Medicare faces automatic cuts as GOP tax law triggers PAYGO penalties

Editor's Note

President Donald Trump’s “One Big Beautiful Bill” could trigger more than $500 billion in Medicare cuts over the next decade unless Congress waives automatic spending rules, according to a July 9 article in Modern Healthcare.

As detailed in the article, the legislation’s projected $3.4 trillion increase to the federal deficit activates enforcement under the Statutory Pay-As-You-Go (PAYGO) Act of 2010. Under PAYGO, the White House Office of Management and Budget must offset the added deficit with $340 billion in annual spending cuts. While the law does not explicitly reduce Medicare spending, the program is subject to a 4% cap on reductions under PAYGO, and some portion of the cuts is likely to come from it.

Congress has authority to waive PAYGO, as it has previously done for other deficit-increasing laws, including the 2017 Tax Cuts and Jobs Act and the American Rescue Plan Act of 2021. Waiving PAYGO would require 60 votes in the Senate, meaning Republican leaders would need Democratic support. Republicans currently hold a 220-213 edge in the House and a 53-47 advantage in the Senate, although that margin will narrow following Rep. Mark Green’s upcoming resignation on July 20, Modern Healthcare reports.

Although the law does not call for specific Medicare reductions, Democrats have sought to quantify the potential effects. According to the article, House Budget Committee ranking member Brendan Doyle requested a Congressional Budget Office estimate of the House version of the bill in May. That version was projected to increase the deficit by $2.3 trillion and result in $535 billion in Medicare cuts over 10 years. The enacted version adds more to the deficit, but the Medicare impact is expected to remain similar due to the 4% cap, the outlet notes.

With both chambers scheduled to recess by late July and not returning until September, time is limited, Modern Healthcare reports. So far, GOP leadership has not publicly committed to a course of action, and Democrats have not publicly indicated whether they will support a PAYGO waiver. The full report offers additional detail, including the possibility of political pressure on Democrats to approve a waiver and the possibility of a negotiated deal involving Affordable Care Act tax credits.