The Deficit Reduction Act Of 2005

Gettle 1 Jon Gettle The Sausage Factory 12/22/06 Professor Laracy

The Deficit Reduction Act of 2005: A Look at its Social Implications Introduction Since 1992 when then President Bill Clinton vowed to “End welfare as we know it,” the United States has been in a constant mode of self evaluation with regard to those who are less fortunate, and those who are yet to—or cannot any longer, take care of themselves. The poor—particularly the youth, the elderly, and disabled are constantly being cited as reasons for legislation regarding mandatory spending programs, namely social security, Medicare, and Medicaid. Being that this mandatory federal spending accounts for 54% of the total U.S. budget, according to the House Committee on the Budget, many agreed that the federal government had to make a change to many of the programs that restrict governmental finances. This paper will examine several portions of the 800 page Deficit Reduction Act of 2005 with a focus on its effects on Medicaid reform, student loan re-structuring, and its extension of the TANF legislation. The paper will outline and describe the various political actors as well as the role they played in the political process of the legislation. These actors will be politicians and well as those representing the interests of groups and organizations that are affected by the contents of the bill. Sources for this paper are largely of an official federal

Gettle 2 type with the distinct exception of personal correspondence, press releases, third party commentary and personal assessment. Sources and ideas are blended in a comprehensive manner with the distinct goal of analyzing and explaining the atmosphere surrounding the Deficit Reduction Act of 2005.

Facts of the DRA In late 2005 when the Southeastern United States was struck by Hurricanes Katrina, Wilma, and Rita, billions of dollars worth of damage was done, and countless people were displaced and looking for answers from their representatives in Congress. Spurred on by popular support and a Presidential endorsement, congress promised $62.5 billion to aid the victims of that disaster. The unprecedented and unplanned spending, on top of other budgetary concerns, necessitated a far reaching piece of legislation known as the Deficit Reduction Act of 2005. The DRA is a type of legislation known as a reconciliation bill. This type of bill appears in congress every few years (the 1990’s saw three, the last of which was in 1997) and it is defined as, “A bill containing changes in law recommended pursuant to reconciliation instructions in a budget resolution” (Senate.gov). These bills are often only used when major budget deficits are seen, and a call of fiscal responsibility appears from inside Congress. Such a call came on October 27, 2005 when Rep. Judd Gregg of New Hampshire proposed S. 1932, the Deficit Reduction Act of 2005. Fifteen days

Gettle 3 later, Rep. Jim Nussle of Iowa proposed H.R. 4241 for consideration in the House of Representatives. The Senate bill passed on November 3 with a largely partisan vote of 52-47 dominated by Republicans. The House bill was voted in similarly partisan fashion with 217 “aye” votes all coming from republican representatives, and 215 “nay” votes that included 200 democrats, 14 republicans, and one independent. The DRA is a comprehensive bill that means to reach out to many areas of federal spending with the stated goal of reining it in. The bill became a very divisive issue in Congress due largely to its attempt to reduce funding to welfare recipients, college students, the elderly and the disabled, among others. The Republican stance is summarized by Rep. Trent Franks of AZ, “The Deficit Reduction Act reforms key government programs. These are common sense reforms set to reduce the deficit by more than $50 billion. The billions of dollars we are saving with this plan are a down payment on America's future” (US. Fed News). Specifically, the DRA is set to reduce Medicaid outlays by allowing states to reduce benefits and impose additional cost-sharing requirements and premiums on certain enrollees, reducing payments for prescription drugs, and tightening the rules relating to asset transfers prior to eligibility for Medicaid long-term care services. The bill will also extend the state family assistance grant program through 2010 at the current funding level of $16.6 billion, make numerous changes to federal higher education programs, including the student and parent loan programs, and to the premiums charged by the Pension Benefit Guaranty

Gettle 4 Corporation, and Reduce funding for the child support enforcement program by over $4 billion. The savings estimated by Congress would come from a reduction of overall federal outlays, presumably to be paid for by the public.

