The Congressional Budget Office has issued a warning that President Donald Trump’s tax and spending legislation could trigger automatic cuts to Medicare totaling nearly $500 billion over the next decade, according to a May 20 letter from CBO Director Phillip Swagel to House Budget Committee Ranking Member Brendan Boyle.
The warning centers on the Statutory Pay-As-You-Go Act of 2010 (S-PAYGO), a budget enforcement mechanism designed to prevent legislation from increasing federal deficits. Under S-PAYGO, if enacted legislation raises deficits beyond certain thresholds, the Office of Management and Budget must order automatic spending cuts called “sequestration” to offset the increase.
The CBO analysis found that if the “One Big Beautiful Bill Act” increases deficits by $2.3 trillion over 10 years, it would trigger S-PAYGO sequestration requiring $230 billion in annual spending cuts starting in fiscal year 2026.
Under S-PAYGO rules, Medicare spending reductions are capped at 4 percent annually. CBO estimates these Medicare cuts would total:
- $45 billion in fiscal year 2026
- $75 billion by 2034
- $490 billion total from 2027-2034
Participants in traditional Medicare are likely to experience the most immediate impacts from these cuts. Medicare already pays providers below the cost of care in many instances, and additional 4% reductions could push more physicians and hospitals to limit or completely stop accepting Medicare patients.
Medicare physician payments have already been cut for five consecutive years, with a 2.83% reduction taking effect January 1, 2025. When inflation is factored in, this represents an effective 6.3% payment cut for physicians. Since 2001, inflation-adjusted Medicare physician fees have plummeted by 33% while medical practice costs have increased by 59%.
Medicare Advantage (MA) plans, which serve over 34 million beneficiaries, are already scaling back their offerings in response to rising healthcare costs. Major insurers like UnitedHealthcare have announced plans to discontinue MA plans serving over 600,000 beneficiaries. The additional PAYGO cuts will likely accelerate this trend.
The most vulnerable Medicare participants are “dual-eligibles,” the 12.2 million people who qualify for both Medicare and Medicaid. These individuals, who typically have low incomes and modest savings, face a double impact from the budget bill.
Rural hospitals and specialty care providers face the greatest threat from these cuts. Nearly half (48%) of rural hospitals already operated at a financial loss in 2023, and 92 rural hospitals have closed over the past decade. The combination of Medicare and Medicaid cuts could result in an additional $70 billion reduction in rural hospital funding over ten years.
The CBO estimates the “One Big Beautiful Bill” law will result in 10-16 million more uninsured people by 2034.
S-PAYGO sequestration has never actually been allowed to take effect since the law’s enactment in 2010. Congress has consistently waived or delayed the cuts, including during passage of:
- The Tax Cuts and Jobs Act of 2017
- The American Rescue Plan Act of 2021
However, avoiding these cuts would require 60 votes in the Senate to exclude the legislation from PAYGO requirements.
