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Sequestration 101: Why the Sequestration Moratorium Should Be Extended
This article was updated March 29, 2021.
On March 19, the U.S. House of Representatives passed legislation (H.R. 1868) that, if enacted, would extend the current moratorium on the 2 percent Medicare sequestration through 2021 and would waive budgetary requirements that would otherwise result in additional across-the-board Medicare provider cuts next year under the Pay-As-You-Go Act.
Below we answer common questions about sequestration.
Why Should the Moratorium on Sequestration Be Extended?
Extension of the moratorium on sequestration is needed as physician practices attempt to regain their economic footing after dramatic drops in patient volume and practice closures early in the pandemic.
According to a new American Medical Association report, there was a 19 percent and 22 percent drop in Medicare spending for cardiology and diagnostic radiology, respectively, during the first six months of 2020. Despite widespread use of telehealth, physician practices surveyed in July and August were still providing fewer total visits than pre-pandemic.
What Is Sequestration?Sequestration is a budgetary enforcement mechanism created by the Statutory Pay-As-You-Go (PAYGO) Act of 2010 and the Budget Control Act (BCA) of 2011.
The BCA established a bipartisan Joint Select Committee on Deficit Reduction and charged it with developing legislation that would reduce the deficit by at least $1.2 trillion from FY2012 to FY2021. Because the Joint Committee was unable to achieve that goal, automatic spending reductions, known as sequestration, were triggered.
When Did Sequestration Start, and When Will It End?
Under the BCA, the sequestration of mandatory spending was originally scheduled to occur from FY2013 through FY2021. However, six subsequent actions by Congress have extended the BCA mandatory sequester to FY2030.
How Much Can Be Sequestered?
Under a BCA mandatory sequestration order, Medicare benefit payments and Medicare Integrity Program spending cannot be reduced by more than 2 percent. Sequestration is applied to the portion of the reimbursement paid to providers by Medicare and does not affect beneficiary cost-sharing amounts.
What Is PAYGO?
Under the PAYGO Act, if legislation is enacted that increases the federal deficit over a five- and/or ten-year period, then a sequester of certain mandatory spending is required.
Although Congress has passed legislation estimated to increase the deficit since the law went into effect, the PAYGO sequester has never been triggered because both parties have worked together to waive the effects of PAYGO. Under PAYGO sequestration, Medicare cuts are capped at 4 percent.
Will the American Rescue Plan Trigger PAYGO?
The $1.9 trillion American Rescue Plan, enacted March 11, 2021, sets in motion PAYGO reductions in Medicare spending of 4 percent next year, totaling $36 billion.
Sequestration under PAYGO can be avoided if Congress passes legislation that offsets the deficit increase, waives the bill's effects on the federal spending scorecard, or otherwise mitigates or eliminates the statutory PAYGO requirements.