No, cuts to Medicare are not actually required in the proposed tax bill. However, previously Congress passed legislation known as PAYGO. This legislation requires automatic across the board spending cuts to federal programs when the current deficit is exceeded.
The current proposed tax cut bill is projected by the Joint Committee on Taxation to increase the current deficit by approximately $1.4 trillion, thus triggering automatic federal spending cuts across the board. Spending cuts to Medicare are limited by prior legislation to 4% of total spending cuts, but at least $25 billion of the total spending cut is projected to apply to Medicare. Medicare spending would be reduced by $25 billion next year, and by an amount each year thereafter based on the increase in the federal deficit. The cost of the proposed tax bill is projected to increase the deficit each year while federal revenue is projected to fall due to the cut in federal taxes. Thus, the increase in the deficit is expected to continue to generate additional automatic spending cuts.
How will Medicare cut costs? Spending cuts are not precisely defined, but are general and applied at a program level. The size of the required cuts to the Medicare program, and any ongoing cuts, are unlikely to be achieved without large scale changes to the program. This is likely to lead to what some have wanted for decades, to turn Medicare into a voucher program and limit the amount of federal dollars that will be paid for coverage. Making Medicare beneficiaries have more “skin in the game” by paying more of the costs from their own pockets has been a goal for decades of many in Congress. A voucher program, or “premium support” as it’s often described, would establish a fixed monthly amount Medicare beneficiaries could use to pay a premium for coverage. Generally that has been described as a premium for the current fee-for-service benefit package, or for a plan meeting certain standards sold in the marketplace. Any additional premium cost would be paid by the beneficiary, and copayments and other out-of-pocket costs could vary from one plan to another.
Many believe, and it’s true, that if beneficiaries have to pay more of their own money for medical services when they receive them that they will use less medical care. Studies have proven this theory to be true with younger people. But those same studies also show that costs increase for more expensive services like hospitalization and emergency room visits as a result of delayed care by imposing large deductibles or copayments. It’s even more likely that older and disabled Medicare beneficiaries with chronic care needs will delay or forgo care, even free preventive care, if their out-of-pocket costs increase.
Congress could take several steps to limit spending cuts by increasing the debt, or making an exception or by waiving or limiting cuts to certain programs, but that is generally thought to be unlikely. So, while an actual cut to Medicare is not required in the tax bill, the cost of any tax cuts that increase the deficit will in fact cause automatic across the board cuts in government programs like Medicare, Medicaid, and SSI, all of which are otherwise known generically as entitlements; a term that also includes Social Security. With increases in the deficit all of these programs are at risk.
