Debt Ceiling Deal: The Good, the Bad and the Ugly

n4a’s initial analysis

This afternoon, the Senate passed legislation to raise the debt ceiling, reduce the deficit and create a special committee to determine a second round of deficit reduction decisions. The bill represents the deal agreed to by the White House and Congressional Republicans and Democrats late on Sunday and approved by the House on Monday. The measure was just signed by President Obama, thus narrowly averting a federal government borrowing crisis.

The deal has multiple components, virtually all of which affect aging policy and funding in the short and long-term. n4a CEO Sandy Markwood released a statement today about the deal, which can be found under Policy News at www.n4a.org.

What is in the Deal?
In exchange for raising the debt ceiling limit, Republicans won several concessions, including immediate and long-term cuts to discretionary spending without any of the increases in revenues that Democrats wanted. In a nutshell:

• Stage 1: The bill caps discretionary spending over 10 years, driving $900 billion in deficit reduction. For the first two years, the caps have to be applied equally between security and non-security spending (i.e., firewalls).
• Stage 2: A Congressional Joint Select Committee on Deficit Reduction will be created to agree upon at least $1.2 trillion and up to $1.5 trillion in additional deficit reduction measures. This 12-member bipartisan committee must produce this legislation by November 23; it will then be subject to an up-or-down vote without amendments. Everything is on the table for this committee’s consideration: revenues, entitlements or further cuts to discretionary programs.
• Possible Stage 3: If the joint committee or Congress fails to act by the end of the calendar year, $1.2 trillion in automatic, across-the-board cuts would take effect through a sequestration process. If this occurs, several programs are exempted: Social Security, Medicaid and several low-income entitlement programs. (Medicare benefits could not be cut either, but provider payments could be reduced by up to 2 percent.)

The Good

• The raising of the debt ceiling averted significant and numerous economic consequences had the government defaulted.
• As desired by the White House, the measure puts off the need to repeat this battle over raising the debt ceiling until 2013 (the debt ceiling would be increased again before then, but under agreed-upon parameters).
• Medicaid HCBS programs, Medicare and Social Security were spared immediate cuts, as the first $900 billion in deficit reduction comes entirely from the discretionary side of the ledger.
• If automatic sequestration occurs, Social Security (which has not contributed to the deficit), Medicaid, costs for Medicare beneficiaries and several low-income programs are spared.
• If automatic sequestration occurs, half of the cuts must come from security, thus preventing unfair routing of non-security programs.

The Bad

• Discretionary programs like the Older Americans Act could face painful cuts under the spending caps—the best case scenario for FY 2012 and FY 2013 OAA funding would be only minor cuts but all programs are at risk of being significantly reduced, as appropriators struggle to keep total spending under the cap. With the caps in place for 10 years, there is no immediate relief in sight from reduced or frozen funding levels that do not take into account population growth, human need or other factors that increase demand for programs and services. (It is too early to speculate as to when the economy might recover enough to phase out the caps early, as has been done in past years.)
• Discretionary programs are not protected from the second round of drastic cuts, as the joint committee can opt to further reduce either side of the ledger.
• The joint committee merely continues the partisan battle over whether revenues should be considered in deficit reduction. If committee members cannot agree on a package, the potential for using revenues to help reduce the deficit is effectively dead, as the sequestration process does not contain that option.
• If revenues are not included in the second round of deficit reduction, the cuts to entitlements will need to be that much deeper. To reach $1.2 trillion in cuts alone, the joint committee would have to make significant cuts to Medicaid, Medicare and possibly Social Security.

The Ugly

• While details such as final FY 2012 spending levels or what that second round of $1.2-1.5 trillion of deficit reduction would look like will not be known for months, it is apparent the size and scope of this deal is a game changer. But we do know this: the deal will reduce the amount of federal funding available for community-level aging programs at a time when our economy is still struggling and our nation’s population is rapidly aging.
• For the older adults and caregivers AAAs and Title VI programs serve, this will mean more people will face waiting lists for critical OAA services—such as home care, home-delivered meals and medical transportation—as well as less help with heating/cooling bills from LIHEAP, reduced availability of affordable senior housing, and similar strains to other federally funded community-level programs.
• If Medicaid cuts come to fruition, home and community-based services (HCBS) waivers are particularly vulnerable. If HCBS programs are reduced, older adults will have difficulty getting the supports they need to live in the community and may risk premature institutionalization. Not only is this detrimental to consumers, it also could turn back the clock on national efforts to rebalance Medicaid.
• If Medicaid cuts go as deep as is feared, nursing home–provided long-term care could no longer be considered an entitlement and older consumers could no longer have access to this vital safety net for long-term services and supports.
• The select committee can consider Medicare and Social Security as other sources of deficit reduction dollars. Reduced benefits or raised costs will place a burden on millions of older adults who rely upon these social insurance programs for economic and health security.