy to conform the Medicaid

laws to their respective constituencies which, according to an NGA press release,

will “help governors manage the growth of a program that is unsustainable in its

current form..." (US Fed News) and curtail a program that, if left unchecked

would “bankrupt most states by 2020” (US Fed News).

Beyond the numbers, the DRA was bound to upset many. Critics of the

program, both in congressional committee and in the public called the DRA a

handout to health plans, as well as a major hindrance on the elderly. Because the

passing of the DRA gave states the ability to impose co-pays and premiums with

Medicaid services (Policy and Practice of Public Human Services 16), critics such

as Sen. Jeff Bingaman of New Mexico feel as though efforts were made by

congressional conferees to, “Protect private health plan overpayments in Medicare

while cutting access to care for some of our most vulnerable citizens enrolled in

the Medicaid Program” (Bingaman.senate.gov). The many Republican supporters

of the bill cite fiscal responsibility as their main concern as well as the ever-

growing financial burden that is mandatory federal programs. Senator Chuck


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Grassley of Iowa who is the chairman of the Committee on Finance, and who also

authored the healthcare portion of the DRA, stated prior to the bill’s final signing

that Senator Bingaman’s claim is a mischaracterization and that “the reality is that

the Senate-passed bill included several provisions to end overpayments in

Medicare, not only for health plans, but for other providers as well” (US Fed

New). Further, Grassley contended that $6.5 billion was to be cut from Medicare

and that “it was the single-largest cut out of Medicare or Medicaid in the bill by

far.”

In December of 2006, the debate on the Senate floor maintained its

predictable partisanship as Senators provided their conference reports. According

to the Congressional record, Senators Obama (D. Ill) and Feinstein (D. CA)

respectively issued the following statements regarding their noncompliance with

the bill:

Mr. President, I rise today to speak in opposition to the spending


reconciliation conference report…This bill cuts deeply into programs that
serve our country's most vulnerable citizens in order to fund tax breaks for
those who need them the least…ensuring access to basic health care is
critical to our Nation's productivity. But this bill undermines Medicaid and
essential health services for the poor, cutting benefits by $6.3 billion over
10 years…In short, the reconciliation process appears to have lost its
proper meaning.

Mr. President, I rise today to oppose the budget reconciliation conference


report. The conference report cuts total $39.7 billion versus the Senate
proposed $34.6 billion. It reduces mandatory outlays for entitlement
programs by relying heavily on added financial burdens on poor, working
Americans… While Republican leaders had the opportunity to create
significant savings in the conference report by reducing prescription drug
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costs and eliminating unnecessary payments to HMOs, they chose not to.
This bill provides relief for special interests in exchange for greater
burdens on poor, working families, welfare recipients, and children.

Echoing the debates in Congress were special interest groups that lobbied both

for, and against the DRA. The AARP, the American Cancer Society and the

National Council of La Raza all opposed the DRA’s final version. Cited most

often, not surprisingly is the concern that the most vulnerable members of society

are being put at risk by reducing the size of federal payouts to the Medicaid

program. In a letter addressed to Senator Gregg, the CEO of the AARP William

Novelli shared the 36 million member organization’s feeling that “Medicaid

changes would again merely shift costs and further compound the harm from the

changes [proposed by] the Deficit Reduction Act of 2005” (AARP.org).

Despite the sometimes heated debate both inside and outside of the

Capitol, the DRA’s Medicaid provisions remained largely unchanged between its

inception and passage into law. The bill’s ultimate goal, with regard to Medicaid,

is to reduce the growth rate over the next five years by $5 billion. Principally this

will be achieved by reducing the payments the government makes for prescription

drugs and, in theory, the reduction of fraud will insulate taxpayers from inflated

markups that account for dishonest acquisition of funds, or drugs.

Effects on the Issues – Student Loans

At a time in which the message being sent to young Americans is one of a

consistent pursuit of higher education and the rising level of global competition, it
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would seem logical that the federal government would not act—even bearing in

mind fiscal responsibility—in a way that would dissuade families from exploring

the options of education beyond what the state currently provides. The Deficit

Reduction Act of 2005, however, guarantees that students and families that intend

on borrowing from the federal government or private lenders to pay for college

will be repaying a higher sum than the same time last year. Alternatively though,

the DRA also provides for higher initial maximum loans to first and second year

students, as well as a reduction of payments to private lenders which is meant to

increase competition among lenders and drive private interest rates down.

