Affordable Care Act (ACA):
Officially known as the Patient Protection and Affordable Care Act. The Affordable Care Act (ACA) was first enacted in March 2010 through the Patient Protection and Affordable Care Act and then amended by the Health Care and Education Reconciliation Act. The law includes many elements that will be implemented over the course of several years. They are designed to expand health care coverage and control the growth of health care costs. Some of the major provisions in the legislation are:
For a more detailed list of the ACA provisions, visit Kaiser Family Foundation, Focus on Health Reform.
(See also Medicare, Medicaid, Veterans Health Administration, and Military Health System.)
Alternative Minimum Tax (AMT):
The present-day Alternative Minimum Tax (AMT) was created in 1978 to address the concerns that some high-income people were avoiding paying income tax by taking advantage of tax preferences. The AMT works parallel to the regular income tax structure. It uses different tax rates on ordinary income and excludes many deductions and credits. Taxpayers subject to the AMT must calculate the amount they owe under the regular income tax system and what they owe under the AMT, and pay whichever is larger. The AMT was originally intended to impact a few high-income taxpayers. However increasing numbers of taxpayers have been subject to the AMT because it is not indexed for inflation. Congress has passed annual “patches” to index the AMT to inflation to prevent this from occurring.
Congressional committees that write annual legislation that allows government agencies and programs to spend money. The congressional budget resolution provides spending ceilings each year for programs funded through annual appropriations. The House and Senate Appropriations Committees separately subdivide that amount and provide spending ceilings to each of their subcommittees (currently there are 12 in each chamber), which have jurisdiction over federal agencies and programs. (See also Authorizing Committees, Discretionary Spending, and Budget Resolution.)
Congressional committees other than the appropriations committees, such as the House Committee on Armed Services and the Senate Committee on Commerce, Science and Transportation, that are responsible for writing legislation to establish or continue the operation of a federal program and agency within their jursidiction. Suggested levels of funding can also be provided in an authorization bill. Some authorization legislation provides “permanent” spending authority so the program does not rely on annual appropriations (Social Security and Medicare, for example). Most federal programs “sunset,” meaning they must be reauthorized from time to time, which allows Congress to make changes to the content of programs. (See also Appropriations Committees.)
A person born during the post-World War II baby boom years, classified by the U.S. Census Bureau as the period between 1946 and 1964. As the 75 million baby boomers reach retirement, the number of people eligible for Social Security and Medicare benefits will grow substantially and lead to higher spending for those programs.
A system of classifying budget resources based on the national needs being addressed (such as: Defense, Education, or Transportation). A function can be divided further by subfunction to address more specific purposes. For example, Agriculture is divided into two subfunctions: farm income stabilization; and agriculture research and services. The budget resolution allocates the total amount of spending allowed each year among the various functions.
A concurrent resolution adopted by the House and the Senate that represents the Congress’s budget plan for the budget year and, currently, four years thereafter. The budget resolution may also include changes to the current year’s budget. The budget resolution outlines spending, revenue and debt targets. Spending is divided into budget functions, as well as discretionary and mandatory spending. It includes policy assumptions used to achieve the targets. Those assumptions, however, are not binding on the appropriations and authorizations committees. The budget resolution may be accompanied by reconciliation instructions to House or Senate committees directing them to recommend changes that would allow the revenue and mandatory spending levels contained in the budget resolution to be achieved. The budget resolution is not presented to the President for signature and is not enacted into law. (See also Appropriations Committees, Concurrent Resolution, Authorizions Committees, Mandatory Spending.)
Children’s Health Insurance Program (CHIP):
Created in 1997 and formerly known as the State Children’s Health Insurance Program (SCHIP), the Children’s Health Insurance Program (CHIP) offers health coverage to children and their parents whose incomes exceed the thresholds for Medicaid eligibility but are too low to afford private insurance. Similar to Medicaid, CHIP is financed by the federal and state governments and is administered by the states. While complying with broad federal guidelines, individual states can determine the eligibility, design and benefit packages of its program. As estimated, 10 million children and adults are currently enrolled in CHIP. (See also Medicare, Medicaid, and Poverty Line.)
Dollar amounts patients are required to pay for a medical expense at the time of visit, as defined in an insurance plan. Co-pays require patients to share medical costs as services are used (as compared to a deductible, which is the amount a patient must pay before insurance coverage begins to apply). (See also Deductible.)
