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Budget Reconciliation: A Powerful Tool To Set Bipartisan (Seriously!) Health Policy

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The new 118th Congress will begin with the narrowest of margins in both chambers. In the Senate, there are 50 Democrats and 50 Republicans. Since the vice president serves as the Senate president, Kamala Harris will break any tie votes. Senate committees will be evenly split, making it difficult to move legislation out of committee without bipartisan support. In the House, Speaker Nancy Pelosi (D-CA) will have only a few votes to spare to pass legislation. This situation could lead legislators to return to a more bipartisan approach to health care legislation, but the odds are they will remain bitterly divided. As a result, an archaic legislative procedure known as budget reconciliation has been getting a lot of airtime in the media and around Capitol Hill.

The budget reconciliation process was born in the Watergate era. Created by Congress in 1974, the Budget and Impoundment Control Act, was enacted to curb executive excesses by President Richard Nixon and put more of the budget decision making in the hands of Congress. The law required Congress to draft a budget resolution that passes both houses of Congress. The budget resolution lays out, in broad strokes, the spending and revenue numbers for the federal fiscal year beginning October 1 (prior to 1974, the fiscal year began on July 1). Notably, this is one of the few pieces of legislation that does not go to the president for a signature or veto.

Worried about growing deficits, lawmakers included provisions that would allow Congress to include language in the budget resolutions to reconcile actual spending and revenue (that is, taxes) with the figures adopted in the budget resolution. The House and Senate Budget Committees (also created by the 1974 law) can develop a plan directing various committees to enact legislation to make changes in current laws to either reduce or increase spending or revenues and give those committees a deadline for completion. While the committees have the authority to approve any changes they want, the reconciliation plan would include examples of how Congress intends to reach the bottom line.

Over the next 37 years (1980–2017), 21 reconciliation acts were enacted by Congress and signed into law by presidents of both political parties. More recently, however, reconciliation has become a highly partisan approach to legislating. While it’s unlikely the new Congress and president will move back toward bipartisanship, the opportunity exists.

First Uses

Congress did not use reconciliation until 1980, when it enacted the Omnibus Reconciliation Act of 1980 (Public Law 96-499), but the use of budget reconciliation to make changes to health law really took off in 1981, with the advent of the Reagan administration.

President Ronald Reagan and his first budget director, David Stockman, saw reconciliation as a tool with which they could make significant changes to spending programs and to reduce taxes. Reagan’s first budget submission to the 97th Congress proposed major changes in Medicaid and in programs under the Public Health Service Act. For instance, it proposed transforming Medicaid from a federal-state partnership into a state-run block grant program. Instead of a federal set of minimum benefits, states would be free to shape their programs as they chose. However, because Reagan and Stockman also proposed a significant cut in how much the federal government would contribute to Medicaid, the plan drew opposition from many governors (from both parties) and eventually would fail in Congress while much of the president’s agenda was enacted. In return for preserving the Medicaid entitlement, then House Energy and Commerce Health Subcommittee Chairman Henry Waxman (D-CA) proposed temporary cuts in federal Medicaid payments that would expire after three years. Waxman would later use the reconciliation process to get Congress to approve eligibility expansions for poor women and their children up to age 19 who had income above the poverty line but were unable to afford insurance (that is, the working poor).

A Decade Of Major Changes

Enactment of the Omnibus Budget Reconciliation Act of 1981 touched off more than a decade of major changes to federal health programs using the reconciliation process. While always controversial, lawmakers in both parties realized that the enactment of these sweeping packages of changes was also an opportunity to make changes they would otherwise have difficulty getting passed on their own. Some key highlights of health laws contained in reconciliation legislation include:

Medicare Prospective Payment

In 1982, Congress used reconciliation to pave the way for one of the most significant changes to Medicare in its history. Lawmakers from both parties recognized that Medicare’s “cost plus” payment system for hospitals was wasteful and was leading to sharp increases in spending. In the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 (Public Law 97-248), Congress directed the secretary of Health and Human Services (HHS) to develop a plan to replace the cost-plus system with a new prospective payment system (PPS). The act also included a provision that called for drastic reductions in Medicare hospital payments if a PPS were not enacted, thus ensuring hospital lobbyists would go along with the PPS. By December of that year, HHS Secretary Richard Schweiker sent Congress a plan to base such a system on diagnosis-related groups (DRGs). In 1983, Congress enacted the DRG system as part of the Social Security amendments (Public Law 98-21). Lawmakers would later adopt a prospective payment system for most providers participating in Medicare.

Medicare HMOs

Tucked into TEFRA were provisions allowing managed care plans (health maintenance organizations, preferred provider organizations) to participate in Medicare as an option for seniors. Prior to that, such plans were participating as part of a demonstration project. Today, the Medicare Advantage program (also known as Medicare Part C) enrolls more than a third of eligible beneficiaries with more than 30 plans participating.

Physician Payment Reform

Nearly a decade later, in 1989, Congress turned its attention to Medicare’s payment system for physicians, moving from a charge-based schedule to one based on resource-based relative value scale (RBRVS), modeled after a system developed by William Hsiao, PhD. The new system based payments on three elements: the amount of work required, practice expenses, and liability insurance costs.

