House Reconciliation Bill Could Trigger $500 Billion in Mandatory Medicare Cuts

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One consequence of the reconciliation bill that is making its way to the House floor is more than $500 billion in Medicare cuts between 2026 and 2034. According to the Congressional Budget Office, the reconciliation bill reported out of the House Budget Committee would increase the deficit compared to current law by at least $2.3 trillion. If enacted into law in its current form, and Congress takes no further action, that increase in the deficit would trigger mandatory cuts, also known as sequestration, under the Statutory Pay-As-You-Go Act of 2010. Unlike Social Security and programs for low-income people, Medicare is not exempt from these cuts.

Triggering Statutory PAYGO would mean an automatic 4% reduction to most Medicare spending. That includes payments to hospitals, physicians and health care providers, Medicare Advantage plans, and standalone prescription drug plans. The cuts to hospitals are on top of the effects of Medicaid changes included in the legislation. Some spending to support low-income beneficiaries is exempt, but most Medicare spending is not.

The purpose of Statutory PAYGO was to impose some budget discipline. However, the across-the-board cuts triggered by the law have never been allowed to go into effect because Congress has either excluded those effects from the “scorecard” as part of the underlying legislation or later acted to exclude or delay the effects. For example, neither the 2017 Tax Cuts and Jobs Act nor 2021 American Rescue Plan resulted in automatic cuts despite large increases in the federal deficit.

Congress could choose to take action before the end of the year to block implementation of the cuts as it has done in the past. Unlike the reconciliation bill, excluding the effects of legislation from the PAYGO scorecard requires 60 votes, rather than a simple majority in the Senate, which is a higher hurdle.