An economic term that describes the potential impact of heavy government borrowing (or high federal debt) on private investment, thereby lowering capital stock and potential long-term output of the economy. (See also Deficits, and Debt Held by the Public.)
Current Law Baseline:
Budget projections that assume current laws will remain unchanged and that are used as a benchmark to measure the impacts of proposed policy changes on the budget. The current law baseline-- does not allow for highly probable legislative changes. For example, the current law baseline assumes that the 2001 and 2003 tax cuts will expire on schedule even at least some may be extended. A current policy baseline, on the other hand, assumes that likely legislative change will occur. Many current policy projects assume that the 2001 and 2003 tax cuts will be extened for all taxpayers except those earning over $250,000. The Congressional Budget Office (CBO) baseline is also referred to as a current law baseline.
Debt Held by the Public:
Federal notes, bonds, bills and other debt instruments issued by the Treasury and held by individuals, corporations, state or local governments, and foreign entities (also includes debt held by the Federal Reserve System). Because debt held by the public represents the amount borrowed from outside the federal government, it is generally used to measure the impact of budget policies on the economy. Debt held by the public was $9 trillion in 2010. (See also Gross Federal Debt, and Deficits.)
An amount that must be paid by an insured individual before insurance benefits can be used to pay a share of costs. In the case of health insurance, there may be individual deductibles as well as total family deductibles. Generally, lower deductibles raise insurance premiums, while high deductibles reduce premiums. (See also Co-Pays.)
The amount by which spending exceeds revenues over a given period. The federal deficit is measured over a fiscal year (which runs from October 1 through September 30). A deficit is the opposite of surplus. The primary budget deficit is the amount by which spending (excluding interest payments on the debt) exceeds revenues in a year.
Discretionary spending results from annual appropriations legislation. Discretionary spending accounts for 35 percent of the budget (with more than half going to defense activities). Other areas of discretionary spending include: national parks, the Federal Aviation Administration, transportation programs, the Congress and the White House, elementary and secondary education, and State Department. (See also Mandatory Spending.)
Discretionary Spending Limits (or Caps):
Annual limits on spending for discretionary programs. Statutory caps on discretionary spending were originally enacted in the Budget Enforcement Act of 1990. They were extended several times, but expired in September 2002. Since then, House and Senate rules enforce discretionary spending limits established through the congressional budget process and the budget resolution. (See also Discretionary Spending.)
Disposable Personal Income:
The amount of after-tax income available for an individual or household to spend or save.
Economic Growth and Tax Relief Reconciliation Act, 2001 (EGTRRA):
A major tax law passed in 2001 when budget surpluses were projected for the foreseeable future. The law substantially reduced federal revenues by lowering all income tax rates, reducing capital gains taxes, changing the tax treatment of retirement savings accounts and estate taxes, and making other changes. Collectively, this tax law along with the Job Growth and Tax Reconciliation Act of 2003 is colloquially known as the “Bush tax cuts.” All provisions of the law are set to expire at the end of 2010 unless Congress and the President extend the provisions. (See also Job Growth and Reconciliation Act, 2003.)
A program that makes payments or provide benefits to certain individuals or groups that meet eligibility requirements, as authorized by law. Spending for entitlement programs (such as Social Security and Medicare) is set by the programs’ statutory eligibility and payment rules. (See also Mandatory Spending.)
Exchanges (Health Care Exchanges):
A provision of the recently-passed Affordable Care Act, exchanges will be virtual marketplaces set up by state insurance regulators. Individuals without employer-sponsored insurance, the self- and unemployed, and retirees not eligible for Medicare may “shop” for coverage from private health insurance plans. The law requires these plans to provide a variety of coverage options and certain minimum benefits. They will go into effect in 2014. (See also Affordable Care Act.)
A yearly accounting period, which for the federal government, begins on October 1 and ends on September 30 of the following year. Fiscal year 2011 began on October 1, 2010 and will end on September 30, 2011.
Government Sponsored Enterprise (GSE):
Privately-owned and operated financial institutions that are established by federal law. A Government Sponsored Enterprise (GSE) facilitates the flow of investment for certain borrowing sectors of the economy (such as the housing market). Two GSEs, Fannie Mae and Freddie Mac, were taken into federal conservatorship in 2008, following the housing market crisis.