Rep. John Boehner (R. OH), chairman of the House Education & the

Workforce Committee took special care to include “Provisions to reform federal

student loan programs and shore up the Pension Benefit Guaranty Corporation

(PBGC) as part of larger efforts to expand college access for low- and middle-

income students and protect the retirement security of workers and retirees” (US

Fed News) in the final version of the DRA. The significance of his committee’s

efforts is that despite higher interest rates on federally granted student loans,

additional monies are to be allocated for those who may not have alternately been

able to attend college. The argument from the other side of the aisle, however, is

best expressed by Sen. Edward Kennedy (D. MA) in his address to the senate

floor on December 20, 2005:

It is important to note that the Senate bill included $6 billion for Pell
grants, to do more to ensure that every talented student who has the
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opportunity to go to college can afford to do so. In addition, the Senate


bill included a further $2 billion for college students studying math and
science. By contrast, the conferees' bill reduces spending in the student
loan programs by $13 billion and allocates only $3.75 billion to new
grant aid. That's $13 billion in tax giveaways for the wealthy and only a
meager $3.75 billion increase in grants to help students go to college. It
gets worse. In order to receive the funds that are available, students must
jump through multiple hoops. As a result, only a very small percentage of
students will ever see the aid. In fact, based on an analysis by the
Congressional Budget Office, our estimates show only about 10 percent
of the students who currently receive Pell grants will receive additional
assistance under this bill--hardly a commitment to educational
opportunity for all students.

The arguments seen here are consistent throughout the house and Senate; however

the passage of the bill in each house was unaffected. The divisiveness that this

aspect of the bill brought with it, however, found itself in an actionable

predicament in the public sector.

The grassroots political action group, USAction, boasts results of their

campaign to halt or change the higher education stipulations of the DRA as having

convinced four moderate house republicans (John Sweeney of New York, Jim

Gerlach of Pennsylvania, Jim Ramstad of Minnesota, and Rob Simmons of

Connecticut) to change their votes on the budget by motivating 40,000

constituents to contact their representatives (usaction.org). Of his defection, Rep.

Ramstad said, “Congress passed a budget reconciliation bill that I opposed

because I believe it had the wrong priorities for deficit reduction,

disproportionately harming children, the elderly, people with disabilities and low-

income individuals who need health care through Medicaid, as well as limiting

access to higher education through student loan cuts” (house.gov). In actuality


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the results of the education legislation will likely harm or hinder the ability of

recent graduates and their family members spending abilities as the decreased

funding to private lenders commensurately decreases said lenders’ ability to offer

those in good credit standing lower interest rates. The burden placed on those

receiving loans is summarized by the President of the American Council on

Education, David Ward, writing on behalf of the Association of American

Universities:

[S.1932] pays for deficit reduction by sending the bill directly to America's
college students and their parents…This is the biggest cut in the
history of the federal student loan program… At a time when the
nation's future economic prospects are tied more closely than ever before
to a college-educated and highly-skilled workforce, it is shortsighted to
ask college students and their families to bear so much of the burden
(drummajorinstitute.com).

Ward’s opinions closely resemble those of the democrats in both houses of

Congress. The final version of S.1932 saw amendments that resolved some issues

from the original bill. Sen. Patty Murray (D. WA) is a member of the Senate

Committee on Health, Education, Labor and Pensions and is among the few

successful amenders of Title VIII. Murray sought a more clear identification and

definition of independent students for the assessment of need pursuant to the

Higher Education Act of 1965 (govtrack.us). Murray was joined by Senators

Gaylord Conrad (D. ND) and Mike Dewine (R. OH) in either sponsoring or co-

sponsoring bills related to the education stipulations of the DRA.


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The Republican favored plan is not without its social concessions however.

Effective July 1 of 2006, $790 million became available to college students who

already qualified for PELL grants and met certain academic requirements as a

result of the SMART clause in the DRA. Aiming to encourage students to study

in the fields of mathematics, science, engineering, or critical foreign languages,

the National Science and Mathematics Access to Retain Talent (SMART) is

offering grants up $4000 per year to similarly qualified students. It is clear that

despite the exchanges between organizations such as USAction and several

congressmen, as well as Senate committee members bent on maintaining integrity

at their position while assisting their party’s agenda, that the education portion of

the DRA is among the less immediately hindering of students and families due to

the long-term nature of its effects, and the cushioning that Congress strove to

provide.

Effects on the Issues – TANF

Originally enacted in 1996 to provide low-income families with assistance

to move from welfare to work, Temporary Assistance for Needy Families required

a reauthorization so as to continue that goal. The DRA contained such a

reauthorization in Title VII. Highlights of the reauthorization include:

• Extension of block grant through 2010


• Provides $200 million in new child care funding, subject to a state
match (which is far less than the estimated need or what was proposed
in previous TANF legislation.)
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• Revises the caseload reduction credit so that the credit is applied to


caseload decline after 2005. In 2007, a state will have to have 50
percent of all families participating in prescribed work activities .
• Health and Human Services can impose significant penalties on states
that do not develop state procedures to ensure consistency with the new
regulations. (aucd.org)

Criticism over the quality of the TANF reauthorization as well as the means in

which it was conducted has raised controversy. Firstly, many Democrats, Senator

Obama in particular, felt that the Republicans wrongly utilized a reconciliation

bill to pass legislation that was certainly worthy of the consideration of an entire

bill. The Republicans shrewdly used the opportunity to take hold of a previously

Democratic-championed piece of social legislation that naturally uses federal

outlays to closely monitor the amount that could be spent over the life of its

current status. Among his criticisms of the TANF portion of the DRA, Senator

Obama claimed that “[S. 1932] deprives States of the flexibility they need to set

realistic and meaningful work targets for their caseloads. It also dramatically

underfunds childcare, thus assuring that it will be even more difficult for States

and families to fulfill the Federal mandates” (Congressional Record 12/20/2005).

