Sequestration is the automatic reduction (i.e., cancellation) of certain federal spending, generally by a uniform percentage. The sequester is a budget enforcement tool that Congress established in the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA, also known as the Gramm-Rudman-Hollings Act; P.L. 99-177 ) intended to encourage compromise and action, rather than actually being implemented (also known as triggered ). Generally, this budget enforcement tool has been incorporated into laws to either discourage Congress from violating specific budget objectives or encourage Congress to fulfill specific budget objectives. When Congress breaks these types of rules, either through the enactment of a law or lack thereof, a sequester is triggered and certain federal spending is reduced. Sequestration is of recent interest due to its current use as an enforcement mechanism for three budget enforcement rules created by the Statutory Pay-As-You-Go Act of 2010 (Statutory PAYGO; P.L. 111-139 ) and the Budget Control Act of 2011 (BCA; P.L. 112-25 ). Currently, only the BCA mandatory sequester has been triggered and is in effect. However, the Statutory PAYGO sequester and the BCA discretionary sequester are current law and can be triggered if the budget enforcement rules are broken (and Congress does not take action to change or waive these rules). Medicare, which is a federal program that pays for covered health care services of qualified beneficiaries, is subject to a reduction in federal spending associated with the implementation of these three sequesters, although special rules limit the extent to which it is impacted. This report begins with an overview of budget sequestration and Medicare before discussing how budget sequestration has been implemented across the different parts of the Medicare program. Additionally, this report provides appendixes that include references to additional Congressional Research Service (CRS) resources related to this report and budget terminology definitions, as defined by BBEDCA. Under current law, sequestration is a budget enforcement tool that occurs because certain policy goals have not been met. When a sequester is triggered, all applicable budget accounts, unless exempted by law, are reduced by a percentage amount for a fiscal year. The percentage reduction varies between and within budget accounts depending on the categories of funding, as described below, contained within each budget account. After accounting for each category of funding within a budget account, sequestration reductions are spread evenly across all budget account subcomponents referenced in committee reports, budget justifications, and/or Presidential Detailed Budget Estimates – also known as programs, projects or activities. For budget accounts that contain only one category of funding, all sequestrable funds are reduced by the corresponding percentage. For accounts that contain multiple categories of funding, the total amount of each category of sequestrable funds is reduced by its corresponding percentage. The reduced budget resources are usually permanently cancelled. As currently used, a sequester applies to either discretionary or mandatory spending. Discretionary spending is associated with most funds provided by annual appropriations acts. While all discretionary spending is subject to the annual appropriations process, only a portion of mandatory spending is provided in appropriations acts. Mandatory spending is generally provided by permanent laws, such as the Social Security Act, which made indefinite budget authority permanently available for Medicare benefit payments. Some federal programs, such as Medicare, can receive both discretionary and mandatory funding. In the event that a sequester is triggered, the Office of Management and Budget (OMB) is responsible for calculating the across-the-board percentage reductions, and calculates separate percentages for Medicare, nondefense, and defense funding. Due to sequestration rules, which are covered later in this report, mandatory Medicare benefit payments receive a specific percentage reduction different from other types of federal spending. The methodologies used to calculate these percentages and the sequestered amounts are published in a report produced by OMB. Once the President issues a sequestration order, the associated report is made available to the public and transmitted to Congress. Currently, there are three budget enforcement rules that can trigger sequestration. Two were established by the BCA and one was established by Statutory PAYGO. The three rules and their corresponding sequesters can be summarized as follows (and are presented in Table 1 ): The BCA established a bipartisan Joint Select Committee on Deficit Reduction (Joint Committee), which was responsible for developing legislation that would reduce the deficit by at least $1.5 trillion from FY2012 to FY2021. However, the Joint Committee was unable to achieve this goal; therefore, Congress and the President were unable to enact corresponding deficit reduction legislation by a date specified in the law. As a result, two types of spending reductions were automatically triggered. One automatic spending reduction involved the sequestration of certain mandatory spending from FY2013 