Gross Domestic Product (GDP):
The total market value of all final goods and services produced within the borders of a country during a given period. GDP can be expressed in current or constant (inflation-adjusted) dollars. Federal budget amounts are often expressed as percent of GDP to facilitate comparisons over a number of years.
Gross Federal Debt:
The total amount of government outstanding debt (measured by outstanding bills, notes, bonds and other debt instruments issued by the U.S. government). Gross federal debt, which includes the amounts borrowed from the public and from government accounts (such as Social Security and Medicare trust funds) totaled more than $13 trillion (or more than 90 percent of total economic output) in 2010. Amounts borrowed from government accounts—or intragovernmental debt—have no immediate impact on the economy, but represent a future claim by those programs on future sources of federal revenue. At the time that intragovernmental debt is redeemed, the government will have to raise revenues, cut spending, borrow, or some combination of the three. (See also Debt Held by the Public and Deficits.)
A delay or withholding by the Executive branch of funds that have been duly authorized and appropriated. The Congress reacted to a perceived overuse of impoundments during the Nixon Administration, by passing the Congressional Budget and Impoundment Control Act of 1974. As a result, if the President does not want to spend funds that have been appropriated, the Administration can propose to rescind –or cancel—appropriated funds, but if the Congress does not act to approve the rescission, the funds must be made available to spend.
A term for the growth in the general level of prices over a given period of time (usually shown as a year-to-year or annual rate of change). Inflation is commonly measured by the Consumer Price Index (CPI), which is an average change over time of the prices paid by consumers for a “basket” of goods and services. Inflation may occur if the money supply increases or from a rise in production or labor costs.
Job Growth and Tax Relief Reconciliation Act, 2003 (JGTRRA):
A second major tax law, following the Economic Growth and Tax Relief Reconciliation Act, 2001 (EGTRRA) that substantially reduced revenue. Such changes included: lower tax rates on dividends and long-term capital gains income, increases to the exemption amount for the individual Alternative Minimum Tax (AMT), and changes to the tax treatment of married couples. JGTRRA also accelerated the individual income tax rate cuts enacted by EGTRRA. Nearly all of the provisions of the law are set to expire at the end of 2010 unless Congress makes changes. Collectively, this tax law along with the EGTRRA is colloquially known as the “Bush tax cuts.” (See also Alternative Minimum Tax.)
Mandatory Spending (Direct Spending):
Sometimes referred to as being on “auto-pilot,” mandatory spending programs are funded each year through exisiting statutory provisions without requiring the Congress and the President to enact appropriations. Entitlement programs—like Social Security, crop insurance, student loans, Medicare and Medicaid—are considered mandatory programs. There are also non-entitlement mandatory programs such as federal insurance or guarantee programs that pay for claims without the need for annual appropriations. Mandatory spending also includes interest payments on the federal debt. (See also Entitlement, Discretionary Spending.)
Federal programs that provide cash benefits or services to individuals and families whose incomes fall below the maximum amounts defined by the programs’ statutory provisions. Many means-tested programs are entitlements (such as Medicaid or Food Stamps), but some, such as low-income housing programs are discretionary programs. (See also Medicaid.)
A means-tested entitlement program that provides health insurance for more than 70 million low-income children and adults. Medicaid is state-administered program whose costs are shared with the federal government. While states must provide a minimum level of benefits for children and adults whose family income and other circumstances qualify, states may provide additional benefits and expanded coverage to other eligible people. An estimated Consequently Medicaid coverage and costs vary dramatically across the country. Medicaid is the largest third-party payer for nursing homes and long-term care. Payments on behalf of the aged, blind and disabled –who are 24 percent of beneficiaries—represent about 60 percent of Medicaid spending. (See also Medicare, Poverty Line, Means-tested and Children’s Health Insurance Program.)
A health insurance program for senior citizens and those with disabilities enacted in 1965. The program, which has been modified and expanded several times since then, covers an estimated 45 million people. Medicare spending represented 12 percent of the federal budget in 2009 and 23 percent of the nation’s total health spending, and its costs are projected to double within the next decade. Like all health spending in the United States, Medicare costs are growing faster than the rest of the economy. Medicare covers people who are likely to have high health care costs, older Americans and the disabled. Due to an aging population and growth in health cost, the rising cost of Medicare represents the most difficult challenge in the federal budget. (See also Medicare Part A, Medicare Part B, Medicare Part D, and Medicaid.)