Effects on the Issues – Medicaid Among the entitlement programs earmarked for a decrease of funding, Medicaid had become one of the most divisive issues within the DRA. The bill calls for an increased look-back period for Medicaid eligibility, a new penalty period start date (Nursing Homes 46), and it makes ineligible for Medicaid for nursing facility or other long term care services certain individuals with an equity interest in their homes greater than $500,000. Further, it allows states to elect an equity interest threshold exceeding $500,000, but not more than $750,000 (S. 1932). The reasons for such legislation are cited as legal loopholes and rampant Medicaid fraud that ends up costing both the federal and state governments billions. According to a speech given by President Bush on February 8, 2006, “The bill helps restrain Medicaid spending by reducing federal overpayment for prescription drugs. Taxpayers should not have to pay inflated markups for the medicine that the people on Medicaid depend. The bill gives governors more flexibility to design Medicaid benefits that meet the needs of their states efficiently and affordably” (PR Newswire). On July 15, before Hurricane Katrina and the $60+ billion of emergency funds granted by Congress, the National Governors Association began their

Gettle 5 annual meeting. Among the policy positions adopted during their stay in Iowa, the bi-partisan gathering adopted a formal opinion on Medicaid and other parts of the healthcare system so as to “help keep Medicaid sustainable in the long-term” (NGA.org). This recommendation is cited by many proponents of the DRA including Rep. John Sullivan of OK, and Rep. Michael Turner of Ohio. What gives the NGA such a vested interest in the passing of the DRA is the fact that the governors receive more authority and greater autonomy to conform the Medicaid laws to their respective constituencies which, according to an NGA press release, will “help governors manage the growth of a program that is unsustainable in its current form..." (US Fed News) and curtail a program that, if left unchecked would “bankrupt most states by 2020” (US Fed News). Beyond the numbers, the DRA was bound to upset many. Critics of the program, both in congressional committee and in the public called the DRA a handout to health plans, as well as a major hindrance on the elderly. Because the passing of the DRA gave states the ability to impose co-pays and premiums with Medicaid services (Policy and Practice of Public Human Services 16), critics such as Sen. Jeff Bingaman of New Mexico feel as though efforts were made by congressional conferees to, “Protect private health plan overpayments in Medicare while cutting access to care for some of our most vulnerable citizens enrolled in the Medicaid Program” (Bingaman.senate.gov). The many Republican supporters of the bill cite fiscal responsibility as their main concern as well as the evergrowing financial burden that is mandatory federal programs. Senator Chuck

Gettle 6 Grassley of Iowa who is the chairman of the Committee on Finance, and who also authored the healthcare portion of the DRA, stated prior to the bill’s final signing that Senator Bingaman’s claim is a mischaracterization and that “the reality is that the Senate-passed bill included several provisions to end overpayments in Medicare, not only for health plans, but for other providers as well” (US Fed New). Further, Grassley contended that $6.5 billion was to be cut from Medicare and that “it was the single-largest cut out of Medicare or Medicaid in the bill by far.” In December of 2006, the debate on the Senate floor maintained its predictable partisanship as Senators provided their conference reports. According to the Congressional record, Senators Obama (D. Ill) and Feinstein (D. CA) respectively issued the following statements regarding their noncompliance with the bill:

Mr. President, I rise today to speak in opposition to the spending reconciliation conference report…This bill cuts deeply into programs that serve our country's most vulnerable citizens in order to fund tax breaks for those who need them the least…ensuring access to basic health care is critical to our Nation's productivity. But this bill undermines Medicaid and essential health services for the poor, cutting benefits by $6.3 billion over 10 years…In short, the reconciliation process appears to have lost its proper meaning.

