How the $1T Medicaid cuts law is also a $500B Medicare cuts law

Modern Healthcare – Thursday, July 10, 2025
By Michael McAuliff

President Donald Trump and Republicans pledged not to touch Medicare, but the massive tax law enacted over Democratic objections set up more than $500 billion in Medicare cuts — unless Democrats bail the GOP out.

Because Trump’s “One Big Beautiful Bill” is projected to balloon the federal budget deficit by $3.4 trillion over 10 years, it triggered automatic spending cuts under the Statutory Pay-As-You-Go Act of 2010, known as the PAYGO Act. The White House Office of Management and Budget must find $340 billion a year in spending reductions.

All of that money needn’t come from Medicare, but some of it will.

The PAYGO Act caps Medicare cuts at 4% of program spending. At a time when providers say reimbursements already aren’t keeping pace with rising costs, even a few percentage points shaved off Medicare rates — atop likely Medicaid payment cuts — could be painful.

It’s possible these Medicare cuts never come to fruition, however. Congress has the authority to waive PAYGO and has done so for statutes such as Trump’s Tax Cuts and Jobs Act of 2017 and President Joe Biden’s American Rescue Plan Act of 2021.

Trump’s new law moved under fast-track procedures that enabled the Republican majority to pass it without Democratic support.

But waiving PAYGO would require 60 vote in the Senate, so the GOP would need Democrats to go along. Republican leaders also could face resistance from the conservative lawmakers who nearly derailed the bill over fiscal concerns.

Republicans have a 220-213 advantage in the House and a 53-47 edge in the Senate, so the margin for error is narrow. It will tighten further when Rep. Dr. Mark Green (R-Tenn.) officially resigns his seat on July 20.

GOP leaders have not said what they will do in this case. “Let me get back to you on that one,” Senate Budget Committee Chair Lindsey Graham (R-S.C.) said in a brief interview Wednesday.

The new tax law doesn’t explicitly call for curtailing Medicare spending and the scale of the cuts to Medicaid and the health insurance exchanges, totaling more than $1 trillion over 10 years, captured the attention of healthcare interests during the legislative process.

But Democrats noticed and sought to quantify how the tax bill would impact Medicare.

In May, House Budget Committee ranking member Brendan Doyle (D-Pa.) asked the nonpartisan Congressional Budget Office to estimate the PAYGO effects of the House version of the tax bill, which would have increased the deficit by $2.3 trillion.

The answer was $535 billion over 10 years. Although the measure as enacted increases the deficit more than the original House bill would have, the 4% limit on Medicare cuts means the final number will likely be similar.

So far, Democrats are keeping mum on whether they would help Republicans prevent Medicare cuts or stand back and let Trump and his party suffer any political consequences.

Senate Finance Committee ranking member Ron Wyden (R-Ore.) declined to say what the congressional minority should do but noted that Republicans chose to hurriedly advance their measure on an entirely partisan basis.

Some Republicans have made noises about increasing bipartisan cooperation now that Trump’s top domestic policy initiative is law, Wyden said Wednesday.

But that stands in sharp contrast to reports that the GOP is eyeing another fast-tracked, partisan budget bill this year, which doesn’t portend a new era of collaboration, Wyden said.

“Sounds like that was a pipe dream, too,” Wyden said.

Congressional aides and lobbyists — who spoke on background because their employers haven’t staked out public positions on waiving PAYGO — said Democrats normally would be expected to hold their noses and rescue the GOP to protect the healthcare system from even more cuts, and to avoid catching flack if they don’t.

Although a Republican-only law created these Medicare cuts, the GOP would nevertheless accuse Democrats of slashing Medicare if they object to a fix, staffers and lobbyists said.

But times are not normal, and the need to prevent Medicare cuts comes as Congress has made scant progress on a government funding bill due by Sept. 30, and as Republicans have mostly ignored the looming expiration of enhanced tax credits for exchange plans at the end of the year.

Democrats also could trade votes to stave off Medicare cuts and keep the federal government open in exchange for Republicans extending those insurance subsidies, one lobbyist suggested.

There could be benefits for both sides. Democrats could prevent an estimated 5.1 million people from losing marketplace coverage, and Republicans could ease problems for hospitals and their constituents, who are disproportionately represented on the exchange rolls.

There’s little time to figure out some of this. On July 25, the House is scheduled to begin a five-week recess and the Senate is slated to leave Washington a week later. They won’t be back until the first week of September.

Wyden said Congress is still on what he termed a “roller coaster.” Since it is unclear how the budget and PAYGO standoffs might end, the ride to 2026 — when the Medicare cuts would kick in — could be a bumpy one.

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