Additional criteria were added by the drafters of the DRA with regard to

TANF qualifications, and restrictions that had not before been in place. Most

notable among them are modified rules of receiving welfare for oneself and one’s

child and the support rights granted by a court, and flexibility provisions for states

to provide Medicaid benefits to certain groups of beneficiaries with the explicit

exclusion of TANF parents. Another chief critic in the political process of the
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DRA’s TANF provisions is Senator Diane Feinstein. Feinstein cites

overwhelming opposition in the Senate to the reauthorization in the budget

reconciliation act. Many of the work requirements, it is argued, are unfairly

biased against welfare recipients and penalties for non-compliance are levied

against the states.

Though the judgment of the Republican congress to process the TANF

reauthorization while tucked inside what is largely a financial bill is questionable,

the goals of the legislation are aimed at critics. Many large grants are made

available as rewards to states for meeting certain requirements as explained by

President Bush on February 8, 2006, “By insisting on programs that require work

and self-sufficiency in return for federal aid, we have helped cut welfare cases by

more than half since 1996. Now we're building on that progress by renewing

welfare reform with a billion dollar increase in child care funding, and new grants

to support healthy marriage and responsible fatherhood programs”

(Whitehouse.gov).

Conclusions

In just over four months a partisan bill that had extremely broad sweeping

consequences on millions of people passed both houses of the Congress and was

signed by the President into law. Because of the shear breadth of the legislation

and determination by the congressional majority, little time was given for debate
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and reassessment before the bill became a law. As has been discussed there was

almost no section of the Deficit Reduction Act of 2005 that was without

controversy or debate. The political process which S. 1932 endured was not one

of prohibitive friction, or internal squabbling. In fact one of the most

extraordinary aspects of the bill is how easily it passed.

It must be assumed that those in the Republican majority understood that

because nearly every section of the bill was contested, though in vain, by the

other side of the aisle that to break it up and propose several—perhaps dozens—of

pieces of legislation that worked so harmonically as those contained in the DRA,

would be impossible. If it were not for the many rank-and-file members of the

majority, an alternate outcome could today be realized.

As long as the federal government continues budget at maximum capacity

of revenues and expenses, it will have to periodically evaluate the financial

situation that it is in. Unfortunately there is no science to disasters or freak

occurrences. As was evidenced by the effects that Hurricane Katrina had on the

congressional bottom line, the government ought always think of the worst case

scenario when preparing to spend the public’s money. Noble as it is, fiscal

responsibility is a phrase often thrown about Washington D.C. but is far less often

ever realized or seen. The implications of the DRA are almost entirely domestic.

Defense spending is conveniently left off the table during committee, conference,

and open floor sessions of Congress even though it represents the single largest

destination of taxpayer’s money.


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The DRA is among the most interesting pieces of legislation that I have

ever come across. Peering at the over 800 pg. document is analogous to being

just miles from Mount Fuji and seeing its snowy peaks. Through my research it

became clear that the Deficit Reduction act was about as mobile as the mountain,

and that those who championed it through the house, through the senate, and

ultimately on to the President’s desk were nimble and shrewd enough to hide its

blemishes and pitfalls from even their own.

Works Cited

"Congress Acts to Reducs Deficit." US Fed News 25 Nov. 2005. 22 Dec. 2006
<http://web.lexis-
nexis.com.proxy.libraries.rutgers.edu/universe/document?_m=db9e6481c2d9ea7a78cb
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59dbe7bcdca0&_docnum=6&wchp=dGLbVzW-
zSkVA&_md5=13d9defefe975e93ed3dd999de056d51>.

"EDUCATION & WORKFORCE COMMITTEE CHAIRMAN BOEHNER ISSUES


STATEMENT ON FINAL APPROVAL OF DEFICIT REDUCTION ACT." US Fed
NEws 1 Feb. 2006. 22 Dec. 2006
<http://www.house.gov/list/press/az02_franks/111805_DeficitReductionAct.html>.

"Grassley Welfare Provisions Won'T Harm Welfare." US Fed News 23 Dec. 2005. 22
Dec. 2006 <http://web.lexis-
nexis.com.proxy.libraries.rutgers.edu/universe/document?_m=db9e6481c2d9ea7a78cb
59dbe7bcdca0&_docnum=3&wchp=dGLbVzW-
zSkVA&_md5=c908ab7e1a939cdf737b5f4eb7d16a2d>.

The National Governors Association. 22 Dec. 2006 <www.nga.org>.


"President Signs S. 1932." The White House. 8 Feb. 2006. 22 Dec. 2006
<http://www.whitehouse.gov/news/releases/2006/02/20060208-8.html>.

"Press Release." AARP. 22 Dec. 2006 <www.AARP.org>.

"Press Releases." Senator Jeff Bingaman. 22 Dec. 2006 <bingamen.senate.gov>.

"S. 1932 Conference Reports." GovTrack. 22 Dec. 2006 <www.govtrack.us>.

"Tracking Our Successes." 22 Dec. 2006 <www.USAction.org>.


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