Medicare Part A (Hospital Insurance Program):
The Hospital Insurance program covers inpatient hospital care, hospice care, and some home health care expenses. Individuals are eligible for Medicare Part A when they turn 65 (without having to pay premiums) if they are also receiving Social Security or other government pension benefits. The program is funded by Medicare payroll taxes assessed on workers and employers.
Medicare Part B:
Medicare Part B is a voluntary program that covers physician-related expenses, outpatient and ambulatory care, and medical equipment. In most cases, individuals are automatically enrolled when they turn 65 if they are also receiving Social Security or other government pension benefits, though they may opt out. This program is funded by premiums deducted from monthly Social Security checks, and general revenue. Initially, the cost of the program was to be evenly divided between beneficiary premiums and general revenues. However, the share covered by general revenues has grown and now beneficiary premiums are generally set at a level that will cover 25 percent of costs.
Medicare Part D (Prescription Drug Program):
Enacted in 2003, the Medicare prescription drug program began providing benefits in 2006. It is a voluntary program that subsidizeds the cost of prescription drugs. The program is funded by general revenue and beneficiary premiums. Beneficiary premiums cover about 25 percent of costs.
Military Health System:
The agency of the Department of Defense that provides health care services—through a plan called TRICARE—to active-duty, military families and retired military personnel. (See also Veterans Health Administration.)
A budget enforcement tool that was originally enacted in the Budget Enforcement Act (BEA) of 1990, subsequently extended, but expired in 2002. PAYGO requires that changes to mandatory spending or revenues be revenue neutral over a specified time period Changes that increase mandatory spending or decrease revenues must be offset by mandatory spending decreases or revenue increases. A modified (and less strict) version that exempted the extension of many middle class tax cuts and a fix to the Sustainable Growth Rate formula was signed into law in 2009. (See also Sustainable Growth Rate.)
A tax levied on wages and salaries. The largest payroll taxes in the United States are a 12.4 percent tax used to finance Social Security and a 2.9 percent tax to finance Medicare Hospital Insurance (Part A). These taxes are assessed equally against the employer and the employee (in the case of the Social Security tax, 6.2 percent of the employee’s wages are taxed, and the employer must pay 6.2 percent of that employee’s wage. Additional payroll taxes are collected for unemployment insurance. When payroll taxes are collected from employers, they increase the cost of hiring an employee and are generally believed to come out of the employee’s compensation. Because they finance Social Security, Medicare, and unemployment assistance, payroll taxes are also known as social insurance taxes.
A benchmark income level that designates when individuals or families might be considered as poor. There are multiple poverty lines – the Census calculates one as a statistical measure of poverty in the country, and Health and Human Services calculates one to determine eligibility for income-tested programs. The poverty line is updated every year and varies by size of family and location (there are different poverty thresholds in Alaska and Hawaii). In 2010 it was $22,050 per year for a family of four for all states and Washington D.C. (except for Alaska and Hawaii).
Bonds, notes, and other debt issued by the Treasury that is held by the public and other government funds or accounts. Public debt is subject to statutory limit, except for a small amount issued by government agencies.
All federal spending excluding interest payments on debt.
Progressive (Tax System):
Describes a tax structure in which higher income individuals pay proportionately larger amounts of their income in tax than do lower income individuals. (See also Regressive.)
A measure of growth for an economic indicator (such as prices, GDP, etc) adjusted to remove the effects of inflation. For example, federal program may have a $50 million budget in one year and a $52 million budget in the following year. This may look like an increase, but if inflation is taken to account, the budget may not have grown in “real” terms and, despite the larger amount of funding, may not have been able to purchase more goods and services. (See also Gross Domestic Product.)
A phase in the business cycle that extends from the peak of economic activity to the next trough, or low point. A recession is characterized by a decline in employment, lower economic output and income, reduced trade that lasts for several months. A recession is often indentified after two consecutive quarters (6 months) of decline (contraction) in real GDP. (See also Gross Domestic Product.)
