Medicare Payment and Reimbursement

Making sense of Trump’s 2020 budget proposals for healthcare

May 14, 2019 8:10 pm

President Trump’s proposed budget for fiscal year 2020 (FY20) calls for a $845 billion cut in Medicare funding over the next 10 years, and almost $1.5 trillion less for Medicaid over that period. Historical precedent suggests these proposals are not as surprising as they might seem. Here’s why.

When President Trump released his FY20 budget in mid-March, he followed what has become a common budgetary pattern among recent presidents. His budget includes a total spending request of $56 trillion over 10 years and a spending reduction of $2.7 trillion, including the proposed Medicare and Medicaid cuts, over that same period. Like others before him, he also lays out a glide-path for a balanced federal budget by 2034, more than four presidential terms away.

Why Trump’s proposal is not surprising

Laying out such an aggressive set of spending reductions might seem politically risky with only a little more than a year away from a presidential election. But for those of us who have followed presidential budget submissions in the past, this is actually “business as usual.” The proposed reductions are larger than they have been in the past, but that is in part because the economy is bigger than ever before. Also, the population continues to grow, although at a slower pace
than it had been growing as post-baby-boomer generations delay forming families.

Proposed funding changes for healthcare programs

The 2020 budget requests spending for the U.S. Department of Health & Human Services (HHS) amounting to $1.29 trillion, an amount 21% lower than the spending for FY19, which ends Sept. 30, 2019. The biggest percentage reduction is for the office of the National Coordinator for Health IT, with funding down $43 million, or 28% of its 2019 budget. The largest dollar reduction requested is for the National Institutes of Health, down $34.4 billion, or 13% less than FY19.
Two areas of proposed increases in healthcare spending are for the Indian Health Service, up
by $7.3 billion (6%), and the U.S. Food and Drug Administration (FDA), up by $6.1 billion (12%).

The 2020 budget for Medicare and Medicaid includes substantial reductions in spending along with several interesting policy proposals.

Medicare. Proposed Medicare cuts mostly involve reduced spending for hospitals, with a greater focus on reducing fraud and abuse. These areas have been targeted in the past to reduce spending. Trump also proposes spending less to compensate hospitals for bad debt (25% instead of the current 65%) and uncompensated care, although the proposal exempts critical access hospitals, federally qualified health centers and rural clinics and rural hospitals with fewer than 50 beds. Trump’s budget also proposes reducing uncompensated care payments for services delivered to people not covered by Medicare.

The budget further proposes site-neutral payments across different healthcare providers, basing the payment on the characteristics of patients rather than on the site of care. And it removes exemptions introduced in the 2016 Budget Act. Similarly, the budget proposes the use of a unified payment system for post-acute care that reflects the patient’s clinical status rather than the type of care provided to the patient.

Although most of the proposed changes to Medicare involve payment reductions to provider groups, some increases were also proposed. Primary care providers would receive a risk-
adjusted “priority care” payment as of FY21 and increased payments for evaluation and management (E&M) services, which would be funded by reductions to all services not categorized as E&M.

Seniors enrolled in Medicare Part D would see a limit on out-of-pocket spending for prescription drugs and could make tax-deductible contributions to health savings accounts associated with high-deductible plans (with deductibles in 2019 amounting to at least $1,350 for a single-person plan or $2,700 for a family plan) offered either by employers or by Medicare Advantage.

Medicaid. The president proposes reducing funding for Medicaid by $1.5 trillion over 10 years, a far greater amount than the reduction he proposes for the Medicare. The extra Medicaid funding that has been available to states that expanded their Medicaid programs under the ACA is eliminated and a portion would be redirected to provide Medicaid funding to states using block grants as of 2021. The vision of Medicaid in the budget largely reflects the 2017 Graham-Cassidy legislation supported by Senate Republicans. If enacted, this legislation would reduce the federal portion of Medicaid spending by $241 billion over 10 years.

What to expect

President Trump’s proposals are no more likely to be adopted than were many other presidents’ proposed cuts to healthcare spending. Consider:

  • President Obama’s effort to control federal spending in 2014 proposed to reduce federal healthcare spending growth by $401 billion over 10 years — requiring $57 billion in higher payments from beneficiaries and reductions of $306 billion in payments to Medicare providers along with $19 billion less for Medicaid.
  • President George W. Bush’s budget for 2009 proposed cutting $196 billion from Medicare and Medicaid over five years.
  • President Clinton proposed Medicare savings of $42.9 bill over five years, and he proposed funding 25% of his Health Security Act (which was never adopted by the Congress) using Medicare savings.

The comments of Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, to the Associated Press regarding the Medicare cuts proposed in the 2009 budget typify Congress’s usual attitude toward such proposals: “This administration ought to know that five years’ worth of Medicare and Medicaid cuts totaling $200 billion are dead on arrival with me and with most of the Congress.”

Rationale for nonstarter proposals

So why do presidents and administrations continue to propose spending reductions to Medicare and Medicaid even though Congress is hardly likely to pass them into law? Sometimes, it is a way to demonstrate to their constituents their interest in seeing the proposed changes happen, or to lay the groundwork for such changes in the future. Sometimes, it is to stake out a position on reducing the debt or bringing entitlement programs into better fiscal balance. And sometimes, it is simply to make way for additional revenue to support proposed spending in other areas (e.g., the reduced healthcare spending allows room in the budget for other programs the president wants to see funded).

The key point to remember in almost all cases involving such proposed cuts — and especially in Trump’s case, with the presidential election 18 months away — is that there’s little real chance the cuts will happen. 


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