Pursuant to the Budget Control Act of 2011 (Public Law 112-25), the Congressional Joint Select Committee on Deficit Reduction (the Super-Committee) had its first meeting last week.  The Super-Committee is charged with proposing legislation to cut budget deficits by at least $1.5 trillion between 2012 and 2021.  If the Super-Committee is unable to propose such legislation that is passed by Congress no later than December, automatic procedures for cutting both discretionary and mandatory spending will take effect.  On September 12, 20011, the Congressional Budget Office (CBO) released a report estimating the impact of these potential automatic cuts.

CBO’s report notes that the automatic cuts would be equally divided between defense and non-defense spending, starting in 2013.  The automatic cuts would be achieved by lowering the caps on discretionary budget authority specified in the Budget Control Act and by automatically cancelling budgetary resources (a process known as “sequestration”) for some programs and activities financed by mandatory spending. Some programs, however, such as Social Security and Medicaid, would be exempt from automatic budget cuts.

With respect to Medicare, CBO notes that the automatic cuts would include reductions of 2 percent each year in most Medicare spending.  CBO estimates that, under the current law, the 2 percent limit would apply to approximately $6.1 trillion of Medicare spending over the nine-year period, for a total of $123 billion in savings.  However, CBO notes that estimating automatic reductions for nondefense programs such as Medicare is “complicated” and “subject to a considerable degree of uncertainty.”

CBO also expects that reductions in budgetary resources for certain parts of Medicare would offset some of the automatic savings; for example, premiums for Part B of Medicare are set to cover a fraction of that program’s costs, and if those costs are reduced, receipts from premiums will be lower. This could result in $31 billion less collected in Part B premiums through 2021, according to CBO.

A copy of the CBO’s report is available by clicking here.