Medicare cuts under the One Big Beautiful Bill are mostly indirect but significant: the law signed on July 4, 2025 does not slash benefits for most enrollees, yet it is projected to trigger roughly $500 billion in automatic Medicare payment cuts over the next decade, strip affordability assistance from 1.3 million low-income beneficiaries, disqualify about 100,000 lawfully present immigrants, raise out-of-pocket costs for certain expensive drugs, and pull the Part A trust fund closer to insolvency.
The Automatic PAYGO Cuts
The largest Medicare hit in the law is not written into the law. It comes from the Statutory Pay-As-You-Go Act of 2010, which requires the Office of Management and Budget to order across-the-board cuts to certain mandatory programs when new legislation increases the federal deficit and the cost is not offset. Medicare is the largest program exposed to those cuts, capped at four percent annually. Social Security, Medicaid, and veterans’ benefits are exempt.1Obama White House Archives. PAYGO Description
The Congressional Budget Office initially estimated the law’s deficit impact would produce about $500 billion in Medicare sequestration cuts from 2026 through 2034.2KFF. Tracking the Medicare Provisions in the 2025 Budget Bill A later analysis by House Budget Committee Democrats put the figure at $536 billion, starting with a $45 billion cut in fiscal year 2026 and rising to $76 billion by 2034.3House Budget Committee Democrats. Fact Sheet: Trump’s Big Ugly Law Triggers $536 Billion Medicare Cuts Because the enacted law’s deficit increase (roughly $3.4 trillion) came in higher than the $2.3 trillion used in early scoring, the eventual sequestration could exceed those estimates.
Congress has waived PAYGO sequestration in the past. Representative Jeff Van Drew called the $500 billion projection the result of “a technical scoring mechanism, not from any policy that is actually in the bill,” and said House Republicans were preparing a waiver so “no Medicare cuts will ever take effect.”4Office of Congressman Jeff Van Drew. Congressman Van Drew Statement on HR 1 A Senate bill, S. 2749, has been introduced to exempt Medicare from any sequestration triggered by the law.5Congress.gov. S.2749 – To Exempt Medicare From Sequestration Under Statutory PAYGO Whether a waiver clears Congress before the cuts begin in 2026 is unresolved.
Low-Income Beneficiaries Lose Affordability Help
Medicare Savings Programs help low-income beneficiaries pay Part B premiums, deductibles, and cost-sharing. Two Biden-era CMS rules, finalized in 2023 and 2024, were designed to expand enrollment by automatically signing up Supplemental Security Income recipients, aligning MSP applications with the Part D Low-Income Subsidy, moving to once-a-year renewals, and dropping in-person interview requirements.6KFF. Medicaid Changes in House Reconciliation Bill Would Increase Costs for 1.3 Million Low-Income Medicare Beneficiaries
The new law postpones the remaining provisions of those rules until October 1, 2034. States can adopt similar reforms on their own, but many are unlikely to without a federal mandate.7Center for Medicare Advocacy. Spotlight on MSPs
The CBO projects 1.3 million dually eligible Medicare beneficiaries will lose their Medicaid coverage as a result — nearly 60 percent of the 2.3 million total Medicaid enrollees expected to lose coverage under the law. For those individuals, losing Medicaid means losing the coverage that pays their Medicare premiums and out-of-pocket costs. Someone receiving SSI, for instance, would have to spend roughly 20 percent of their $967 monthly benefit just on the $185 Part B premium, on top of costs for doctor and hospital care.6KFF. Medicaid Changes in House Reconciliation Bill Would Increase Costs for 1.3 Million Low-Income Medicare Beneficiaries Many will also lose automatic enrollment in the Part D Low-Income Subsidy, which saves enrollees an estimated $6,200 a year on prescription drugs.8Medicare Rights Center. Senate Reconciliation Bill Would Increase Financial Hardships for Medicare Enrollees
The CBO scores the MSP moratorium as producing over $66 billion in federal savings, with about $11 billion of that coming from beneficiaries using less care once they can no longer afford it.9Center for Medicare Advocacy. Impact of the Big Bill on Medicare
Immigrants Cut Off From Medicare
The law narrows which lawfully present immigrants qualify for Medicare. Eligibility is now limited to lawful permanent residents (green card holders), certain Cuban and Haitian entrants, and citizens of nations under the Compacts of Free Association. Other lawfully present categories — refugees, asylees, survivors of domestic violence and trafficking, people with Temporary Protected Status, and those on work visas — no longer qualify, even if they earned eligibility by paying Medicare payroll taxes for the required 40 quarters.10Georgetown University CCF. New Immigrant Eligibility Restrictions Coming to Federally Funded Health Coverage