Mr. President, I rise today to oppose the budget reconciliation conference report. The conference report cuts total $39.7 billion versus the Senate proposed $34.6 billion. It reduces mandatory outlays for entitlement programs by relying heavily on added financial burdens on poor, working Americans… While Republican leaders had the opportunity to create significant savings in the conference report by reducing prescription drug

Gettle 7 costs and eliminating unnecessary payments to HMOs, they chose not to. This bill provides relief for special interests in exchange for greater burdens on poor, working families, welfare recipients, and children. Echoing the debates in Congress were special interest groups that lobbied both for, and against the DRA. The AARP, the American Cancer Society and the National Council of La Raza all opposed the DRA’s final version. Cited most often, not surprisingly is the concern that the most vulnerable members of society are being put at risk by reducing the size of federal payouts to the Medicaid program. In a letter addressed to Senator Gregg, the CEO of the AARP William Novelli shared the 36 million member organization’s feeling that “Medicaid changes would again merely shift costs and further compound the harm from the changes [proposed by] the Deficit Reduction Act of 2005” (AARP.org). Despite the sometimes heated debate both inside and outside of the Capitol, the DRA’s Medicaid provisions remained largely unchanged between its inception and passage into law. The bill’s ultimate goal, with regard to Medicaid, is to reduce the growth rate over the next five years by $5 billion. Principally this will be achieved by reducing the payments the government makes for prescription drugs and, in theory, the reduction of fraud will insulate taxpayers from inflated markups that account for dishonest acquisition of funds, or drugs.

Effects on the Issues – Student Loans At a time in which the message being sent to young Americans is one of a consistent pursuit of higher education and the rising level of global competition, it

Gettle 8 would seem logical that the federal government would not act—even bearing in mind fiscal responsibility—in a way that would dissuade families from exploring the options of education beyond what the state currently provides. The Deficit Reduction Act of 2005, however, guarantees that students and families that intend on borrowing from the federal government or private lenders to pay for college will be repaying a higher sum than the same time last year. Alternatively though, the DRA also provides for higher initial maximum loans to first and second year students, as well as a reduction of payments to private lenders which is meant to increase competition among lenders and drive private interest rates down. Rep. John Boehner (R. OH), chairman of the House Education & the Workforce Committee took special care to include “Provisions to reform federal student loan programs and shore up the Pension Benefit Guaranty Corporation (PBGC) as part of larger efforts to expand college access for low- and middleincome students and protect the retirement security of workers and retirees” (US Fed News) in the final version of the DRA. The significance of his committee’s efforts is that despite higher interest rates on federally granted student loans, additional monies are to be allocated for those who may not have alternately been able to attend college. The argument from the other side of the aisle, however, is best expressed by Sen. Edward Kennedy (D. MA) in his address to the senate floor on December 20, 2005:

It is important to note that the Senate bill included $6 billion for Pell grants, to do more to ensure that every talented student who has the

Gettle 9 opportunity to go to college can afford to do so. In addition, the Senate bill included a further $2 billion for college students studying math and science. By contrast, the conferees' bill reduces spending in the student loan programs by $13 billion and allocates only $3.75 billion to new grant aid. That's $13 billion in tax giveaways for the wealthy and only a meager $3.75 billion increase in grants to help students go to college. It gets worse. In order to receive the funds that are available, students must jump through multiple hoops. As a result, only a very small percentage of students will ever see the aid. In fact, based on an analysis by the Congressional Budget Office, our estimates show only about 10 percent of the students who currently receive Pell grants will receive additional assistance under this bill--hardly a commitment to educational opportunity for all students. The arguments seen here are consistent throughout the house and Senate; however the passage of the bill in each house was unaffected. The divisiveness that this aspect of the bill brought with it, however, found itself in an actionable predicament in the public sector. The grassroots political action group, USAction, boasts results of their campaign to halt or change the higher education stipulations of the DRA as having convinced four moderate house republicans (John Sweeney of New York, Jim Gerlach of Pennsylvania, Jim Ramstad of Minnesota, and Rob Simmons of Connecticut) to change their votes on the budget by motivating 40,000 constituents to contact their representatives (usaction.org). Of his defection, Rep. Ramstad said, “Congress passed a budget reconciliation bill that I opposed because I believe it had the wrong priorities for deficit reduction, disproportionately harming children, the elderly, people with disabilities and lowincome individuals who need health care through Medicaid, as well as limiting access to higher education through student loan cuts” (house.gov). In actuality