A procedure Congress uses to instruct congressional committee to recommend legislation that would achieve mandatory spending, revenue, deficit, and debt targets established in the budget resolution. Reconciliation was originally designed to allow lawmakers to force changes that would reduce the deficit. But it has since been used to pass legislation such as the 2001 and 2003 tax cuts and the 2010 health care reform. Special legislative rules apply to reconciliation bills that limit the types of amendments that may be added. There are also limits on the amount of time that the bill can be debated. As a result, it is difficult to block passage of a reconciliation bill through a Senate filibuster. That makes reconciliation an attractive vehicle for controversial legislation.
Regressive (Tax System):
A tax in which lower-income individuals pay proportionately equal or larger amounts of tax relative to their income than do higher-income individuals. Payroll taxes on wages – used to finance Medicare and Social Security – are generally thought to be regressive, since they are a flat percentage of wage income and Social Security taxes are levied only on the first $106,800 a person earns. This means that people earning above that ceiling pay a smaller percentage of their wage income in taxes. (See also Progressive.)
A social insurance program that supplements retiree income through monthly cash payments. The program also provides benefits to the survivors of deceased workers and spouses of retired workers. Established in 1935, the program is funded by a payroll tax assessed on both employers and employees and consequently operates as a form of income transfer from workers to retirees. Most American workers are eligible to receive benefits if they have worked for the required minimum number of years, paid payroll taxes, and meet other requirements such as the eligibility age for retirement benefits. The full retirement age is 65 for those born in 1937 and earlier. Since reforms enacted in the 1980s, the full retirement age has been rising gradually. It is 67 for those born in 1960 and later. The early retirement age is 62. As the baby boom generation begins to retire, costs of the program are expected to swell. (See also Entitlement Programs and Trust Fund.)
A set of legislative programs designed to boost the demand for goods and services during an economic slowdown by increasing federal spending or lowering taxes. Stimulus programs can help prop up consumer spending and business activity, increase employment, and provide income support to those who have lost their jobs. The most recent stimulus package, the American Recovery and Reinvestment Act of 2009, provided $787 billion for Medicaid, unemployment benefits, tax cuts, and infrastructure investment (notably in energy, internet access, and high speed rail).
The amount by which revenue exceeds spending over a given period of time. Federal budget surpluses are calculated over a fiscal year, which begins October 1 and end the following September 30. (See also Deficits.)
Sustainable Growth Rate (SGR):
A formula used to calculate annual changes to physician payment rates for the Medicare program. SGR was included in the Balanced Budget Act of 1997 to achieve savings by controlling the physician payments. If total payments in a year exceed the targeted amount, the subsequent year’s payments are adjusted downward to make up the overage. The formula is intended to keep the increase in cost per beneficiary to no faster than the rate of growth in GDP. Physicians’ payments have exceeded targets since 2001. A 4.8 percent cut in payments was implemented in 2002. Since then, while lawmakers have overridden the scheduled reduction each year, they have not enacted a permanent fix. Most recently, Congress postponed a 21 percent reduction scheduled for June 2010, and a 23 percent reduction is scheduled to take effect on December 1, 2010 unless Congress acts. (See also Medicare, ACA.)
A reduction in federal revenue due to provisions in the tax code that reduce the amount of income taxes owed by individuals and corporations. Tax expenditures can take the form of tax credits (which reduce the amount of taxes due), exemptions (which exclude some income from taxable income), deductions (which reduce taxable income), and special rates. Tax expenditures can be thought of as equivalent to government spending in that they are intended to promote specific policy objectives and provide benefits to eligible taxpayers. The largest tax expenditures include the exclusion of health insurance costs from employees’ taxable income and the deduction on home mortgages.
An “accounting mechanism” used to link earmarked revenues to specific programs. The federal government has over 200 trust funds. The largest are Social Security (Old Age and Survivors Insurance trust fund and Federal Disability Insurance trust fund), Medicare (Hospital Insurance and Supplemental Medical Insurance trust funds), Civil Service Retirement and Military Retirement. Trust funds provide a way for programs to “save’ excess funding until resources are needed in the future.
Veterans Health Administration:
A unit of the Department of Veterans Affairs and the medical system that administers care for eligible armed forces retirees. It has been a pioneer in the implementation of electronic health records. (See also Military Health System.)