The restriction took effect immediately for new enrollees. Current enrollees with a now-disqualifying status must be disenrolled by January 4, 2027.10Georgetown University CCF. New Immigrant Eligibility Restrictions Coming to Federally Funded Health Coverage The CBO projects roughly 100,000 people will lose Medicare coverage.11KFF. 1.4 Million Lawfully Present Immigrants Are Expected to Lose Health Coverage Due to the 2025 Tax and Budget Law Those workers and their employers still owe Medicare payroll taxes despite being barred from benefits.12KFF. What Could the Health-Related Provisions in the Reconciliation Bill Mean for Older Adults
Higher Drug Costs From the Orphan Drug Exemption
The 2022 Inflation Reduction Act gave Medicare authority to negotiate prices on certain high-spending drugs. The new law weakens that authority by broadening the exemption for orphan drugs (medications for rare diseases). Previously, only drugs approved for a single rare condition were exempt. Now the exemption extends to drugs approved for two or more rare diseases, and negotiation is delayed for orphan drugs later approved for non-orphan uses.12KFF. What Could the Health-Related Provisions in the Reconciliation Bill Mean for Older Adults
Several blockbuster cancer drugs will avoid or delay negotiation as a result, including Keytruda (pembrolizumab), Opdivo (nivolumab), and Darzalex (daratumumab). In 2023, the affected drugs accounted for $17.5 billion in combined Medicare and beneficiary spending. The CBO estimates the exemptions will increase Medicare spending by $8.8 billion over a decade, erasing about 10 percent of the projected savings from the negotiation program. Because beneficiaries pay coinsurance as a percentage of a drug’s price, they will feel the difference directly. KFF estimates that a 22 percent negotiated discount on Keytruda alone could save a beneficiary roughly $3,300 a year.13KFF. People With Medicare Will Face Higher Costs for Some Orphan Drugs Due to Changes in the New Tax and Budget Law
Physician Payment Relief That Didn’t Make It In
The House version of the bill would have tied Medicare physician payment updates to 75 percent of the Medicare Economic Index, producing a projected 2.25 percent increase in 2026 and reaching 4.3 percent annual growth by 2035, at a cost of $8.9 billion. The Senate stripped that provision, and it was not restored in the final law.14American Medical Association. Senate Budget Reconciliation Bill Risks Worsening Access to Care15California Medical Association. Senate Proposal Deepens Medicaid Cuts and Eliminates Medicare Physician Payment Relief
Under current law, Medicare physician payments rise by just 0.25 percent in 2026. Inflation-adjusted physician payments have already fallen 33 percent since 2001. The AMA warns the trend contributes to a projected 86,000-physician shortage by 2036 and threatens access to care in rural and underserved areas.14American Medical Association. Senate Budget Reconciliation Bill Risks Worsening Access to Care
The Part A Trust Fund Moves Closer to Insolvency
The Medicare Hospital Insurance trust fund pays for Part A (hospital and inpatient care) and was already facing an earlier depletion date before the law passed. The 2025 Trustees Report, published in June 2025, projected depletion in 2033, three years earlier than the previous year’s estimate, driven by higher-than-expected hospital and hospice spending.16CMS. 2025 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds The 2026 Trustees Report, incorporating the new law, kept the 2033 date and attributed a “slight deterioration” in the outlook to revenue reductions from the law’s changes to the taxation of Social Security benefits.17Georgetown University CHIR. Beyond Insolvency: The Bigger Picture of Medicare’s 2026 Financial Outlook
The Committee for a Responsible Federal Budget projects the law could pull the effective insolvency date forward from late 2033 to mid-2032.18Kiplinger. When Will Social Security and Medicare Trust Funds Run Out of Money Once the fund is depleted, payments to hospitals and other Part A providers would be reduced to what incoming payroll tax revenue can cover, projected at 89 percent of program costs in 2033.19CMS. 2025 Annual Report of the Boards of Trustees
What the Law Doesn’t Change
Standard Medicare benefits for the roughly 66 million current enrollees are not directly reduced by the text of the law. The nursing home changes drawing wide attention — a delay of federal minimum staffing standards until October 2034 and a reduction in retroactive Medicaid coverage — sit on the Medicaid side of long-term care, not Medicare’s, though many Medicare beneficiaries rely on Medicaid for nursing home care.20AARP. One Big Beautiful Bill: Nursing Homes Whether the biggest Medicare risk — automatic PAYGO sequestration starting in 2026 — actually reaches beneficiaries depends on whether Congress passes a separate waiver before then.