Gettle 10 the results of the education legislation will likely harm or hinder the ability of recent graduates and their family members spending abilities as the decreased funding to private lenders commensurately decreases said lenders’ ability to offer those in good credit standing lower interest rates. The burden placed on those receiving loans is summarized by the President of the American Council on Education, David Ward, writing on behalf of the Association of American Universities:

[S.1932] pays for deficit reduction by sending the bill directly to America's college students and their parents…This is the biggest cut in the history of the federal student loan program… At a time when the nation's future economic prospects are tied more closely than ever before to a college-educated and highly-skilled workforce, it is shortsighted to ask college students and their families to bear so much of the burden (drummajorinstitute.com). Ward’s opinions closely resemble those of the democrats in both houses of Congress. The final version of S.1932 saw amendments that resolved some issues from the original bill. Sen. Patty Murray (D. WA) is a member of the Senate Committee on Health, Education, Labor and Pensions and is among the few successful amenders of Title VIII. Murray sought a more clear identification and definition of independent students for the assessment of need pursuant to the Higher Education Act of 1965 (govtrack.us). Murray was joined by Senators Gaylord Conrad (D. ND) and Mike Dewine (R. OH) in either sponsoring or cosponsoring bills related to the education stipulations of the DRA.

Gettle 11 The Republican favored plan is not without its social concessions however. Effective July 1 of 2006, $790 million became available to college students who already qualified for PELL grants and met certain academic requirements as a result of the SMART clause in the DRA. Aiming to encourage students to study in the fields of mathematics, science, engineering, or critical foreign languages, the National Science and Mathematics Access to Retain Talent (SMART)

is

offering grants up $4000 per year to similarly qualified students. It is clear that despite the exchanges between organizations such as USAction and several congressmen, as well as Senate committee members bent on maintaining integrity at their position while assisting their party’s agenda, that the education portion of the DRA is among the less immediately hindering of students and families due to the long-term nature of its effects, and the cushioning that Congress strove to provide.

Effects on the Issues – TANF Originally enacted in 1996 to provide low-income families with assistance to move from welfare to work, Temporary Assistance for Needy Families required a reauthorization so as to continue that goal. The DRA contained such a reauthorization in Title VII. Highlights of the reauthorization include:

• •

Extension of block grant through 2010 Provides $200 million in new child care funding, subject to a state match (which is far less than the estimated need or what was proposed in previous TANF legislation.)

Gettle 12 • •

Revises the caseload reduction credit so that the credit is applied to caseload decline after 2005. In 2007, a state will have to have 50 percent of all families participating in prescribed work activities . Health and Human Services can impose significant penalties on states that do not develop state procedures to ensure consistency with the new regulations. (aucd.org)

Criticism over the quality of the TANF reauthorization as well as the means in which it was conducted has raised controversy. Firstly, many Democrats, Senator Obama in particular, felt that the Republicans wrongly utilized a reconciliation bill to pass legislation that was certainly worthy of the consideration of an entire bill. The Republicans shrewdly used the opportunity to take hold of a previously Democratic-championed piece of social legislation that naturally uses federal outlays to closely monitor the amount that could be spent over the life of its current status. Among his criticisms of the TANF portion of the DRA, Senator Obama claimed that “[S. 1932] deprives States of the flexibility they need to set realistic and meaningful work targets for their caseloads. It also dramatically underfunds childcare, thus assuring that it will be even more difficult for States and families to fulfill the Federal mandates” (Congressional Record 12/20/2005). Additional criteria were added by the drafters of the DRA with regard to TANF qualifications, and restrictions that had not before been in place. Most notable among them are modified rules of receiving welfare for oneself and one’s child and the support rights granted by a court, and flexibility provisions for states to provide Medicaid benefits to certain groups of beneficiaries with the explicit exclusion of TANF parents. Another chief critic in the political process of the

