What happened to PAYGO? 

Congress should renegotiate the budget agreement in the upcoming weeks.

Title III of the Fiscal Responsibility Act of 2023 — bipartisan legislation signed by President Biden in early June 2023 — requires that all executive actions, including the issuance of regulations and approvals of state requests whose cost exceeds $1 billion must align with “pay-as-you-go” (PAYGO) rules: that is, any increased costs to the federal budget must be met by cuts in the same amount by the relevant agency. 

How is that going? 

The focus of my attention and research is the work of the Social Security Administration (SSA) and the Centers for Medicare and Medicaid Services (CMS), specifically SSA’s disability insurance (DI) program and CMS’s role in providing long-term care. In just these two areas of government, there are four actions in the last few months that, in addition to being bad policy, will conservatively cost nearly $70 billion over the next 10 years with no PAYGO in sight: 

1)     CMS proposed a regulation to establish federal minimum staffing standards for long-term-care facilities, in particular to require that a registered nurse be on site 24/7 regardless of facility size and that specific, higher ratios of nurse and aides per resident day be imposed than is current practice in the industry. CMS did not show any data on increasing national problems with quality, nor where the extra personnel will come from in the current tight labor market, nor propose an alternative regime that obliged meeting specific quality measures and allowing nursing home operators to allocate capital and labor to meet those standards as they see fit.

Rather, CMS is proposing a rigid, bureaucratic rule that it estimates will increase costs by $41 billion over 10 years. Given that the federal government pays for about half of long-term care through Medicaid and Medicare, this regulation would cost federal taxpayers more than $20 billion, without a PAYGO. 

2)     In July 2023, CMS approved a request from California to remove all asset tests for eligibility to Medicaid long-term-care benefits, despite the strict asset test requirements of federal law and the lax enforcement by California of other law provisions for Medicaid. I estimate that this will cost federal taxpayers about $6 billion over 10 years. It is bad policy because it transfers resources from ordinary taxpayers from other states to wealthy Californians who can afford to pay for long-term care on their own. 

3)     The SSA proposes to expand the definition of public assistance to include SNAP (food stamps) in its list of public-income maintenance programs, effectively increasing eligibility to and the amount of Supplemental Security Income (SSI) benefits for disabled and elderly populations. This change will cost federal taxpayers $16 billion. It is bad policy because eligibility for food stamps has expanded independently of the poor population that SSI is intended to help, it will increase the administrative burden on the agency to make adjustments at a time when it is struggling to provide basic services to the public and expansions of disability benefits through SSI and DI are known to discourage claimants from getting and keeping paid employment. 

4)     SSA has also proposed to limit the period of past relevant work in determining whether a SSI or DI disability claimant or beneficiary can return to his past occupation or other jobs in the labor market. This change will increase disability benefits by $27 billion and is a cynical cover for SSA’s delay in updating and simplifying the data and policy needed to reflect the longstanding trend away from physical labor to mental and social effort in today’s labor market, which would tend to lower eligibility for disability benefits and lower costs to the taxpayer. 

Again, these are actions just in my ken of research. Others can identify and quantify similar actions by the Biden administration since June 2023 in other areas, like student loan forgiveness. 

This rush to spend money on bad and poorly supported policy while satisfying the demands of advocates and special interest groups as the election approaches seems to come out of a fear of losing control of Congress. If the Democrats lose control of Congress, the regulations will likely become subject to the bite of the Congressional Review Act, which allows Congress to undo recently issued regulations and other executive actions. Title III is explicitly exempt from legal action by Congress, so the Biden administration’s cynical and hurried actions here — to ignore PAYGO, perhaps repeated at other agencies since June 2023 — belies the claim made in the past on behalf of the administration for fealty to law and for serious concern about the growing budget deficit. 

Congress should renegotiate the budget agreement in the upcoming weeks, specifically cutting top-line spending in the budget for the remainder of the 2024 fiscal year and the next 10 years by the exact amount in total by which the Biden administration violated the June 2023 agreement. They should do this before the extra spending becomes part of the baseline. 

Mark J. Warshawsky is a senior fellow at the American Enterprise Institute. He served as vice-chair on the federal Commission on Long-Term Care in 2013.