When legislation significantly contributes to the national debt, which currently exceeds $36.2 trillion, it triggers a process known as “sequestration.” This process involves compulsory budgetary reductions, particularly affecting essential programs like Medicare. According to a report from the Congressional Budget Office (CBO), these cuts could reach a maximum of 4 percent annually, equating to approximately $490 billion over the next decade. This information was highlighted in response to an inquiry from Rep. Brendan Boyle, the top Democrat on the Budget Committee.
“Having Medicare cuts suddenly enter the discussion has struck a lot of people by surprise,” remarked Timothy D. McBride, a health economist at Washington University in St. Louis. While a 4 percent reduction from the Medicare budget may not seem substantial, McBride emphasized that “everything hurts at this point.” These potential reductions are not necessarily a certainty; Congress retains the power to instruct the White House budget office to overlook the reconciliation package’s debt implications, pass new legislation aimed at reducing the deficit, or modify federal budget scorekeeping rules.
The possibility of implementing cuts to Medicare could lead to severe political ramifications. Former President Trump, during his campaign, firmly rejected the idea of reducing Medicare benefits. Additionally, Republicans have notably excluded cost-cutting measures from Medicare in their tax and immigration proposals. According to economists, any decrease in Medicare funding would likely have a chilling effect on vulnerable populations, particularly older Americans and individuals with disabilities. As health care costs rise and the population ages rapidly, the strain on the system only intensifies.
Many rural hospitals depend on Medicare for over half of their funding. McBride pointed out that “if you start taking whacks at these programs, these rural hospitals won’t survive.” The exact impact of these potential cuts on both Americans and health care providers remains uncertain. However, experts anticipate significant funding reductions for doctors, hospitals, and insurance companies, which could ultimately lead to higher premiums for patients.
Jonathan Gruber, the chairman of the economics department at the Massachusetts Institute of Technology, stated, “A cut of this magnitude would be very, very large.” Despite this, he believes that Medicare cuts are unlikely to materialize. “What Republicans have done in the past is just waived the rules, and I presume they’ll do that again,” Gruber noted.
Even if lawmakers manage to circumvent forced Medicare cuts, there are concerns regarding how different aspects of the tax bill could indirectly affect Americans’ Medicare benefits. For instance, eliminating taxes on tips and overtime might lead to reduced payroll taxes, which are a significant source of funding for both Medicare and Social Security.
Furthermore, Republicans are proposing sweeping cuts to Medicaid, which could leave nearly 9 million people without health care coverage and over 7 million without insurance over the next decade. These cuts may place additional strain on Medicare funding, particularly for the 13 million Americans enrolled in both Medicare and Medicaid, who rely on the latter to cover premiums and co-pays associated with Medicare.
Eric Roberts, a health economist at the University of Pennsylvania's Perelman School of Medicine, stressed that “no matter what, the scale and breadth of the cuts in this bill will be felt in populations that policymakers have said they want to protect.” The extensive reach of the Medicare and Medicaid programs, impacting individuals across various life stages—including children, working-age adults, pregnant individuals, older adults, and people with disabilities—means that cutting just a portion of these programs could lead to significant cascading effects.
