The House of Representatives last night voted 332 - 94 to pass the bipartisan budget agreement (H. J. Res 59) crafted by Senate Budget Committee Chairwoman Patty Murray (D-WA) and House Budget Committee Chairman Paul Ryan (R-WI) that will partially reduce spending cuts previously mandated under sequestration and increase defense and non-defense discretionary spending for FY 2014 and FY 2015.

Specifically, the agreement increases overall discretionary spending for FY 2014 to $1.012 trillion from $967 billion, which would have been the level of spending for FY 2014 had another full round of sequestration cuts gone into effect in January. Overall discretionary spending will increase slightly for FY 2015 to $1.014 trillion. In both fiscal years, approximately $520 billion will be spent for defense programs and $492 billion will be appropriated for non-defense discretionary programs.

The budget agreement includes numerous bi-partisan deficit reduction provisions and spending cuts to offset the increase in spending for FY 2014 and FY 2015. For example, the agreement increases the pension contributions for new federal employees by 1.3 percent to an overall 4.4 percent contribution from their salaries. It also includes a slight increase in the aviation security fee assessed to airline tickets, limits the amount of federal funding that contractors can use for their salaries, and increases the premiums that companies pay the federal government to guarantee their pension programs, among many other provisions. The agreement does not increase taxes, which Republicans strongly oppose, nor does it make cuts to Social Security or Medicare, which Democrats oppose.

Although questions had been raised about whether the agreement would secure the support of House conservatives concerned about increases in spending, the overwhelming majority of Republicans voted in favor of the legislation after Speaker Boehner and his leadership team endorsed the deal. House Democrats attempted to attach an extension of emergency unemployment benefits to the legislation, which expire at the end of December, and reacted angrily when they were denied a vote, but the overwhelming majority of Democrats voted for the budget agreement after Minority Leader Nancy Pelosi and other Democratic leaders announced they would support the legislation despite the absence of the benefits. House and Senate Democrats have indicated that they will pursue a retroactive extension of the emergency unemployment benefits in January.

Given the strong bipartisan vote in the House, it is likely that the Senate will also approve the budget agreement with a bipartisan vote when it takes up the legislation next week. However, key Senate Republicans and a substantial number of their colleagues are likely to oppose the deal since it increases spending above the limits imposed under sequestration. This opposition will force Senate Majority Leader Harry Reid (D-NV) to set up procedural votes that will require a 60 vote threshold to overcome. Although this will slow down the process, it is highly unlikely that opponents of the agreement have enough votes to defeat the legislation.

Since Senate passage of the budget agreement is expected, the House and Senate Appropriations Committees will soon begin assigning revised subcommittee spending allocations and finish writing their FY 2014 spending bills. House and Senate appropriators will then negotiate final subcommittee bills, which will likely be combined into a single “omnibus” appropriations bill since there is not enough time to consider each bill before the current continuing resolution funding the government expires on January 15. If negotiators are unable to reach agreement on spending limits for all programs, they can extend funding for disputed programs at the current FY 2013 spending level. After the FY 2014 budget is completed, Congress will begin consideration of the FY 2015 budget in February when the President submits his budget proposal.

Medicare “Doc” Fix

The budget agreement provides a three-month Sustainable Growth Rate (SGR) patch to prevent a 20.1 percent cut in reimbursement for physicians treating Medicare patients. The legislation also provides a temporary 0.5 percent SGR update. For the last decade, Congress has intervened to prevent steep cuts to the SGR – and provide positive updates to physicians. Many believed this would be the year Congress would pass a bipartisan deal to replace the SGR with new physician payment adjustments. Over the last few months, it became clear that House Republicans on the two committees of jurisdiction were not as unified on the details of such a plan, and despite hearings and a general framework for reform, the House Ways and Means Committee and Senate Finance Committee did not mark-up legislation until December 12, just one day before the House was expected to adjourn for the year.

The SGR patch was largely offset by hospital reimbursement at a time when hospitals are being pinched by automatic budget cuts, known as the sequester, which went into effect in March 2013. These two percent across-the-board cuts to Medicare reimbursement were extended another two years by the Ryan-Murray agreement – until 2023 – to offset increased spending on various military and domestic programs.

The Ryan-Murray compromise included a number of perennial Medicare extenders that received a three-month reprieve from expiring. The legislation extends the Medicare Geographic Practice Cost Index for three months. The GPCI factors (along with Relative Value Units) determine allowable payment amounts to physicians for medical procedures.

The legislation extends the $1,500 Medicare therapy cap services limit for beneficiaries, a policy first enacted as part of the Balanced Budget Act of 1997. The Qualifying Individual or QI program, which allows Medicaid to pay the Medicare Part B premiums for low-income beneficiaries, receives a three-month extension. The agreement also extends Transitional Medical Assistance to allow low-income families to maintain their Medicaid coverage as they transition into employment, increase their earnings or despite the receipt of child support payments. The TMI program was a critical pillar of welfare reform in 1996.

The budget agreement extends the Medicare Low-Volume hospital payment and the Medicare Dependent Hospital program for six months. Patients with hospital stays that exceed three days in an Intensive Care Unit or on a ventilator, qualify for a higher payment rate. Other cases would be paid a standard inpatient rate. The provision also delays application of the 25 percent rule for three years.

The package once again rebases Medicaid Disproportionate Share Hospital (DSH) cuts – delaying the scheduled FY 2015 reduction for a year and basing FY 2023 allotments on previous year levels. Many in Congress believe that hospital dependence on DSH – or charity care payments – should decrease as more patients obtain health insurance through expanded Medicaid assistance and private health plans sold through the exchanges. Unfortunately with the delayed rollout of the federal exchange and lack of state participation in Medicaid expansion, the entry point for insured individuals will remain hospital emergency departments.

Conclusion

Although it is modest in scope, and does not resolve major disagreements over future spending, tax policy, and entitlement reform, the budget agreement nevertheless is a significant bipartisan achievement in a Congress which has thus far has been defined by bitter partisan differences over fiscal policy. The agreement will avert another government shutdown and in the near-term help avoid the brinkmanship that has characterized budget negotiations over the past several years and led to the government shutdown in October. This is undoubtedly a relief for most members of Congress and their constituents. For many in Congress, especially members of the Appropriations Committees, the agreement is also meaningful since it recaptures authority over the federal budget which is effectively ceded to the Executive Branch whenever Congress passes “continuing resolutions” at previous spending levels without any changes or new directives to federal agencies regarding how taxpayer dollars are spent.

Former Rep. Phil English, Co-Chair of Arent Fox's Government Relations practice said: "Although many core long term spending issues were not addressed by this budget, the passage of this compromise plan is a milestone in the effort of a politically divided Congress to find common ground that will allow the federal government to meet its obligations while exercising fiscal restraint. This is a budget that keeps the government functioning while allowing partisans to fight out the long term details in the coming election."