Continued Health Insurance

In 1985, Congress enacted the Consolidated Omnibus Budget Reconciliation Act (COBRA) (Public Law 99-272) and turned to the issue of private health insurance. Provisions authored by then Rep. Fortney (Pete) Stark (D-CA), COBRA gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan when they are unemployed, lose coverage due to a divorce, or as a result of other life events. Those who qualify pay the cost of coverage, set at 102 percent of the employer’s cost of the plan. COBRA coverage usually lasts for 18 months. It has been especially valuable during periods of economic recession. During the Great Recession of 2008, Congress subsidized the cost of COBRA coverage.


COBRA also includes another landmark health law, addressing reports of hospitals “dumping” uninsured patients by transferring them to public or other facilities, the Emergency Medical Treatment and Labor Act (EMTALA). Under the law, a hospital must provide a medical screening examination to emergency patients, including those in active labor, regardless of a patient’s ability to pay. Hospitals are then required to provide stabilizing treatment for those patients.

Expanding Coverage

After a decade focused, primarily, on reducing spending, the 1990s were marked by efforts to expand coverage of Americans with low incomes.

Vaccines For Children

Following a measles outbreak in 1989–91, Congress enacted legislation providing for children ages 18 and younger through a state-run entitlement. Eligible children include those who are uninsured and those with coverage that doesn’t cover the cost of needed immunizations.

Children’s Health Insurance

Following the defeat of President Bill Clinton’s health reform proposal, Congress came back in 1997 to enact a bipartisan Children’s Health Insurance Program (CHIP) as part of the Balanced Budget Act (Public Law 105-33). The law created a new state-run program of insurance for children of parents with income that is too high to qualify for Medicaid but too low to afford private coverage. Co-sponsored by then Senators Edward Kennedy (D-MA) and Orrin Hatch (R-UT), with strong support from then First Lady Hillary Clinton, the law now covers some nine million children, making it the third largest health care entitlement program.

Bipartisanship Fades, Controversy Rises

As we entered a new century the use of reconciliation dropped sharply and became considerably more partisan and controversial. President George W. Bush used reconciliation to enact tax cuts in 2001 and 2003. Bipartisan legislation creating the Medicare Prescription Drug (Part D) benefit was enacted under the more traditional legislative process (Public Law 108-173).

Fixing Physician Payments

In 2005, Congress addressed a long-standing problem with Medicare’s physician payment system. Lawmakers had earlier created a reduction in fees if the volume of physician services rose sharply. The much-criticized formula would have resulted in significant cuts, forcing Congress to enact temporary freezes. In the Deficit Reduction Act of 2005 (Public Law No. 109-171), Congress discarded the penalties much to the relief of doctors and lawmakers alike. Yet, in a sign of things to come, Congress split mostly along party lines, and the bill was approved by the Senate after a 50–50 tie vote broken by then Vice President Dick Cheney.

Affordable Care Act

Perhaps the most controversial use of reconciliation to date occurred in 2010 when Democrats in Congress used the process to enact the Affordable Care Act (ACA) (Public Law 111-148). Initially, lawmakers pushed the ACA through the traditional legislative process on a partisan vote in the House and Senate, but the death of Sen. Kennedy led to the Democrats losing their Senate super majority after it had approved the legislation but before the typically necessary House-Senate conference. Faced with the possible loss of the entire bill, the House chose, instead, to approve the Senate bill, despite having major differences on key provisions. Democrats then approved a separate bill, using reconciliation, to make changes to the new law in the Health Care and Education Reconciliation Act of 2010 (Public Law 111-152). Early in the administration of President Donald Trump, Republicans tried to repeal most of the ACA using reconciliation but failed when three Republican senators voted against the bill. Trump would later use reconciliation to enact sweeping tax cuts.

Lessons For The Biden Era

Reconciliation appears to be making a comeback and will likely be a key part of President Joe Biden’s efforts to enact sweeping legislation to address the COVID-19 pandemic and the resulting economic recession. He has laid out a package of policies that would cost an estimated $1.9 trillion that most congressional observers expect will be handled through reconciliation.

Reconciliation has proven to be an effective tool for legislation. In its heyday of the 1980s and 1990s, it often fostered bipartisanship as lawmakers from both parties saw the opportunity to advance their ideas and legislation by hitching them to the reconciliation train. Whether the current environment will allow a return to cross-party policy making remains to be seen, but those of us who follow the process are smart to be boning up on this obscure process.

While the current discussion focuses on the use of reconciliation as a partisan work-around, the budgeting tool could present policy makers in both parties a tool to advance ideas big and small to improve access and cost-effectiveness. It has been 11 years since Congress enacted the ACA, and lawmakers have not been able to move on legislation to improve on the law and fix some of the drafting errors that have led to arguments and court challenges. Democrats have been nervous about using reconciliation and opening a path to repeal some or all of the ACA while many in the GOP didn’t want to give the other party a chance to correct its errors.

There is no shortage of ideas. A bipartisan group of health policy leaders recently published a menu of policy options for consideration ranging from coverage expansions to payment reforms to rein in prescription drug prices and an accelerated path to value-based care. While some would say the possibility of Congress taking a similar two-party approach is a pipe dream in today’s environment, history provides evidence of the kind of results it could produce.


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