President Donald Trump released his first full budget request on Tuesday, calling for $1.1 trillion in discretionary spending for the 2018 fiscal year (FY) with a projected $440 billion deficit. As with the outline released in March, the full budget calls for drastic cuts to domestic spending and entitlement programs, particularly to Medicaid and the Children’s Health Insurance Program (CHIP). Overall, entitlements would be cut by $1.7 trillion over the next decade, of which $616 billion would be cut from Medicaid. The administration sent conflicting messages on whether these cuts overlap with or would be in addition to the $880 billion in proposed cuts to Medicaid that are included in the American Health Care Act (AHCA).
The budget proposal calls for $4.094 trillion in both discretionary and mandatory spending for FY 2018 with $668 billion in defense and $479 billion for non-defense discretionary spending. Through the 10-year outlook, defense spending would be significantly increased to $722 billion while domestic discretionary spending would be reduced to $429 billion annually or roughly in line with 2004 levels. The domestic cuts would amount to a reduction in roughly $1.7 trillion over 10 years. However, the administration is also proposing several major increases in domestic spending, including $200 billion for infrastructure and a new $19 billion paid family leave policy financed through unemployment insurance.
The White House expects that the budget would result in a surplus of $16 billion in 2027, the first surplus since 2001, from the current deficit of $440 billion. This is largely based on stronger economic growth, with a projection that the economy will grow at 3% annually, roughly 50% faster than the current 1.9% growth rate estimated by the Congressional Budget Office (CBO) and much faster than the 0.7% annual rate from the first quarter of this year. This would help to boost revenues despite significant reductions in taxes, as the Trump Administration projects that stronger economic growth would result in $344 billion more collected from individual taxes over 10 years. The budget also assumes that both the AHCA and the yet-to-be-written tax plan would go into effect, projecting that replacing the ACA with the AHCA would save the government $250 billion over the next 10 years.
The budget for the Department of Health and Human Services would be set at $1.1 trillion in 2018, which covers Medicare, Medicaid, and CHIP funding. CHIP is currently set to expire on September 30 and the budget calls for a two-year authorization of the program, with funding reduced from $16.7 billion in annual spending to $13.4 billion, a roughly 19% cut, which would result in savings of $5.8 billion over 10 years to the federal government. State funding would be capped at 250% of the federal poverty level, or roughly $61,500 for a family of four. These cuts to CHIP would be accompanied by eliminating several ACA-related provisions of the program: increased federal matching funds; a maintenance of effort requirements for states; and undoing a requirement for states to transition certain children from CHIP to expanded Medicaid provisions.
Medicaid spending would be reduced to $4.5 trillion over 10 years with federal funding capped for the first time and states receiving a fixed amount of funding, resulting in savings to the federal government of $665 billion over the next 10 years. This would be done with significant reforms to the program by giving states the option of transitioning to either a block grant or per-capita funding model and encouraging states to impose work requirements on beneficiaries.
It is unclear whether the reductions to Medicaid funding would be in addition to the cuts proposed in the AHCA or if they overlap. The budget notes that the savings do not include “additional savings to Medicaid as a result of the Administration’s plan to repeal and replace Obamacare.” White House Office of Management and Budget (OMB) Director Mick Mulvaney claimed that the cuts would be in addition to AHCA cuts, although the projections by OMB and the CBO vary as savings are not counted the same. Mulvaney contended that the changes to Medicaid are meant to significantly overhaul federal welfare programs, saying “We are no longer going to measure compassion by the number of programs or the number of people on those programs…We’re not going to measure our success by how much money we spend, but by how many people we actually help.” Prior to becoming OMB director, Mulvaney was a three-term member of Congress and was a founding member of the far-right House Freedom Caucus, which has long championed major reforms to federal entitlement programs.
The budget would also repeal the ACA’s Independent Payment Advisory Board (IPAB), a panel instructed to study ways to curtail Medicare spending should certain thresholds be met. The IPAB was effectively defunded in 2015 in a larger omnibus spending package, but nevertheless remains in statute. The panel was never formally convened as spending has not reached the levels set in the statute. The cost for a permanent repeal of the program would be $7.6 billion over 10 years.
There are also several medical liability reforms included in the budget. This includes imposing caps on non-economic damages, providing safe harbors for physicians based on following clinical guidelines, allowing for the creation of health courts, providing for a three-year statute of limitations, eliminating joint and several liability, allowing courts to modify contingency arrangements, and providing for periodic payments for large jury awards. These reforms would result in $55 billion in savings to the federal government, of which $31.4 billion would come from Medicare, $23.2 billion based on the assumption that the AHCA will significantly reduce the cost of employer-sponsored health insurance and therefore employers would increase taxable wages, and $399 million from Medicaid.
The budget proposal also includes a $1.3 billion cut to the Centers for Disease Control, roughly 17% of current spending, and a $5.7 billion cut, roughly 18% of current spending, to the National Institutes of Health (NIH). NIH had just received a $2 billion increase in funding in the 2017 appropriations bills and also received a major boost in federal spending last December with the passage of the $6.3 billion 21st Century Cures Act. The proposed cuts in the president’s budget are likely to face strong resistance from members of both parties who fought strongly for the Cures Act, which passed with near universal support last year (94-5 in the Senate, 392-26 in the House). Beside the support of that funding, Republicans on the House Appropriations Committee had previously expressed support for further increasing NIH’s budget for the 2018 fiscal year.
As with every presidential budget, it’s important to keep in mind that this is a request to Congress to consider when they draft their own budget. Under ideal circumstances, the president submits a budget request, Congress puts forth their budget proposal and the two work together at creating a cohesive document. But given the fierce opposition to the proposed cuts in the budget, including from among leading Republicans who will craft the congressional proposal, it is unlikely that the president’s request will be passed without significant changes. Notably, Representative Hal Rogers (R-KY), a long-time member of the House Appropriations Committee and who will be critical for advancing any spending legislation, said that he was “deeply concerned about the severity of the domestic cuts.” Ultimately, the president’s budget serves to frame the priority policy issues that the administration intends to advance in the overall budget negotiation process over the course of the next several months and we can expect this process to go several rounds before anything is finalized.