President Trump's 2021 budget proposes about $500 billion in net Medicare spending reductions over ten years (see table), most of which would come from reducing payments to health care providers and not affect beneficiaries directly.
For the most part, the budget does not reflect the President's efforts to end the Affordable Care Act (ACA) or his executive order calling for various Medicare changes. These policies, which a budget would typically include, would weaken Medicare in several ways.
The budget would establish a new payment system for post-acute care, reduce Medicare coverage of bad debts (deductible and coinsurance amounts that are uncollectible from Medicare beneficiaries and that Medicare now pays to reimburse hospitals and other institutional providers), limit medical malpractice awards, extend through 2030 the 2 percent Medicare sequestration cut under the 2011 Budget Control Act, and pay for all doctor and other outpatient services at the same rate regardless of where they're provided. Most of these proposals also appeared in last year's budget.
In two cases — payments to hospitals for graduate medical education (GME) and for uncompensated care — the budget proposes to move spending from Medicare's trust funds to new, smaller grant programs funded by general revenues. While the budget would cut Medicare spending by $756 billion over ten years, the cuts amount to $501 billion after accounting for the general revenue payments for GME and uncompensated care.
In addition to its specific Medicare proposals, the budget assumes $135 billion in savings over ten years from unspecified comprehensive drug pricing reform. Most savings from such legislation would likely accrue to Medicare.
Several of the major budget proposals, such as site-neutral payments to equalize Medicare's payments to different kinds of facilities (as explained in the table below), are similar to recommendations from the Medicare Payment Advisory Commission to address overpayments to certain providers. These proposals would strengthen Medicare's finances. Medicare's trustees project that its Hospital Insurance (HI) trust fund will be depleted in 2026 under current law, though incoming payroll taxes and other revenue could still pay 89 percent of HI costs that year. Under the President's budget proposals, HI would remain solvent for at least 25 years, according to the Department of Health and Human Services.
Unfortunately, other Administration proposals would weaken Medicare's finances and harm beneficiaries.
President Trump's October executive order on Medicare could weaken the program in several ways. Although many of its proposed changes are vague, and most would require changes in law or regulation, the order would promote private Medicare Advantage plans over traditional Medicare and could raise costs for some or all beneficiaries by increasing payment rates to providers, moving toward transforming Medicare into a program that provides premium support for beneficiaries, removing limits on private contracts between patients and providers, and making it easier for seniors to opt out of Medicare. The budget includes the latter two proposals, but with no costs or savings attached.
Most significant, the Administration has joined 18 Republican attorneys general in asking the courts to strike down the entire ACA. The President has also pledged to pursue ACA repeal legislation in 2021 if Republicans control Congress. If these efforts succeed, Medicare beneficiaries, providers, and plans could face serious harm.
Striking down the ACA would reopen the Medicare drug "donut hole" (under which beneficiaries paid all of their drug costs until they reached the yearly catastrophic spending threshold), reintroduce cost sharing for preventive services, and create confusion and uncertainty around payments to plans and providers. It would also greatly weaken Medicare financing by repealing the ACA's Medicare payroll tax increase on high earners and undoing significant payment reforms.
Medicare Proposals in the 2021 Budget
Savings, 2021-2030 (In billions of dollars)
Pay hospital outpatient departments and hospital-owned physician offices at physician office rates (move toward site neutrality)
Reduce post-acute care payments
Promote site neutrality in payments for long-term care hospitals
Reduce Medicare coverage of bad debts
Modify payments to hospitals for uncompensated care
Reform graduate medical education payments
Expand durable medical equipment competitive bidding
Expand prior authorization in traditional Medicare
Reform medical liability
Extend mandatory sequestration
Interactions between proposals and other
Net Medicare savings
Less: General revenue payments for uncompensated care and graduate medical education
Gross Medicare savings
Note: The general revenue payments for graduate medical education are allocated between Medicare and Medicaid in proportion to the gross savings in each program. The budget also assumes $135 billion in savings from unspecified drug pricing reform. Most of these savings would likely accrue to Medicare.