The Temporary Budget

Over at Wonkblog, Sarah Kliff points out that the Affordable Care Act (ACA) may contain a new "doc fix" -- only this time in Medicaid. The current "doc fix" in Medicare cancels out huge scheduled physician payment cuts as required under law by the Sustainable Growth Rate (SGR) formula. Since it is very expensive to override the SGR permanently (about $300 billion over ten years), Congress usually just enacts temporary extensions. Kliff notes that the ACA requires Medicaid to pay primary care physicians the same as Medicare (or adjusted 2009 levels, whichever is greater), but only provides funding ($11 billion) to do so in 2013 and 2014. After 2014, however, Medicaid providers could face a cliff in Medicaid reimbursement rates, similar to Medicare's SGR.

Luckily, the House-passed version of the health care law had a permanent version of this provision, which allows us to estimate the effect of making this provision permanent. Working off those numbers, a permanent Medicaid "doc fix" could cost about $45 billion through 2022.

The doc fixes (both the SGR fix and the potential Medicaid one) are just a microcosm of a larger problem with the federal government right now: the plethora of temporary policies. Just within health care, there are more than a dozen health-care extenders in addition to the doc fix that are frequently renewed. Even though their costs are relatively small, they have never been made permanent.

Similarly, the other day we discussed the student loan showdown that is currently taking place, which includes a temporary reduction in subsidized Stafford loan interest rates that was enacted in 2007. The solution proposed by both parties/houses is a one-year extension. If it is their intent, a permanent extension could cost about $75 billion over ten years according to our own estimates, because none currently exist from CBO.

Of course, these policies pale in comparison to the trillions of dollars of temporary tax policies we have. The accumulation of temporary tax cuts over the past ten years -- along with the need to enact patches to the Alternative Minimum Tax -- has resulted in a $4.6 trillion ten-year price tag for extending the 2001/2003 tax cuts along with the AMT patches. In addition, there are about $400 billion worth of tax extenders (headlined by the R&E credit) that have already expired that Congress has frequently extended en masse.

Cost of Extending Temporary Policies
  One-Year Extension Permanent (Ten-Year) Extension
Doc Fix $15 $270
Medicaid Fix $8 $45
Student Loans $6 $75
AMT Patch* $110 $805
Tax Cuts^ $220 $3,760
R&E Credit* $7 $70

Source: CBO and CRFB estimates
*Assumes retroactive extension for 2012 and extension through 2013
^Includes interaction with AMT patch

While regular review of federal programs and tax provisions is theoretically a good thing, so much of the government now is temporary that Congress does not have the time to actually thoroughly complete those reviews. Temporary provisions are poor policies for a number of reasons if they are intended to be permanent, because they create unnecessary uncertainty and distractions. Furthermore, the sheer number of temporary policies makes the budget much less transparent, since it is difficult to keep track of these provisions in making accurate budget projections. Agencies like CBO do an admirable job of trying to incorporate the biggest of these policies into alternate baselines, but it is nearly impossible to track every temporary provision and calculate its effect on different parts of the budget. 

We see the accumulation of so many temporary policies in the fiscal cliff, where trillions of dollars are at stake at the end of this year alone. The cliff plus other temporary policies show the growing difficulty that Congress is creating for itself. If it must spend so much time on expiring provisions, it cannot concentrate nearly as much on the rest of government. Also, one misstep could have huge consequences for the economy.

Simply put, the increasingly temporary nature of government is disconcerting. If a policy is a priority that is not intended to expire, lawmakers should be able to find a way to pay for its permanent existence.