to FY2021. Through subsequent legislation, including, most recently, the Bipartisan Budget Act of 2018 (BBA 18; P.L. 115-123 ), Congress extended this reduction through FY2027. (This reduction is referred to in this report as the "BCA mandatory sequester".) Additionally, the BCA established statutory limits on discretionary spending for FY2013-FY2021. These discretionary spending limits (discretionary caps) restrict the amount of spending permitted through the annual appropriations process for defense and nondefense programs. Any breach of these discretionary caps results in the sequestration of nonexempt discretionary funding. (This reduction is referred to in this report as the "BCA discretionary sequester".) This was triggered once in FY2013 and can be triggered again if discretionary caps are breached in any fiscal year through FY2021 and Congress does not take action to raise these caps. Most recently, BBA 18 increased the discretionary spending caps for FY2018 and FY2019 so they would not be breached. The Statutory PAYGO Act established a budget enforcement mechanism generally requiring that direct spending and revenue legislation enacted into law not increase the deficit over a 5- and/or 10-year period. If such legislation were to become law, a sequester of certain mandatory spending would be ordered. This budget enforcement rule does not have a sunset date and therefore remains in effect under current law. (This reduction is referred to in this report as "Statutory PAYGO sequester".) Although Congress has passed legislation that has been estimated to increase the deficit since the law went into effect, the Statutory PAYGO sequester has never been triggered due to the fact that Congress has voted to prohibit the effects of specific legislation from being counted under Statutory PAYGO. A recent example of this is the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123 ), which included language to reduce the "scorecards" tallying the total impact of legislation on the deficit to zero. For more information on budget sequestration, see CRS Report R42050, Budget "Sequestration" and Selected Program Exemptions and Special Rules , coordinated by Karen Spar, and CRS Report R42972, Sequestration as a Budget Enforcement Process: Frequently Asked Questions , by Megan S. Lynch. Medicare, which is a federal program that pays for certain health care services of qualified beneficiaries, is subject to sequestration, although special rules limit the extent to which it is impacted. Due to the varying payment structures of the four parts of the program, sequestration is applied differently across Medicare. Medicare was established in 1965 under Title XVIII of the Social Security Act to provide hospital and supplementary medical insurance to Americans age 65 and older. Over time, the program has been expanded to also include certain disabled persons, including those with end-stage renal disease. In 2017, the program covered an estimated 58 million persons (49 million aged and 9 million disabled). The Congressional Budget Office (CBO) estimates that total Medicare spending will be about $718 billion in FY2018 and will increase to about $1,390 billion in FY2027. Almost all Medicare spending is mandatory spending that is primarily used to cover benefit payments (i.e., payments to health care providers for their services), administration, and the Medicare Integrity Program (MIP). The remaining Medicare outlays are discretionary and used almost entirely for other administrative activities that are described in more detail later in this report. Medicare consists of four distinct parts: 1. Part A (Hospital Insurance, or HI) covers inpatient hospital services, skilled nursing care, hospice care, and some home health services. Most persons aged 65 and older are automatically entitled to premium-free Part A because they or their spouse paid Medicare payroll taxes for at least 40 quarters (10 years) on earnings covered by either the Social Security or the Railroad Retirement systems. Part A services are paid for out of the Hospital Insurance Trust Fund, which is mainly funded by a dedicated 2.9% payroll tax on earnings of current workers, shared equally between employers and workers. 2. Part B (Supplementary Medical Insurance, or SMI) covers a broad range of medical services, including physician services, laboratory services, durable medical equipment, and outpatient hospital services. Enrollment in Part B is optional, but most beneficiaries with Part A also enroll in Part B. Part B benefits are paid for out of the Supplementary Insurance Trust Fund, which is primarily funded through beneficiary premiums and federal general revenues. 3. Part C (Medicare Advantage, or MA) is a private plan option that covers all Parts A and B services, except hospice. Individuals choosing to enroll in Part C must be eligible for Part A and must also enroll in Part B. About one-third of Medicare beneficiaries are enrolled in MA. Part C is funded through both the HI and SMI trust funds. 4. Part D is a private plan option that covers outpatient prescription drug benefits. This portion of the program is optional. About 76% of Medicare beneficiaries are enrolled in Medicare Part D or have coverage through an employer retiree plan subsidized by Medicare.