Gettle 13 DRA’s TANF provisions is Senator Diane Feinstein. Feinstein cites overwhelming opposition in the Senate to the reauthorization in the budget reconciliation act. Many of the work requirements, it is argued, are unfairly biased against welfare recipients and penalties for non-compliance are levied against the states. Though the judgment of the Republican congress to process the TANF reauthorization while tucked inside what is largely a financial bill is questionable, the goals of the legislation are aimed at critics. Many large grants are made available as rewards to states for meeting certain requirements as explained by President Bush on February 8, 2006, “By insisting on programs that require work and self-sufficiency in return for federal aid, we have helped cut welfare cases by more than half since 1996. Now we're building on that progress by renewing welfare reform with a billion dollar increase in child care funding, and new grants to support healthy marriage and responsible fatherhood programs” (Whitehouse.gov).

Conclusions In just over four months a partisan bill that had extremely broad sweeping consequences on millions of people passed both houses of the Congress and was signed by the President into law. Because of the shear breadth of the legislation and determination by the congressional majority, little time was given for debate

Gettle 14 and reassessment before the bill became a law. As has been discussed there was almost no section of the Deficit Reduction Act of 2005 that was without controversy or debate. The political process which S. 1932 endured was not one of prohibitive friction, or internal squabbling. In fact one of the most extraordinary aspects of the bill is how easily it passed. It must be assumed that those in the Republican majority understood that because nearly every section of the bill was contested, though in vain, by the other side of the aisle that to break it up and propose several—perhaps dozens—of pieces of legislation that worked so harmonically as those contained in the DRA, would be impossible. If it were not for the many rank-and-file members of the majority, an alternate outcome could today be realized. As long as the federal government continues budget at maximum capacity of revenues and expenses, it will have to periodically evaluate the financial situation that it is in. Unfortunately there is no science to disasters or freak occurrences. As was evidenced by the effects that Hurricane Katrina had on the congressional bottom line, the government ought always think of the worst case scenario when preparing to spend the public’s money. Noble as it is, fiscal responsibility is a phrase often thrown about Washington D.C. but is far less often ever realized or seen. The implications of the DRA are almost entirely domestic. Defense spending is conveniently left off the table during committee, conference, and open floor sessions of Congress even though it represents the single largest destination of taxpayer’s money.

Gettle 15 The DRA is among the most interesting pieces of legislation that I have ever come across. Peering at the over 800 pg. document is analogous to being just miles from Mount Fuji and seeing its snowy peaks. Through my research it became clear that the Deficit Reduction act was about as mobile as the mountain, and that those who championed it through the house, through the senate, and ultimately on to the President’s desk were nimble and shrewd enough to hide its blemishes and pitfalls from even their own.

Works Cited "Congress Acts to Reducs Deficit." US Fed News 25 Nov. 2005. 22 Dec. 2006
Gettle 16 59dbe7bcdca0&_docnum=6&wchp=dGLbVzWzSkVA&_md5=13d9defefe975e93ed3dd999de056d51>. "EDUCATION & WORKFORCE COMMITTEE CHAIRMAN BOEHNER ISSUES STATEMENT ON FINAL APPROVAL OF DEFICIT REDUCTION ACT." US Fed NEws 1 Feb. 2006. 22 Dec. 2006 . "Grassley Welfare Provisions Won'T Harm Welfare." US Fed News 23 Dec. 2005. 22 Dec. 2006 . The National Governors Association. 22 Dec. 2006 <www.nga.org>. "President Signs S. 1932." The White House. 8 Feb. 2006. 22 Dec. 2006 . "Press Release." AARP. 22 Dec. 2006 <www.AARP.org>. "Press Releases." Senator Jeff Bingaman. 22 Dec. 2006 . "S. 1932 Conference Reports." GovTrack. 22 Dec. 2006 <www.govtrack.us>. "Tracking Our Successes." 22 Dec. 2006 <www.USAction.org>.

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