Policy Resource

Babies and the Budget: Spending Cuts in Reform’s Clothing

Jun 20, 2011

Negotiations are intensifying to reach agreement on a deficit reduction plan that will pave the way to raising the debt ceiling.

While the possibility of including revenue increases remains vague, spending cuts are a certainty, and entitlements are on the immediate agenda. At this point, we are reading the tea leaves of news reports about what negotiators are considering. Some lawmakers suggest only minor cuts to Medicare and Medicaid are acceptable. Yet, given the goal of cutting more than $2 trillion from the federal budget over a number of years, many observers believe substantial changes to the major entitlement programs would be needed to reach that number.

Earlier this year, proposals were outlined in the House to make major reforms in entitlement programs and programs for low-income people. While these proposals are unlikely to be adopted, they could influence the debate over the policies that ultimately implement the deficit reduction agreement. It is worth a look back at these approaches to reduce spending by changing the face of major programs vital to low-income children and families.

Entitlement Reform and Cuts to Medicaid

These days, “entitlement reform” usually refers to the three big federal programs that provide guaranteed benefits to eligible individuals for health care or retirement and other income security: Social Security, Medicare, and Medicaid. These three programs account for 41% of the federal budget. Take them off the table, and the problem of reducing the deficit gets thornier. Leave them on, and the basic social compact with the American people could be challenged.

The House Budget Resolution approved in April calls for entitlement reform by changing Medicare to a voucher program and making Medicaid a block grant to states. Since then, Medicare advocates seem to have convinced lawmakers to abandon the voucher plan, although changes such as means testing for more affluent Americans might be considered. And while some legislators want to explore savings mechanisms in Social Security, the program has a strong and vocal base that is unlikely to allow any major cuts to take place.

Unfortunately, that renders Medicaid the most vulnerable of the big three entitlements and by far the most likely to sustain deep cuts in the name of deficit reduction. That is deeply troubling for the millions of infants and toddlers who rely on Medicaid for health care coverage. Medicaid accounts for more than a fifth of federal spending on infants and toddlers. Currently, 40 percent of all infants and 57 percent of infants and toddlers in low-income families receive coverage through Medicaid. More than half of all Medicaid enrollees are children; but children only generate 22 percent of Medicaid costs.

Under a Medicaid block grant, the federal government would fund a set dollar amount for each state, capped below current levels of funding for an open-ended entitlement to services. States, providers, and families would be forced to shoulder more of the costs, particularly if the price of health care continues to rise. This proposal would effectively halve Medicaid’s funding by 2030, leaving millions of low-income people uninsured and sharply decreasing quality and coverage for those still receiving benefits.

Thanks to advocates for the poor, young, and disabled, a block grant for Medicaid may not be politically feasible. Unfortunately, this does not mean that Medicaid is safe from cuts. It is open to tinkering with reimbursements, eligibility, and other provisions that fall short of overhauling the program. Congress could turn to global spending caps, entitlement caps, or even health care caps to achieve savings goals. If Social Security and Medicare are protected under these plans, Medicaid will be left to absorb disproportionate cuts that would threaten the health care of 3.2 million infants and toddlers. Yet, children are the least expensive and most treatable of all health care recipients. Cutting their care now will result in higher costs down the line if childhood conditions like obesity and asthma are allowed to progress. Proposals like these not only shifts costs to states, providers, and families; they shift costs into the future.

Welfare Reform

Few specifics have emerged about how deficit negotiators might treat other programs for low-income families. These programs are almost certain to be caught up in any global approach to reigning in spending. But might the final agreement also include policy changes to achieve savings? Budget agreements often give only broad targets and policy directions, with House and Senate Committees working out the legislative details. It is unlikely that an agreement would go as far as recent House proposals for major changes to low-income programs. But a look back at these proposals helps us understand the pressures for change on some lawmakers at the negotiating table.

The budget debate in the House has broadened the concept of what is usually considered “welfare reform” – the payment of cash assistance through the Temporary Assistance for Needy Families, or TANF, program. Lately, other programs with means-tested eligibility (determined by income) have been lumped together in reform proposals, and many of these programs serve infants and toddlers.

The House 2012 Budget Resolution was influenced by proposals in “The Welfare Reform Act of 2011” (WRA, H.R. 1167). WRA would create a trigger to cap and cut aggregate spending for all means-tested programs, ignoring critical distinctions between these programs’ purposes and target populations. The bill also would impose new TANF-like work requirements on the Supplemental Nutrition Assistance Program (SNAP). If a parent fails to complete his or her monthly work requirement, all members of that family lose a full month of eligibility so that children might go hungry the following month.

This particular model of welfare reform is unlikely to be adopted. But its fundamental view of limiting programs to support vulnerable children and families signals the need to carefully monitor legislative work to implement any budget agreement.

What Should Be Protected?

Historically, deficit reduction proposals have protected some parts of the budget from cuts. As we have seen, savings in programs with large constituencies and vital services like Medicare and Social Security are difficult to negotiate. Within discretionary programs, defense and national security spending is often protected. So what’s left?

Medicaid appears to be still squarely in the mix despite the critical role it plays in ensuring that the most vulnerable children grow up healthy. As usual, domestic discretionary funding for programs like Early Head Start, WIC, and child care is a likely target. Thus, the programs most lacking a constituency for protecting them are those that form a safety net for low-income families and individuals. They are easy targets even though they comprise a small portion (14%) of the budget and couldn’t come close to solving the deficit problem. It is up to advocates for the most vulnerable members of society to be a voice for children and families. They need to push for protecting these programs and maintaining an investment in our future workforce. They also need to be vigilant about fundamental policy changes to achieve savings. What’s at stake is not only a balanced approach to balancing the budget, but supports that allow babies to grow up healthy and productive.

  • Author

    Patricia A. Cole

    Senior Director of Federal Policy


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